U.S. Bank retains lower capital classification by the Federal Reserve
In a significant development, the Federal Reserve has approved U.S. Bank's request to retain its Category III designation, providing relief from stricter capital requirements reserved for Category II banks. This decision was announced on Tuesday.
The approval follows Fed Gov. Michelle Bowman's objection to the prospect of U.S. Bank being reclassified to Category II status as a result of its $8 billion acquisition of MUFG Union Bank, which was completed in December. Bowman asserted that reclassification should stem from concern over financial stability, not a predetermined time frame.
Since the acquisition was approved, U.S. Bank has been actively reducing its assets and risk profile. The bank has completed loan sales and securitizations of approximately $7 billion, and has reduced its investment securities portfolio by approximately $30 billion.
The exact time when the Federal Reserve approved U.S. Bank's application for full release from Category II obligations is not specified in the available search results. However, the decision has been welcomed by analysts, with Gerard Cassidy, an analyst at RBC Capital Markets, stating that the ability to maintain U.S. Bank's Category III status provides the firm more flexibility to manage its balance sheet over the next two years.
At the time of the MUFG Union transaction close, the Office of the Comptroller of the Currency estimated U.S. Bank would have $679.6 billion in total assets and $51.6 billion in capital. U.S. Bank has promised the Federal Reserve it would continue to shrink its assets and reduce its risk profile, with the bank anticipating taking further actions to reduce its projected risk profile, including further net reductions in assets and increases in regulatory capital.
Cassidy also expressed that the regulatory change is very positive for U.S. Bancorp, highlighting the benefits of maintaining Category III status for the bank's future operations. This approval marks a significant step forward for U.S. Bank as it continues to navigate its growth and risk management strategies.
