Big Banks With ‘Persistent Weaknesses’ Targeted for Breakup

The Office of the Comptroller Currency announced plans to restrict large banks’ growth and even force asset sales if those institutions fail to fix “persistent weaknesses.”

A Thursday update in the agency’s enforcement manual puts into policy concerns raised by acting Comptroller of the Currency Michael Hsu that some banks are becoming “too big to manage.”

To address those concerns, the OCC said it will deploy several tools against banks that receive poor management grades from examiners, fail to fix problems cited in formal enforcement actions in a timely manner, or face multiple enforcement actions over three years.

Those banks could be required to raise capital and liquidity levels, scale back expansion plans, or cancel dividend payments, the new enforcement manual appendix said. In extreme cases, the OCC will consider forcing banks to reduce their “asset size, divest subsidiaries or business lines, or exit from one or more markets of operation,” according to the policy.

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“The power to avoid becoming too big to manage rests with each bank. Our policy is designed to ensure that deficiencies are clearly identified, and that banks are given opportunities to address them,” Hsu said in a statement.

The new OCC enforcement policy comes as US regulators send mixed signals about allowing the biggest banks to get even bigger following JPMorgan Chase & Co.'s acquisition of First Republic Bank earlier this month and the takeovers of Silicon Valley Bank and Signature Bank in March. The OCC, along with the Federal Deposit Insurance Corp. and the Federal Reserve, are also reviewing their merger guidelines.

Consumer Financial Protection Bureau Director Rohit Chopra said in a May 4 speech that regulators need to be prepared to take apart giant banks that pose a risk to the economy.

But Treasury Secretary Janet Yellen has said that more merger activity among banks may be necessary to strengthen the financial system.