Hsu makes a (limited) case for large bank mergers

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Jul 11, 2023 View in browser   By Sam Sutton Presented by Fidelity Investments Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Acting Comptroller of the Currency Michael Hsu is still concerned about the concentration of large firms atop the banking sector. Some banks remain too big to fail or, as he’s warned in the past, too big to manage. But injecting more competition into the marketplace might require some of Wall Street’s most formidable institutions to get even larger, he said during an American Banker webcast on Monday. “There should be competition amongst large banks, and simply prohibiting all mergers of large banks really locks in the concentration amongst the existing megabanks, and I don't think that's the right answer,” said Hsu. That isn’t to say the OCC is firing a starter pistol as bank M&A attorneys rev their engines, but he said the path for large bank mergers “is narrow, but it's there.” Federal Reserve Vice Chair for Supervision Michael Barr struck a similar note shortly after unveiling his plans for large bank capital requirements on Monday morning (more on that in a bit) — pointing out that banking regulators signed off on U.S. Bank’s acquisition of MUFG Union Bank within months of his arrival. “We know how to do mergers when they're appropriate and they go through their process and they meet they meet the statutory factors. And we would do that for any for any bank,” he said. The question now is how those messages will resonate around Wall Street and Capitol Hill. It’s certainly a softening compared to some of the Biden administration’s earlier rhetoric on bank mergers. And while there’s been some grumbling over how Assistant Attorney General Jonathan Kanter recently framed his overhaul of the DOJ’s bank merger playbook, there are signs that the regional bank turmoil this spring provided a costly reminder of what can occur when institutions fail to find solutions in the private sector. Still, any meaningful pivot is bound to upset progressives who’ve repeatedly warned of antitrust concerns. Sen. Elizabeth Warren (D-Mass.) blistered regulators for approving the U.S. Bank-Union Bank deal and has not let up even after a costly series of regional banking failures earlier this spring. She’ll chair a Senate Banking subcommittee hearing examining bank mergers on Wednesday that will feature testimony from Morgan Harper of the American Economic Liberties Project and Alexa Philo of Americans for Financial Reform — two think tanks that have warned against consolidation. IT’S TUESDAY — What did you make of Hsu and/or Barr’s comments on Monday? Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com   A message from Fidelity Investments: Fidelity Investments supports eDelivery. Let’s enact it into law. Learn More.   Driving the day The NFIB optimism index is out at 6 a.m. … Consumer Financial Protection Bureau holds a hearing on medical debt at 10 a.m. … Senate Appropriations will markup the Financial Services and General Government Appropriations Act at 11 a.m. … Senate Banking holds a hearing on land contracts at 2:30 p.m. Capital requirements — Federal Reserve Vice Chair for Supervision Michael Barr on Monday laid out his vision for raising the capital buffers large banks must maintain to sustain financial shocks. To the surprise of no one, Wall Street wasn’t thrilled. As Zach points out in his report, Barr’s speech is bound to lead to aggressive lobbying by the largest banks. Industry groups have already had a fair amount of success drawing powerful Republicans like Sen. Tim Scott (R-S.C.) to their cause. House Financial Services Chair Patrick McHenry (R-N.C.) on Monday warned that Barr’s plan “could have disastrous impacts on the cost and availability of credit for all American families and workers.” Even some Democrats, including Sen. Mark Warner (D-Va.), have also been skeptical of ratcheting up capital requirements amid uncertainty in credit markets. “We need to have strong capital, and a strong capital base, but setting that metric too high causes risks and activities to migrate out of the banking system, and that’s counterproductive,” said Andrew Olmem, a partner at Mayer Brown and former National Economic Council deputy director, told your host. “[Fed Chair Jerome] Powell has done a very good job of getting congress behind him in moving rates up,” added Olmem, who also participated in a panel discussion hosted by BPC after Barr’s remarks. “The most prudent strategy for policy is for Barr to build a similar consensus before he moves ahead with the Basel reforms.” That isn’t to say Barr doesn’t have allies. Senate Banking Chair Sherrod Brown (D-Ohio) praised the speech in a statement shortly after it was delivered. As did Better Markets Cofounder, President and CEO Dennis Kelleher and Independent Community Bankers of America President and CEO Rebeca Romero Rainey — whose Washington-based industry group represents smaller financial institutions.   JOIN 7/11 FOR A TALK ON THE FAA’S FUTURE: Congress is making moves to pass the FAA Reauthorization Act, laying the groundwork for the FAA’s long-term agenda to modernize the aviation sector to meet the challenges of today and innovate for tomorrow. Join POLITICO on July 11 to discuss what will make it into the final reauthorization bill and examine how reauthorization will reshape FAA’s priorities and authorities. REGISTER HERE.     Regulatory Corner Watch this space — Our Josh Sisco: “The Justice Department is nearing a decision on whether to challenge private equity firm Thoma Bravo’s acquisition of an enterprise software company over concerns it would unduly harm competition in a growing corner of the cybersecurity sector.”   A message from Fidelity Investments:   Fed File On the QT — Bloomberg’s Liz Capo McCormick, Alex Harris and Jonnelle Marte: “In the coming months, the full brunt of the Fed’s current [quantitative tightening] program is set to be felt. How it proceeds, and how the Fed handles the process, could shape its political latitude to keep using its balance sheet as a key tool in the future, amid Republican angst that was on display in Powell’s June 21-22 hearings. Uniform — Reuters’s Ann Saphir and Michael S. Derby: “The Federal Reserve will likely need to raise interest rates further to bring down inflation that is still too high, but the end to its current monetary policy tightening cycle is getting close, several U.S. central bank officials said on Monday.”   UNLEASH THE FUTURE OF HEALTHCARE WITH POLITICO, A 7/20 INTERACTIVE EVENT: Imagine a future where rare genetic diseases are not only treatable, but potentially curable. Where our approach to chronic illness takes a monumental leap forward. That future is already taking shape in the form of next-generation health care treatments such as gene therapy. Join POLITICO on Thursday, July 20 and delve into the burgeoning field of gene therapies, which hold the power to redefine our health care landscape. Are you ready to explore this new frontier in health care? Don't miss this chance to be part of the conversation. REGISTER NOW.     In the markets Credit slowdown — Bloomberg’s Reade Pickert: “US consumer borrowing slowed to a more than two-year low in May, reflecting the first decline in non-revolving credit since the onset of the pandemic.” Worries abound, even in a bull market — The WSJ’s Caitlin McCabe: “A familiar question has crept back onto Wall Street: Could this be the most-hated bull market ever?” Data deal — Our Clothilde Goujard and Alfred Ng: “The European Union on Monday approved a new deal allowing companies to freely transfer data between the EU and the United States, potentially ending three years of legal limbo for tech giants such as Facebook and Google.”   A message from Fidelity Investments: Fidelity Investments supports eDelivery. It's immediacy drives action and leads to more engaged investors. Let’s enact it into law. Learn More.     Follow us on Twitter Mark McQuillian @mcqdc Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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