#OCC

18 03, 2024

M031824

2024-03-18T12:20:49-04:00March 18th, 2024|6- Client Memo|

The OCC Blesses a Buccaneer Bank

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.

M031824.pdf

18 03, 2024

Karen Petrou: The OCC Blesses a Buccaneer Bank

2024-03-18T09:03:04-04:00March 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 …

27 02, 2024

Daily022724

2024-02-27T16:49:32-05:00February 27th, 2024|2- Daily Briefing|

Barr Presses for Counterparty-Risk Management

FRB Vice Chair Barr today called for large banks to ensure that counterparty exposures are well managed according to actions he describes, announcing no new Fed initiatives in this arena.  Mr. Barr was particularly focused on the need for banks to ensure sound margining and to dynamically adjust margins and other risk buffers.

FSB Cites SEC MMF Global Leadership

The FSB today released its thematic peer review report on MMF reforms, generally finding that global progress on its 2021 MMF rule (see FSM Report MMF18) has been inconsistent across jurisdictions.  However, U.S. progress is detailed, with the FSB noting key points in the agency’s 2023 MMF rule (see FSM Report MMF20) despite ongoing concerns about lingering risks such as vulnerability to large and sudden redemption pressure due to large MMF holdings of risky assets.

Fed Staff: Private Credit Poses Banking, Insurance, Systemic Risk

Reflecting concerns most recently expressed by Acting Comptroller Hsu and FSOC (see Client Report FSOC29), the Fed’s new staff paper on private credit contains not only a taxonomy about this fast-growing sector, but also a warning of emerging systemic risk.  Differing from the Fed’s May 2023 financial-stability assessment of low risk (see Client Report SYSTEMIC96), the paper argues for greater systemic-risk focus due to illiquidity, rising corporate leverage and default risk, and the extent to which large amounts of “dry powder” and the need to compete with banks for higher-quality loans lead to still …

26 02, 2024

DAILY022624

2024-02-26T16:36:24-05:00February 26th, 2024|2- Daily Briefing|

BIS: More Bank Competition Leads to Increased Credit Risk

A new BIS paper looks at a question critical to the debate over bank-merger policy:  the extent to which competition drives bank risk-based pricing decisions in corporate lending and, by extension, other credit markets.

OCC Proposes Changes to FOIA Procedures

The OCC today proposed several changes to its FOIA procedures, including allowing expedited processing requests and appeals of denials of these requests and those for fee waivers.

Warren, Progressives Expand Blast on CapOne/Discover Deal to Encompass OCC Merger Proposal

Following other Democratic attacks on the CapOne/Discover merger and her own, Sen. Warren (D-MA) continued her challenge in a letter also signed by twelve House Democrats.

CFPB Takes Precedent-Setting Step Bringing Nonbanks Under Supervision

The CFPB late Friday released its first contested finding that a nonbank is subject to its supervision following the establishment in 2022 of a process for bringing nonbanks under its supervisory wings (see FSM Report CONSUMER44).

Senate Republicans Introduce Anti-CBDC Bill

Sen. Cruz (R-TX) alongside Sens. Hagerty (R-TN), Scott (R-FL), Budd (R-NC) and Braun (R-IN) today introduced a bill to prohibit the Fed from directly or indirectly issuing a CBDC or even using CBDC as a monetary-policy tool.

Daily022624.pdf

22 02, 2024

DAILY022224

2024-02-22T17:00:09-05:00February 22nd, 2024|2- Daily Briefing|

CapOne Deal Draws GOP Fire

Late yesterday, Sen. Josh Hawley (R-MO) joined Democrats in strongly opposing the CapOne/Discover merger, doing so not only via a short statement, but also a letter to Assistant AG Kanter.

CFPB Buttresses Calls to Block CapOne Deal

Adding still more heat to the fire it built Friday on credit-card industry practices, the CFPB today reported that the average APR margin for credit-cards has reached an all-time high.  APR margins were also found also to account for about half of the absolute card rate, which rose from 12.9 percent in 2013 to 22.8 percent in 2023.

Hsu Presses Cross-Border Cryptoasset-Platform Regulation

Speaking before the FSB’s Crypto Working Group today, Acting Comptroller Hsu made it clear that multi-function cryptoasset intermediaries require a home/host-country regulatory construct akin to that adopted in the U.S. and around the world after BCCI’s money-laundering scandal and failure in 1991.

Daily022224.pdf

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 …

9 02, 2024

DAILY020924

2024-02-09T16:31:50-05:00February 9th, 2024|2- Daily Briefing|

Source-of-Strength Regs Remain in Limbo

As is usually the case, the Federal Reserve’s semi-annual agenda in today’s Federal Register is wholly unilluminating as to the anticipated deadlines on the pending capital, LTD, and resolution proposals nor does it indicate if it plans to do anything regarding liquidity as suggested by Acting Comptroller Hsu.

Daily020924.pdf

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