In his final speech while serving in the Office of the Comptroller of the Currency, Keith Noreika questioned the need for bank holding companies, suggesting that such a structure offers little benefit at the expense of high regulatory compliance costs.
Referencing Bank of the Ozarks, Noreika said he could imagine other companies following suit in shedding their holding companies and consolidating their regulators. Noreika said banks lose "virtually nothing" by doing away with their holding companies, alleging that post-crisis Dodd-Frank regulations and Basel capital rules have reduced the flexibility of bank holding companies to issue unique capital instruments and downstream that capital to their subsidiaries.
"Many community and regional banking organizations are realizing that the extra and duplicative costs of maintaining a holding company make little business and economic sense," Noreika said.
Noreika said he would like to see Congress legislate regulatory changes that would simplify the oversight of holding companies. He reiterated that when a depository institution makes up about 90% of a holding company's assets, the same regulator should supervise both entities.
The usefulness of the bank holding company partially depends on the firm's size, he noted. Regarding a Senate proposal to raise the threshold of the small bank holding company policy statement from $1 billion to $3 billion, expanding the pool of companies that can take advantage of more-flexible debt requirements, Noreika said he likes the idea of expanding the scope of the statement to allow more companies to raise capital cheaply at the holding company level.
But Noreika added that even without congressional action, banks could legally take matters into their own hands by altering their structures for the purposes of cutting additional costs.
"Ultimately, companies like Bank of the Ozarks will have the final word on whether bank holding companies are obsolete," Noreika said.
Noreika's speech will be his last while serving at the OCC; he is set to resign at the end of the day Nov. 28. Joseph Otting was sworn in as the 31st comptroller of the currency on Nov. 27.