US bank regulator to boost transparency of merger reviews

(Reuters)-31/01/2024

A top U.S. bank regulator on Monday proposed new regulations for bank mergers and acquisitions (M&A) in a bid to increase transparency around the process, while ensuring some deals do not slide through automatically without sufficient scrutiny.

The move by the Office of the Comptroller of the Currency (OCC) comes amid industry criticism that regulators are too opaque in their handling of bank deals, and as analysts expect more consolidation among small lenders struggling with flagging margins.

Monday’s proposal details the types of deals that would typically secure approval and the issues that could complicate or derail transactions, Michael Hsu, the acting comptroller, told Reuters in an interview ahead of its publication.

Increasing transparency around the process could speed up good deals and help banks steer clear of transactions that may hit regulatory roadblocks, he said.

“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,” he said. “The purpose of being transparent is to encourage more accuracy on both ends.”

The OCC reviews mergers in which the acquiring bank has a federal charter, and the process can involve other regulators.

Some mergers are problematic because the banks involved have supervisory issues, whereas banks that have a high supervisory rating with no lingering enforcement concerns are more likely to get the green light for a merger or acquisition, Hsu said.

“A lot of this was unwritten, the point of this is to just write it down,” he said.

At the same time, the agency proposed scrapping a 1996 policy under which some deals are automatically approved if the OCC does not act on the application within a certain timeframe.

Bank mergers are “significant corporate transactions” that require explicit regulatory approval or rejection, Hsu said in a speech at the University of Michigan detailing the policy on Monday.

Regulators’ bank merger policies came under scrutiny following last year’s banking turmoil, during which regulators engineered rescue deals, including the sale of First Republic Bank to JPMorgan Chase, already the country’s largest lender.

The Biden administration has typically taken a skeptical stance towards more concentration across all industries, and some progressives strongly criticized the JPMorgan deal. But some officials have suggested more bank mergers may be necessary.

Hsu said that the OCC is continuing to work with other bank regulators and the Justice Department on a long-running effort to update the broader government framework for reviewing bank mergers. The OCC will also publish new data on bank mergers that have come before the regulator, and it plans to issue a report reviewing merger policy, Hsu said.