US banks told not to use Covid-19 as cover for branch closures

US banks will not be able to use Covid-19 as cover to shut branches or to win permanent concessions from regulators, according to one of America’s top banking watchdogs, who said he “was not prepared to revisit the fundamentals of bank regulation” as a result of the pandemic.

Brian Brooks, acting head of the Office of the Comptroller of the Currency, a federal banking regulator, issued his warning in an interview with the Financial Times.

Existing rules governing branch closures would remain in place, he said, and banks should not expect a permanent extension of the waivers they have enjoyed on some regulations to keep them lending through the pandemic.

“I don’t believe this is the worst thing that’s ever happened in the history of the Republic and so therefore I’m not prepared to revisit the fundamentals of bank regulation,” Mr Brooks said.

Brian Brooks, acting head of the OCC © Office of the Comptroller of the Currency

The 50-year-old lawyer — whose career includes roles at OneWest Bank and Fannie Mae as well as, most recently, as chief legal officer at the cryptocurrency exchange Coinbase — was appointed acting head of the OCC in May.

He has already warned of the dangers of overreacting to coronavirus, telling US mayors and governors within days of starting in the job that they were endangering the financial system by locking down economies. He told the FT he has flown 50,000 miles in the past three months, despite the pandemic.

With branches temporarily shut because of coronavirus and customers using more online services, bankers have privately said they hope the pandemic will help them to accelerate branch closures. The number of US bank branches has shrunk by more than 4,500, or about 6 per cent, since 2010, according to data compiled by the Federal Deposit Insurance Corporation.

National banks must give the OCC 90 days’ notice of any plans to shut branches, including a detailed rationale for their decision. Mr Brooks said those rules would remain in place.

“I think the idea of, ‘we’ll just go ahead and let branches abandon our cities’ — I think we’d regret that on the back end of this,” he said.

The pandemic, he said, was a “one-time event that . . . has affected a relatively small sliver of society compared to the number of people who depend on financial services and branches”.

He also said banks should not use coronavirus to discourage customers from using cheques, as some executives privately say they have done by stressing the fact that cheques could be disrupted by postal service delays.

“People who want to be allowed to use cheques should be,” he said. “I really do hope that we don’t overindex on Covid-19 . . . Don’t get me wrong there, it is a big deal, but it should not be cover for a whole bunch of unrelated stuff.”

Column chart of Number of branches showing The number of US bank branches has shrunk by 6% since 2010

Mr Brooks added that he saw no case for suspending bank merger activity because of the pandemic. Regulators, including the OCC, have given banks relief on some measures during the crisis, including how they treat loans that are not being fully repaid, but accounting changes can only shield banks from recognising losses for so long.

“There will come a time where the economic data gets negative enough that it won’t be able to be ignored,” Mr Brooks said

“If you get to a place where outside of commercial real estate and small business lending we start to see other spikes in delinquencies, at a certain point we’re going to have to stand up and say, ‘OK guys, you know the banking system’s at risk’,” he said.

But he defended US banks’ continuing to pay dividends, although those payments are now capped by the Federal Reserve. “I don’t think there’s any . . . a priori reason why they can’t pay dividends because there’s a pandemic.”