The news: The acting head of The Office of the Comptroller of the Currency (OCC), Michael Hsu, said the agency is refining its process for stepping in when major banks get too big to manage. The framework includes the potential for regulators to break up big banks that become too complex to operate efficiently, per Banking Dive.
Four-step framework: Hsu explained that not all large banks are subject to a breakup. But those banks that can’t effectively run their operations with smart senior leadership and a sound risk plan could face actions like divestitures and cuts in operations to reduce complexity. When a bank commits recurring violations, it will face a four-step framework designed to address the issues.
Hsu said the OCC is looking to fine-tune the steps of the process to provide transparency and make it easier for banks to determine whether they’re in danger of escalating through the steps. Already, globally systemic banks are required to identify pieces of their businesses that can be sold quickly if necessary as part of the living will process.
The OCC’s process puts substance behind the words of the head of the Consumer Financial Protection Bureau (CFPB), Rohit Chopra, who said regulators should take stronger actions against banks that repeatedly violate financial regulations. He said those actions could include stripping them of their licenses.
Explicit but not new: The OCC’s framework signals that regulators are now more willing to put their money where their mouth is. But banks and consumers aren’t seeing this process for the first time. Some of Wells Fargo’s recent interactions with the Fed mirror the latter steps of the framework.
The big takeaway: With competition intensifying within the banking industry, banks, neobanks, and fintechs are doing anything they can to impress new customers and grow their businesses. But with that comes added complexity and risk. Regulators are increasing their scrutiny of all types of financial institutions to ensure fairness and protect consumers from harm.
Wells Fargo was able to position stepping away from one of its main businesses as a decision to improve its operations. But Wells Fargo and other big banks must be aware that the OCC means business, and that violations should be rectified immediately to avoid the reputation-destroying fallout of a one-sided breakup.
This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.