Statement for the Record before the House Financial Institutions Subcommittee on Bank Mergers and De Novo Formation

The American Bankers Association (ABA) appreciates the opportunity to provide a Statement for the Record for this hearing, "Enhancing Competition: Shaping the Future of Bank Mergers and De Novo Formation." ABA is the voice of the nation's $24.1 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2.1 million people, safeguard $19.2 trillion in deposits and extend $12.7 trillion in loans.

Updating Bank Merger Rules and Eliminating Impediments to the Formation of De Novo Banks Is Needed

ABA strongly supports the Subcommittee's examination of the regulatory landscape surrounding bank mergers and de novo bank formation. It is clear that overly narrow supervisory standards, inconsistent approval timelines and other regulatory impediments are limiting new bank formation and leading to further consolidation in the financial sector.

In particular, regulatory guidelines for reviewing bank merger applications largely date from 1995 and do not reflect profound changes in the financial services landscape since then. In the intervening years, the market for financial products and services has seen the rise of availability and use of online banking, the interstate expansion of bank branch networks, the enhanced market access made possible by advertising and communication innovations, and the growing market presence of nonbank financial firms, including "fintechs," credit unions, and Farm Credit System institutions.

Updating the bank merger guidelines is important to the health of the U.S. financial system and economy. For example, banks are facing increased pressure to maintain investments in technology (for improved customer service and cybersecurity) and in compliance infrastructure. Some banks may find that a merger and related economies of scale are the most efficient way to meet these needs. However, a narrow, outdated view of competition is both unreasonably restrictive and likely to cause irrational outcomes. For example, if two community banks have all or most of the branches in their geographic market, they likely cannot merge because, under current standards, the merger would appear to cause excessive market concentration. In this instance, the regulators sometimes fail to consider additional competition from credit unions and other nonbank competitors or from online service delivery by firms that have no local branches. In contrast, if a community bank is willing to combine with a larger multistate bank that has no presence yet in that market, that transaction could be approved because it would be viewed as leaving two viable competitors in the local market.

Bank Merger Rules Assess Competition Too Narrowly

Today, the competitive analysis required for approval of a bank merger looks at whether the proposed transaction (1) would result in a monopoly in any U.S. market, or (2) would substantially lessen competition, unless those anticompetitive effects are clearly outweighed by benefits to community convenience and needs.

Download the statement for the record to read the full text.