December 04, 2019

Senator Warren and Representative García Announce Introduction of the Bank Merger Review Modernization Act to End Rubber Stamping of Bank Merger Applications

Of the 3,819 bank merger applications the Fed received between 2006 and 2017, it did not decline a single one; Bicameral legislation would require bank regulators to seriously consider how the merger affects consumers and communities and whether it presents risks to financial stability; Bill would have prevented the expected SunTrust and BB&T merger, the first “Too Big to Fail” bank since the 2008 financial crisis

Washington, DC – United States Senator Elizabeth Warren (D-Mass.), member of the Senate Banking, Housing, and Urban Affairs Committee, and Representative Jesús “Chuy” García (D-Ill.), member of the House of Representatives Committee on Financial Services, today announced the introduction of the Bank Merger Review Modernization Act. The legislation would restrict harmful consolidation in the banking industry and protect consumers and the financial system from “Too Big to Fail” institutions, like those that caused the 2008 financial crisis. The upcoming merger between SunTrust Banks, Inc. (SunTrust) and BB&T Corporation (BB&T) will create the sixth-largest U.S. bank and first new Too Big to Fail bank since the financial crisis. Representatives Jan Schakowsky (D-Ill.) and Rashida Tlaib (D-Mich.) are original House cosponsors of the bill.

“Nearly two years ago, Chairman Powell confirmed my worst suspicions that the Fed has not declined a single merger request since before the financial crisis,” said Senator Warren. “The bill Congressman García and I are announcing today would ensure that regulators do their jobs by stopping mergers that deprive communities of the banking services they need, reward banks that cheat or discriminate against their customers, and risk another financial crisis.   

“When big banks get bigger, consumers and taxpayers usually lose. We must protect our financial system by slowing down bank consolidation. This bill will help address this, taking the Fed and FDIC off autopilot and giving consumers a voice in reviewing bank mergers,” said Congressman García.  

Before banks merge, they need approval from regulators, including the Federal Reserve (“Fed”), the Federal Deposit Insurance Corporation (FDIC), or the Office of the Comptroller of the Currency (OCC), but the review process for bank mergers is fundamentally broken. Voluntary bank mergers have driven a rapid decline in the number of banks since the financial crisis. Studies show that bank mergers can result in higher costs to consumers and decreased access to financial products, especially in rural areas. And when two large banks merge, it has even greater risks, potentially creating a bank that’s too big to manage effectively or creating a new Too Big to Fail bank that could threaten financial stability.

When regulators consider a merger they are supposed to evaluate a number of factors, including: (1) whether the merger will create local monopolies for banking services; (2) whether the merged bank will be well managed; (3) whether the new bank creates risk to the financial system; and (4) the merger’s effects on the public, including consumers. In practice, financial agencies almost exclusively focus their analyses on the impact of the merger on competitiveness and often pre-review the merger in secret with banks before they announce it publicly. As a result, the merger review practice lacks analytical rigor, and regulators serve as rubber stamps. Of the 3,819 bank merger applications the Fed received between 2006 and 2017, it did not decline a single one.

The Bank Merger Review Modernization Act strengthens and modernizes the statutory standards under which federal regulators analyze bank merger applications by:

  • Guaranteeing that the Merger is in the Public Interest. The legislation clarifies and strengthens the public interest aspect of the merger review by: Requiring Consumer Financial Protection Bureau approval when at least one applicant offers consumer financial products; Strengthening the Community Reinvestment Act (CRA) by only allowing institutions with the highest rating in two out of three of their last CRA exams to merge; and Requiring transparent disclosure of discussions between the institutions and regulators before the merger application is filed.
  • Safeguarding the Stability of the Financial System. The legislation requires regulators to use a quantifiable metric developed by the Basel Committee on Banking Supervision to evaluate systemic risk. The score is based on the size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity of the institution.
  • Requiring that Regulators Examine the Anticompetitive Effects on Individual Banking Products. The legislation requires regulators to examine how the merger would impact market concentration for individual banking products, such as commercial deposits, home mortgage lending, and small business lending rather than just the general availability of banking products in local markets.
  • Ensuring that the Merged Bank has Adequate Financial and Managerial Resources. The legislation requires regulators to review the leadership of the merged institution to ensure that the selected individuals have strong records with respect to risk management. Larger institutions would also have their balance sheets examined to ensure that they will be on solid financial footing.
The Bank Merger Review Modernization Act has been endorsed by Jeremy Kress, former Federal Reserve Board attorney and Assistant Professor of Business Law at the University of Michigan; the National Community Reinvestment Coalition (NCRC); Americans for Financial Reform; the Institute for Agriculture and Trade Policy; Communications Workers of America; the National Black Farmers Association; Iowa Citizens for Community Empowerment; and the Institute for Local Self-Reliance.

"Lax oversight of bank mergers hurts consumers and endangers the financial system,” said Jeremy Kress former Federal Reserve Board attorney and Assistant Professor of Business Law at the University of Michigan. “This bill will restore rigor in the merger review process and ensure that banks may merge only when it is in the public interest."  

"Banks are required to demonstrate public benefits when they merge. However, this legal requirement has often been implemented in an inconsistent and haphazard manner," said NCRC CEO Jesse Van Tol. "We support this bill because it finally reserves the privilege of merger approvals for only those banks that can pass a series of tests to prove that the public benefit requirement is met. With tougher CRA requirements, submission of a community benefits plan, tougher anti-trust scrutiny and heightened fair lending requirements, consumers will be better protected against many of the pitfalls of bank mergers. The bill also adds much-needed transparency to the merger review process. It will require disclosure of bank discussions with regulatory agencies during the merger process and citizens would have the right to appeal merger approvals in federal court. All of these changes will be good for the public.”

Senator Warren has a strong record of questioning Too Big to Fail banks and the regulators who enable them:

  • Senator Elizabeth Warren, the late Senator John McCain (R-Ariz.), Senator Maria Cantwell (D-Wash.), and Senator Angus King (I-Maine) re-introduced the 21st Century Glass-Steagall Act, a modern version of the Banking Act of 1933 (Glass-Steagall) that protects American taxpayers, helps community banks and credit unions compete, and decreases the likelihood of future financial crises. The group of lawmakers first introduced the bill in 2013
  • In January 2018, Senator Warren delivered a speech on the Senate floor opposing the nomination of Jerome Powell to serve as Chairman of the Fed. In her speech, Senator Warren expressed concern that Mr. Powell would weaken financial regulations rather than strengthen them, and urged her colleagues to reject his nomination. 
  • In March 2018, Senator Warren introduced the Ending Too Big to Jail Act to hold big bank executives accountable when the banks they lead break the law.
  • In response to a letter Senator Warren wrote in April 2018 to Chairman Powell and Attorney General Jeff Sessions in the wake of the passage of the Bank Lobbyist Act (S. 2155), which the senator correctly assumed would catalyze mergers among large banks, Chairman Powell admitted that no merger applications had been declined since 2006, though a handful had been withdrawn. Chairman Powell’s letter also revealed that in considering a merger application, the Fed largely looks at whether the merger would create monopolies for the merged bank in any market.
  • In February 2019, following the announcement of the merger proposal between BB&T and SunTrust, Senator Warren wrote to Chairman Powell asking about the proposed merger’s effect on consumers.
  • She also raised questions with Chairman Powell during a February 2019 Senate Banking, Housing, and Urban Affairs Committee hearing about closed-door discussions that take place before a merger application is filed. As a result, the Fed announced that it would hold two public forums to get public input on the BB&T and SunTrust merger.