By Nicole D. Prysby, J.D.
Senator Warren has renewed questions to the Federal Reserve about its oversight process for bank mergers and acquisitions. She expressed concern that the Fed’s high approval rate for mergers, along with recent regulatory changes, will lead to an increase in mergers without meaningful consumer protection checks.
Hours after Suntrust Banks, Inc. (Suntrust) and BB&T Corporation (BB&T) announced their agreement to merge, Senator Elizabeth Warren (D-Mass.) called into question the Federal Reserve Board’s approval process for bank mergers and acquisitions. In her letter to Fed Chair Jerome Powell, Warren renewed concerns that the Fed is approving virtually all merger and acquisition applications, without providing adequate scrutiny or oversight. "The Board's record of summarily approving mergers raises doubts about whether it will serve as a meaningful check on this consolidation that creates a new too big to fail bank and has the potential to hurt consumers," Warren wrote. As previously reported, the Suntrust/BB&T merger would create the sixth largest bank in the United States, with approximately $442 billion in assets.
Initial concerns. Warren initially wrote to the Fed about her concerns regarding bank mergers and acquisitions in April 2018. At that time, Warren sought information on the number of mergers and acquisitions and the Fed’s approach to protecting consumer interests. In May 2018, Powell responded to Warren’s initial questions, stating between 2006 and 2017, the Fed received 3,819 applications for bank mergers. Of those, 3,316 were approved, 503 were withdrawn by the applicant, and none were denied. The Fed sought divestment of branches as a merger remedy in 16 of the mergers.
Despite these numbers, Powell maintained that the Fed believes its approach is sufficient to protect the necessary interests. According to Powell, while the banking industry has become more concentrated at a national level, concentration in local banking markets has remained fairly constant. This suggests that the Fed’s antitrust policy has dissuaded the filing of applications for merger that would have led to an increase in local market concentration.
Renewed call for increased scrutiny. In her follow up letter, Warren argued that the Fed’s 86.8 percent approval rate for merger applications, combined with recent regulatory and legislative changes, raises concerns that the Fed, under Powell’s leadership, "may oversee a wave of bank consolidation."
Since April, Warren noted, President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which reduced federal oversight of banks with between $50 billion and $250 billion in assets (a group that includes both Suntrust and BB&T). In addition, the Office of the Comptroller of the Currency has taken steps to alter rules implementing the Community Reinvestment Act (CRA). The CRA and its implementing regulations require federal financial regulators to consider a bank’s CRA record in evaluating and approving applications bank mergers and acquisitions. "A loosening of CRA standards would also ease restrictions on mergers and reduce the Board's ability to adequately assess their impact on local communities," Warren argued.
As a result, Warren requested that the Fed provide information on whether it has seen an increase in the volume of merger applications since the passage of the EGRRCPA, how CRA compliance factors in to merger activity, details for withdrawn merger applications, additional information requested after a merger application is submitted, consideration of adverse public comments on merger activity, and the extent to which Fed staff have informal conversations with applicants outside of the pre-filing process.
Companies: BB&T Corporation; SunTrust Banks, Inc.
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