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What Does “Too Big To Manage” Mean For Banks?

What Does “Too Big To Manage” Mean For Banks?

by Starling Insights

Starling Insights Editorial Board


In a recent American Banker op-ed, Keith Noreika, Executive Vice President at Patomak Global Partners and former US Acting Comptroller of the Currency, takes issue with recent arguments made by the current Acting Comptroller, Michael Hsu, that repeated misconduct issues may suggest some firms have grown “too big to manage” (TBTM).

Hsu's speech was not specific in defining an exact meaning of TBTM, Noreika notes, suggesting that perhaps a better phrase would be “too complex to manage.”  It is not the size of a firm that determines its manageability, Noreika contends.  Some large firms can be quite simple to manage, while some smaller but highly complex firms may prove unwieldy.  Without greater clarity in this regard, Noreika laments, bank leaders must contend with "regulatory speak” which complicates their ability to set management priorities successfully.

In his speech, Hsu contends that banks show signs that they are too big to manage when they rely too often on immateriality to dismiss concerns, or display hubris, arrogance, and indifference toward emerging issues. These, however, are traits of management, Noreika contends, not characteristics of the size or complexity of a firm.

Hsu outlined a framework by which the OCC can address TBTM firms, with four escalating steps that include the credible threat of restrictions growth and operations, as well as divestitures. Noreika argues that this framework leaves out a still more important tool to achieve greater board and management accountability: directly removing board members and executives from their posts.

There are steps banks can take to avoid these concerns, Noreika concludes. "Bank management and boards can proactively demonstrate effective governance and controls over their operations and approach the challenge of TBTM by starting with what is entirely within their power — the excellence of their management.” 

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