Brown calls on Fed, OCC to join FDIC on merger reform

WASHINGTON — The chair of the Senate Banking Committee called on the Federal Reserve and Office of the Comptroller of the Currency to “review and reconsider” the approach they take to approving large bank mergers, urging the regulators to join a reform effort already underway at the Federal Deposit Insurance Corp.

Writing to Federal Reserve Chair Pro Tempore Jerome Powell and acting Comptroller Michael Hsu, Sen. Sherrod Brown, D-Ohio, asked the prudential regulators to “adopt a posture toward bank merger reviews that prioritizes competition, financial stability, and the needs of working families and small businesses,” according to a copy of the letter obtained by American Banker.

“At its core, consolidation hurts consumers. In the aftermath of a merger, the rates banks pay depositors go down, while the rates and fees banks charge borrowers go up,” Brown wrote in the April 6 letter. “Bank branches invariably close, making it harder for consumers to access financial services in their neighborhoods.”

Bloomberg News

The Senate Banking Committee chair blamed “rubber-stamp merger oversight” for a “worrying drop in competition” among banks, and in a footnote, Brown highlighted three specific deals completed and approved by the prudential regulators in recent years: the mergers of SunTrust and BB&T into Truist, finalized in 2019; the acquisition of TCF Financial by Huntington Bancshares in 2021; and M&T Bank’s merger with People’s United Financial approved last month.

At the same time, Brown’s letter commended the FDIC, currently led by acting Chair Martin Gruenberg, for its publication of a request for information in late March about the future of bank merger review. “The Fed and OCC must follow their lead,” Brown said. “I urge you to initiate a public comment process on bank merger review, like the FDIC’s, and to work with [the Department of Justice] to ensure that we have a fair and competitive financial system.”

Bank merger reform has been a high-profile policy issue for Democrats since the start of the Biden administration, with progressives arguing that the current framework does little to account for the “non-price” harms of bank consolidation, including access to credit and bank branches.

Rohit Chopra, director of the Consumer Financial Protection Bureau, sits on the FDIC’s board of directors and led a Democratic effort at the agency in late 2021 to publish a request for information without the approval of the former FDIC Chair Jelena McWilliams, who resigned from her post shortly after the power struggle kicked off.

Acting Comptroller Hsu was also a board member at the time of the contested FDIC vote. In the months since, the OCC has not announced any formal review of its own merger review policies. But last week, Hsu took aim at the systemic risks that could be posed by large regional banks in a future financial crisis.

Because only the largest megabanks would be able to buy a large regional bank, Hsu said, the megabanks could “be forced through a shotgun marriage to be made significantly more systemic, with minimal due diligence and limited identification of integration challenges.”

In May 2021, the Biden administration issued an executive order aimed at bolstering the U.S. government’s antitrust and monopoly oversight. Independent agencies like the prudential bank regulators are exempt from the executive order, but some of the agencies that also review bank mergers — including the Department of Justice’s Antitrust Division — are moving ahead with reforms.