The Federal Deposit Insurance Corp. has set the wheels in motion to publish its
On Friday the agency said it has sent its proposal to the Federal Register for publication and will allow 60 days for public comment. The FDIC board had approved the request for information in December, but it’s not official until published.
Since the board’s
“Even though the vote was taken in December, they won’t start collecting comments until it’s published in the Federal Register,” said Todd Phillips, director of financial regulatory and corporate governance at the Center for American Progress. “This allows the public to comment and to get this whole process going.”
What’s in the RFI
Among the questions raised by the FDIC in its request for information are whether regulators should give more consideration to financial stability risks posed by larger bank mergers, and whether the CFPB should have the power to weigh in on merger applications.
The document gives $100 billion as a hypothetical asset threshold that would trigger greater scrutiny: “Should the FDIC presume that any merger transaction that results in a financial institution that exceeds a predetermined asset size threshold, for example $100 billion in total consolidated assets, poses a systemic risk concern?”
The request also solicits feedback on whether agencies should rethink the way they consider if a merger would affect the convenience and needs of a community.
Notably, it asks if the current merger review framework should impose “an appropriate burden of proof” on banks to prove proposed mergers would be legal.
Will other bank regulators join in?
The FDIC’s move,
In a statement, acting Comptroller Michael Hsu said that he supports public input on the bank merger review process “as a member of the FDIC board.”
“The OCC, for its part, has recently focused on facilitating collaboration on bank mergers amongst the federal banking agencies and the Department of Justice to help ensure that timely progress is made on a coordinated, interagency basis,” he said. “I look forward to continuing to work with my interagency colleagues on updating and strengthening the [previous] guidelines.”
He said that he’s particularly focused on issues surrounding financial stability, given merger trends among larger banks and his experiences working during the 2008 financial crisis.
The Fed did not comment on the request for information, except to reiterate statements by Chair Jerome Powell that it would be a matter for the central bank’s vice chair for supervision to examine once that vacant post is filled.
Policy watchers react
The burden of proof piece of the request for information, in particular, set off some alarm bells among industry watchers.
“To us, changing the burden of proof would be significant,” Jaret Seiberg, a financial services analyst at Cowen, said in a note. “At a minimum, it likely would delay mergers as companies would need to do more than answer questions from regulators. They would have to demonstrate compliance.”
Proponents of reviewing the bank merger process applauded the FDIC’s move. Jeremy Kress, an assistant professor in business law and co-faculty director of the Center on Finance, Law & Policy at the University of Michigan, said the move is “an important first step in strengthening the bank merger framework.”
“Under the existing framework, mergers have increased the cost and reduced the availability of basic financial services, increased risks to financial stability, and exacerbated inequality,” he said. “I am encouraged that the FDIC is soliciting public feedback on strategies to improve merger oversight.”
The banking industry, however, argued bank merger transactions don’t necessarily need to be tightened.
Banks “already face stringent merger review standards from the banking agencies,” the Bank Policy Institute said, arguing that the FDIC should take into consideration that banks now need to compete with fintech companies “on fair terms.”
“Bank mergers enable economies of scale that support communities, protect consumers from cyber breaches and keep lending costs low,” said Greg Baer, the institute's president and CEO. “The FDIC should bear in mind that competitive landscape as it seeks information on merger rules and guidelines.”
