New guidelines aim to make sure bank mergers benefit communities

Several federal regulators updated the guidelines they use when evaluating proposed bank mergers this week. The new rules are meant to step up regulatory scrutiny and ensure that any bank merger actually benefits the customers those banks serve.

A lot of the guidelines that regulators used to review bank mergers had been in place since 1995. But banking has changed a lot in the last few decades, said Jeremy Kress, a professor at the University of Michigan.

“Banks can now operate across state lines, when they were prohibited from doing so. Banks can engage in many more different types of activities than they were allowed to do three decades ago,” he said.

Kress advised the Department of Justice’s antitrust division on its new merger guidelines. He said a big issue regulators are trying to address is what happens to local communities when a small bank gets acquired by a bigger one from across the state or country. 

“The concern is that that acquirer might not serve the community as well as the local community bank has in the past,” Kress said.

Under the new guidelines, regulators will consider things like whether a merger will give small businesses more access to credit, whether consumers can sign up for more services and whether fees will come down.

The goal isn’t to stop bank mergers, per Columbia law professor Kathryn Judge.

“it’s to make sure that when those mergers are approved they’re going through in ways that really serve the public interest,” she said.

The total number of banks has shrunk by about three-quarters since the 1980s. So if the new rules have a chilling effect on bank consolidation? Judge said that might not be such a bad thing.