CEI comments opposing destructive anti-merger rules from troubled FDIC

The Federal Deposit Insurance Corporation (FDIC) has been the subject of recent hearings and news reports regarding findings of a toxic workplace atmosphere of pervasive harassment and discrimination. Current Chair Martin Gruenberg, who also served as FDIC head in the Obama administration, was accused in a recent report of worsening this atmosphere by “losing his temper and interacting with staff in a demeaning and inappropriate manner.” After receiving strong criticism of his performance by lawmakers of both parties, Gruenberg has agreed to resign once a new chair has been confirmed by the Senate.

In this toxic atmosphere in which FDIC employees felt intimidation from the top down, the FDIC has proposed a destructive regulation creating much uncertainty around bank mergers. On behalf of CEI, I filed comments explaining how the regulation – referred to by the FDIC as a “policy statement” – would be harmful to both consumer welfare and the financial stability the FDIC was created to help ensure.

I opened the comments explaining that “CEI has long supported competition, with an emphasis on consumer choice and consumer welfare, and has highlighted government regulatory barriers that have inhibited competition.” I discussed my writings and Congressional testimony urging the lifting of regulatory barriers hindering the creation of new – or de novo – banks, and CEI’s highlighting of government mandates, such as the Sarbanes-Oxley Act, which have been shown to put in place barriers to businesses’ internal growth and thus distort the market in favor of mergers and acquisitions.

I added, however, that, “we do not regard mergers and acquisitions, or M&A as the process is often called, as per se problematic or anticompetitive.” I explained:

M&As are in fact, in many cases, a healthy part of capitalism’s competitive process that brings innovation and dynamism to industries and the benefits of greater choices and lower prices to consumers… While small start-ups create many innovations, it is the process of smaller players becoming larger — both through organic growth and mergers and acquisitions — that is often necessary to bring meaningful competition to the biggest players

I then noted that unfortunately, “it is precisely this type of meaningful competition that the FDIC’s policy statement would discourage in the banking sector.” I quoted the comments of former FDIC Chair Sheila Bair and former FDIC Vice Chair Thomas Hoenig that the policy statement would “have a chilling impact on positive M&A banking activity, including among regional banks where consolidation could strengthen their ability to compete with the mega banks.” 

In their comments that I quoted, Bair and Hoenig noted that “rather than improve and clarify its review process” for bank mergers, the policy statement “creates confusion and uncertainty to the process.” They concluded that the result of the policy statement would be to “leave the outcome of a proposed merger unclear and primarily at the discretion of the FDIC and in doing so, makes the process increasingly arbitrary and uncertain.”

I ended my comment by noting that the toxic workplace of the FDIC was not the best atmosphere for consideration of a wide-ranging regulation such as this. Citing Supreme Court Justice Abe Fortas’s admonition in NLRB v. Wyman-Gordon Co., 394 U.S. 759, 764 (1969) that “the rule-making provisions of the Administrative Procedure Act “were designed to assure fairness and mature consideration of rules of general application,” I pointed out that “the workplace environment at the FDIC has not been conducive to a mature consideration of proposed rulemaking.” I concluded that the regulation “should be withdrawn and reconsidered when there is a more favorable environment for reasoned analysis of public policy.”

CEI Research Associate Ari Patinkin contributed to this post and the comments to the FDIC.