Regulators approve US Bank-MUFG Union merger

The Federal ReserveFederal Deposit Insurance Corp. (FDIC) and Office of the Comptroller of the Currency (OCC) has approved the acquisition of MUFG Union Bank by US Bank for $8 billion, regulators announced on Friday.

The announcements came as the Fed also sought public comment on an advance notice of proposed regulation aimed at ensuring that large regional banks or systemically important national banks can fail without disrupting the economy or requiring bailouts. taxpayers.

“As the banking system evolves, policymakers must continually assess whether resolution-related standards and prudential standards for large banks are keeping pace,” said Michael Barr, the Fed’s vice chairman for supervision, in a statement. a statement. “Therefore we are (…) assessing whether capital requirements for large banks, including global systemically important banks – as well as other elements of the prudential framework – need to be updated.”

The Fed’s proposal would force banks with between $250 billion and $700 billion in assets to take on long-term debt that would be converted into equity that would recapitalize the bank in times of extreme crisis. This would place the burden of losses on investors – rather than taxpayers in bailout situations.

Fed Vice Chair Lael Brainard said she was “encouragedwith the proposition “since we know from experience that even non-complex banks in this range can present risks to the wider financial system when they experience financial difficulties”.

The central bank guidelines also propose separability requirements, which would cause major banks to consider selling part of their business rather than seeking an outright acquisition.

The Fed’s proposal, however, does not call on big banks to hold total loss-absorbing capital, as global systemically important banks must.

Republicans on the Fed’s board have expressed reservations about the proposal.

Although Fed Governor Michelle Bowman backed approval of the deal with the U.S. bank, she said some conditions could violate existing Fed rules.

The problem is that the Fed’s order suggests that the US bank – now a Tier III bank with less than $700 billion in assets – would be upgraded to Tier II in 2024 when it submits its next resolution plan. This designation comes with stricter guidelines.

Archer affirmed this reclassification should stem from a concern for financial stability, and not from a predetermined deadline.

Indeed, the OCC estimated that US Bank would have total assets of $679.6 billion and capital of $51.6 billion after the MUFG The union transaction ends.

fed governor Chris Wallertoo, expressed caution.

“While I support the issuance of a Notice of Proposed Rulemaking to seek public comment on the appropriateness of certain resolution-related requirements for large banks, this does not mean that I support or oppose the application of these requirements to these banks,” he said.

The transaction

In a statementUS Bank noted that Japanese regulators have yet to sign off on the deal that gives the Minneapolis-based lender control of Mitsubishi UFJ’s US retail footprint.

“We are delighted to have received US regulatory approval,” said Andy Cecere, CEO of US Bank. “We believe this acquisition is good for customers, good for the communities served by MUFG Union Bank and good for employees.”

When the acquisition of MUFG Union was proposed in September 2021, it was estimated that it would inject US Bank with $133 billion in assets, $58 billion in loans and $90 billion in deposits. More importantly, it would boost US Bank’s profile on the West Coast, giving the bank 1 million new customers and a deeper presence in markets such as Los Angeles, San Diego and San Francisco.

Community advocates at a public hearing in March expressed concern that the acquisition would negatively affect low- and middle-income areas, especially communities of color. In May, US Bank released a five-year, $100 billion community benefits plan, 60% of which is earmarked for California, where the acquisition of MUFG Union would lift the bank from 10th to 5th in terms of deposits.

The acquisition also consolidates US Bank as the nation’s fifth-largest retail bank.

The US bank reiterated on Friday that it expects the transaction to close by the end of 2022. CEO Andy Cecere said last month that the bank now plans to convert customers’ MUFG Union accounts into may.

Approval of the deal with the U.S. bank leaves two multibillion-dollar acquisitions on the Fed’s consideration list: BMO’s proposed $16.3 billion acquisition of Bank of the West and the merger of $13.4 billion from TD with First Horizon.

Public comments on the Fed’s regulatory proposal will be taken for 60 days.

Acting Comptroller Michael Hsu, meanwhile, said on Friday that the OCC “has carefully considered the effect of the merger of US Bank and MUFG Union Bank on communities, the banking industry and the American financial system. “.

“The OCC has also taken into account the important work initiated by our fellow regulators to assess and consider how best to ensure that the big banks do not become the next class of too-big-to-fail institutions,” a- he declared.

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