The Federal Reserve approved U.S. Bank’s request to retain its Category III designation, CEO Andy Cecere announced Tuesday. The decision comes as the bank promised the Fed it would shrink its assets and reduce its risk profile, according to a letter the central bank sent to the lender Monday.
The move grants the Minneapolis-based lender relief from stricter capital requirements reserved for Category II banks — firms with more than $700 billion in assets.
“[On] October 16th, the Federal Reserve granted us full relief from certain Category II commitments made in connection with the Union Bank acquisition and we are now subject to the same capital rules as all other Category III banks,” Cecere said in a statement accompanying the bank’s third-quarter results, issued Wednesday.
U.S. Bank, which had $668 billion in assets as of Sept. 30, completed its $8 billion acquisition of MUFG Union Bank in December, telling regulators at the time that it would submit to the stricter guidelines as part of the deal. U.S. Bank had planned to comply with the stricter rules by the end of 2024.
In a letter sent to U.S. Bank’s attorney Spencer Sloan on Monday, the central bank said U.S. Bank has already taken actions to reduce its risk profile.
U.S. Bank reduced its investment securities portfolio by approximately $30 billion, completed loan sales and securitizations of approximately $7 billion, and executed other asset reductions since its purchase of MUFG Union was approved, according to the Fed.
“U.S. Bancorp represents that it anticipates taking further actions to reduce its projected risk profile, including further net reductions in assets and increases in regulatory capital,” wrote Ann Misback, secretary for the Fed. “Based on all the facts of record, [the Fed Board] has approved U.S. Bancorp’s request for complete relief from the Commitments.”
The approval follows Fed Gov. Michelle Bowman’s objection to the prospect that U.S. Bank would be reclassified to Category II status as a result of the MUFG Union deal.
Bowman in October 2022 asserted that reclassification should stem from concern over financial stability, not a predetermined time frame.
At the time, the Office of the Comptroller of the Currency estimated U.S. Bank would have $679.6 billion in total assets and $51.6 billion in capital following the close of the MUFG Union transaction.
The ability to maintain its Category III status gives the firm more flexibility to manage its balance sheet over the next two years, RBC Capital Markets analyst Gerard Cassidy said in a note to clients, according to Bloomberg.
“The regulatory change is very positive for U.S. Bancorp,” he said.