WASHINGTON–Banking industry regulators were grilled during a Senate hearing on why they continue to “rubber-stamp” bank mergers at the expense of consumers, while NCUA’s chairman was asked how the regulator ensures small and rural towns aren’t being left without physical branches when mergers occur.
While credit unions have seen an ongoing trendline of mergers shrinking their numbers, Democratic members of the Senate Banking Committee had tough questions for FDIC Chair Jelena McWilliams and Acting OCC Director Michael J. Hsu about combinations in that industry.
Noting Wells Fargo had pulled out of the small town in Montana in which he resides, before being replaced by another bank, Sen. Jon Tester (D-MT) said access to capital is paramount and he asked the regulators how they will ensure banks continue to serve small and rural communities with branches.
McWilliams said the issue is a focus of hers, as is ensuring community banks can survive, especially in communities that have 400-600 people. “We try to ensure the regulatory burden meets the risk profile of those institutions,” said McWilliams.
NCUA Response
NCUA Chairman Todd Harper said the agency has been working at a “number of things” to address the issue. He noted one-in-two credit unions are qualified as low-income and are based in rural areas, and that NCUA has also sought to provide support with grants.
“We also scale our regulations based on size,” said Harper. “And, finally, one thing we have been doing very recently is strongly encouraging all eligible credit unions to be part of the Emergency Capital Investment Program. We’ve had 50 credit unions apply so far.”
As for physical branches, Harper added, “We require you have to have a physical branch in the area if you want to serve that area.”
Challenging Bank Mergers
The toughest questions—in which respondents weren’t given much time to provide an answer—came from Sen. Elizabeth Warren (D-MA), a long-time critic of big banks.
“Community banks being gobbled up. The market is being dominated by big banks,” said Warren. “There is more concentration, higher costs for consumers, and greater systemic risk, and it is happening in plain view of the federal agencies whose job it is to keep our communities safe.”
Directing a question to McWilliams, Warren said, “The FDIC has a searchable database of all merger applications received since 2013, and there have been 1,124 such applications. Out of those, how many has the FDIC denied?” The total number of denials for any reason whatsoever?”
Before McWilliams could provide a respond, Warren said, “It’s zero. This is not just a problem at FDIC. The FDIC, Federal Reserve and OCC combined have not formally denied a single bank merger in 15 years. Merger review has become the definition of a rubber stamp and the banks know it, and it’s time for some changes. Just saying we’re going to get tougher on this is not likely to dissuade anyone, especially billion-dollar banks.”
‘Bright Lines’ Needed
Directing a question to Hsu, Warren asked, “Are banking agencies like yours currently required to reject mergers when the resulting financial institution is more complex and bigger than our bank rules allow?”
Before Hsu could answer, Warren said, “No, you are not required. We need bright lines.”
Warren then asked, “What if banks trying to merge don’t receive highest marks in CRA exams reflecting how well they are serving their communities. Are you required to reject those applications? No. What if the merger results in increased costs to consumers? No!”
Warren told the FDIC and OCC leaders the data indicate the regulators have “no credibility” when it comes to mergers.
“This has turned into a check the box exercise where the outcome is predetermined,” said Warren, who said she plans to introduce legislation to revamp the bank merger process.
“Our regulators have a job to do and it’s our job here in Congress to make sure they do it,” Warren said.