#OCC – Federal Financial Analytics

25 09, 2024

FedFin on: DOJ Bank-Merger Policy

Eliza Allen2024-09-25T15:37:45-04:00September 25th, 2024|The Vault|

In conjunction with final merger-policy statements from the FDIC and OCC, the Department of Justice (DOJ) released “commentary” expanding on how the 2023 guidelines it issued along with the Federal Trade Commission expressly apply to bank mergers. The DOJ’s commentary and that from the other banking agencies revise merger policy last set in 1995. However, the Fed has yet to do so or even clarify how all of these actions affect its approach beyond a statement earlier this year that the FRB was working with other agencies and a more recent answer from Vice Chair Barr that he is content with Fed policy as it stands…

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

24 09, 2024

FedFin on: OCC Bank-Merger Policy

Eliza Allen2024-09-24T16:56:21-04:00September 24th, 2024|The Vault|

In conjunction with final FDIC action on its merger policy, the OCC also finalized its proposal. The final OCC standards include a rule revising merger-review procedures to eliminate streamlined and expedited consideration in favor of OCC commitments to act in a timely fashion, especially for smaller deals it believes will be considered on a schedule no different than that now governing these deals or perhaps even more quickly. However, long delays are still more likely for larger transactions or those with controversial elements…

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

16 09, 2024

Karen Petrou: What’s Next for the Capital Rewrite

Eliza Allen2024-09-16T11:24:36-04:00September 16th, 2024|The Vault|

Few, if any, regulatory agencies are omniscient. More than a few think they are, but more often than not regulators who fail quickly to see the error of at least some of their ways are regulators who lose a lot more than they might otherwise have lost. Which brings us to the capital proposal and what next befalls this troubled standard after Michael Barr’s belated recognition that something had to give.

In the near term, we’ll see action by the FRB, FDIC, and OCC to clear a revised proposal along with the Fed’s quantitative impact survey for another round of public comment. I have to believe Fed Vice Chair Barr cleared the revisions he previewed last week with his allies at the OCC and FDIC and is confident that the Fed board will mostly agree with him up to the point of issuing a reproposal, if no further. As a result, a reproposal Mr. Barr said will amount to about 450 pages will soon be upon us.

Is this the last word? Having relearned humility the hard way, Mr. Barr promises it is not. What else might have to change to get a final U.S. version of Basel’s end-game standards across the goal line?

I would guess a lot more than would have been the case had the Fed and other tough-rule advocates more quickly recognized policy and political reality. One key, if seemingly-technical, point on which to give is the pesky “output floor.” Basel imposed the output floor because …

9 09, 2024

Karen Petrou: Workers’ Rights and Merger Wrongs

Eliza Allen2024-09-09T13:28:07-04:00September 9th, 2024|The Vault|

In all the fuss and fury over banking-agency merger policy, many have missed a consequential late-August announcement from other U.S. antitrust authorities laying out how workers’ rights will drive merger approvals. This follows 2023 guidelines from the Department of Justice and Federal Trade Commission retracting the old price criterion by which consumer welfare has long been judged in favor of policies taken factors such as network effects and “soft” market power fully into account. The guidelines addressed workers’ rights, but the new agreement adds sharp, sharp teeth. Thus, it’s clear that Administration policy is focused on economic justice along with its tough stand on monopolization. Bankers take warning: operational-integration rationales now cut two ways when it comes to merger approval.

To be sure, bankers are used to one economic-justice criterion when it comes to merger approval: those requiring consideration of customer “convenience and needs” based in large part on how this is demanded of them under the Community Reinvestment Act. Banks planning an acquisition thus typically accompany an offer with a massive CRA pledge promising more loans to low-and-moderate individuals and communities, affordable-housing investments, and the like.

This won’t cut it under the pending merger-policy rewrites from the OCC and FDIC, but these proposals generally do not replace CRA-style approval criteria. Instead, they beef them up, with the FDIC’s policy most notably (and dubiously) requiring acquirers to prove that communities not only will be better served, but also better served than if each bank remained independent.

However, the FDIC also …

5 08, 2024

Karen Petrou: How to Craft Federal Preemption Policy

Shane Smith2024-08-05T09:12:59-04:00August 5th, 2024|The Vault|

In a recent interview, Zach Warmbrodt of Politico asked me the best big-picture question when it comes to federal preemption: are banks now so petrified of state anti-ESG mandates that a federal law laying out with whom banks may do business is desirable? Banks don’t want anyone telling them how to run their businesses, but workable federal rules are, so the thinking goes, better than high-risk state standards such as Florida’s new requirements. Fears are heightened by the OCC’s hesitancy when it comes to preempting Florida, but the agency is now contending with new restrictions thanks to recent Supreme Court rulings and federal preemption still wouldn’t solve the state-bank predicament. A federal bill might clear these legal issues away, but a sound bill would still have to reckon with complex policy decisions no prior effort to draft preemption bills has conquered.

Indeed, legislative and regulatory efforts to date have been far more ideological than operational. The ESG battles first broke into open warfare during the Obama Administration when the banking agencies issued warnings about lending to payday companies, firearms-related businesses, and a couple of other targets. This campaign came to be known as Operation Chokepoint and, even though all of the agencies quickly backed away, it lives on – see Donald Trump’s promise to end “chokepoint 2.0.”

Things heated up again late in the last decade after BlackRock issued a pro-climate edict when it came to casting its proxies and a few big banks curtailed lending to firearms manufacturers and …

15 07, 2024

Karen Petrou: The Problem With Preemption

Eliza Allen2024-07-15T10:20:49-04:00July 15th, 2024|The Vault|

Last week, I wrote about the populist and progressive tie that binds each side of the U.S. political spectrum, pointing in particular to how the left and right are each calling for an end to “financial censorship.” MAGA Republicans in Florida have taken the lead here for populists with new legislation barring banks from closing accounts based on pretty much anything but the fact that the account holder took out all the money and maybe not even then. As FedFin subsequently described, Members of the House Financial Services Committee called first on Secretary Yellen and then on Chair Powell to declare that federal law preempts the state statute, noting that the Florida law bars banks from closing accounts even when money laundering is feared, imperiling law enforcement and financial integrity. Secretary Yellen called for preemption, although it’s hers only to urge, not to grant. Mr. Powell was more circumspect, but he surely supports preemption. But, this is also not for the Fed to declare; the power of preemption indeed rests with only the Office of the Comptroller of the Currency. So far, it’s done nothing and the nothing it’s done points to the consequences of one of the quieter decisions in this year’s tumultuous Supreme Court term and the threat this poses to the national-bank charter.

As you well know, almost all the attention on the Supreme Court that isn’t glued to Donald Trump targeted two end-of-session decisions revoking Chevron and extending ad infinitum the statute of limitations for regulatory …

18 03, 2024

Karen Petrou: The OCC Blesses a Buccaneer Bank

Shane Smith2024-03-18T09:03:04-04:00March 18th, 2024|The Vault|

In a column last week, Bloomberg’s Matt Levine rightly observed that only a bank can usually buy another bank. He thus went on to say that a SPAC named Porticoes ambitions to buy a bank are doomed because Porticoes isn’t a bank. Here, he’s wrong – Porticoes in fact was allowed last December to become a unique form of national bank licensed to engage in what is often, if unkindly, called vulture capitalism. This is another OCC charter of convenience atop its approvals leading to NYCB’s woes, and thus yet another contradiction between the agency’s stern warnings on risk when it pops up in existing charters versus its insouciance when it comes to new or novel applications.

According to the OCC’s charter approval, the Porticoes bank has no other purpose than serving as a wholly-owned subsidiary of Porticoes Capital LLC, a Delaware limited-liability company formed to be a proxy for a parent holding company. The parent holdco is “expected” to enter into binding commitments for the capital needed to back its wholly-owned bank plans to acquire a failed bank or even banks. This is essentially a buy-now, pay-later form of bank chartering, a policy even more striking because funding commitments for the holdco then to downstream – should they materialize – are more than likely to come from private-equity investors who may or may not exercise direct or indirect control.

Based on the OCC’s approval, it seems that Porticoes’s new charter can buy another bank without capital, pre-approval from …

20 02, 2024

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

Shane Smith2024-04-12T09:48:06-04:00February 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 lead …

12 02, 2024

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

Shane Smith2024-04-12T10:31:00-04:00February 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 many …

8 01, 2024

Karen Petrou: Reflections on Regulatory Failure and a Better Way

Eliza Allen2024-01-08T11:25:21-05:00January 8th, 2024|The Vault|

Earlier today, we released our 2024 regulatory outlook, a nice summary of which may be found on Politico’s Morning Money. As I reviewed the draft, I realized how much of what the agencies plan is doomed to do little of what has long been needed to insulate the financial system from repeated shock. This is a most wearisome thought that then prompted the philosophical reflection also to be found in this brief. It asks why lots more bank rules do so little for financial resilience yet are always followed by still more rules and then an even bigger bust. I conclude that financial policy should be founded on Samuel Johnson’s observation that, “when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.” That is, redesign policy from one focused on endless, ever-more-complex rules spawning still larger bureaucracies into credible, certain, painful resolutions to concentrate each financial institution’s mind and that of a market that would no longer be assured of bailout or backstop.

We know in our everyday lives that complex rules backed by empty threats lead to very bad behavior. For example, most parents do not get their kids to brush their teeth by issuing an edict reading something like:

It has long been demonstrated that brushing your teeth from top to bottom, tooth-by-tooth, flossing hereafter and using toothpaste meeting specifications defined herein will achieve cleaner teeth, a brighter smile, improved public acceptance of the tooth-bearer, and lower cost to …