M&A / FundingPolitics & Money

CFPB, FDIC requesting input on regulating bank mergers

The Consumer Financial Protection Bureau (CFPB) and Federal Deposit Insurance Corporation (FDIC) are requesting public input on guidance regarding the Bank Merger Act.

In a joint statement on Thursday, Rohit Chopra, director of the CFPB, and Martin Gruenberg, director of the FDIC, said “significant changes” over the past several decades in the banking and financial system have prompted the regulators to review the agencies’ policy framework surrounding bank merger transactions.

Among the reasons for the review, the directors noted that decades of bank consolidation have increased the number of large banks — especially insured depository institutions with total assets of $100B or more — and significantly reduced smaller banking organizations. The directors also pointed out the Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Bank Merger Act to include, for the first time, a financial stability factor that is being taken into consideration.

The pair also highlighted Biden’s July Executive Order that instructed U.S agencies to consider the impact that consolidation may have on maintaining a competitive marketplace.

“Thus, the agencies have determined that it is both timely and appropriate to review the regulatory
framework and consider whether updates or other changes are warranted,” the directors said.

The Bank Merger Act, drafted originally in 1960, prohibits the FDIC from approving any proposed merger transaction that would result in a monopoly, and/or the attempt to monopolize the business of banking in any part of the United States.

According to the request for input from the CFPB, since 1990, the number of institutions with assets less than $10 billion has declined drastically from 15,099 to 4,851 in 2020, a reduction of approximately 68%. Consolidations at this scale may limit access to financial services and credit in communities and affect small businesses, startups, farmers and consumers, the CFPB said.

The top four banks – JPMorgan, Bank of America, Wells Fargo and Citibank – hold the same amount of assets as the next 300 combined, about $9 trillion. Most recently, Morgan Stanley was approved to purchase E*TRADE and its subsidiary associations, and PNC was granted approval to acquire BBVA USA and its subsidiaries.

At the end of September, Sen. Elizabeth Warren, D-Mass., and Rep. Jesús “Chuy” García, D-Ill., reintroduced a bill that would ramp up scrutiny of proposed mergers between the country’s biggest banks: the Bank Merger Review Modernization Act. The legislation would “restrict harmful consolidation in the banking industry and protect consumers and the financial system from ‘Too Big to Fail’ institutions, like those that caused the 2008 financial crisis,” Warren said in a statement.

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