September 26, 2024

Warren Criticizes Banking Regulators’ Inaction on NYCB’s “Systemic Failings” and Threats to Banking and Financial Stability

Questions Heads of OCC, Federal Reserve on “Dereliction of Duty” Amid Pattern of Oversight Failures 

“Given the ongoing threats from regional bank failures, I am deeply troubled by your …failure to answer our previous questions—and your inability or unwillingness to rein in unruly banks …If the OCC has indeed identified ‘systemic failings’ at NYCB, the agency must impose stronger controls on the bank.”

Text of Letter (PDF)

Washington, D.C. – Today, Senator Elizabeth Warren (D-Mass.) sent letters to Michael Hsu, Acting Comptroller of the Office of the Comptroller of the Currency (OCC), and Jerome Powell, Chair of the Federal Reserve (Fed), with renewed concern that the OCC and the Fed could allow New York Community Bank (NYCB) to escape regulatory oversight despite identifying “systemic failings” in the bank’s operation and management. She also calls 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,” wrote Senator Warren. 

The OCC’s record of failure with NYCB is now over three years old. The current threats to NYCB’s viability reflect 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,” Senator 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.” 

Steven Mnuchin and Joseph Otting worked together for years, at OneWest bank, where they ran an operation that was deemed a “foreclosure machine,” which repossessed the homes of tens of thousands of American families between 2009 and 2015 and intensified the economic pain of the Great Recession. Under Mr. Mnuchin and Mr. Otting’s leadership, OneWest employed illegal tactics like “robo-signing”—falsifying key documents—to kick more than 36,000 families out of their homes. When they took the helm ofNYCB, the Fed and OCC were required to review Mr. Otting’s and Mr. Mnuchin’s character and fitness, which would have included their behavior at OneWest.

The OCC and the Fed failures to appropriately supervise NYCB are becoming more clear with the new reports of “systemic failings” at the bank. 

“Given the ongoing threats from regional bank failures, I am deeply troubled by your … inability or unwillingness to rein in unruly banks,” wrote Senator Warren. “If the OCC has indeed identified ‘systemic failings’ at NYCB, the agency must impose stronger controls on the bank.”

Senator Warren is calling on the OCC to use its existing authority under Title 12, which allows the OCC 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. 

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: 

  • In April 2024, Senators Warren and Blumenthal probed the OCC for its regulatory failures amid NYCB’s financial spiral. 
  • In March 2024, a year after the collapse of Silicon Valley Bank, Senator Warren sent a letter to three key banking regulators: Michael Barr, Vice Chair for Supervision of the Federal Reserve, Martin Gruenberg, Chair of the Federal Deposit Insurance Corporation, and Acting Comptroller Hsu, seeking an update on their progress in delivering on their public commitments to strengthen regulatory standards for banks with assets of $100 billion or more. 
  • In February 2024, Senator Warren led 12 lawmakers urging the OCC and the Federal Reserve to block Capital One’s plan to acquire Discover Financial Services. Their letter also expressed concerns with the OCC’s proposed policy statement regarding merger approvals as essentially codifying a permissive approach.
  • In December 2023, Senator Warren led 6 senators in a letter to Acting Comptroller Hsu, calling on OCC to allow states to move forward with their efforts to protect consumers from harmful bank practices. The senators criticized the OCC for overstepping its preemption authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which it used to block tough, state-level consumer protections.
  • In August 2023, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Economic Policy, Senator Warren highlighted the need for regulators to implement the strongest version of bank merger review guidelines in order to ensure stability in the financial system. 
  • In June 2023, Senator Warren sent a letter to Assistant Attorney General Jonathan Kanter, Federal Deposit Investment Corporation Chairman Gruenberg, Acting Comptroller of the Currency Hsu, Federal Reserve Vice Chair for Supervision Michael Barr, and Treasury Secretary Janet Yellen, urging regulators to promote greater competition in the banking sector by toughening their stances on bank mergers and strengthening bank merger review guidelines.
  • In May 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren questioned Acting Comptroller Hsu on his decision to approve JPMorgan Chase’s purchase of First Republic Bank after its collapse. This merger allowed a large, poorly supervised bank to be swallowed by America’s largest bank, making it $200 billion larger than it was before.
  • In May 2023, Senator Warren sent a letter to Acting Comptroller Hsu and FDIC Chair Gruenberg, questioning the terms of the sale of First Republic Bank to JP Morgan Chase and the rationale behind the OCC and FDIC’s approval of the deal. 
  • In December 2022, Senators Warren and Tina Smith (D-Minn.) sent letters to three key banking regulators: the Federal Reserve, FDIC, and the OCC, raising concerns about the ties between the banking industry and crypto firms following FTX’s bankruptcy. The senators asked each regulator how they assessed the banking system’s exposure to crypto risks. 
  • In December 2022, Senator Warren and Representative Ilhan Omar (D-Minn.) sent a letter to the heads of all U.S. banking regulators, including Acting Comptroller Hsu, calling on them to improve banking access for immigrant communities and communities of color.  
  • In August 2022, Senators Warren, Dick Durbin (D-Ill.), Whitehouse, and Sanders sent a letter to the OCC, calling on it to rescind the previously issued cryptocurrency guidance and replace it with more comprehensive guidance, in coordination with other prudential regulators. 
  • In September 2021, Senator Warren and Representative Jesús “Chuy” García (D-Ill.) reintroduced the Bank Merger Review Modernization Act, which would restrict harmful consolidation in the banking industry and protect consumers and the financial system from “Too Big to Fail” institutions, like those that caused the 2008 financial crisis.

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