US Bank Regulator Proposes Greater M&A Transparency
The US banking regulator, the Office of the Comptroller of the Currency (OCC), has proposed fresh banking regulations for mergers and acquisitions (M&As) in a bid to increase transparency around the process and ensure deals are not approved without sufficient scrutiny.
The OCC’s proposal comes amid industry-wide criticism that regulators are non-transparent in their review of bank deals.
This criticism came into the spotlight after a series of regulator-approved rescue deals last year following the collapse of banks like First Republic. In this instance, JPMorgan Chase provided First Republic with the rescue capital it needed.
The M&A landscape: Why greater regulation is needed
Conditions are currently ripe for a flurry of M&A, with more and more small lenders seeking to consolidate by merging with others in a bid to stave off faltering profit margins amid today’s lingering macroeconomic difficulties.
Indeed, this is something the OCC expects, which is why it feels greater M&A regulations are needed now, to safeguard financial services firms and their customers.
Speaking to Reuters, Acting Comptroller at the OCC, Michael Hsu, says: "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."
Of course, by improving transparency around the M&A process means banking regulators need more time to complete their assessments.
Oftentimes the OCC has to work in conjunction with other regulators when considering M&A deals, which can prolong the process, and banks with supervisory concerns need longer to scrutinise when attempting M&A activity.
This is why the OCC has proposed scrapping a 1996 policy under which some M&A deals receive automatic approval if the OCC does not act on a given proposal within a certain timeframe.
Today, it’s about getting regulatory approval right, rather than completed as soon as possible.
Indeed, M&A activity has repercussions for fintechs too, with many banks looking to snap up burgeoning fintechs to improve their digital capabilities.
With greater M&A regulatory scrutiny, this should give fintechs greater peace of mind in the bank or financial institution it is in M&A discussions with.
The OCC’s new framework comes amid continued discussions with other bank regulators and the US Department of Justice (DOJ) on a broader, wide-ranging effort to update the framework government uses to review bank mergers.
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