FedFin on: Bank Merger Policy
Following its 2022 request for input, the FDIC has released a formal proposal that would redefine the agency’s bank-merger policy into one that will make it difficult for all but the smallest and simplest transactions within its jurisdiction to have the clear prospects for approval usually necessary in non-emergency transactions, subjecting other M&A applications to protracted review with a high likelihood of denial. Strategic alliances involving nonbanks and/or nonbank affiliates and BHCs with nonbank activities may also come under critical FDIC scrutiny, complicating transactions otherwise under the FRB or OCC’s review….
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Karen Petrou: How the FDIC Fails and Why It Matters So Much
Last January, we sent a forecast of likely regulatory action and what I called a “philosophical reflection” on the contradiction between the sum total of rules premised on unstoppable taxpayer rescues and U.S. policy that no bank be too big to fail. Much in our forecast is now coming into public view due to Chair Powell and Vice Chair Barr; more on that to come, but these rules like the proposals are still premised on big-bank blow-outs. I thus turn here from the philosophical to the pragmatic when it comes to bank resolution, picking up on a stunning admission in the FDIC’s proposed merger policy to ponder what’s really next for U.S. banks regardless of what any of the agencies say will result from all the new rules.
Let me quote at some length from the FDIC’s proposed merger policy:
“In particular, the failure of a large IDI could present greater challenges to the FDIC’s resolution and receivership functions, and could present a broader financial stability threat. For various reasons, including their size, sources of funding, and other organizational complexities, the resolution of large IDIs can present significant risk to the Deposit Insurance Fund (DIF), as well as material operational risk for the FDIC. In addition, as a practical matter, the size of an IDI may limit the resolution options available to the FDIC in the event of failure.”
In short, the FDIC wants to block most big-bank mergers because it can’t ensure orderly resolution of a large insured depository institution even though that’s what Congress mandated over and over when it provided formidable statutory authority up to and including the orderly liquidation authority (OLA) for systemic resolutions which the FDIC’s OIG also says the agency cannot deploy. As the FDIC itself makes clear, it wants to ban mergers at […]
Karen Petrou: 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.
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 the FRB for member status, and FDIC insurance. If this charter is plausible, then the FDIC takes the risk of selling a failed bank to Porticoes even though the deal could go bad because Porticoes is a bank in name only without a holding company standing as a source of […]
FedFin on: Fees on the Firing Line
If it wasn’t clear before that the CFPB’s blog post targeting “junk” mortgage fees meant business, NEC Director Brainard’s comments endorsing it brought this on home. No matter the controversy and litigation, the Bureau has toppled credit-card late fees at least for now. It clearly plans a like-kind assault on mortgage costs, so we here turn to an analysis of which are on the firing line and how deadly the Bureau’s shots are likely to prove…
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FedFin on: FHLBs Forced Into an Unflattering Limelight
The President’s FY25 budget picks up FHFA’s recommendations, calling for statutory change to double the System’s affordable-housing commitment. That won’t happen anytime soon, but a new CBO report strengthens FHFA’s hand in several areas well within its jurisdiction.
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FedFin on: Consumer-Financial Product Marketing Practices
The CFPB has issued a circular essentially banning digital and perhaps all other consumer-finance comparison-shopping and lead-generation tools for credit cards and other products not covered by prior orders. These activities could continue, but only as long as the comparison or lead is completely objective as the Bureau may come to judge it under complex and sometimes conflicting standards. The circular follows similar CFPB actions outside the Administrative Procedure Act even though the agency clearly intends to enforce its new approach both directly and in concert with other state and federal agencies….
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