OCC’s Hsu: Time to upgrade bank merger analysis structures

During a market occasion today, Michael Hsu, acting comptroller of the currency, when again attended to the subject of bank mergers—a concern he states has actually amassed “significant attention” just recently. “Concerns about the negative effects of bank mergers on competition, communities and financial stability have prompted some to call for a moratorium on merger activity,” Hsu stated. “In response, others have defended the benefits of mergers. They note that the U.S. financial services market is highly competitive, and mergers allow institutions to achieve needed economies of scale and to diversify risk through geographic or product expansion.”

Hsu stated the structures for examining bank mergers require upgrading however that enforcing a moratorium on mergers would “lock in the status quo,” avoiding mergers that might increase competitors, serve neighborhoods much better, and improve market resiliency. The OCC utilizes the Department of Justice’s bank merger evaluation standards, which were last modified in 1995—though an upgrade to the standards is presently pending.

Given all the marketplace, technological and group modifications of the last 27 years in the United States, Hsu stated it’s time to “rethink the frameworks” utilized to evaluate bank merger applications. “I do not think the statutory prongs of competitiveness, safety and soundness, meeting community needs, and financial stability need to be revisited,” he stated. “Rather, the modes of analysis used by regulators to apply these factors need to be improved.”

One of the modes Hsu mentioned was the analytical structure for examining monetary stability dangers of bank mergers under the Bank Merger Act, which he stated requirements “significant work,” mentioning a “resolvability gap” for big local banks. “Unless and until that gap is addressed, the approvals of large bank mergers risk creating a new set of too-big-to-fail firms,” he stated. His remarks echo those he made at a market occasion in early April.


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