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US OCC To Break Up

US OCC To Break Up "Too Big To Manage" Banks

by Starling Insights

Starling Insights Editorial Board

Jan 24, 2023


At a Brookings Institution event last week, Michael Hsu, Acting Comptroller of the Currency, warned that banks whose size hinders their ability to address internal weaknesses and comply with regulations may be broken up.

Hsu put forth the view that absent inadequate systems or negligent management, risk control failures can and do occur with unacceptable frequency.  This, he argued, reflects an organization that has grown "Too Big to Manage."

Hsu outlined a four-level escalation framework that the Office of the Comptroller of the Currency (OCC) will use to determine whether a bank has grown too large: putting a firm on notice privately; taking a public enforcement action which may include punitive fines; imposing limits on permission to grow further; and forcing a firm to be broken up.

"The most effective and efficient way to successfully fix issues at a [too big to manage] bank is to simplify it – by divesting businesses, curtailing operations, and reducing complexity," Hsu argued.

When a bank has had multiple opportunities to resolve issues and yet fails to do so, Hsu maintained, that will be taken to signal it has become too big to manage. This mirrors a similar effort by the Consumer Financial Protection Bureau under Director Rohit Chopra to punish repeat offenders.

"There is a saying, 'The better a car's brakes, the faster it can drive safely,'" Hsu concluded. "I believe this is useful to bear in mind as we consider the devilish details and focus large banks on the risks that can cause them to become [too big to manage]."

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