U.S. Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking, Housing and Urban Affairs Committee, along with Sens. Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), and John Fetterman (D-Pa.), sent a letter to Federal Reserve Chairman Jerome Powell and Vice Chair for Supervision Michael Barr, urging them to reconsider the Fed’s approach to big bank mergers. The senators asked the agency to especially focus on how it determines a merger’s impact on financial stability.
In light of the failures of Silicon Valley Bank (SVB), Signature Bank, Credit Suisse, and First Republic earlier this year, the senators said the Fed must consider the risk to financial stability in a more rigorous and thoughtful way.
“We are concerned that the Federal Reserve has still not issued any rules or guidance indicating the types of bank mergers that would implicate financial stability concerns,” the lawmakers wrote. “We hope that, following the failures of SVB, Signature Bank and First Republic Bank, and the acquisition of Credit Suisse by UBS, we will see real changes to the bank merger process to protect financial stability and ensure that we have a fair and competitive banking system that serves all communities. We cannot perpetuate a banking system that favors the largest, most complex institutions and puts consumers, smaller institutions, and our financial system at risk.”
The lawmakers referenced the Dodd‑Frank Act’s amendment to the Bank Merger Act, which required federal banking regulators reviewing a bank merger to consider “the extent to which a proposed acquisition, merger, or consolidation would result in greater or more concentrated risks to the stability of the United States banking or financial system.”
“The application of the financial stability factor has not been rigorous enough,” they wrote. “In the past, Federal Reserve orders approving mergers have contained cursory analysis and reasoning to support the determination that such mergers would not result in greater financial stability risks. In June 2021, the Federal Reserve approved SVB’s acquisition of Boston Private Bank & Trust, declaring that the resulting ‘organization would not be a critical services provider or so interconnected with other firms or markets that it would pose significant risk to the financial system in the event of financial distress.’ Yet less than two years later, in conjunction with the failures of SVB and Signature Bank, the Federal Reserve invoked the systemic risk exception to ‘reduce stress across the financial system’ and ‘support financial stability.’
“While rapid growth and poor risk management contributed to SVB’s ultimate failure, the lack of any financial stability analysis in the prior merger approval demonstrates that the Federal Reserve needs a more thoughtful way to consider and explain a merger’s risk to financial stability.”