Federal Reserve Gov. Michelle Bowman wants regulators to take a broader view of competition when weighing proposed bank mergers.
Speaking at the Conference of State Bank Supervisors' Community Bank Research Conference on Wednesday morning, Bowman said competition from credit unions, digital banks and nonbanks — all of which have dramatically increased their reach in recent decades — should be factored into market analysis when evaluating bank combinations.
"As the nature of competition changes, it creates an opportunity for us to rethink how we evaluate bank mergers, how we define banking markets, and how we develop a more comprehensive understanding of the ways consumers and businesses access financial products and services today and how they might do so in the future," she said.
Bowman's remarks come as bank regulators and the Justice Department are reviewing their policies for
Bank merger reform was identified as a priority
Bowman, the lone member of the Fed's committee on supervision and regulation, called for changes to the screening process that would make it easier for community banks to merge with one another without exceeding the limits on deposit shares of a given market.
In her speech, Bowman cited several key changes in the financial landscape since the last time bank regulators reformed their merger policies.
Credit unions are not considered competitors to banks because, historically, their field of membership restrictions limited how many deposits they could amass and the lines of business in which they could be active. As credit unions have grown their membership fields and moved into small-business lending and commercial lending, Bowman said, they can now compete directly with banks.
"Credit unions whose field of membership includes all, or almost all, of the market populations, whose branches are easily accessible to the public, who engage in a significant amount of commercial lending and who have staff available for small- business services, or who have acquired a community bank should be part of any initial competitive screen," Bowman said. "It's also important that the National Credit Union Administration collect more granular deposit information from credit unions so we can better understand their local market power."
She added that "similar activity should be subject to similar data collection and regulation."
Bowman also called for screening procedures to take into account the rise of online banking, which makes it easier for consumers to bank with institutions that do not have physical branches in their area. She noted that more than 5% of deposits are made digitally.
"In the absence of specific data about a digital bank's presence in a market, those deposits should be weighed in pro rata in each banking market at the percentage reported annually in the summary of deposits in any competitive analysis," she said.
Bowman also addressed non-bank competition, which she noted is the most difficult to account for given the limited data available on the deposits and activities of these entities. In recognition that these entities compete directly with banks with products for mortgages, consumer loans, small-business loans and student loans, she suggested relaxing the overall deposit-market share threshold to which mergers are held.
Bowman said more research is needed to determine the exact impact of new competitors in the financial services sector, but it is clear that standards need to be updated to prevent banks from being unduly disadvantaged.
"Our current framework is meant to promote a competitive marketplace for banking products and services," she said. "But if that framework does not account for the full range of competitors, we're only restricting banks from making strategic merger choices, while allowing those outside the framework to proliferate."
