On Monday, a top U.S. bank regulator will propose new regulations for bank mergers and acquisitions (M&A). The aim is to increase transparency in the process and ensure that some deals do not automatically go through without sufficient scrutiny.
The Office of the Comptroller of the Currency (OCC) is making this move amid criticism from the banking industry about the regulators being too opaque in their handling of bank deals. Additionally, analysts predict that more small lenders struggling with flagging margins will consolidate in the future.
The proposal on Monday will outline the types of deals that would typically get approval and the issues that could complicate or derail transactions. Michael Hsu, the acting comptroller, shared this information in an interview with Reuters.
He said increasing transparency in the process could speed up good deals and help banks avoid regulatory roadblocks.
“You have two risks 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. The purpose of being transparent is to encourage more accuracy on both ends,” he added.
When a bank with a federal charter wishes to merge with another bank, the OCC reviews the merger. This process may involve other regulators. The approval of such mergers is more likely if the acquiring bank has a high supervisory rating and no enforcement issues. On the other hand, mergers may face problems if the banks involved have supervisory concerns.
According to Hsu, this is because some banks are more likely to get the green light for a merger or acquisition than others.
“A lot of this was unwritten, the point of this is to just write it down,” he further noted.
Bank mergers are major corporate transactions that require explicit regulatory approval or rejection.
The Office of the Comptroller of the Currency (OCC) is proposing to eliminate a policy from 1996, which automatically approves certain deals if the OCC does not act on the application within a certain timeframe. This proposal was announced by Hsu, the OCC’s interim head, in a speech at the University of Michigan on Monday.
The banking regulator’s policies on mergers have been scrutinised since last year’s banking crisis, during which the OCC orchestrated rescue deals such as the sale of First Republic Bank to JPMorgan Chase, which is already the largest lender in the country.
The Biden administration has typically been sceptical of increased concentration across all industries, and some progressives have strongly criticised the JPMorgan deal. However, some officials have suggested that more bank mergers may be necessary.
According to Hsu, the OCC is continuing to collaborate with other bank regulators and the Justice Department in an ongoing effort to update the broader government framework for reviewing bank mergers.
Additionally, the OCC plans to publish new data on bank mergers that have been considered by the regulator and issue a report that will review merger policy.