What Is the Bank Merger Review Modernization Act?

The Bank Merger Review Modernization Act seeks to overhaul the review process for mergers between financial institutions. The bill is sponsored by U.S. Sen. Elizabeth Warren (D-Mass.), and U.S. Rep. Jesús "Chuy" García (D-Ill.). The lawmakers initially introduced the bill in 2019 and later reintroduced it in September 2021.

Under the current review system, Warren and García say regulators serve as "rubber stamps" and often fail to consider the broader impacts of a potential merger. The legislation would "restrict harmful consolidation in the banking industry and protect consumers and the financial system from "'too big to fail' institutions, like those that caused the 2008 financial crisis," Warren said in a statement.

Understanding the Bank Merger Review Modernization Act

Bank mergers require approval from federal regulators, including the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC). However, Warren and García contend the review process is fundamentally broken, and that bank mergers have driven a rapid decline in the number of banks—from more than 12,000 in 1990 to fewer than 5,000 today. 

"In recent years, our banking sector has become more and more dominated by the largest banks," Warren said in a statement. "Community banks are being gobbled up by larger competitors or forced to shut down because they can't compete on a level playing field," adding that this results in higher consumer costs and increased systemic risk to the financial system.

• Whether the merger will create local monopolies for banking services
• Whether the merged bank will be well managed
• Whether the new bank creates a risk to the financial system
• The merger's effects on the public

However, Warren and García argue, regulators aren't considering all these factors. "Financial agencies almost exclusively focus their analyses on narrow measures of competitiveness that fail to account for the broader impacts of the merger and often pre-review the merger in secret with banks before they announce it publicly," according to the statement. "As a result, the merger review practice lacks analytical rigor, and regulators serve as rubber stamps. Of the 3,819 bank merger applications the Fed received between 2006 and 2017, it did not decline a single one."

For example, regulators approved the merger of BB&T and SunTrust in 2019, creating the sixth-largest bank in the U.S. However, research has shown that the merger did not deliver promised benefits to low-income and minority communities, according to the statement.

"Bank consolidation means more pay and profits for big banks and fewer bank branches in neighborhoods like mine," García said in a statement. "It's time for our government to stop rubber-stamping bank mergers. This bill ensures our regulators consider the impacts of a merger on consumers, workers, and our financial system."

 Special Considerations

• Guarantee the merger is in the public interest. For example, the bill requires Consumer Financial Protection Bureau (CFPB) approval when at least one applicant offers consumer financial products. It would also strengthen the Community Reinvestment Act (CRA) by only allowing institutions with the highest ratings to merge.
• Safeguard the stability of the financial system. The bill requires regulators to use a quantifiable metric to evaluate risks from the merger.
• Require regulators to examine how the merger would affect the concentration of individual banking products.
• Ensure the merged bank has adequate financial and managerial resources.

The bill has been endorsed by Jeremy Kress, former Federal Reserve Board attorney and assistant professor of business law at the University of Michigan; the National Community Reinvestment Coalition (NCRC); Americans for Financial Reform; the Institute for Agriculture and Trade Policy; Communications Workers of American; the Institute for Local Self-Reliance; 20/20 Vision; Public Citizen; and Food & Water Watch.