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Senator Elizabeth Warren (D-MA) criticized the Federal Reserve Board ("FRB") approval process for bank mergers and acquisitions, and claimed that 100 percent of the merger applications received are approved.
Ms. Warren said that "everything is happening behind closed doors," calling the bank merger process a "rubber stamp." She noted instances in which banks privately discuss deals with FRB staff members and then withdraw their applications if there is any opposition. The public, according to Ms. Warren, only gets to "weigh in" after the merger is announced by the FRB.
In response, FRB Chair Jerome Powell said that the FRB will seek comments from the public and conduct the bank merger process in a more careful manner. He noted that the FRB will manage a "very fair and open, transparent process" with respect to the SunTrust/BB&T merger.
Commentary / Steven Lofchie
Senator Warren's comments on the bank merger process reflect a misunderstanding of the regulatory application process, and not just of the process in banking regulation. That is, it is completely common in any regulatory process (not just banking regulation) in which market participants seek regulatory approval for the regulators ultimately to approve all published applications.
A very high published approval rate is not because the regulators, in fact, approve all (or even any large percentage) of applications made to them; it is because market participants simply withdraw or abandon proposals that will not be approved by the regulators. That is, there is simply no reason for a market participant to push forward for final public rejection of a proposal as to which the regulators (whether the bank regulators, the SEC, the CFTC or the IRS) have expressed their disapproval.
If Senator Warren is genuinely concerned with the approval of banking mergers, she would do better to focus her comments on the considerations that go into the bank regulators' approval process or the facts of a merger that she believes ought not to have been approved. See also Senator Elizabeth Warren Questions Federal Reserve Board on Bank Merger Approvals.
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