Bancorp to cut its size to avoid added Fed scrutiny
Bancorp to cut its size to avoid added Fed scrutiny

Bancorp to cut its size to avoid added Fed scrutiny

NEW YORK: US Bancorp promised federal regulators it would shrink its balance sheet and reduce its risk profile, a move that frees it from more stringent regulations.

The nation’s largest regional lender won approval from the Federal Reserve (Fed) to retain its designation as a Category III bank, it said in a regulatory filing.

That means it faces less costly and time-consuming regulations.

The promises to shrink itself came after the lender, which had US$665bil in assets as of Sept 30, spent months preparing to comply with the rules associated with becoming a so-called Category II bank, a designation given to lenders with more than US$700bil in assets.

“US Bancorp represents that it anticipates taking further actions to reduce its projected risk profile, including further net reductions in assets and increases in regulatory capital,” Ann Misback, secretary for the Fed board, said in a letter to US. Bancorp’s lawyer.

Based on the fact’s the company presented, she said, the board “has approved US Bancorp’s request for complete relief from the commitments”.

A spokesman for US Bancorp declined to comment on the letter.

Shares of the Minneapolis-based lender surged 7% to close Tuesday at US$34.89, the biggest gain since March.

A Category II designation would have brought stricter liquidity requirements, an annual rather than biennial company-run stress test, and a more complex methodology for determining its capital requirements.

US Bancorp has already taken steps to decrease risk, according to the Fed.

That includes reducing its investment portfolio by about US$30bil and completing loan sales and securitisations worth roughly US$7bil, while reducing short-term borrowing on its balance sheet, the Fed said.

In its decision, the central bank also cited a series of proposals it has made that will tighten rules for Category III lenders, such as one that will require such lenders to include unrealised losses on their balance sheet investments in their capital ratios.

US Bancorp agreed to submit to a stricter regulatory regime as part of its deal for Mitsubishi UFJ Financial Group’s Union Bank.

It previously said it would be able to comply with the more stringent rules by the end of 2024.

“The regulatory change is very positive for US Bancorp,” Gerard Cassidy, an analyst at RBC Capital Markets, said in a note to clients.

“It will give the company greater flexibility in managing its balance sheet over the next two years.” — Bloomberg

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