#mergers

20 02, 2024

M022024

2024-02-20T09:14:36-05:00February 20th, 2024|6- Client Memo|

How the OCC Made a Bad Bank Both Bigger and Badder

As I noted last week, the OCC’s proposed bank-merger policy fails to reckon with the strong supervisory and regulatory powers federal banking agencies already have to quash problematic consolidations and concentrations.  Here, I turn to one reason why the OCC may not trust these rules:  it doesn’t trust itself.  A bit of recent history shows all too well why this self-doubt is warranted even though it’s also inexcusable.

m022024.pdf

20 02, 2024

Karen Petrou: How the OCC Made a Bad Bank Both Bigger and Badder

2024-02-20T09:01:31-05:00February 20th, 2024|The Vault|

As I noted last week, the OCC’s proposed bank-merger policy fails to reckon with the strong supervisory and regulatory powers federal banking agencies already have to quash problematic consolidations and concentrations.  Here, I turn to one reason why the OCC may not trust these rules:  it doesn’t trust itself.  A bit of recent history shows all too well why this self-doubt is warranted even though it’s also inexcusable.

I owe my historical recall to the authoritative Bank Reg Blog, which last week looked at the latest on NYCB.  This included a troubling reminder of the troubled bank’s merger with Flagstar before it thought it snapped up another great deal from the FDIC via acquiring what was left of Signature Bank.

NYCB first sought approval for the Flagstar acquisition in 2021 when its primary federal regulator was the FDIC.  As is often the case with merger applications, this one appeared to go into a dark hole.  Unlike many other acquisitions, the banking companies had a go-to Plan B: charter conversion.

NYCB went to the OCC and got rapid approval not just for converting its charter to a national bank, but also then for acquiring Flagstar via a reverse flip that also involved a Flagstar conversion to a national charter.  The OCC then readily approved the merger in 2022, just in time for some of the super-rapid growth via the Signature deal both the OCC and FDIC approved even though they should have been well aware that rapid-fire mergers almost always …

12 02, 2024

M021224

2024-02-12T09:32:53-05:00February 12th, 2024|6- Client Memo|

How to Have Sound Bank-Merger Policy Reflecting Unique Bank Regulation

Chair Powell said a week ago that, thanks to commercial real estate risk, some banks will need to be “closed” or “merged out of existence,” hopefully adding that these will be “smaller banks for the most part.”  That this may befall the banking system sooner than Mr. Powell suggested is all too apparent from NYCB’s travails. The OCC’s new merger proposal flies in the face of this hard reality, dooming mergers of size or maybe even small ones until it’s too late. A surprising source – a super-progressive analysis of bank merger policy – makes it clear why the OCC’s approach is not only high-risk, but also ill-conceived.

m021224.pdf

12 02, 2024

Karen Petrou: How to Have Sound Bank-Merger Policy Reflecting Unique Bank Regulation

2024-02-12T09:19:42-05:00February 12th, 2024|The Vault|

Chair Powell said a week ago that, thanks to commercial real estate risk, some banks will need to be “closed” or “merged out of existence,” hopefully adding that these will be “smaller banks for the most part.”  That this may befall the banking system sooner than Mr. Powell suggested is all too apparent from NYCB’s travails. The OCC’s new merger proposal flies in the face of this hard reality, dooming mergers of size or maybe even small ones until it’s too late. A surprising source – a super-progressive analysis of bank merger policy – makes it clear why the OCC’s approach is not only high-risk, but also ill-conceived.

The paper comes from Saule T. Omarova, President Biden’s nominee to be Comptroller who was forced to withdraw, and the Administration’s most recent Assistant Secretary for Financial Institutions, Graham Steele.  As befits their longstanding views, the paper presses for stringent bank-merger policy to combat what Justice Brandeis first called the “money trusts.” Ms. Omarova and Mr. Steele say that banks of all sizes are still “money trusts” despite the role of omnipotent private-equity and asset-management firms, but so goes much of their analysis.  What’s more interesting in their report and a new petition filed by a like-minded academic is their ground-breaking, hard look at how much of bank regulation is actually intended to curtail undue market power.  Taking this into account could lead to sound merger policy without the adverse consequences evident in the OCC’s drop-dead proposal.

There are in fact …

5 02, 2024

MERGER14

2024-02-05T14:54:48-05:00February 5th, 2024|1- Financial Services Management|

Bank-Merger Policy

Although all of the banking agencies have for years promised a new bank-merger policy, none has proposed one until this OCC rulemaking.  It is intended to add certainty and transparency to the manner in which the OCC reviews merger applications or others for charter combinations from national banks and federal savings associations resulting in a federally-chartered depository, but the OCC retains discretion to do as it chooses in this arena given the flexibility built into all the attributes now laid out that may augur OCC  disapproval and/or expedited processing.  The policy also appears to apply to non-depository acquisitions despite the proposal’s preamble suggesting the policy applies only to depositories.  The presumption of approval even for simpler, smaller deals would be eliminated, creating at the least additional uncertainty in this arena.  Further, broader uncertainty remains in the absence of policy guidance from the Federal Reserve regarding holding companies and the Department of Justice, which may overturn merger approvals the OCC decides to grant.

MERGER14.pdf

18 01, 2024

DAILY011824

2024-01-18T16:58:16-05:00January 18th, 2024|2- Daily Briefing|

Basel Head Backs U.S. End-Game

In an FT interview today, the Basel Committee’s chair, Pablo Hernández de Cos, unsurprisingly endorsed the U.S. end-game proposal, indirectly but firmly rebutting assertions that it is at variance with global norms.

The Shape of Liquidity Rules to Come

Previewing the construct of what may soon be the anticipated inter-agency proposal addressing liquidity-risk lessons-learned, Acting Comptroller Hsu today argued that the liquidity coverage ratio’s treatment of retail depositors (see FSM Report LIQUIDITY17) does not address likely depositor herding as they run for the exit.

Rounds, Sinema Press for SIFI-Designation Rollback

Senate Banking Committee Member Rounds (R-SD) alongside Sen. Sinema (I-AZ) introduced S.3601, legislation to codify 2019 standards (see FSM report SIFI35) adding significantly more obstacles to systemic designation compared to FSOC’s new approach (see FSM report SIFI36).

Steele’s Good-Bye Presses for More Tough Standards

In his last speech in office, Assistant Secretary for Financial Institutions Graham Steele today called for reassessment of the treatment of unrealized gains or losses not just under the capital rules, but also in the liquidity standards (where they are in fact to some degree now captured).

House Democrats Damn Capital Proposal With Faint Praise

In this report, we begin our assessment of Congressional end-game comment letters.

Senate Letters Slam Capital Proposal’s Tax-Equity Risk Weight Changes

Here, we turn to several Senate letters on the end-game proposal.

Daily011824.pdf

15 11, 2023

REFORM230

2023-11-15T15:58:45-05:00November 15th, 2023|5- Client Report|

Bipartisan Capital Bashing Continues in the House

Following yesterday’s Senate Banking hearing (see Client Report REFORM229), today’s HFSC session with top bank regulators again highlighted growing bipartisan consternation over the unintended consequences of the agencies’ capital proposal (see FSM Report CAPITAL230).  Although Ranking Member Waters (D-CA) echoed Chairman Brown’s defense, Democratic criticism today went beyond concerns about mortgages and green bonds also to address credit availability, new trading and derivatives standards, capital recognition of securities losses, and insufficient review of the proposal’s quantitative impacts.  Republicans continued to bash the proposal for what they said is insufficient economic analysis.  Unlike yesterday, attention to the FDIC’s harassment scandal most notably came from Democrats’ side of the aisle, with Ranking Member Waters using all of her questioning time to criticize the FDIC and request a report from each agency describing how they will review sexual-harassment.  Reiterating concerns he and Subcommittee on Financial Institutions Chairman Barr (R-KY) recently raised regarding regulators’ interactions with international standard-setters, Chairman McHenry grilled Vice Chair Barr and Acting Comptroller Hsu about staff compensation and agency documentation practices at international events.  Mr. Barr emphasized that all Board and staff member compensation comes from the Fed, while Mr. Hsu only said that his agency tracks participation in these bodies to ensure mission alignment.   We continue to expect GOP pressure on the international-agency front but no action until GAO completes its report.  Chair Gruenberg noted broad alignment with a new incentive-compensation proposal, but revised the initial timeline …

29 03, 2023

DAILY032923

2023-03-29T17:30:21-04:00March 29th, 2023|2- Daily Briefing|

Barr Keeps CRA Hope Alive

Ahead of what is certainly going to be a trying HFSC hearing later today, FRB Vice Chairman Barr told an audience that pending CRA rules (see FSM Report CRA32) are still in the works, declining to provide any completion timeline.

Chopra Expands Post-SVB Policy Action Items

In remarks posted after a panel discussion yesterday, CFPB director and FDIC board member Rohit Chopra reaffirmed Chairman Gruenberg’s comments that changes are likely to capital and liquidity rules, but added action related to interest-rate risk management, resolution planning and stress-testing to the to-do list.

Senate Finance Dems Demand Tougher Penalties, Enforcement to Prevent Swiss Tax-Evasion Activities

Senate Finance Democrats today released a damning investigative report accusing Credit Suisse of persistently and often criminally enabling U.S. tax evasion despite a 2014 plea agreement with the U.S. Chairman Wyden (D-OR) presses for additional civil and criminal actions, noting that the UBS acquisition does not “wipe the slate clean.”

Bipartisan Senate Clawback Bill Reaches to BHC Investors, Creditors

Preempting Chairman Brown’s plans to introduce clawback legislation (see Client Report REFORM217), Sens. Warren (D-MA), Cortez Masto (D-NV), Hawley (R-MO), and Braun (R-IN) today introduced their own bill to do so.

CFPB Sets Comment Deadline For Controversial Credit Card Proposal

The Federal Register today includes the CFPB’s proposed rule on Credit Card Penalty Fees.

Daily032923.pdf

15 03, 2023

FedFin Assessment: Post-SVB Deposit Insurance Reform

2023-03-15T16:58:47-04:00March 15th, 2023|The Vault|

Cementing prior denouncements of 2018 Dodd-Frank “rollbacks” into legislative action, 17 Democratic senators and 31 House Members today took direct aim at Trump-era banking policy by introducing legislation that would repeal Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act.  But, while this initiative is gaining considerable attention, its legislative prospects are dim – indeed, even Senate Banking Committee Chairman Brown (D-OH) suggested as much

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.

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15 03, 2023

DEPOSITINSURANCE118

2023-03-15T12:48:33-04:00March 15th, 2023|5- Client Report|

FedFin Assessment: Post-SVB Deposit Insurance Reform

As promised in our first post-SVB impact assessment (see Client Report RESOLVE49), this report begins a series of analyses of specific policy issues.  We start here with possible changes to FDIC insurance based on comments from Reps. Maxine Waters (D-CA), Blaine Luetkemeyer (R-MO), and other arguing either that the $250,000 limit for FDIC coverage needs to be eliminated or sharply increased.  We also analyze the prospects for shifting the burden of higher DIF premiums to large banks as recommended by the ICBA, ending the FHLB’s super-lien due to the resulting, significant increase in FDIC resolution costs in recent failures, changes to the treatment of brokered deposits, and revisions to the FDIC’s overall risk-based assessment system (see FSM Report DEPOSITINSURANCE96).  Other resolution issues – e.g., the future of proposed regional-bank standards (see FSM Report RESOLVE48) and bank merger policy will be covered in future reports along with the prospects for significant changes in bank capital, liquidity, and other prudential standards.

DEPOSITINSURANCE118.pdf

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