Bowman: M&A overhaul needs updated competition consideration

Michelle Bowman

Reforms to bank merger guidelines must factor in the modern competitive threats community banks face from credit unions, fintechs and larger banks, according to Federal Reserve Gov. Michelle Bowman.

Bowman described the changes she deemed necessary on Sept. 28 during the Community Banking Research Conference in St. Louis. She suggested regulators expand their view of market competition, from focusing solely on the deposit market share community banks hold, to include how much of the market share is held by fintechs and larger banks based outside the geographic area.

The Department of Justice and bank regulators are evaluating their merger and acquisition policies for the first time since 1995. Last year, President Joe Biden issued an executive order calling on the attorney general and heads of federal banking regulatory agencies to update merger guidelines and oversight under the Bank Merger Act and Bank Holding Company Act. 

“While banks have adjusted their business models to address new competitive threats and changing customer demand, the framework for evaluating competition has not changed significantly since 1995,” Bowman said. “As these new competitors increasingly provide consumers with alternative delivery channels for the cluster of banking products and services they desire, we need to make sure we take appropriate steps to understand the competitive pressure they exert and modernize our approaches to measuring competition.”

 Bowman gave credence to concerns community banks and industry trade groups have expressed over more CUs expanding from their initial field of membership requirements and competing with banks for small business loans. Thirteen banks agreed to be sold to credit unions last year, close to 2019’s record of 16. Similar numbers are expected this year, according to American Banker.   

Bowman said community banks are also facing more competition from fintechs and larger financial institutions with robust digital banking programs. Online deposits increased by 42 percent from 2020 to 2021 while deposits at physical branches only grew by approximately 10 percent. The global fintech market, which was valued at $112.5 billion last year, is expected to increase to $332.5 billion by 2028 and expand at a 20 percent annual clip, according to a Vantage Market Research report earlier this year. 

Heightened competition comes as the number of bank charters continues to dwindle. The number of charters declined by approximately 20 percent in just the last decade, Bowman noted, a drop concentrated among banks with less than $250 million in total assets.