On Bank Mergers, the Benefits of a Competitive Industry Are Clear and the Regulatory Standards Are Appropriately Stringent

BPI today responded to the FDIC’s request for information on the federal bank merger review framework. The RFI calls into question the longstanding, bipartisan approach to bank merger evaluation that has supported a thriving and competitive banking sector.

What BPI is saying: “Banks seeking to merge in the U.S. face stringent government review standards wisely mandated by Congress and rigorously enforced over the years by the federal banking agencies and the Department of Justice. This policy framework has contributed to a U.S. banking system that is healthy, competitive and strong. Certain regulators now want a stricter framework, but any substantive changes must come from Congress, not the agencies.” – John Court, Executive Vice President and General Counsel

Why it matters: Mergers enable many banks to achieve the benefits of scale – lower loan costs, innovative services and fortified cybersecurity safeguards – and pass them on to consumers.

What’s missing: The empirical analysis in the FDIC’s introduction to the RFI overstates the effect of mergers on banking competition and the financial stability of the U.S. economy.

  • Most of the decline in the number of smaller banks was driven by 1994 legislation that removed barriers to interstate banking, and by the collapse in the number of new banks chartered since the 2008 global financial crisis.
  • The analysis exaggerates the increase in the number of large banks by failing to adjust bank size for general economic growth and inflation.
  • The analysis excludes the increase in the number of bank branches, decline in the unbanked population and the rapid growth of nonbank, “near-bank” competitors like fintechs, nonbank mortgage lenders and money market funds.

Key points:

  • Banking competition has continued to thrive. Standard measures of competitiveness, in fact, understate the true extent of financial choices that customers have because they emphasize the presence of local brick-and-mortar bank branches rather than digital-first or digital-only banking options and the vast number of nonbank financial firms.
  • GSIB resolvability standards such as total loss-absorbing capacity and single point of entry resolution are designed for the unique circumstances of very large, globally active banks. Imposing these types of standards on regional banks or other non-GSIBs, whether through the merger review process or otherwise, would entail significant costs without any real benefits.
  • Any meaningful change to the bank merger review standards must come from Congress, not the banking regulators.
  • The existing regulatory framework properly considers all aspects of the Bank Merger Act.
  • It is important that regulators continue to evaluate all the ways in which a proposed merger could implicate financial stability risk, including factors that could reduce the overall financial stability risk of the combined entity, such as more stringent capital and liquidity requirements that may apply and increased diversification and profitability.
  • Prudential factors in a merger application should continue to be considered on a case-by-case basis, subject to the standards established by Congress.
  • The federal bank regulators’ current approach to evaluating the convenience and needs factor in mergers provides regulators with ample opportunity to consider thoroughly whether a proposed transaction meets the convenience and needs of the communities to be served by the combined institution and experience shows that this mandate has been carried out appropriately and with due process.
  • Herfindahl-Hirschman Index screens continue to serve as a useful primary tool to evaluate whether a bank merger may threaten competition.
  • The notion of one regulator imposing M&A policy changes in isolation from the others deviates from the “whole-of-government” approach to mergers called for by President Biden’s executive order on competition.
  • A policy change intended to support more bank merger application denials would contradict the federal banking regulators’ mission to promote public confidence in the banking system.


About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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