The results are in after the closing of a public comment period related to the Federal Deposit Insurance Corp.’s review of its bank merger policies.  The request for information (RFI) included questions related to the agency’s current bank merger review process, and how the process could be improved.  One issue raised in the RFI is “to what extent should the CFPB be consulted by the FDIC when considering the convenience and needs factor and should that consultation be formalized?”

Critics of big banks wrote in support of the concept that the FDIC consult with the CFPB on merger applications, one group even going so far as to say the CFPB should have the authority to prevent a merger.

Industry trade groups, on the other hand, including the American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and a conglomerate including the Bank Policy Institute, the Consumer Bankers Association and the Mid-Size Bank Coalition of America (collectively referred to as BPI), wrote in opposition of the idea; all three letters noted that consultation with the CFPB is outside of the Bureau’s established role and authority.  

Specifically, the ABA stated that, “the Bank Merger Act already specifies how mergers are to be evaluated, and the specific agency responsibilities are well defined, with appropriate consideration of CRA performance among them.  A separate role of the CFPB would therefore be superfluous to existing considerations.”  The ABA acknowledged that CRA compliance issues are appropriate considerations in bank merger applications, but that the prudential regulatory agencies are already assigned authority under the Bank Merger Act to evaluate such issues.

The ICBA similarly noted in its letter that the FDIC is capable of evaluating the convenience and needs factor without consulting with the CFPB, and additionally raised the likelihood of delay and complication to smaller bank merger applications.

Similar to the other industry trade groups, the BPI letter noted that the CFPB was not granted by Congress a right to review or comment on bank mergers. The BPI letter contrasted this fact with the explicit grant by Congress to both the DOJ and the acquired bank’s chartering authority of the ability to be consulted or comment on bank merger applications.  

Moreover, the BPI Letter raised that the CFPB does not have access to the information to determine whether a transaction serves the convenience and needs factor, and that granting the CFPB any such consultation power could cause the unintended consequence of disallowing a transaction that otherwise could meet the convenience and needs of the community in which the constituent banks operate.  For example, the CFPB, upon consultation, could determine that an applicant was compliant with the consumer protection laws that the CFPB was established to enforce, but the proposed transaction may still not meet the convenience and needs of the community, or, alternatively, a transaction could meet the convenience and needs of the community, but the applicant may not be compliant with those laws, and the application may thus be denied.  

The Bank Merger Act already calls for a competitive analysis and provides that the applicable regulatory agency should not approve:

(A)  any proposed merger transaction which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or

(B)  any other proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless it finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

In addition to a competitive review, the FDIC Statement of Policy on Bank Merger Transactions calls for a review of prudential factors (including satisfaction of applicable capital standards, the strength of the applicant’s management and earnings) together with an evaluation of the convenience and needs of the community to be served (through higher lending limits, new or increased services, lower prices, and convenience in utilizing the services and facilities of the resulting institutions). Given that the CFPB does not have supervisory authority over institutions with less than $10 billion in assets, we are skeptical of the value in granting the CFPB any consultation rights during the bank merger application review process with respect to institutions that are not subject to CFPB supervision.  Either the OCC, the FDIC or the Federal Reserve Board already examine banks having less than $10 billion in assets for compliance with applicable federal consumer financial protection laws and the CRA (over which the CFPB has no supervisory jurisdiction) and, therefore, the CFPB’s input in determining whether the merging banks are meeting the convenience and needs of the community is of limited or no value. For the large banks (over $10 billion in assets) over which the CFPB has supervisory authority, the CFPB can share its examination reports with all of the prudential agencies, including the FDIC, that have supervisory authority over the merging banks.

Whether the FDIC finds these arguments persuasive is yet to be seen.  It should be noted, however, that Rohit Chopra, the director of the CFPB, sits as one of the five members of the FDIC Board.