A group of Senate Democrats are urging the Federal Reserve to more rigorously review the impact of bank mergers on financial stability following several high-profile bank failures earlier this year.
The group of Democrats penned an Aug. 9 letter to Federal Reserve Chair Jerome Powell and Vice Chair for Supervision Michael Barr. Signers included Senate Banking Committee Chair Sherrod Brown (D-Ohio), Jack Reed of Rhode Island, Elizabeth Warren of Massachusetts and John Fetterman of Pennsylvania.
Federal banking regulators have been required to consider financial stability in evaluating bank mergers since the 2010 Dodd-Frank Act. Still, the lawmakers said regulators have not sufficiently enforced the requirement, which they deem as especially important in the wake of the failures of Credit Suisse, Silicon Valley Bank, Signature Bank and First Republic Bank.
“We are concerned that the Federal Reserve has still not issued any rules or guidance indicating the types of bank mergers that would implicate financial stability concerns,” they wrote. “The application of the financial stability factor has not been rigorous enough. In the past, Federal Reserve orders approving mergers have contained cursory analysis and reasoning to support the determination that such mergers would not result in greater financial stability risks.”
The letter came as federal agencies tighten their M&A review policies. In June, Department of Justice Assistant Attorney General Jonathan Kanter announced the agency would expand its M&A competitive review process to include fees, interest rates, branch locations and the potential to further consolidate power in an already dominant bank. “These analyses will include consideration of concentration levels across a wide range of appropriate metrics and not just local deposits and branch overlaps,” Kanter noted.
The Biden administration has called on the Department of Justice and federal banking regulators to update bank merger oversight issued in 1995, which emphasized the role of local branch deposits in measuring market concentration and competition. The Office of the Comptroller of the Currency is also reviewing its bank merger policy. Acting Comptroller Michael Hsu has said that the rise of nonbanks, credit unions and large tech companies entering the payments landscape, the increasing use of technology by consumers and burgeoning economic inequality make reevaluating the guidelines necessary.