April 16, 2024

Warren, Blumenthal Probe OCC Regulatory Failures Amid New York Community Bank’s Financial Spiral

“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 Act Would Provide a Backstop in Merger Review Process 

Text of Letter (PDF) | Response from OCC (PDF) 

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: 

  • 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. 2021, 

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