Senator Warren Asks Banking Agencies to Strengthen Merger Review Standards
Commentary by Steven Lofchie
Senator Elizabeth Warren (D-MA) urged banking agencies to "accelerate" updating the bank merger review guidelines following the bank failures in March 2023.
In a Letter addressed to the DOJ, the FDIC, the OCC, the Federal Reserve Board and Treasury, Senator Warren argued that the recent bank failures require urgent action to strengthen the merger review process and stop the "dangerous trend of bank consolidation." She stated that no federal banking agency has denied a bank merger application in 15 years and that the DOJ has not challenged a bank merger in over 35 years. Senator Warren argued that the consolidation of banks hurts consumers by creating (i) "higher prices and more fees, lower deposit rates, less access to credit, bank branch closures, and job cuts" and (ii) more systemic risk in the financial system as a result of reducing the number of small banks while increasing the number of "too big to fail" banks.
To better understand the banking regulators’ and the DOJ’s process of amending bank merger review guidelines and standards to assess potential mergers, Senator Warren requested information on the following, among other things, by July 10, 2023:
- the expected release date of updated merger review guidelines and whether they will incorporate a competitive factors report that evaluates the "many ways in which competition manifests itself in a particular banking market";
- the framework used to assess a merger’s risk to the stability of the U.S. banking and financial system;
- the DOJ’s reasoning for moving away from "forcing banks to divest branches as a condition for approval" and instead allowing banks to determine resolutions for competition problems;
- banking regulators’ plans regarding whether updated merger guidelines will include a broad set of criteria; and
- whether banking regulators plan to include in their annual reports to Congress a summary of the competitive factors report provided by the DOJ.
Commentary
Senator Warren might want to propose a study (by "neutral" observers, if such persons exist) on whether Dodd-Frank has been a success. It was entirely predictable that the large regulatory costs imposed by Dodd-Frank would hurt small banks more, as they have less ability to spread costs, and thus favor the largest banks. Notably, consolidation is not confined to the banking industry: the number of broker-dealers and FCMs has also declined.
This is not to say that regulatory costs are the sole cause of consolidation; there are a lot of reasons why bigger is better in today's financial markets, but not every market development is a justification for additional regulation.