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• OCC was ‘asleep at the wheel’ on NYCB, Warren says

Dive Brief:

• Sen. Elizabeth Warren, D-MA, is urging the Office of the Comptroller of the Currency and the Federal Reserve to “impose stronger controls” on New York Community Bank, including for the OCC to set a higher minimum capital ratio for the bank.

• In a Wednesday letter to Acting Comptroller of the Currency Michael Hsu and Fed Chair Jerome Powell, Warren reiterated her displeasure surrounding the OCC’s approval of NYCB’s recent mergers and acquisitions, and the regulator’s “lax oversight” of the embattled bank, now led by CEO Joseph Otting, a former comptroller of the currency, and lead independent director Steven Mnuchin, a former Treasury secretary.

• “I am encouraged by the report that the OCC is ‘weighing whether to require the bank to hold more capital as a part of an enforcement action,’” Warren wrote, referencing a report from the Capitol Forum. She encouraged the agency to “do so as quickly as possible.”

Dive Insight:

A Fed spokesperson said the central bank has received the letter and plans to respond. An OCC spokesperson didn’t immediately respond to a request for comment.

Wednesday’s letter is not the first time Warren has chided regulators with regard to NYCB. She accused the OCC in April of being “asleep at the wheel” when it approved NYCB’s 2022 merger with Flagstar Bank when the Federal Deposit Insurance Corp. didn’t. 

Warren noted Wednesday that the OCC didn’t answer the questions she posed in April on to the agency’s supervision of NYCB.

“I am deeply troubled by … your agencies' inability or unwillingness to rein in unruly banks,” she wrote to Hsu and Powell. “The OCC’s current approach to overseeing NYCB is not adequate.”

Warren also highlighted the OCC’s approval of NYCB’s purchase of Signature Bank in March 2023, less than five months after green-lighting the Flagstar deal.

“The OCC’s record of failure with NYCB is now over three years old,” she said.

Warren said Otting and Mnuchin orchestrated “a takeover eerily similar to NYCB” while working together at OneWest Bank, where they oversaw a “foreclosure machine” operation that employed illegal tactics to kick families out of their homes. That history “should have been scrutinized by the OCC and the Fed pursuant to their statutory mandate to review changes in bank control,” Warren admonished.

Warren appeared to express concern that history could repeat itself while the two are at the helm of NYCB, one of the biggest residential mortgage lenders in the country. She asked why the banking agencies didn’t intervene to stop Otting and Mnuchin from taking control of NYCB, since regulators have the discretion to disapprove proposed leadership changes.

“Any assessment of Mr. Otting’s and Mr. Mnuchin’s fitness for the roles of Chief Executive Officer and Lead Independent Director at NYCB, respectively, must have included detailed reviews of their malfeasance at OneWest,” Warren wrote.

Recent reports of “systemic failings” indicate “the OCC is continuing to fail at addressing risks in its regulated entities,” Warren said. A Bloomberg report from July citing unnamed sources said the OCC has found half of the 22 large banks it oversees “insufficient” or “weak” management when it comes to operational risk.

It’s been a tumultuous year for NYCB. In January, the bank reported a surprise $252 million loss connected to its commercial real estate exposure; that sent the lender’s stock price into a tailspin and prompted the bank’s previous CEO to leave. The bank then received a $1.05 billion capital infusion from an investor group led by Mnuchin, who brought in Otting as CEO. 

Since then, the bank has made a number of other leadership changes, and sold mortgage loans and its residential mortgage servicing business, as it plots a turnaround.    

Warren re-upped her questions from April and added several more, pressing regulators for details on reports of “systemic failings” identified at NYCB; the supervisory tools the OCC has used related to NYCB thus far and whether it’s considered establishing a minimum capital ratio for the bank; and the extent to which the Fed and the OCC reviewed Otting’s and Mnuchin’s character and competence for their respective roles. 

Warren also asked about an Aug. 28 request submitted to the Fed “apparently on behalf of Steven Mnuchin’s family members, to acquire control of voting shares of NYCB.”