Acting Comptroller of the Currency Michael Hsu has proposed the removal of expedited bank merger procedures that could allow some deals to gain approval without proper scrutiny.
The proposal, issued Monday and discussed by Hsu at the University of Michigan School of Business in Ann Arbor, Michigan, would get rid of a 1996 OCC rule dictating that bank deals are deemed approved by the OCC on the 15th day after the end of the comment period, unless the OCC removes the filing from expedited processing.
“The forthcoming NPR [reflects] our view that bank mergers are significant corporate transactions that require the OCC to make a decision,” said Hsu.
In an interview with Reuters, Hsu noted that there are two risks inherent with mergers.
“One risk is that we approve too many mergers and therefore we're approving bad mergers. The other risk is we approve too few mergers and therefore there are good mergers that should happen that aren't,” he said. “The purpose of being transparent is to encourage more accuracy on both ends.”
In Michigan, he noted that merger applications exist along a spectrum, some with “significant deficiencies” and others that are “straightforward because the acquiring bank is a model of safety and soundness and has earned the trust of the community and its supervisors.”
“The majority lie somewhere in between and require varying degrees of scrutiny and multiple rounds of inquiry,” he said. “The transparency provided in our proposed policy statement effectively proposes chalk lines demarcating these three groups.”
Monday’s proposal would also amend the regulator’s policy statement in an effort to provide greater clarity to banks and transparency to the public in regard to bank deals.
The amended statement would outline principles the OCC uses to review merger applications under the Bank Merger Act and include the agency’s considerations of “financial stability, financial and managerial resources and future prospects, and convenience and needs factors.”
Per the proposed rule, the regulator would apply a balancing test to a proposed transaction, weighing the financial stability risk of approving it against the financial stability risk of denying it, especially if the deal involves a troubled institution.
“The OCC may also impose conditions to address and mitigate financial stability concerns,” the proposal said.
Additionally, Hsu said in Michigan that the OCC plans to make available statistics on bank mergers reviewed by the OCC in an accessible database on the agency’s website. Included in the data will be information on deal applicants, their asset size, Community Reinvestment Act rating, target bank information, and whether or not the OCC approved the deal application.
“Along with this, we will be issuing a report that provides a comprehensive review of the literature related to bank mergers and consolidation and identifies key outstanding questions,” he said.