The Federal Reserve governor who criticized regulatory actions on climate change and new proposed bank capital rules found an additional target for scorn Tuesday: proposals on bank merger and acquisition (M&A) rules by two fellow regulators.
Federal Reserve Board Gov. Michelle Bowman, in a speech before an event hosted by the Federal Reserve Bank of Kansas City (in Kansas City, Mo.), indicated that the M&A rule proposals by the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC), and other recent actions, may undermine the long-term viability of banks.
“As regulators revisit the evaluation standards for bank M&A transactions under the statutory framework, we should consider whether the regulatory review process is fair, transparent, and consistent with applicable statutes,” Bowman said. “This should begin with an important threshold question—what are the identified shortcomings with the current process or standards, and are the proposed reforms targeted and effective to address these shortcomings?”
Last month, the board of the FDIC voted, 3-2, to support a “principles-based” overview of the agency’s administration of its responsibilities under the Bank Merger Act (BMA) as proposed in a new policy statement. The two Republican appointees to the board opposed the statement, while the chairman and two agency heads who sit on the board (from the OCC and the Consumer Financial Protection Bureau [CFPB]) – all Democratic appointees – supported the statement.
According to the FDIC, the proposal’s “principles-based” overview describes the agency’s duties under the Bank Merger Act (BMA). The FDIC said the proposal focuses on the scope of merger transactions subject to FDIC approval. The agency said the proposal also addresses the FDIC’s process for evaluating merger applications and the principles that guide the agency’s consideration of the applicable statutory factors under the BMA.
Bowman, in her remarks, alleged the proposal would revisit evaluation standards for bank M&A transactions. Seeming to take issue with that approach, she said regulators should “consider whether the regulatory review process is fair, transparent, and consistent with applicable statutes. This should begin with an important threshold question—what are the identified shortcomings with the current process or standards, and are the proposed reforms targeted and effective to address these shortcomings?”
Bowman argued that regulators instead should focus on “ensuring that we can improve the speed and timeliness of regulatory decisionmaking,” and applying review standards that are reasonable and consistent with the statutory framework.
“Too often it seems that regulators discount the fact that these organizations do not simply hit the pause button during the merger review process. We must remember that these organizations are businesses that continue to operate and must do so in a way that supports their ongoing business operations and future growth,” she asserted.
The Fed governor said that reducing the efficiency of bank M&A “can be a deterrent to healthy bank transactions—it can reduce the effectiveness of M&A activity that preserves the presence of community banks in underserved areas, prevent institutions from pursuing prudent growth strategies, and actually undermine competition by preventing firms from growing to a larger scale, effectively creating a ‘protected class’ of larger institutions.”
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