Acting Comptroller Warns that “Too Big to Manage” Banks May be Broken Up

At a recent event hosted by The Brookings Institution, Acting Comptroller of the Currency Michael Hsu warned that banks whose size is too large to address internal weaknesses and adhere to regulations may need to be broken up. The Office of the Comptroller of the Currency (OCC) uses an escalating framework to determine if banks are too big, and Hsu is considering ways to increase transparency for the process.

“It is the size and complexity of the bank that is the core problem that needs to be solved, not the weaknesses of its systems and processes or the unwillingness or incompetence of its senior lenders,” Hsu said, according to Banking Dive. He said the most effective way to manage too-big banks is to simplify them by “divesting businesses, curtailing operations and reducing complexity.”

The OCC’s four-level escalation framework starts with a bank being put on notice through a private supervisory finding. Public enforcement actions and civil money penalties may be used if weaknesses continue to go unaddressed, and the OCC could even put banks under a growth restriction if significant weaknesses persist.

The Wall Street Journal noted that Hsu’s remarks highlighted concerns about banks like Wells Fargo, which is overseen by the OCC. The bank has struggled to fix consistent issues despite repeated enforcement actions, and has operated under a growth cap enforced by the Federal Reserve (Fed) since 2018.

“Imposing a growth restriction is a significant escalation and must be approached with due process and proportionality in mind,” Hsu said. “It is a step that we do not take lightly.” The next step in the OCC’s framework would be to break up a bank, if the problem is repeatedly unaddressed.

Hsu’s remarks are in line with the Biden administration and other regulators, including the Consumer Financial Protection Bureau (CFPB). CFPB Director Rohit Chopra has argued that some alleged recidivists are unable to operate safely and should lose access to federal deposit insurance.