WASHINGTON — A partisan battle erupted on the Federal Deposit Insurance Corp. board Thursday when Democratic members said they had approved a review of bank merger policy without the consent of the agency's Trump-appointed chief.
The unprecedented clash began with Consumer Financial Protection Bureau Director Rohit Chopra and former FDIC Chair Martin Gruenberg, who both sit on the board, announcing that the body had signed off on the review.
"This marks the beginning of a careful review of the effectiveness of the existing regulatory framework in meeting the requirements of the Bank Merger Act," they said in a joint statement regarding a request for public comment. Chopra put out a separate statement asserting that "a bank’s ability to merge with or acquire another bank is a privilege, not a right."
But that drew a quick rebuke from the FDIC, led by Chair Jelena McWilliams, which argued that the request for comment was not legally valid.
"Earlier today, the Consumer Financial Protection Bureau (CFPB) posted on its website a document, purportedly approved by the FDIC, requesting comment on bank mergers. No such document has been approved by the FDIC," according to a statement released by the agency.
Several observers had speculated that the board's Democratic members, who outnumber Chair Jelena McWilliams 3 to 1, could attempt to challenge the authority of the Trump-appointed head of the agency. While the agency's chair historically controls the board agenda, legal experts say the agency's bylaws permit any two members of the board to bring a matter up for consideration.
In a statement provided to American Banker, Gruenberg pointed to the statutory text of the Federal Deposit Insurance Act, which "vests the authority of the Federal Deposit Insurance Corporation in the majority of its Board of Directors."
"It is clear under the statute that the majority of the FDIC Board of Directors has authority to place items on the agenda for Board meetings and, alternatively, to circulate and act on notational votes, to implement actions of the Board," Gruenberg said. "No individual member of the Board may override the authority of the majority.”
But Chopra and Gruenberg's move prompted Sen. Pat Toomey, R-Pa., the top Republican on the Banking Committee, to accuse them of launching a "coup." And the FDIC said the two regulators had not followed proper procedures.
"The FDIC has longstanding internal policies and procedures for circulating and conducting votes of its Board of Directors, and for issuing documents for publication in the Federal Register. In this case, there was no valid vote by the Board, and no such request for information and comment has been approved by the agency for publication in the Federal Register," the agency said.
In Chopra and Gruenberg's joint statement, they said regulators had not revisited their policy for approving mergers for years despite heightened consolidation in the industry.
"Although there has been a significant amount of consolidation in the banking sector over the last thirty years, fueled in large part by mergers and acquisitions, there has not been a significant review of the implementation of the Bank Merger Act by the agencies in that time," they said.
The conflict could set up a power struggle inside one of the nation’s top financial regulators that could mark a significant shift in the regulatory landscape for banks in the near future.
"The FDIC has a proud 88-year history of Board members working together in a collegial manner. This history has spanned many Presidential administrations, and countless philosophical differences on substantive issues among Board members over the years," the FDIC's statement continued. "Notwithstanding the actions taken today, the FDIC expects this time-honored tradition of collegiality and comity to continue."
Toomey warned that the action raises concern about Chopra's leadership. The CFPB chief only recently was confirmed by the Senate.
“This failed, publicity-seeking attempted coup is exactly the kind of lawless overreach that Senate Republicans warned about with Rohit Chopra," he said. "His reckless behavior today undermines the independence and integrity of the FDIC. It represents a radical politicization of a long-respected financial regulator."
But the National Community Reinvestment Coalition praised the regulators' apparent interest in examining bank merger policies.
"Consolidation of banking institutions has led to a steady decline in the number of bank branches across the nation, and although that might be good for increasing bank profits, it is not for communities that lose access to basic banking services, including lending for small businesses," NCRC Chief Executive Jesse Van Tol said in a statement.
Notably, the Gruenberg and Chopra statement was published not on the FDIC’s website, but rather on the website of the CFPB and no record of the vote appeared on the FDIC’s website.
The threat of a Democratic power grab on the FDIC board has been dismissed by McWilliams since early 2021. Although the arrival of the Biden administration gave Democrats three seats to fill on the five-member FDIC board, the agency has argued that the chair controls the board’s voting agenda unilaterally, blocking the Democratic appointees from rogue policymaking even in the majority. (One of the board's five seats remains vacant.)
Now, after nearly a year in power, Democrats appear keen to test that theory before McWilliams’ term as chair expires halfway through 2023. If the maneuver succeeds — it will hinge on whether or not the request for information is formally published in the Federal Register — Democrats will effectively control the agency’s policymaking agenda.
It remains unclear what legal mechanism Chopra and Gruenberg used to secure the alleged approval of the board without the backing of McWilliams. The FDIC has not had a board meeting since November, but the agency’s
Strengthening bank merger review has been a policy priority for the White House since early on in the Biden administration. In the joint statement published by Chopra and Gruenberg, the regulators indicated that the request for information would likely be followed by more formal rulemaking.
Chopra, in a blog post published Thursday on the CFPB’s website, pointed to a Dodd-Frank Act requirement that bank regulators review mergers for potential financial stability impact.
“How should we make sure that a merger does not increase the risk that a bank is too big to fail or otherwise disrupt the economy if it [faces] financial distress? Chopra wrote. “Should we create more clarity and simplicity in the merger review process by establishing thresholds where banks of a certain size will receive heightened scrutiny?”
This story has been updated to include a statement from Martin Gruenberg.
