WASHINGTON — From the beginning, the Consumer Financial Protection Bureau has been front and center in the Biden-era tussle over bank merger rules.
Now, the role the agency will play in bank mergers is a key point of division between advocates for more stringent rules and banking groups, who mostly want the rules tweaked to account for fintech entrants into the financial system.
The bank-merger policy fight started with Rohit Chopra, director of the CFPB, and Martin Gruenberg, the now-acting chair of the Federal Deposit Insurance Corp., pushing to review merger rules in a conflict that ultimately
The FDIC provided a 60-day comment period, which ended on Monday, for stakeholders to weigh in on its revamp of bank merger policy.
The CFPB question
Currently, the CFPB plays an informal part in bank mergers, using its data collection abilities to give input into the consumer impact of potential deals, although advocates for a review of bank merger policy note that other banking agencies aren’t required to take the CFPB’s feedback into account.
In its request for information, the FDIC asks if the consumer agency should have a stronger role.
“Knowing that the banking agencies deemphasize consumer compliance, prospective merger applicants will have insufficient incentives to maintain strong compliance systems,” Jeremy Kress, an assistant professor in business law and co-faculty director of the Center on Finance, Law & Policy at the University of Michigan, said in a comment letter to the FDIC. “Excluding the CFPB from bank merger review minimizes the importance of consumer compliance and thereby imperils the public welfare.”
Kress, who has submitted comments jointly with Chopra in the past about bank merger policy, suggests in his comment letter to the FDIC that banking agencies formally notify and request feedback from the CFPB whenever a bank with more than $10 billion of assets submits a merger application.
Banking agencies would also not approve any application without a favorable recommendation from the head of the CFPB, Kress recommends.
Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, was more measured. He wrote that weighing issues around how a bank merger would affect consumers has “effectively evaporated as a constraint on bank mergers” in recent years. The CFPB has the expertise and the data to weigh in on consumer-related concerns, and so should be consulted, he wrote.
Groups representing banks, meanwhile, pushed back on the idea that the CFPB should be more involved in bank mergers. The American Bankers Association wrote that a separate role for the CFPB would be “superfluous to existing considerations.”
“With respect to CFPB involvement in merger reviews, the Bank Merger Act already specifies how mergers are to be evaluated, and the specific agency responsibilities are well defined,” the group said.
The Banking Policy Institute argued that the CFPB doesn’t have “the range of information to assess the question whether the transaction serves the convenience and needs of the community to be served,” saying that it’s a broader questions than whether a bank involved in a merger is complying with consumer protection laws governed by the CFPB.
“Participation by the CFPB in the application process would extend beyond the role that Congress delineated for the CFPB,” the group said in its comment letter. “When Congress established the CFPB in the Dodd-Frank Act, there was no suggestion in the statute or legislative history that the CFPB should have any sort of concurrent role respecting mergers, or even be accorded a special right of comment.”
Large regionals
Biden-era bank regulators have also
Among the questions raised by the FDIC in its request for information are whether regulators should give more consideration to financial stability and to whether, if the resulting merged bank were to go under, the bankruptcy could be resolved without undue stress to the financial system.
Banking groups spoke out strongly against toughening financial stability requirements for large regional bank mergers. The Bank Policy Institute wrote that resolvability requirements would carry significant costs without generating offsetting benefits. The trade group also said that any substantive changes should come from Congress rather than banking regulators.
Specifically, the FDIC asked for input on the proposed $100 billion threshold. Some commenters, including former heads of the FDIC Sheila Bair and Thomas Hoenig, said that the FDIC should not judge the financial stability of a bank based on its size alone.
“Mergers among banks of $100 billion are unlikely to represent either a systemic risk within the economy or result in an undue concentration of deposits at the national level,” the pair of former regulators wrote. “Presuming that banks with assets of $100 billion are necessarily systemic or that mergers among them would undermine competition is regulatory overreach.”
Instead, Hoenig and Bair said that regulators should consider raising capital levels if they’re concerned about the systemic risks that large banks pose to the financial system.
“The better way to promote competitive and stable markets is to apply current antitrust standards consistently across banks and geographic markets while raising capital standards to levels that enable the largest, systemically important banks to better withstand future economic shocks,” they wrote.
The American Bankers Association also said that banks with more than $100 billion of assets shouldn’t be automatically assumed to pose a financial stability risk, and that there are already existing restrictions on the country’s largest banks.
Other banking industry concerns
In other issues the banking industry highlighted with the FDIC’s review of bank merger policy, the Bank Policy Institute questioned whether the FDIC’s analysis and impetus for putting out the request for information — the decline in the number of small banks and growth in large ones — is overstated.
The trade group says that, in part, the FDIC doesn’t account for general economic growth and inflation when calculating bank size, and that the FDIC’s analysis does “not include other data relevant to assess the effectiveness of the existing merger framework, such as the increase in the number of bank branches, the decline in the unbanked population, and the rapid growth of entities that perform similar functions as commercial banks but are outside the bank regulatory perimeter.”
The American Bankers Association also points to fintech firms, and asks that the FDIC consider data related to online banking and fintech lending when reviewing bank merger applications and considering what’s defined as an area’s “market.”
“Small institutions may be prevented from merging if the government assumes they are the only competitors in their geographic markets, as FDIC, the other bank regulatory agencies, and the Division define those markets,” the group wrote. “This outdated conception fails to reflect the competitive impact of online channels and other means of delivering financial services that do not depend on physical branch networks and are not captured by current competitive analyses.”
