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US banking regulators open to mergers, but vow tougher rules

Published 05/15/2023, 03:26 PM
Updated 05/15/2023, 05:35 PM
© Reuters. FLE PHOTO: A woman wears a mask near the New York Stock Exchange (NYSE) in the Financial District in New York, U.S., March 4, 2020. REUTERS/Brendan McDermid

By Pete Schroeder

WASHINGTON (Reuters) -Top U.S. banking regulators plan to tell lawmakers the government will be open to future bank mergers, but are committed to establishing tougher rules after recent turmoil.

In prepared testimony published by the House Financial Services Committee Monday, officials were resolute on the need for stricter bank rules and supervision following several high-profile failures, while maintaining the sector remains healthy.

Acting Comptroller of the Currency Michael Hsu signaled his agency would be willing to promptly consider potential deals to combine banks despite the Biden administration's general opposition to industry concentration.

"The OCC is committed to being open-minded when considering merger proposals and to acting in a timely manner on applications," Michael Hsu, the acting comptroller of the currency, said in prepared testimony published on Monday by the House Financial Services Committee.

The remarks follow comments from Treasury Secretary Janet Yellen, who said she expects U.S. regulators to be open to such deals as firms consolidate.

Recent turmoil has added "urgency" to the OCC's work on updating bank merger guidelines, Hsu said.

Hsu will testify Tuesday alongside Federal Reserve Vice Chair Michael Barr and Federal Deposit Insurance Corporation Chairman Martin Gruenberg, who will update lawmakers on their efforts to stabilize the sector after the failures of Silicon Valley and Signature banks in March.

The industry proved "quite resilient" during recent turbulence, but there were early indications banks pulled back on lending in the first quarter, Gruenberg said in separate testimony.

Barr maintained his commitment to overhauling bank rules to ensure firms do not escape stricter oversight because they are smaller or viewed as less risky.

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He suggested changes to regulations to better account for a bank's uninsured deposits. He also signaled more scrutiny should be applied to executives' incentive compensation.

Gruenberg said regulators should focus their efforts on large regional banks with more than $100 billion in assets because problems in institutions of that size reverberated across the financial system.

"The prudential regulation and supervision of these institutions merits additional attention, particularly with respect to capital, liquidity, and interest rate risk," he said in prepared testimony.

Tuesday's hearing will be the first for regulators since the FDIC agreed to sell failed First Republic Bank (OTC:FRCB) to JPMorgan Chase & Co (NYSE:JPM) this month.

Watchdogs have been under intense scrutiny after the collapses of SVB and Signature set off fears of contagion.

While vowing to draft tougher rules, the agencies have also been criticized for not identifying and preventing weaknesses before the lenders failed.

Former SVB chief executive Gregory Becker will testify Tuesday before a separate panel. In prepared testimony, he said rapid interest rate increases and social media-fueled rumors drove the "unprecedented" bank run that sank his firm.

In his testimony, Barr said SVB's management failed to effectively monitor its risks. Still, Fed supervisors were slow to escalate concerns, he said.

Latest comments

Biden and Yellen's OCC was supposed to be supervising banks for interest rate risk, in which they've failed terribly. Of course they are open to private sector fixing their ineffectiveness though M&A.
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