U.S. Sen. Elizabeth Warren (D-MA) expressed concern to federal regulators about the lack of regulatory oversight of a New York bank that she deems at risky.
In a letter to Michael Hsu, acting comptroller of the Office of the Comptroller of the Currency (OCC), and Jerome Powell, chair of the Federal Reserve, Warren wanted to know how they could allow New York Community Bank (NYCB) to escape regulatory oversight despite identifying “systemic failings” in the bank’s operation and management.
Warren called for the OCC to consider implementing an Individual Minimum Capital Ratio (IMCR) given NYCB’s history and the risks it poses to the U.S. financial system.
“Allowing NYCB to evade penalties under these circumstances would be a dereliction of duty and would represent a failure by the OCC and the Fed to ensure the safety and soundness of the banking system,” Warren wrote in the letter.
Warren cited a pattern of oversight failures by the OCC, which rubber-stamped two risky mergers with Flagstar Bank and Signature Bank in a six-month period. Following those mergers, NYCB teetered near failure as the OCC neglected to address the risks associated with the bank’s rapid growth until it was too late.
“The OCC, as NYCB’s regulator, is tasked with overseeing NYCB’s risk management and yet did not raise flags related to NYCB’s internal struggles,” Warren wrote. “On the brink of failure, NYCB accepted a capital infusion from private equity firms spearheaded by former Treasury Secretary Steven Mnuchin, who tapped fellow Trump-era financial regulator Joseph Otting as NYCB’s new CEO.”
When Steven Mnuchin and Joseph Otting took the helm of NYCB, the Fed and OCC were required to review their character and fitness. Warren alleged that the two deployed some questionable tactics while they ran OneWest bank.
“Given the ongoing threats from regional bank failures, I am deeply troubled by your … inability or unwillingness to rein in unruly banks,” wrote Warren. “If the OCC has indeed identified ‘systemic failings’ at NYCB, the agency must impose stronger controls on the bank.”
Warren is calling on the OCC to use its existing authority to establish a higher minimum capital requirement for banks under its jurisdiction that present heightened risks to the financial system, by considering an Individual Minimum Capital Ratio for NYCB.