Congress should overturn harmful anti-bank merger regulation

Yesterday, the Senate approved a resolution pursuant to the Congressional Review Act to overturn a regulation from the Biden administration that would sharply restrict bank mergers. The resolution, sponsored by Sen. John Kennedy (R-LA), is now pending in the House. Below is a statement I sent to Congress on behalf of CEI in support of overturning this harmful rule.

Competitive Enterprise Institute Statement on S.J. Res. 13

On behalf of the Competitive Enterprise Institute, I voice my support of the joint resolution to overturn the final rule from the Office of the Comptroller of the Currency (OCC) entitled “Business Combinations Under the Bank Merger Act.” If allowed to stand, this rule will reduce consumer welfare and likely harm the safety and soundness of many banks as well.

CEI has long supported competition, with an emphasis on consumer choice and consumer welfare, and has highlighted government regulatory barriers that have inhibited competition. Regarding the banking sector, I have authored a paper and testified before House Financial Services Committee on the regulatory barriers to new, or de novo, banks, and the problems posed to both competitiveness and financial stability by the lack of new banking entrants in comparison to recent decades. We have also highlighted government mandates, such as the Sarbanes-Oxley Act, that have been shown to put in place barriers to firms’ internal growth and thus distort the market in favor of mergers and acquisitions.

Yet we do not regard mergers and acquisitions, or M&A as the process is often called, as per se problematic or anticompetitive. M&A is 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. As I have written recently: “A ‘new juggernaut’ is often exactly what’s needed to bring lower prices and other benefits to consumers and entrepreneurs.”

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.” As an example, I cited Southwest Airlines’ feat in bringing airfare prices down after acquiring rival airlines, noting that it trounced once-dominant airlines such as Pan Am and Eastern that have now “gone by the wayside.”

Yet it is precisely this type of meaningful competition that the OCC rule would discourage in the banking sector by ending the longstanding process of streamlined applications and expedited review of bank mergers and shifting the burden of justification to the individual banks seeking the merger.

The rule would also harm the safety and soundness of U.S. banks at a time of increasing financial volatility. Many banking scholars as well as bank regulators have recognized M&A as essential for keeping banks on solid financial footing. As former Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair and former FDIC Vice Chair Thomas Hoenig have written:

“Encouraging bank M&A has been an important, and essential tool, used by the FDIC and other bank regulators in stabilizing the banking system and reducing the number of bank failures. Acquisitions by strong banks of weaker ones can prevent failures, while protecting communities from the disruption of banking services that inevitably comes with the liquidation of a failed bank.”

For all the aforementioned reasons, Congress should pass this joint resolution to overturn the highly flawed OCC rule.

Sincerely,

John Berlau

Director of Finance Policy

Competitive Enterprise Institute