On January 17, acting Comptroller of the Currency Michael J. Hsu delivered remarks at the Brookings Institute regarding large bank manageability. Hsu started by expressing his belief that developing a robust approach to detecting, preventing, and addressing too-big-to-manage (TBTM) risks will increasingly become an imperative for both banks and bank regulators. He stated that the best “way to successfully fix issues at a TBTM bank is to simplify it — by divesting businesses, curtailing operations and reducing complexity,” and that more typical actions, such as changing management, budgets, plans, and personnel will have limited impact at a bank that is too big to manage. Hsu added that “the size and complexity” of a bank “is the core problem that needs to be solved, not the weaknesses of its systems and processes or the unwillingness or incompetence of its senior leaders.”

Hsu discussed the OCC’s four-step “escalation framework.” He noted that “the design logic of an escalation framework is to use the credible threat of restrictions and divestitures, guided by and consistent with due process, to force banks to prove that they are manageable and to then let the effectiveness or ineffectiveness of their actions speak for themselves.” He noted that the first step is to put a bank on notice and make clear the nature of the weakness requiring remediation. Significant deficiencies and/or weaknesses that go unaddressed can escalate into public enforcement actions, such as a consent order, where material safety and soundness risks or violations of laws and regulations are at play. If the problem continues, then the OCC will pursue a restriction and divestitures of a bank’s business activities or capital actions. The final step includes breaking up the bank by compelling divestment.

Hsu concluded with his thoughts on the need for bank regulators to provide greater transparency on the supervisory process. He also emphasized the importance of due process and described supervisory remedies, including but not limited to, business restrictions, divestitures, and simplification of large banks when necessary.