Democratic Senators Call for Overhaul of Big-Bank Mergers

Four Democratic senators are calling on the Federal Reserve to overhaul its approach to big-bank mergers, citing this year’s spate of regional bank failures as cause for a revamp.

U.S. Senator Sherrod Brown (D-OH), Chairman of the Senate Banking, Housing and Urban Affairs Committee, was joined by Sens. Elizabeth Warren (D-MA), Jack Reed (D-RI), and John Fetterman (D-PA) in sending a letter to Federal Reserve Chairman Jerome Powell and ViceChair for Supervision Michael Barr. The letter urged the Fed to review and reconsider its approach to bank mergers, including its framework for evaluating a bank merger’s impact on financial stability.

“We cannot perpetuate a banking system that favors the largest, most complex institutions and puts consumers, smaller institutions, and our financial system at risk,” said Sen. Brown.

The letter referenced the failures of Silicon Valley Bank (SVB), Signature Bank, Credit Suisse, and First Republic earlier this year. It also pointed out the Federal Reserve has not issued any rules or guidance on types of bank mergers that would implicate financial stability concerns, nor had it responded to Sen. Brown’s prior letter on the matter.

Related: DOJ’s Kanter Calls For An Update On Bank Merger Guidelines

Department of Justice (DOJ) Assistant Attorney General Jonathan Kanter highlighted the need to reexamine bank merger policy, emphasizing the importance of competition in banking and its role in promoting a free and fair economy.

“The department’s bank merger review process will take into account concentration levels across a wide range of metrics beyond bank deposits and branch overlap,” said Kanter.

Meanwhile, Michael Hsu, the Acting Comptroller of the Office of the Comptroller of the Currency, said his agency is working with the DOJ and fellow bank regulators to review how it evaluates and approves bank mergers.

The Federal Reserve drew criticism for its June 2021 approval of Silicon Valley Bank’s acquisition of Boston Private, in which the central bank said the resulting organization would not pose significant risk to the financial system in the event of financial distress. The senators also expressed concern about the assumption of failed bank assets by JP Morgan Chase following the bank’s acquisition of First Republic Bank in May.

Sen. Brown said he hopes the Federal Reserve will respond “thoughtfully and quickly” to their letter: “The central bank should reconsider its policy regarding large bank M&A, as well as its framework for evaluating a merger’s impact on financial stability. The Fed’s application of the financial stability factor has not been rigorous enough.”

Source: Banking Dive