U.S. Weighs New Rules for Regional Banks, Complicating Merger Plans #Weighs #Rules #Regional #Banks #Complicating #Merger #Plans Welcome to Lopoid
U.S. regulators are considering whether to require large regional banks to add to the financial cushions that protect them in times of crisis, a move that is slowing down some pending bank mergers.
The Federal Reserve and the Office of the Comptroller of the Currency are discussing whether regional lenders should hold more long-term debt that can help absorb losses in a downturn, according to people familiar with the matter. Among the issues under consideration, the people said, is how those requirements should apply to the larger regional banks that are now seeking to close big deals.
Three large bank deals were hatched before the OCC raised the possibility of using the merger-approval process to compel banks to raise more capital. One of the banks whose deal awaits approval,
has already missed its initial goal of completing its acquisition by June.
Michael Barr was sworn in as the Fed’s top banking regulator in July.
Ting Shen/Bloomberg News
The regulators, though, are operating on their own timeline, people familiar with the matter said. A key consonsideration: how
the Fed’s new pointman on financial regulation, wants to proceed.
Mr. Barr was sworn into the role July 19. Imposing new requirements on regional firms broadly, and as part of individual merger applications, is within his and the Fed’s remit. Analysts say they expect bank-merger policy will be a priority for Mr. Barr, though his views on the issue aren’t known.
The Biden administration and its top regulators are seeking to address concerns that the steady growth of the nation’s largest regional banks has introduced new risks to the financial system. While these firms may lack the vast trading floors and international operations of megabanks like
& Co. and
Bank of America Corp.
, the biggest regionals’ balance sheets are now approaching the size of some of so-called systemically important banks.
U.S. Bancorp, already the fifth-biggest U.S. bank by assets, agreed to acquire MUFG Union Bank’s core retail-banking business in September for about $8 billion. The deal would expand the Minneapolis-based lender’s footprint in California and add some $130 billion in assets.
Three months later,
Bank of Montreal
struck a deal to buy
Bank of the West for $16.3 billion. With that acquisition, BMO would total more than $200 billion in U.S. assets, vaulting the lender into the top 20.
agreed to buy Tennessee-based
First Horizon Corp.
for $13.4 billion. The acquisition, the largest in TD Bank’s history, would leave the combined company with more than $500 billion in U.S. assets.
After the 2008 financial crisis, regulators imposed tougher rules on firms whose failure could threaten the financial system due to their size, complexity and global reach. Those measures included stepped-up planning to unwind operations in the face of catastrophic losses and requirements to stockpile additional capital.
Large regional banks were exempt from some of the rules. Their growth in the past decade—often through acquisitions—has given regulators a reason to rethink that decision.
U.S. Bancorp said it expected to complete its acquisition of MUFG Union Bank’s core retail-banking business in the second half of the year.
Acting Comptroller Michael Hsu signaled in an April 1 speech that he had grown concerned that a recent wave of bank mergers would create more too-big-to-fail firms like those whose risky activities brought the financial system to the brink of a collapse during the 2008 crisis. Blocking those deals, though, would also shield the largest banks from competition, he said. He suggested that the deals could be conditioned upon the merged bank holding more total loss-absorbing capacity in the form of long-term debt.
Bank executives and their lobbyists have argued that the regulators’ push would unfairly target lenders that happen to have agreed to a large acquisition recently. Other large regional banks wouldn’t be affected, they argued. What is more, the capital raises would increase those banks’ borrowing costs and crimp profits, they said.
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In a May 17 filing, U.S. Bancorp said it would no longer receive U.S. regulatory approvals in time to close the MUFG Union Bank deal by the end of June. It said it expected to complete the deal in the second half of the year.
“As you know, regulatory approvals are not within the company’s control and may impact the timing of the closing of the deal,” financial chief
said on a July 15 call with analysts.
During a June 13 conference presentation, BMO finance chief
assured investors that “pretty much everything is going according to our expectations” regarding the deal-approval process. The bank still expects to complete its deal in its fiscal first quarter, which ends Jan. 31, he said then.
TD Bank Chief Executive
told analysts earlier this month he had “no reason to believe” that its
deal wouldn’t close by the end of January.
Vipal Monga contributed to this article.
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