By Joe Light
Bank mergers are getting renewed attention from the Biden administration as a top federal banking regulator on Monday said his agency planned to close a backdoor through which some deals get approved.
Acting Comptroller of the Currency Michael Hsu said his office would propose a rule ensuring that the agency has to proactively approve or deny merger applications. Under current rules, a merger is automatically approved if the office doesn't take action in 15 days after the close of the comment period. The new rule would close that path.
Analysts have predicted that proposed bank capital rules could bring a wave of mergers and acquisitions among regional lenders, while driving some banking activity to nonbanks. Those rules, known as Basel III Endgame, could be completed later this year.
The move reflects "our view that bank mergers are significant corporate transactions that require the OCC to make a decision," said Hsu in remarks at the University of Michigan in Ann Arbor.
Hsu said the agency would also publish guidelines on what attributes make any merger more or less likely to be approved as well as reassess the rubric that the OCC and other parts of the government use to assess the competitive landscape in banking.
Hsu's comments come a little less than a year after the banking system was rocked by the collapse of regional banks including Silicon Valley Bank and Silvergate Capital. Both lenders failed in the face of bank runs triggered in part by concern that they wouldn't be able to repay depositors given their heavy investments in long-dated Treasury debt. Those bonds lost value as interest rates rose in 2022 and the first half of 2023.
While Investors had worried that other regional banks could go under for the same reasons, those fears have abated. After plummeting 42% between March and early May, the iShares U.S. Regional Banks ETF has risen 46%, including a 36% rise since late October. On Monday, analysts for Citigroup raised their full-year earnings estimates for Western Alliance Bancorporation, a regional bank.
In his remarks on Monday, Hsu said the OCC would propose "chalk lines" making clear what attributes of merger applications make them likely or unlikely to be approved. For example, applications where the acquirer has unsatisfactory supervisory ratings, open enforcement actions, or other concerns would be "highly unlikely to receive approval unless and until such concerns are resolved," Hsu said.
The OCC's new rules might not have an immediate impact on stocks. For one, few deals involving publicly traded banks would have been subject to the 15-day rule, wrote TD Cowen analyst Jaret Seiberg in a research note after the speech.
The requirement that acquiring banks be clean of supervisory concerns has "been the case for several years, though it has not been spelled out this directly," Seiberg wrote.
But if nothing else, Hsu's speech is an indication that bank mergers will be under the microscope as long as the Biden administration is in charge.
Write to Joe Light at joe.light@barrons.com
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January 29, 2024 16:25 ET (21:25 GMT)
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