Biden’s antipathy to bank mergers misses the point

BIden's narrative laments the halving of the number of U.S. deposit-taking institutions from the beginning of the century to less than 5,000 now

  
Pedestrians pass a Bank of America branch in Boston, Massachusetts, U.S., October 11, 2017.

Pedestrians pass a Bank of America branch in Boston, Massachusetts, U.S., October 11, 2017.

REUTERS/Brian Snyder

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

NEW YORK - Anyone who enjoyed the banking fable “It’s a Wonderful Life” would be sad seeing small lenders disappear. U.S. President Joe Biden’s new push to make consolidation harder, though, misses the reality that most bank mergers are more likely to help competition than hurt it.

Biden on Friday proposed a laundry list of measures, few of which are within his power to implement, designed to lower prices, increase wages and such. Among them is making antitrust scrutiny more robust for mergers, including for banks.

His narrative laments the halving of the number of U.S. deposit-taking institutions from the beginning of the century to less than 5,000 now. Mergers have played a role in that, and spurred the closure of some branches, one of Biden's criticisms. The union of BB&T and SunTrust in 2019 – now called Truist – involved 800 closures. Huntington Bancshares  and TCF, which merged last month, plan to close 198.

A Massachusetts Institute of Technology study found that after a branch closed, small-business lending in the area fell by more than 10% for several years. And not all customers seamlessly shift to app-based finance: one in five households earning under $50,000 a year doesn’t have a smartphone, according to Federal Deposit Insurance Corp data.

But Biden’s plan misses an important point. Bank mergers are largely the result of competitive distortion, not the cause of it. JPMorgan, Bank of America and Wells Fargo have one-third of the nation’s deposits between them, and near-national networks. That gives them colossal spending power when it comes to developing apps and such to attract new customers. JPMorgan spent $10.3 billion on technology in 2020.

Smaller banks can’t compete with that, but mergers help. A combination of two mid-sized lenders typically results in savings of around one-third of the smaller bank’s costs. And such deals already get regulatory scrutiny. Huntington and Truist’s mergers both required them to divest branches.

The very biggest lenders aren’t trying to buy other domestic banks anyway. And if Biden also wants to help the 5% of households still unbanked, it’s larger lenders that have the resources to provide accessible banking products. Most of America’s lenders need to get larger to be more competitive. Biden should let them – and then push them to do good.

CONTEXT NEWS

- President Joe Biden was due to sign an executive order on July 9 featuring over 70 initiatives to improve the state of competition in the United States. The document encourages government agencies to toughen scrutiny of mergers, and also includes recommendations on topics ranging from prescription drug prices to airline customer service.

- The order encourages the Department of Justice to update guidelines on bank mergers to make them more robust, and asks the Consumer Financial Protection Bureau to issue rules making it easier for customers to download and take away their banking data.

- There were 4,978 commercial banks and savings institutions in the United States at the end of March, according to Federal Deposit Insurance Corp data, roughly half the number 20 years earlier.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Richard Beales, Marjorie Backman and Oliver Taslic) ((SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | john.foley@thomsonreuters.com; Reuters Messaging: john.foley.thomsonreuters.com@reuters.net))


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