Hsu: OCC weighing conditions’ for large bank merger approval to ensure resolvability

Speaking at an industry event today, Acting Comptroller Michael Hsu warned that “there is a gap with regards to large regional banks” when it comes to resolvability, and signaled his desire for additional reforms to ensure financial stability in the event of a large regional bank failure.

In particular, Hsu advocated for adopting a “single-point-of-entry” resolution strategy for these firms—the same strategy to which global systemically important banks are currently subject under their resolution planning framework. Under this approach, “only the parent holding company is supposed to file for bankruptcy or be taken into receivership; all of the material subsidiaries are expected to continue to operate and function, thus avoiding the chaos of multiple proceedings,” Hsu explained.

Additional reforms include requiring large regionals to hold “sufficient bail-in-able long-term debt at the parent, and . . . ensuring the separability of major business lines and/or portfolios.” Hsu acknowledged that such reforms would take time and would require work by the Federal Reserve and FDIC; however, in the near-term, he said the OCC is considering “condition[ing]approval of a large bank merger on actions and credible commitments to achieving [single-point-of-entry], [total loss absorbing capacity], and separability.”