By Douglas Gillison
(Reuters) – U.S. lenders hoping for easy merger approvals in the wake of the March banking crisis should instead expect tight scrutiny from regulators concerned about financial stability, the director of the Consumer Financial Protection Bureau (CFPB) told Reuters.
Rohit Chopra also said in an interview that the agency continued enforcement efforts despite multiple suspensions imposed by federal judges in CFPB litigation over a challenge to the Supreme Court.
“Banks can expect a more rigorous review of applications. The ink on the rubber stamp has dried and… I hope to see a shift from regulators on the transition 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 sharply with that of Treasury Secretary Janet Yellen and acting controller of the currency Michael Hsu, who in recent weeks have appeared susceptible to deals to help stabilize the troubled medium-sized banking sector, which saw three of the four largest US bank failures this year.
Bank executives, meanwhile, complain that regulatory drag and uncertainty from impending regulatory reforms have pushed merger activity among healthy banks to an all-time low.
“There is no doubt that previous merger statements have not met the level of analytical rigor they should have,” said Chopra, who declined to cite specific examples.
April’s sale of bankrupt First Republic Bank to the country’s largest bank, JPMorgan Chase, enabled the Wall Street giant to grow even bigger, despite a law prohibiting the concentration of more than 10% of the country’s deposits with a single lender. That angered Democratic Senator Elizabeth Warren, who helped create the CFPB and endorsed Chopra for the role of director.
Financial reformers in the Democratic Party oppose allowing banks to be “too big to fail.”
JPMorgan last week reported record second-quarter earnings, aided in part by its acquisition of First Republic, which was approved by regulators under a legal exception for the sale of government-controlled banks and because the offer brought the lowest cost to the government’s deposit insurance fund.
“There are certainly some questions about whether that similar outcome is ideal,” Chopra said, noting that there were other bidders besides JPMorgan.
Chopra in May called on the FDIC to approve changes to bank merger guidelines. He declined to discuss possible changes, but said the approval process was already under development, citing a review of bank merger guidelines to be carried out in 2022.
He did note in a recent case that the FDIC had not allowed deferrals on divestments aimed at addressing competition concerns or imposing non-compete obligations on personnel who would seek employment 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 case is resolved, according to federal court records.
“There is no question that certain legal uncertainties could lead to more protracted or protracted litigation,” Chopra said.
“Despite this, we continue to get real results,” he said, pointing to recent actions 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)
