04/16/2024 | Press release | Distributed by Public on 04/16/2024 12:20
"The current threats to NYCB's viability represent the culmination of a pattern of oversight failures by OCC... the OCC allowed NYCB to engage in two risky mergers in a six month period, then neglected to address NYCB's risks until the walls were ready to crumble."
Warren's Bank Merger Review Modernization ActWould Provide a Backstop in Merger Review Process
Washington, D.C. - United States Senators Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee and Richard Blumenthal (D-Conn.), Chair of the Senate Homeland Security and Governmental Affairs Committee Permanent Subcommittee on Investigations, sent a letter to Acting Comptroller of the Currency Michael Hsu, seeking answers about the Office of the Comptroller of the Currency's (OCC) approval of the December 2022 merger between New York Community Bank (NYCB) and Flagstar Bancorp (Flagstar) and the OCC's neglect in addressing NYCB's risks until the bank entered a financial spiral.
Flagstar had a history of bad behavior prior to the merger. In 2012, the bank reached a settlement with the U.S. Attorney for the Southern District of New York on charges that it improperly approved residential home mortgage loans. Two years later, Flagstar was fined $37.5 million by the Consumer Financial Protection Bureau (CFPB) for blocking customers' ability to receive foreclosure relief, including delaying application reviews and illegally denying loan modifications. Despite these violations, NYCB announced its intent to merge with Flagstar and submitted an application to the Federal Deposit Insurance Corporation (FDIC) in May 2021.
"The FDIC reviewed the application and raised concerns about Flagstar's fair lending practices and NYCB's exposure to multifamily loans. An anonymous source at the FDIC went so far as saying, 'No one at the FDIC was comfortable recommending a merger approval for [NYCB and Flagstar].' After a year had passed without FDIC movement, NYCB and Flagstar schemed to restructure their merger so it no longer needed FDIC approval. Flagstar converted from a federal savings bank, under FDIC oversight, to a national bank under OCC's authority, cutting FDIC out of the process and allowing the banks to merge after OCC approval. In October 2022, the OCC approved the merger, without addressing the risks raised in the initial FDIC review," wrote the senators.
Six months after the Flagstar merger, NYCB took over Signature Bank, receiving FDIC and OCC approval during that bank's March 2023 meltdown - increasing NYCB's total deposits above the $100 billion threshold that triggers enhanced oversight and stronger capital reserve requirements.
"Ultimately, these two rushed, rubber-stamped mergers created grave risks for NYCB… As NYCB was experiencing internal instability, the OCC appeared to be asleep at the wheel. As a part of the NYCB-Flagstar merger deal, the OCC stipulated that, for two years, each of NYCB's dividends must receive a prior determination of no objection from the OCC. The OCC reviewed NYCB's financials every quarter, yet allowed NYCB to pay consistent dividends, up until the most recent drastic cut. This is deeply troubling, especially since lax bank examiner oversight was a major factor of the March 2023 bank failures. Regulators promised to do better, but the near-collapse of NYCB in early 2024 indicated the OCC has once again abdicated its oversight responsibilities," continued the senators.
"The current threats to NYCB's viability represent the culmination of a pattern of oversight failures by OCC… In this case, the OCC allowed NYCB to engage in two risky mergers in a six month period, then neglected to address NYCB's risks until the walls were ready to crumble," concluded the senators.
Given the OCC's failure to address the threats posed by the NYCB-Flagstar and the NYCB-Signature mergers and the bank's activities in the year following these mergers, the senators are asking the OCC to answer a set of questions about its approval of the NYCB-Flagstar merger and its supervisory and examination practices with NYCB by May 15, 2024.
Senator Warren has led the fight to hold banking regulators accountable to establishing and enforcing guardrails around the banking industry and preventing harmful bank mergers to protect the financial system, economy, and consumers:
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