The FDIC is seeking public comment on current bank merger policies, a strong signal that regulators are interested in more closely scrutinizing M&A activity.
The request for information touches on a number of crucial questions related to current bank merger regulations, including whether guidelines sufficiently address stability risks; if any merger that results in a combined financial institution with more than $100 billion in assets creates systemic risk concerns; and asks whether existing regulations require a sufficient burden of proof for banks involved in a merger.
The request for information played a key role in the early resignation of former FDIC Chair Jelena McWilliams, a Trump appointee. Last December, three Democrats on the FDIC board — current acting chair Martin Gruenberg, acting Comptroller of the Currency Michael Hsu, and Rohit Chopra, director of the Consumer Financial Protection Bureau — tried to launch the request for public comment on bank mergers without McWilliams’ support. She blocked that request from being published by her agency and rejected the request from Democrats to have their vote reflected as a valid board action. When Gruenberg began in his role as chair in early February, he signaled that the agency would take a more stringent approach on scrutinizing mergers than his predecessor, adding that the process for considering such transactions “has not been comprehensively reviewed in 25 years.”
Reviewing big-bank mergers has been a top priority for other leading Democrats. Last July, President Joe Biden signed an executive order instructing U.S. agencies to consider the impact bank consolidations could have on “maintaining a fair, open, and competitive marketplace, and on the welfare of workers, farmers, small businesses, startups, and consumers.” He directed the formation of a plan to revitalize merger oversight under the Bank Merger Act and the Bank Holding Company Act.
In releasing the RFI, the FDIC noted the rampant consolidation and growth of the largest banking institutions over the past three decades. The number of insured depository institutions with more than $100 billion in assets has exploded from only one in 1990 to 33 in 2020. Today, while less than 1 percent of insured depository institutions hold more than $100 billion in assets, they still handle approximately 70 percent of total industry assets and two-thirds of domestic deposits. The number of institutions with less than $10 billion in assets has declined approximately 68 percent, from nearly 15,100 in 1990 to 4,851 in 2020.
“The declining number of smaller insured depository institutions may limit access to financial services and credit in communities, potentially adversely affecting the welfare of the communities’ workers, farmers, small businesses, startups and consumers,” the FDIC stated.