Fed Proposes Rating Overhaul to Ease US Bank M&A

The Federal Reserve has proposed changes to its large financial institution rating framework, which could facilitate mergers and acquisitions (M&A) among major U.S. banks by adjusting the standards determining whether a bank is 'well managed.' Currently, a deficient-1 rating in capital, liquidity, or governance prevents banks from engaging in M&A. The new proposal would require deficiencies across multiple categories or a more severe deficient-2 rating for such restrictions to apply. This move has drawn mixed reactions from Fed officials; while Fed Vice-Chair for Supervision Michelle Bowman supports the proposal as a more accurate reflection of financial risks, Governor Michael Barr warns that it may increase the risk and cost of bank failures. Separately, India is contemplating landmark banking reforms to propel economic growth. The reforms include allowing large corporate groups to apply for banking licenses and potentially easing foreign investment rules for state-owned lenders. Neither initiative is finalized. Meanwhile, Mitsubishi UFJ Financial Group (MUFG) is expanding its global securitization business, focusing on North America and increasing personnel by 25%. This expansion targets securitized products backed by diverse assets, including data center project finance. Australia's central bank is testing a wholesale digital currency in a collaborative effort with major banks to explore the future of tokenized assets.