Senate Dems: Bank Mergers Must Include ‘Financial Stability’ Review
Learn how credit unions may be impacted by a call from Senate Democrats for bank mergers to include a ‘financial stability’ review.
Credit unions go unmentioned in letter despite concerns over competition from banking trade groups.
Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, and three other panel Democrats are renewing pressure on federal banking regulators to update merger guidelines to consider the financial stability risks the deals might pose.
But as in the past, the senators did not mention credit unions in their concern over financial institution mergers.
Backstory and Context
The Dodd-Frank Act requires regulators to consider financial stability when they review mergers. And the Biden Administration has said that bank mergers are included in the administration’s efforts to create more competition in several industries.
The worry over merger guidelines has intensified in the wake of the failure of Silicon Valley Bank and subsequent bank failures.
Letter Outlines Concerns
“We are concerned that the Federal Reserve has still not issued any rules or guidance indicating the types of bank mergers that would implicate financial stability concerns,” Brown and Democratic Sens. Elizabeth Warren of Massachusetts, Jack Reed of Illinois and John Fetterman of Pennsylvania wrote in a letter to the Federal Reserve Board.
They continued, “The Federal Reserve has not begun that reevaluation nor asked for public feedback on its merger process, but instead has continued to approve mergers under the old rubric.”
The Democrats noted that, more than a year ago, Brown sent a letter to Federal Reserve Chairman Jerome Powell and Acting Comptroller Michael Hsu asking them to review their approach to mergers.
They said that under Dodd-Frank, the Fed must now consider “the extent to which a proposed acquisition, merger, or consolidation would result in greater or more concentrated risks to the stability of the United States banking or financial system.”
The senators said further that the application of the financial stability factor has not been sufficiently rigorous and expressed concern over the competitive factors involved in bank mergers.
“As the financial services industry has become more complex and diversified over the past thirty years, it is important to make sure that the analysis of competitive factors and market concentration adequately reflect the market realities of today,” the letter states.
Impact on Credit Unions
In June, Justice Department Assistant Attorney General Jonathan Kanter said that in developing a “Competitive Factor Analysis” for proposed bank mergers, competition from credit unions will be taken into account.
However, Kanter did not discuss the financial stability aspect of such mergers.
Banking trade groups have expressed concern over the purchase of banks by credit unions, contending that credit unions can leverage their tax exemption to pay more for the financial institutions.
So far, however, no policymaker has been willing to tackle that subject.