Today, the board of the Federal Deposit Insurance Corporation (FDIC) announced a request for information and comment on rules, regulations, guidance, and statements of policy on bank mergers. Jesse Van Tol, President and CEO of the National Community Reinvestment Coalition, made the following statement:
This review of bank mergers is long overdue and I welcome it. Some banks and other lenders have gotten away for too long with racial discrimination and bias in lending, which NCRC has documented repeatedly with mystery shopper tests in different cities. Banks have also benefited from weak enforcement of the Community Reinvestment Act, which the bank regulators are also on track to address. Bank mergers are a privilege, not a right, and banks have unique responsibilities to provide public benefits to the communities where they do business. The merger reviews need to be updated to include more robust expectations regarding public benefits and convenience and needs of the communities to be served.
Consolidation of banking institutions has led to a steady decline in the number of bank branches across the nation, and although that might be good for increasing bank profits, it is not for communities that lose access to basic banking services, including lending for small businesses. Racial discrimination and bias in banking is still a problem, despite laws prohibiting it. Banks that want to merge should be held to high standards to ensure they are complying with those laws and are not discriminating.
FDIC chair Jelena McWilliams should publish the RFI swiftly so that stakeholders can submit comments, including community, consumer and civil rights organizations.
Recently, NCRC commented on the request for information from the Department of Justice (DOJ) regarding merger guidelines.
These are our major recommendations from the letter to DOJ which we will elaborate upon when commenting to the FDIC:
- The Herfindahl-Hirschman Index (HHI) is a common measure of market concentration. When the HHI screen increases either by 200 points or reaches 1,800 points, this increase in concentration should not only include heightened antitrust reviews but also conditional merger approvals requiring concrete public benefits in the specific geographical areas (metro areas or rural counties) where the HHI exceeds this threshold. Currently, the DOJ and the bank agencies give these mergers heightened reviews, occasionally order branch divestitures and rarely institute public benefits remedies.
- The informal HHI screen of a 100 point increase must be formalized to a presumption that DOJ and banking agencies will require public benefits in impacted areas, particularly in underserved counties.
- When a merger results in an institution of a certain asset size of either $10 billion or $50 billion, a public benefit plan for the banks’ entire geographical footprint must be a part of the merger application subject to public comment. NCRC’s preferred threshold would be $10 billion since these are large banks and only about 139 banks in the United States are $10 billion or more in assets. However, if the agencies wanted to focus on the very largest banks for this requirement, the threshold of $50 billion could be used.
- NCRC recommends that the agencies consider designating counties as underserved. This would be defined as counties with low levels of retail lending per capita. These counties would receive elevated attention in HHI and public benefits analyses.
- HHI analysis must not only consider deposits but also separately consider home and small business lending. In addition, the agencies should consider consumer lending and payments but new data reporting requirements would be needed for HHI analysis of these products.
- Public benefit requirements could include Community Benefit Agreements (CBAs) and specific improvements in CRA and fair lending performance measures. Needs to be addressed include those in communities of color, environmental remediation and recovery from COVID.
- HHI analysis must include non-traditional banks and non-banks, many of which are large institutions. Their omission makes markets appear to be less concentrated than they actually are.