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The regulator for the largest banks in the U.S. has a new warning for the companies he supervises — if you have a consistent history of violations and problems, you might be too big and we could force you to break up.
The “too big to manage” plan that Acting Comptroller of the Currency Michael Hsuoutlined in a speech Tuesday marks a stark shift in tone at his agency, which has been dogged by years of accusations that it has been too cozy with the largest financial institutions.
“One thing that happens that’s different for the largest banks than for all the other banks, is that some of the largest banks can stay in a state of poor management for a really long period of time without a forcing action,” Hsu said at the Brookings Institution. ”That’s a problem.”
So why is it landing like a dud? MM found that industry reps aren’t worried about Hsu’s plan — a multi-stage process in which a bank is put on notice and hit with enforcement actions before facing growth restrictions and then divestiture if they don’t fix regulatory concerns. Hsu stressed that big banks are critical to a growing U.S. economy.
Hsu’s methodical approach and a perceived lack of urgency also rang somewhat hollow with Wall Street watchdogs. They want immediate action on repeat rule-breakers like Wells Fargo, which is already subject to a Federal Reserve growth cap. The concern is that the plan is just talk.
Sarah Pray, managing director for policy at Americans for Financial Reform, told MM, “process is nice, but results, delivered promptly, that finally end chronic abuse of consumers by too-big-to manage banks would certainly be better.”
“Good framework for future cases but should be applied immediately to Wells Fargo and Citi, two recidivists that today are clearly TBTM,” said Better Markets president and CEO Dennis Kelleher. “It is long past time for action, not talk.”
To be fair, the speech signals a firmer hand going forward at the Hsu-era OCC. It will keep banks on their toes about future moves by the veteran bank regulator.
Susan Ochs, a former Treasury official who now advises CEOs, said it could help executives as a “regulatory cudgel” when they face resistance to change from shareholders.
Federal Reserve Bank of Minneapolis COO Ron Feldman raised doubts about Hsu’s proposed fixes but, in the big picture, said his speech was “remarkable.”
“Almost all of the comptroller of the currencies that I’m familiar with spend their time talking about the value of the national bank charter and don’t ever touch this set of issues,” he said.
Why does this week feel too big to manage? — Please send tips to [email protected].
The Fed releases its Beige Book on economic conditions at 2 p.m. … The U.S. Conference of Mayors meets in Washington …
Debt ceiling fly around
— The Biden administration and House Republicans are heading toward an initial Thursday debt ceiling deadline without even a hint of an endgame.
— Senate Majority Leader Chuck Schumer said a potential showdown with the House GOP over the debt limit could pose a “disaster” for New York. He urged financial industry leaders to “come down hard” on Republican lawmakers.
— The White House is calling on Speaker Kevin McCarthy to “come clean” about secretive deals he made with ultra-conservatives to help him land the House’s top job.
Davos dispatch: EU president tries to calm Europe, reframe U.S. spat— POLITICO’s Suzanne Lynch reports that European Commission President Ursula von der Leyen is using her platform at the World Economic Forum to set out a grand plan to keep the EU competitive in green tech and climate-related investments, as U.S. subsidies raise tensions.
House Dems grapple with crypto influence — Our Ally Mutnick and Nicholas Wu have the inside scoop on Democrats’ internal debate over whether lawmakers who received crypto industry campaign contributions have conflicts of interest if they serve on House Financial Services, which is developing rules for digital assets.
— Coindesk reports that more than one in three members of Congress have received campaign support from senior FTX executives.
SEC ramps up crypto crackdown— POLITICO’s Declan Harty spoke with SEC Chair Gary Gensler for a new piece on how the agency is finding new footing to rein in the crypto industry.
“It’s about compliance,” Gensler told Declan. “There’s so much non-compliance in this field. It’s part of the business model.”
Fed takes next step on climate regulation— The Federal Reserve on Tuesday announced climate-related scenarios that big banks will have to consider as part of a pilot program this year. POLITICO’s Victoria Guida explains that the scenarios — including the effect of a severe hurricane in the Northeast region — are the latest effort by U.S. officials to understand how disasters might hurt individual banks and the broader financial system.
DOJ’s antitrust revival faces setbacks— Our Josh Sisco reports that the Justice Department’s antitrust division is “stretched crucially thin” as it prepares to take on bigger targets this year. DOJ’s antitrust chief Jonathan Kanter told Josh he’s just getting going on his campaign to “reinvigorate antitrust enforcement.” He is expected to go to court against Apple this year.
Biden’s HBCU office promotes Wells Fargo products — The Biden administration’s office for historically Black colleges and universities sent an email newsletter Tuesday that featured content written by Wells Fargo, before apparently retracting it hours later, POLITICO’s Michael Stratford reports.
IMF signals rosier economic forecast— FT: “Instead of predicting a ‘tougher’ 2023, [IMF deputy managing director Gita Gopinath] now [expects] an ‘improvement’ in the second half of the year and into 2024.”
Scholz says Germany will dodge economic slump— Bloomberg: “Chancellor Olaf Scholz said he’s sure Germany will avoid a recession this year, offering reassurance for Europe’s largest economy as it faces down Russia’s energy squeeze.”
Goldman Sachs, Morgan Stanley stung by deal downturn— WSJ: “Fourth-quarter profit plunged 66% from a year ago at Goldman Sachs Group Inc. and 40% at Morgan Stanley, reflecting a continued slowdown in the corporate deal-making that had fueled record earnings a year earlier.”
George Santos lands committee assignments — NYT: “House Republican leadership on Tuesday gave the first-term congressman from New York seats on the Small Business and the Science, Space and Technology Committees, according to a person briefed on the assignments.”
People moves — John Morton, who most recently led international climate efforts at the Treasury Department, returned to the private sector Wednesday after two years with the Biden administration. Morton is now managing director, global head of advisory at investment firm Pollinator Group, where he worked before his latest government stint.