What Is the Bank Merger Review Modernization Act?

The Bank Merger Review Modernization Act is a proposed U.S. law aimed at overhauling the process for reviewing mergers between financial institutions. The bill is sponsored by Senator Elizabeth Warren (D-Mass.) and Representative Jesús “Chuy” García (D-Ill.). Initially introduced in 2019, it was reintroduced in September 2021.

The primary goal of the bill is to restrict harmful consolidation in the banking sector and ensure that mergers are evaluated rigorously. It intends to prevent the formation of massive institutions deemed “too big to fail,” which played a major role in the 2008 financial crisis.

Key Takeaways

• Sponsored by Elizabeth Warren and Jesús García.
• Introduced in 2019 and reintroduced in 2021 to modernize the bank merger review process.
• The legislation aims to tighten oversight and prevent regulators from approving mergers without fully evaluating their economic impact.

Problems with the Current Review System

Warren and García argue that regulators, such as the Federal Reserve, FDIC, and OCC, act as “rubber stamps” when approving mergers. They claim that many mergers have led to reduced competition, fewer community banks, higher costs for consumers, and increased financial risks.

Bank mergers in the U.S. have caused a steep decline in the number of banks—from 12,000 in 1990 to just 4,500 today. Community banks, in particular, struggle to compete and are often forced to shut down or merge with larger institutions.

In one example, the 2019 merger of BB&T and SunTrust created the sixth-largest bank in the U.S. However, research showed that promised benefits for low-income and minority communities were not realized.

Key Provisions of the Bank Merger Review Modernization Act

1. Public Interest Requirement
   • Consumer Financial Protection Bureau (CFPB) approval is required if the merger involves institutions offering financial products to consumers.
   • The Community Reinvestment Act (CRA) would be strengthened to allow only top-rated institutions to merge.
2. Stability of the Financial System
   • Regulators must use quantifiable metrics to evaluate the risks that the merger poses to financial stability.
3. Concentration of Banking Products
   • The bill requires an assessment of whether the merger would limit consumer access to individual financial services.
4. Evaluation of Resources and Management
   • The merged institution must demonstrate adequate financial and managerial resources to operate effectively.

Support for the Act

The bill has received endorsements from several organizations, including:

• National Community Reinvestment Coalition (NCRC)
• Public Citizen
• Americans for Financial Reform
• Institute for Local Self-Reliance

Why the Act Matters

Mergers can reduce competition, increase systemic risks, and hurt consumers. Warren and García believe stricter oversight is necessary to avoid the pitfalls of unchecked consolidation and protect the financial system from future crises. Their bill aims to introduce more rigor and transparency into the merger review process.

The Bottom Line

The Bank Merger Review Modernization Act calls for stricter scrutiny of bank mergers to prevent monopolistic practices and reduce the risks associated with large financial institutions. It challenges the perceived leniency of regulators and seeks to protect consumers, workers, and the financial system. Although the bill has yet to pass, it highlights ongoing concerns about consolidation in the banking sector and the need for a fairer review process.