Bank Merger Review Modernization Act

What Is the Bank Merger Review Modernization Act?

The Bank Merger Review Modernization Act seeks to overhaul the review process for mergers between financial institutions. The bill is sponsored by U.S. Sen. Elizabeth Warren (D-Mass.), and U.S. Rep. Jesús "Chuy" Garcia (D-Ill.). The lawmakers initially introduced the bill in 2019 and later reintroduced it in Sept. 2021.

Under the current review system, Warren and Garcia say regulators serve as "rubber stamps" and often fail to consider the broader impacts of a potential merger. The legislation would "restrict harmful consolidation in the banking industry and protect consumers and the financial system from 'Too Big to Fail' institutions, like those that caused the 2008 financial crisis," Warren said in a statement.

Key Takeaways

  • The Bank Merger Review Modernization Act is sponsored by U.S. Sen. Elizabeth Warren (D-Mass.), and U.S. Rep. Jesús "Chuy" Garcia (D-Ill.).
  • Warren and Garcia first introduced the Bank Merger Review Modernization Act in 2019 and later revived the bill in Sept. 2021.
  • Warren and Garcia contend that, under the current merger review process, regulators serve as "rubber stamps" and often fail to account for the broader impacts of the merger.
  • The legislation seeks to strengthen the statutory framework for evaluating bank and savings and loan holding company mergers.

Understanding the Bank Merger Review Modernization Act

Bank mergers require approval from federal regulators, including the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC). However, Warren and Garcia contend the review process is fundamentally broken, and that bank mergers have driven a rapid decline in the number of banks—from more than 12,000 in 1990 to fewer than 5,000 today. 

"In recent years, our banking sector has become more and more dominated by the largest banks," Warren said in a statement. "Community banks are being gobbled up by larger competitors or forced to shut down because they can't compete on a level playing field," adding that this results in higher consumer costs and increased systemic risk to the financial system.

Regulators are supposed to evaluate several factors when considering a merger, including:

  • Whether the merger will create local monopolies for banking services
  • Whether the merged bank will be well managed
  • Whether the new bank creates a risk to the financial system
  • The merger's effects on the public

However, Warren and Garcia argue, regulators aren't considering all these factors. "Financial agencies almost exclusively focus their analyses on narrow measures of competitiveness that fail to account for the broader impacts of the merger and often pre-review the merger in secret with banks before they announce it publicly," according to the statement. "As a result, the merger review practice lacks analytical rigor, and regulators serve as rubber stamps. Of the 3,819 bank merger applications the Fed received between 2006 and 2017, it did not decline a single one."

For example, regulators approved the merger of BB&T and SunTrust in 2019, creating the sixth-largest bank in the U.S. However, research has shown that the merger did not deliver promised benefits to low-income and minority communities, according to the statement.

"Bank consolidation means more pay and profits for big banks and fewer bank branches in neighborhoods like mine," Garcia said in a statement. "It's time for our government to stop rubber-stamping bank mergers. This bill ensures our regulators consider the impacts of a merger on consumers, workers, and our financial system."

 Special Considerations

The Bank Merger Review Modernization Act would add several layers to the review process to prevent rubber-stamping and:

  • Guarantee the merger is in the public interest. For example, the bill requires Consumer Financial Protection Bureau (CFPB) approval when at least one applicant offers consumer financial products. It would also strengthen the Community Reinvestment Act (CRA) by only allowing institutions with the highest ratings to merge.
  • Safeguard the stability of the financial system. The bill requires regulators to use a quantifiable metric to evaluate risks from the merger.
  • Require regulators to examine how the merger would affect the concentration of individual banking products.
  • Ensure the merged bank has adequate financial and managerial resources.

The bill has been endorsed by Jeremy Kress, former Federal Reserve Board attorney and assistant professor of business law at the University of Michigan; the National Community Reinvestment Coalition (NCRC); Americans for Financial Reform; the Institute for Agriculture and Trade Policy; Communications Workers of American; the Institute for Local Self-Reliance; 20/20 Vision; Public Citizen; and Food & Water Watch. 

What Is the New Bank Merger Review Modernization Act?

The Bank Merger Review Modernization Act seeks to overhaul the review process for mergers between financial institutions to prevent "rubber-stamping" and protect consumers and the financial system from "Too Big to Fail" institutions. It was initially introduced in 2019 and reintroduced in Sept. 2021.

Who Sponsored the Bank Merger Review Modernization Act?

U.S. Sen. Elizabeth Warren (D-Mass.), and U.S. Rep. Jesús "Chuy" Garcia, (D-Ill.) are sponsoring the Bank Merger Review Modernization Act.

Who Regulates Bank Mergers?

Federal regulators, including the Federal Reserve, the Federal Deposit Insurance Corp (FDIC), and the Office of the Comptroller of the Currency (OCC), approve bank mergers. The Bank Merger Review Modernization Act seeks to update the review process to limit consolidation and better protect consumers.

Article Sources

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  1. Elizabeth Warren. "Senator Warren and Rep. Chuy Garcia Introduce the Bank Merger Review Modernization Act to End Rubber Stamping of Bank Merger Applications." Accessed Nov. 11, 2021.

  2. U.S. Congress. "H.R.5318 - Bank Merger Review Modernization Act of 2019." Accessed Nov. 11, 2021.

  3. U.S. Congress. "H.R.5419—Bank Merger Review Modernization Act of 2021." Accessed Nov. 11, 2021.

  4. Elizabeth Warren. "The Bank Merger Review Modernization Act," Page 1. Accessed Nov. 11, 2021.

  5. Federal Deposit Insurance Corporation (FDIC). "Statistics At A Glance As of June 30, 2021." Accessed Nov. 11, 2021.

  6. Elizabeth Warren. "The Bank Merger Review Modernization Act." Accessed Nov. 11, 2021.