US consumer watchdog warns no more 'rubber stamp' for bank mergers

First Republic Bank

20/07/2023 05:01

By Douglas Gillison
       July 20 (Reuters) - U.S. lenders hoping for easy merger
approvals in the wake of the March banking crisis should instead
expect tough scrutiny from regulators worried about financial
stability, the director of the Consumer Financial Protection
Bureau (CFPB) told Reuters. 
    Rohit Chopra also said in an interview that the agency was
pressing ahead with enforcement efforts despite multiple stays
imposed by federal judges on CFPB litigation due to a challenge
before the Supreme Court.
    "Banks can expect a more rigorous review of applications.
The ink on the rubber stamp has dried up and... my hope is to
see a shift from the regulators of moving from cheerleader to
umpire," said Chopra, who also sits on the board of the Federal
Deposit Insurance Corporation (FDIC), which plays a central role
in the bank merger approval process. 
    Chopra's tone contrasts with that of Treasury Secretary
Janet Yellen and Acting Comptroller of the Currency Michael Hsu,
who in recent weeks have seemed amenable to deals to help
stabilize the troubled mid-size bank sector, which this year saw
three of the four largest-ever U.S. bank failures.
    Bank executives, meanwhile, complain that regulators'
foot-dragging and uncertainty caused by looming regulatory
reforms have depressed merger activity among healthy banks to
historic lows.
    "There is no question that past adjudications of mergers did
not meet the level of analytical rigor that they ought to have,"
said Chopra, declining to cite specific examples.
    The sale of the failed First Republic Bank  FRCB.PK  in
April to the nation's largest bank, JPMorgan Chase  JPM.N ,
allowed the Wall Street giant to get even bigger in spite of a
law barring the concentration of more than 10% of the nation's
deposits at a single lender. That drew the ire of Democratic
Senator Elizabeth Warren, who helped create the CFPB and backed
Chopra for the director role. 
    Financial reformers in the Democratic Party oppose allowing
banks to be "too big to fail."
    JPMorgan last week reported record second-quarter profits,
bolstered in part by the First Republic acquisition, which
regulators approved under a legal exception for the sale of
banks under government receivership and because its bid involved
the lowest cost to the government's deposit insurance fund.
    "Certainly there are a number of questions about going
forward whether that similar outcome is ideal," said Chopra,
noting there were other bidders beside JPMorgan.
    Chopra called in May for the FDIC to adopt changes to bank
merger guidelines. He declined to discuss possible changes but
said the approval process was already evolving, citing a review
of bank merger guidelines undertaken in 2022. 
    He did note in a recent case that the FDIC had not allowed
delays in divestitures aimed at addressing competition concerns
or imposing non-compete clauses on staff who might seek work at
rival banks.
        The CFPB is facing a Supreme Court challenge to the
constitutionality of its funding, leading federal judges to
freeze at least six of the agency's 20 pending enforcement cases
until the matter is resolved, according to federal court
records.
    "There's no question that certain legal uncertainties might
lead to more prolonged or protracted litigation," Chopra said.
    "We are continuing to achieve real results in spite of
that," he said, noting recent actions taken against Bank of
America, Wells Fargo and others, "but it certainly doesn't
help."

 (Reporting by Douglas Gillison; Editing by Michelle Price and
Jamie Freed)
 ((douglas.gillison@thomsonreuters.com; Reuters Messaging:
@douglasgillison))