Statement of CFPB Director Rohit Chopra, Member, FDIC Board of Directors, on Actions to Strengthen Bank Merger Review

Today, the FDIC Board of Directors is voting to finalize its policy statement on bank mergers. The updated policy provides transparency to the public and future applicants as to how the agency evaluates the statutory factors under the Bank Merger Act. Banks should not waste agency resources by submitting facially unlawful applications, including those proffered by certain megabanks, repeat offenders, and others looking to take out competitors or improve profit metrics instead of the convenience and needs of the community.

We are issuing this updated policy contemporaneously with the Department of Justice, which is withdrawing from the outdated 1995 Bank Merger Guidelines. The DOJ will consider bank mergers under its 2023 Merger Guidelines.¹ This approach will ensure that bank mergers are appropriately investigated under the antitrust laws.

A decentralized banking system is critical for U.S. capitalism to work. If small businesses and entrepreneurs can’t get fair access to credit, they cannot innovate and challenge incumbents. If families struggle to affordably finance a house or a car or banks gouge them with junk fees, the American Dream is put out of reach.

Instead of giving banks free rein to merge and concentrate resources in a few big cities, Congress requires a strict pre-approval process in which regulators weigh the transaction against multiple statutory factors. Based on our analysis over the last two years, it is crystal clear that regulators have completely defied Congressional mandates.²

In 1990, the top 10 banks controlled 15 percent of banking sector assets. Today, they control more than half. This consolidation has eradicated thousands of relationship banks. The 15,200 banks with less than $100 billion in assets (2023 dollars) controlled 85 percent of the market in 1990. Today, the 4,500 remaining banks under $100 billion control just 29 percent.

Permissive merger review is not unique to the banking sector and has plagued sectors across the economy. In 2021, President Biden signed an Executive Order to sunset this approach and restore competition. The FDIC initiated a review in 2022 and proposed a new policy statement earlier this year. The Department of Justice sought public feedback on its outdated 1995 Bank Merger Guidelines in 2022 and is withdrawing from those guidelines today. We’ve seen several major transactions abandoned recently after agency scrutiny, including TD Bank’s acquisition of First Horizon and State Street’s acquisition of Brown Brothers Harriman.

I’d like to highlight a few key aspects of the final policy statement.

First, the policy statement dramatically improves the rigor of the agency’s competition analysis. The FDIC will go beyond just a quick look at local deposit market concentrations to understand the deal rationale and market realities.³ The agency will analyze the competitive effects of the transaction across multiple dimensions, including local, regional, and national geographies, product markets, and customer segments.⁴ Customers across markets must retain meaningful choices. The agency will also weed out anti-competitive conduct tied to the transaction, including with respect to noncompete agreements with employees of divested branches and contractual gimmicks that preclude new banks from acquiring physical branches that are closed as a result of the deal.⁵

Second, the policy statement aligns the agency’s merger review with the statutory requirement to evaluate the impact of the deal on the community.⁶ The legislative history and plain reading of the statute demonstrate that Congress intended a robust public interest review.⁷ To satisfy this factor, the community would have to be better served after the merger than it was by the institutions prior. The analysis must be supported by clear, specific, forward-looking data and evidence—not exaggerated consultant drivel. The agency will weigh the impact of the deal on new and existing products and services, planned branch closures, the credibility of integration plans, past misconduct, and more.⁸ Any claims and commitments made by the applicant to demonstrate that the transaction clears this threshold may be placed in the order and enforced.

Finally, the agency is integrating the financial stability factor into the policy statement for the first time since it was added to the Bank Merger Act in 2010. After the 2008 financial crisis, Congress identified that the too-big-to-fail-banks that received bailouts were created by unchecked merger sprees in the decades prior. The FDIC will carefully evaluate the combined institution’s size, complexity, interconnectedness, critical functions or services, and other variables related to its systemic footprint in the U.S. banking system. Transactions involving or resulting in a large bank that has $100 billion or more in assets will receive heightened scrutiny, as these applications are far more likely to have financial stability deficiencies.⁹

Now that we have completed our review of the bank merger framework and provided transparency as to how we evaluate applications against the statutory factors, it is critical we put these words to practice. We must also continue to learn from past mistakes, and conduct retrospective analyses at how banks, communities, and the market were impacted by past transactions.

Thank you to all of the members of the public who contributed to this review.