Bowman: Regulators need to rethink review process for bank mergers

Federal regulators have closed the door to a broad range of potential mergers by using an artificially narrow lens to evaluate competition concerns, Federal Reserve Governor Michelle Bowman said today. Speaking at a community banking conference in St. Louis, Bowman reiterated her view that banking regulators and the Justice Department need to update the framework they use to evaluate the competitive effects of proposed bank mergers. Their approach fails to consider how technology has transformed access to banking services, and it ignores bank competitors such as credit unions and financial technology firms, she said.

“While one might naturally assume that approving mergers would always lead to a reduction of community bank lending, this result may not always be the case, as in markets viewed as less attractive or undesirable to large or regional banks, where the only option for community banks to survive may be to consolidate with other community banks in the same geographic area,” Bowman said. “Surely, some level of consolidation is preferable to the closure of community banks and the perpetuation of banking deserts or zombie banks.”

Bowman also said policymakers should re-examine the use of asset size when tailoring regulation. Instead, they “need a better framework to understand whether we should move beyond simple asset size thresholds when tailoring our regulatory rules to the risks that different banks pose based, perhaps not on size, but on business model,” she said,