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

December 4, 2019
Press Release
Bicameral legislation would require bank regulators to seriously consider how the merger affects consumers and communities and whether it presents risks to financial stability

Washington, DC - Congressman Jesús "Chuy" García (D-Ill.), member of the House of Representatives Committee on Financial Services and United States Senator Elizabeth Warren (D-Mass.), member of the Senate Banking, Housing, and Urban Affairs Committee, 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.

"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. 

"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.  

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; 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."  

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