Will New Administration Rewrite the Rules on Banking Mergers?

Subscribe to The Financial Brand by email for FREE!

In a major turn of events that could materially affect the size and composition of the banking sector, a new debate on bank merger policy could be about to begin in Washington - this time at the behest of the Democrats.

The battle lines are already firmly established. That's because there was a dress rehearsal in the final days of the Trump administration.

The difference is that while the previous administration's Justice Department called for a review of merger policies with a view to liberalizing them, a democratic DOJ would seek to combat alleged negligence in merger permits and the tightening of standards in the past.

Senate Banking Committee Chairman Sherrod Brown, D.-Ohio; and House Financial Services Committee Chairman Maxine Waters, D.-Calif., And Senator Elizabeth Warren, D.-Mass., Of the Legislature to push through policy changes in this area. Several sources predict that the Biden administration is about to open the matter.

The fulcrum of the struggle is merger policy guidelines, which the Justice Department uses to assess proposed bank mergers and acquisitions. Although various measures have been added, the basic guidelines have not been changed since 1995.

Competition means more than just industries:

The debate that is emerging won't necessarily sync with the world where many bankers where a credit union operates are competing.

Proponents of change have pointed out that political mechanisms for assessing the effects of mergers on competition, even with subsequent adjustments, are the emergence of online deposit registration and pure online banks, fintechs and neo-banks as well as increasingly broader lending by - and a liberalized charter Scope for Ignore - Credit Unions. Indeed, while not a tidal wave, acquisitions of banks by credit unions are more common today than they were when the rules were written.

(sponsored content)

Traditionally, the competitive screening process has focused on geography - the presence of offices in specific markets. The long-term measurement of competitive concentration is a complex formula known as the Herfindahl-Hirschman index.

The typical remedy against market dominance was the sale of branches in the affected markets. The sale to other institutes should preserve the competition. This practice continues despite the growing role of the internet and mobile banking.

"Branch Desert" worries:

Many Democrats and stakeholders believe that merger controls have not been able to cope with the loss of competition in both urban and rural communities. They also worry about a complete loss of banking services.

Continue reading:

The banks' merger policy is drawn into several social problems

The Biden government is expected to enforce more antitrust law overall. Antitrust law has historically been at the core of the Justice Department's merger controls. But the debate about bank mergers is sure to expand to include the impact on people in low-income and low-income communities, as well as minority neighborhoods.

The toning down of DOJ competitive analysis proposed by the Trump administration is now clearly off the table. As it was, the Democratic view, as expressed in a Warren Policy Brief, is that "the practice of merger review is not strict enough and regulators are the stamps".

One criticism of this camp is that almost no bank mergers have been frowned upon in decades. Proponents counter that part of this reflects behind the scenes regulatory proposals to drop a merger idea before it is officially submitted for approval. It is not uncommon for agencies to execute many government requests before they go "real".

The Bank Merger Review Modernization Act was introduced by Warren and others at the previous Congress and is expected to be reintroduced with a chairman of the Senate Democratic Banking Committee (Sherrod Brown) chairman. The legislation includes these major changes to the assessment process:

• Ensure that the merger is in the public interest - Including approval from the Consumer Financial Protection Bureau if any of the merging institutions offers consumer banking products. Currently, only the primary federal regulator of the surviving institution weighs beyond the DOJ.
• Maintaining the stability of the financial system. Congressional opponents of deals like the SunTrust-BB&T merger that created Truist have raised the problem of "too big to fail".
• Need for regulatory analysis of anti-competitive effects on certain banking products. At this time, only general availability of banking products is taken into account, not certain ones such as mortgages and small business loans. (The growing role of online services will complicate the debate or be politically ignored.)
• Assessment of the merged institution in terms of financial and administrative resources.

When the former head of the DOJ's Antitrust Department asked for comments on the bank merger guidelines, a group of members of Congress wrote, “As the financial industry changes, we urge the DOJ to protect our communities and its guidelines for the Strengthening the merger instead of bowing to industry pressures and rollback protection. “The group included Jesus Garcia, D.-Ill., A sponsor of the House version of Warren's Legislation and Vice-Chair of the Progressive Caucus of Congress, and Alexandria Ocasio-Cortez, D.-NY.

“In many cases, bank mergers have already increased costs and decreased credit availability, while fees have increased and investments have been discouraged. These effects have intensified in working class color communities. "

- Commentary on M&A from Congress progressives

The letter also states: “While these communities are already facing additional barriers to accessing credit, research shows that predatory financial services providers such as check cashing companies are expanding into areas affected by bank mergers with high fees. This not only restricts these communities' access to credit, but also opens them up to priceless debt cycles and unscrupulous debt collection agencies. "

Business banking is also at play:

Opponents of the liberalization directives have accused that bank mergers tend to reduce the supply of credit to small businesses.

REGISTER FOR THIS FREE WEBINAR

Personalized communication in financial services

Join Messagepoint to find out what role customer communication plays in CX and how you can effectively overcome these barriers to success with personalized communication.

Wednesday, June 2 at 2 p.m. ET

Fintech's activities are not necessarily on the radar

Regarding fintech's impact on service delivery, the National Community Reinvestment Coalition wrote, “… Digital financial services providers may not have much impact in low- and middle-income areas because customers unfamiliar with banking are less likely to be significant digital banking operations are taking place. On the small business side, the coalition noted that Federal Reserve research has shown that small businesses "tend to be less satisfied with fintech loan terms."

The group also called for special requirements to be imposed on very large mergers, for example for institutions in which institutions over $ 10 billion are involved. In particular, merger requests would have to contain “charitable plans” that would affect the entire geographic footprint of the merging institution. (In the case of very large mergers, it is common for institutions to voluntarily provide grants or other assistance to community groups in affected areas.)

While banking regulators' reviews of mergers went beyond antitrust considerations, the coalition noted that "agency implementation of the public benefit or convenience and needs factor has been inconsistent and inconsistent".

With regard to fintechs, the congressional letter states: "The unregulated growth of complex non-bank financial institutions makes proper monitoring of the growth and financial relationships of our banks essential for the management of systemic risk in our economy."

Banking groups also have arguments on offer

Many of the points raised by banking lobby groups commenting on the Trump DOJ's proposal may now be contentious, but some could still feed into the current debate.

For example, regarding the impact of bank mergers on rural areas, the Independent Community Bankers of America argue that facilitating the merger of rural banks will preserve banking services.

"Increasing regulatory burdens have forced many small banks to merge to achieve economies of scale in order to remain economically viable," wrote ICBA. “While these mergers appear to be quantitatively anti-competitive, they often result in stronger financial institutions that are better able to cope with compliance burdens, deploy technology, provide local households and small businesses with improved products and services and non-local ones Internet to compete. Lenders who are not physically present in rural areas. "

The American Bankers Association suggests assessing the presence of credit unions and savings banks in a market, as they often compete directly with banks and are a legitimate factor in those markets.

The Bank Policy Institute argued that the internet has changed the nature of competition. "The banking markets have become more efficient in terms of information," wrote the major banking group, "which can be just as important for ensuring competition as the number of competing companies."

read more

https://businessservicesnews.ca/will-new-administration-rewrite-the-rules-on-banking-mergers/