U.S. Bank Regulators Tussle Over Effort to Scrutinize Mergers

(Bloomberg) -- The Federal Deposit Insurance Corp. issued an unusual statement Thursday that revealed an emerging rift between financial regulators, refuting a review of bank-merger policies announced on the Consumer Financial Protection Bureau website by FDIC directors. 

FDIC board member Martin Gruenberg and CFPB Director Rohit Chopra, whose board seat at FDIC is automatically granted to the head of his agency, posted a statement that the FDIC’s board voted to launch a public comment period on overhauling bank-merger regulations. The FDIC -- led by Chairman Jelena McWilliams, a Republican appointee of former President Donald Trump -- answered back that the board didn’t make that decision. 

“No such document has been approved by the FDIC,” the regulator said in its statement. “There was no valid vote by the board, and no such request for information and comment has been approved by the agency for publication in the Federal Register.”

Senator Pat Toomey, the ranking Republican on the Senate Banking Committee, called the clash an “illegitimate FDIC coup,” in a statement, adding that it “represents a radical politicization of a long-respected financial regulator.” Democrats hold a majority at the FDIC against lone Republican McWilliams.

The statement from Chopra and Gruenberg, who was FDIC chairman in the Obama administration, was a request for public comment on “a careful review of the effectiveness of the existing regulatory framework in meeting the requirements of the Bank Merger Act.” But unless it’s published in the Federal Register, it won’t be official, and the FDIC indicated that publication wouldn’t happen. 

Board vs. Chair

“It is clear under the statute that the majority of the FDIC board of directors has authority to place items on the agenda for board meetings and, alternatively, to circulate and act on notational votes,” Gruenberg said in a statement. He said the Federal Deposit Insurance Act empowers the board -- and not the chairman. McWilliams’ term atop the board doesn’t expire until 2023.

Chopra posted in a blog on his agency’s site Thursday arguing for the review. Mergers have been a popular point of contention for Democratic lawmakers and progressive groups that criticize regulators for rubber-stamping bank deals. 

“Some mergers and acquisitions can create chaos for consumers,” Chopra said. “Financial companies that rapidly expand through buyouts are often unprepared when it comes to integrating systems and ensuring accuracy of consumer accounts.”

The public fight among regulators signals that banks may have a hard time getting future deal approvals from the FDIC, Jaret Seiberg, an analyst at Cowen & Co., said in a Thursday note. He said he doesn’t expect it to interfere with “most bank mergers that the market is following.”

The acting chief of the Office of the Comptroller of the Currency, Biden administration appointee Michael Hsu, is also on the FDIC board. An OCC spokeswoman issued a statement Thursday that Hsu has given the Bank Merger Act consideration and “will continue to work collaboratively with other regulators on this.” The OCC declined to say whether Hsu approved the bank-merger review. 

In its statement, The FDIC cited a long history of cooperation between board members. “Notwithstanding the actions taken today, the FDIC expects this time-honored tradition of collegiality and comity to continue,” it said.

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