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How Should Regulators Review Bank Mergers?

Across our economy, major sectors have become more consolidated. But consolidation can actually make it more difficult for smaller players to break in, denying the public of the benefits of competition. It can also make our economy less resilient and more vulnerable to shocks.

At the Consumer Financial Protection Bureau, we’ve also seen how some mergers and acquisitions can create chaos for consumers. Financial companies that rapidly expand through buyouts are often unprepared when it comes to integrating systems and ensuring accuracy of consumer accounts.

More broadly, the last crisis over a decade ago revealed the consequences when banks became too big to fail, requiring taxpayers to bail them out since their failure would destabilize the economy. And while prosecutors and regulators are often quick to sanction small financial institutions, they’re more reluctant to do so for bigger players, out of fear of collateral consequences. We must always be careful that mergers and acquisitions don’t amplify these risks.

The law requires that the Director of the CFPB serve as a member of the Board of Directors of the Federal Deposit Insurance Corporation (FDIC). The FDIC plays a critical role when it comes to reviewing bank mergers and ensuring financial stability in our country. As agencies across the government are rethinking their approach to combat anticompetitive consolidation and practices, the FDIC’s Board has voted to launch a review of the agency's Bank Merger Act policies and invites the public to weigh in. We will accept comments for 60 days from the publication in the Federal Register.

I’m especially interested in feedback on a couple of issues. First, the law requires that regulators review a merger’s impact on families and businesses in local communities. But how should this work in practice? For example, should financial institutions that routinely violate consumer protection laws be allowed to expand through acquisition? How might regulators rely on reports by federal and state consumer protection authorities to make this determination?

In addition, the law also requires that regulators consider a transaction’s impact on financial stability. 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 faced financial distress? 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?

Under the federal banking laws, a bank’s ability to merge with or acquire another bank is a privilege, not a right. There are a host of questions where we need input from the public to determine how to implement existing law more effectively to ensure that families and small businesses benefit from a competitive market.

Learn more about where we need your input.

Read the joint statement from FDIC Director Martin J. Gruenberg and Director Rohit Chopra.

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