Warren Introduces Bill to Protect Bank Customers and Small Banks From Bill Consolidation

On Thursday, Senator Elizabeth Warren (D-Massachusetts) introduced a Bill Consolidation that would reform the way the government authorizes bank mergers. The proposal is an effort to stop the endless “stamping” of bank consolidation, which Warren says comes at the expense of customers and smaller banks.

The Bank Merger Review Modernization Act, introduced with Representative Jesús “Chuy” García (D-Illinois), would strengthen the rules of the bank merger authorization process, in hopes of ensuring that future mergers serve the public. The law creates protections to make the process more transparent and to assess the financial risks that may arise from a merger Bill Consolidation"}” data-sheets-userformat=”{"2":8705,"3":{"1":0},"12":0,"16":10}”>Bill Consolidation

“In recent years, our banking industry has become increasingly dominated by the biggest banks. Community banks are swallowed up by larger competitors or forced to close because they cannot compete on a level playing field, ”Warren explained. in a report. “This translates into greater concentration, higher costs to consumers and increased systemic risk to our financial system.”

The bill “would ensure that regulators do their job in stopping mergers that rob communities of the banking services they need and help prevent another financial crisis,” Warren continued.

As lawmakers point out, between 2006 and 2017, the Federal Reserve approved 3,819 bank mergers, without rejecting a single request. The the last time the Justice Department challenged a bank merger was in 1985, and regulators have not formally denied a merger for 15 years. Due to the lax application of the Fed and other federal regulators of merger guidelines, the number of banks has declined rapidly over the past decades, from more than 18,000 banks from the mid to late 20th century to less than 5,000 today.

The bill, which García and Warren previously introduced in 2019, is part of a larger Democratic effort to crack down on big banks and anti-competitive business practices across the country. Indeed, the bill would require federal regulators to examine the potential anti-competitive effects of a bank merger on banking services such as mortgages and business loans.

During a hearing in August, Warren stressed that regulators at the Federal Deposit Insurance Corporation (FDIC) are not required to reject a merger if it creates a bank larger than what the government can regulate. Regulators are also not required to reject mergers if they would reduce competitiveness and result in higher costs for consumers, or if banks attempting to merge have not scored high for their service to the community.

“Merger review has become the definition of a rubber stamp” she said. “Regulators have no credibility on mergers.”

She and García are particularly concerned about how bank mergers affect the public. Research suggests that bank mergers are often increase costs for consumers while simultaneously reducing the availability of banking services. Mergers can also cause financial instability for the country as a whole, and lawmakers say the current era of deregulation is reminiscent of the ‘Too Big to Fail’ mentality that led to the Great Recession of 2008.

The bill seeks to ensure that future bank mergers will have positive effects for the communities they serve. It would only allow high-ranking bank mergers through the Community Reinvestment Act, which was adopted in the 1970s to assess how banks serve low- and middle-income communities.

“This bill is a long overdue step in ensuring that bank mergers are good for the public,” said Jesse Van Tol, chairman of the National Community Reinvestment Coalition. “For decades, federal bank merger law has recognized that there must be a public benefit in terms of increased access to affordable credit. This bill finally sets out what banks must do to meet this requirement. Mergers should not be approved by regulators if the only benefit is a bigger, more profitable bank. “


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