In the Biden administration’s final months, regulators are poised to increase antitrust scrutiny of the banking industry as part of a broader push to discourage mergers that the White House sees as damaging to consumers and the economy.
On Tuesday, the Democrat-led board of the Federal Deposit Insurance Corporation voted three to two in favor of putting in place more stringent guidelines for evaluating bank deals.
Under the new rules, which were last updated in 2008, the F.D.I.C. would require more details from banks proposing to merge and would take into account a broader array of impacts when evaluating a deal. The rules are the culmination of a process started after the Biden administration’s executive order in 2021 to more aggressively scrutinize competition in industries from technology to agriculture.
Also on Tuesday, the Justice Department withdrew from a framework established in 1995 that guided how it evaluated deals.
Assistant Attorney General Jonathan Kanter has said that the 1995 rules, which predate the rise of financial technology, need modernizing. The Justice Department will now assess banking mergers through the same updated, tougher guidelines it uses for every other deal.
While the Justice Department does not have direct authority to approve banking deals, regulators often refer to its competitive analysis in making their decisions. After approval by regulators, the Justice Department can generally still sue to block a deal.
The question of how to oversee bank mergers has been especially divisive in the wake of last year’s regional banking crisis. Some officials and regulators, including Treasury Secretary Janet L. Yellen, have argued that more consolidation among the roughly 4,100 small U.S. banks could help steady industry volatility. Others question any banking deal that shifts power away from a community or threatens to close vital community branches.
Under current rules, the F.D.I.C. assesses the competitive landscape for bank deals primarily by looking at overlapping geographic areas in which customers make bank deposits. The proposed rules, published earlier this year, would expand that process to consider other criteria, like a bank’s lending to small businesses and the impact of a deal on certain groups of customers. To support its assessment, the agency would request analyses prepared by the merging banks about the competitive effects.
The F.D.I.C. would also request data from companies to prove that a deal would benefit the local community, for example by allowing a bank to increase its lending limits. As a condition for approving a deal, the agency could give itself the authority to monitor whether a bank had abided by its promises.
Deals creating banks larger than $100 billion in assets would get heightened scrutiny, with regulators evaluating the extent to which the new bank is interconnected with the financial system, among other factors.
The F.D.I.C. is one of three agencies that approve banking deals, alongside the Federal Reserve and the Office of the Comptroller of the Currency. In 2019, the F.D.I.C. approved the merger of BB&T and SunTrust Banks that created Truist. It does not have oversight of Capital One’s $35.3 billion acquisition of Discover Financial Services, which is currently being scrutinized by the Fed and the O.C.C.
The proposed changes have generated significant pushback from the banking industry, as well as from some former regulators, who argue that they are overly discretionary and could have the unintended impact of weakening smaller banks.
The rules “would leave the outcome of a proposed merger unclear and primarily at the discretion of the F.D.I.C., and in doing so make the process increasingly arbitrary and uncertain,” Sheila Bair, a former chair of the F.D.I.C., and Thomas M. Hoenig, a former vice chair of the F.D.I.C., wrote in a comment about the proposal.
“This will have a chilling impact on positive M&A banking activity,” they added, “including among regional banks where consolidation could strengthen their ability to compete with the mega banks.”
Others have lauded the new rules.
“Bank executives propose mergers when they’re good for business,” wrote Sherrod Brown, a Democrat who chairs the Senate Committee on Banking, Housing, and Urban Affairs.
It’s the job of agencies like the F.D.I.C., he said, to make sure mergers are “also good for consumers and communities. For too long, the impact of proposed mergers on people’s livelihoods has been an afterthought.”
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