FDIC's Hill criticizes Biden-era approach to bank mergers

WASHINGTON — The Biden administration had a "misguided" hostility toward mergers overall that affected bank deals, acting Federal Deposit Insurance Corp. Chair Travis Hill said Tuesday.

That antipathy "was premised on a couple of things, one being the perception that more bank mergers was leading to a lack of competition in banking," Hill said at a fireside chat at the U.S. Chamber of Commerce's Capital Markets Forum.

"Another, that it was responsible for consolidation and the reduction in bank charters over the years. I think generally, both of those are premised on faulty logic," he said.

Hill argued that, contrary to critics of consolidation, today's banking landscape is competitive due to the draw of nonbanks offering bank-like services to customers. 

While the number of bank charters has declined, it's not because mergers have grown in prevalence, but because new bank formations — often called de novo banks by insiders — have dropped, he said. 

Hill suggested that when evaluating mergers, regulators should weigh potential benefits such as financial stability as well, citing SVB and First Republic as cases where timely acquisitions could have mitigated broader risks that contributed to their failures in 2023.

"I would expect we would look at whether there needs to be some more tailoring of the framework for rural institutions," he said 

"Sometimes, if you have two banks in a rural area that don't have a lot of activity, that can change the analysis in ways that maybe don't necessarily reflect the facts of the ground," Hill said. "Looking at whether there are additional ways to factor in nonbank competition, into the competition factor, taking a look at [Herfindahl-Hirschman Index] … so I think we may think about, are there other modifications that are warranted there but that still provide sort of the transparency and predictability."

Hill said discussions around the Basel III endgame — the comprehensive capital reforms contemplated but left unfinished in the Biden era — are still ongoing, but a revised proposal is likely. While acknowledging the shift in direction since 2024, he said the FDIC is brainstorming ways to rework the proposal.

Hill outlined several priorities: preserving tailoring regulation to bank size and complexity, removing unnecessary complexity and reconsidering the single vs. double stack capital framework — a key source of complexity in the 2023 proposal. He noted the challenges of fluctuating risk weights and suggested that a single-stack approach could offer more stability. 

"One of the reasons for that complexity [of the initial proposal] is this having multiple standardized approaches that institutions would have to work towards," Hill said. "I think that on a quarter basis, that potentially could be very challenging to manage if you're ricocheting back and forth, where you have dramatically different risk weights for the same exposures."

In the context of U.S. bank capital requirements, a dual-stack approach requires large banks to calculate their capital requirements using both a standardized method and a more advanced method and must hold the higher of the two capital levels. A single-stack approach would use just one method for calculating capital requirements, potentially simplifying the process. 

On market risk, Hill said the FDIC is waiting to see the Fed's next steps on stress testing before making major changes to the fundamental review of the trading book. The FRTB standards are set by the Basel Committee as a framework to prevent regulatory arbitrage, by which firms could choose to pinpoint their trading behavior in less stringent localities.

Hill also noted that changes are "potentially coming" to the FDIC board, and future movement on unfinished issues like reworking a rescinded custodial deposits regulation will depend on the board's composition and appetite for reform.