The Office of the Comptroller of the Currency's approval of the pending deal between New York Community Bancorp Inc. and Flagstar Bancorp Inc. is subject to multiple conditions related to digital assets.
One merger approval condition from the banking watchdog is related to New York Community's participation and equity investments in the USDF Consortium, an association including nine banks that aims to further the adoption and interoperability of tokenized deposits by referencing fiat currency on blockchain.
New York Community's unit, New York Community Bank, is a founding member of the Consortium and participated in one of the first tests in January, helping a customer receive payments via USDF minted by another member, NBH Bank, a subsidiary of National Bank Holdings Corp. The Consortium relies on the Provenance Blockchain, a public blockchain that can be accessed by developers via Provenance's utility token Hash.
As New York Community Bancorp and Flagstar Bancorp plan to form a national bank as a result of the merger, to be known as Flagstar Bank NA, the combined entity is required to obtain written permission from the OCC to retain its membership interest in the USDF Consortium, according to the merger approval letter released by the OCC. Flagstar Bank NA will otherwise be required to divest the interest and any related holdings of Hash within two years from the date when the merger is completed.
Additionally, Flagstar NA shall not increase its membership interest in the USDF Consortium or its holdings of Hash or any other crypto-assets without the OCC's permission, according to the approval letter.
In another digital-asset related condition, Flagstar NA must submit, within 30 days after the merger is closed, a written request for supervisory non-objection regarding activities related to crypto-asset, distributed ledger or stablecoins addressed in OCC Interpretive Letters 1170, 1172 or 1174. Flagstar NA will otherwise cease and divest of these activities within two years after the merger closes, according to the approval letter.
"We view these conditions as consistent with the OCC's well publicized view that banks should receive prior approval before engaging in any activities related to digital assets or blockchain," said Rob Morgan, CEO of the USDF Consortium. "We always anticipated that moving forward, these types of new activities would require regulatory approval, and we remain committed to working with the banking agencies as we pursue those approvals."
Other bank members of the USDF Consortium include FirstBank, a subsidiary of FB Financial Corp.; Webster Financial Corp.'s Webster Bank NA; Synovus Financial Corp.'s Synovus Bank; Amerant Bank NA; Atlantic Union Bankshares Corp.'s Atlantic Union Bank; ConnectOne Bancorp Inc.'s ConnectOne Bank; and Primis Financial Corp.'s Primis Bank.
In addition to conditions related to digital assets, the OCC also asked that Flagstar NA shall divest or conform to the requirements for a national bank to hold its investment in NYCB Insurance Agency Inc. within two years after the merger closes.
To ensure the national bank has sufficiently allocated resources to address supervisory issues that arise post-merger, Flagstar NA shall not declare or pay any dividend without prior permission from the OCC for a two-year time period, according to the approval letter.
New York Community Bancorp and Flagstar Bancorp have agreed to extend their merger agreement to Dec. 31 as they await approval from the Federal Reserve. Analysts anticipated that the deal is likely to close in the near term.
The OCC declined to comment. New York Community Bank and Flagstar Bank did not respond to requests for comment.