IGI Logo

WASHINGTON - President Joe Biden's planned executive order to promote greater U.S. competition will target bank mergers by pushing the Federal Reserve and the Department of Justice to update merger guidelines and increase scrutiny of deals, according to a source familiar with the matter.

It will also ask the Consumer Financial Protection Bureau (CFPB) to issue rules giving consumers full control of their financial data to make it easier for customers to switch banks, the source said.

The planned order, which is expected to be signed by Biden on Friday, is likely to chill M&A in the banking sector after a rash of deals unleashed by the Trump administration's more industry-friendly regulatory policy.

Those included the $28 billion marriage of BB&T Corp and SunTrust, the biggest bank tie-up since the 2007-2009 financial crisis, and Fifth Third Bancorp's $4.7 billion purchase of MB Financial Inc, and many smaller deals. The value of M&A among commercial, savings and investment banks reached $54.66 billion by November 2020, the highest since 2009, according to data from Dealogic.

While such transactions have been subject to federal review, government agencies have not formally denied a bank merger application in more than 15 years, according to a paper by Jeremy Kress, a University of Michigan professor who previously worked on bank merger oversight at the Fed.

"There has been a rash of bank closures across the United States, and we're dealing with the bad effects for a lot of people and it's also hard to switch options ... so it is, in a sense, a crisis of competition," said the source.

A report by the Federal Financial Institutions Examination Council and the Federal Reserve Bank of St. Louis shows that the number of commercial banks in the U.S. has fallen by about 10,000 over the past two decades, a decline of 70%.

This has led to higher fees for consumers, reduced access to banking services for communities of color and low-income working families, and increased concerns about risk to the financial system, according to studies by the National Community Reinvestment Coalition.

Bank mergers have been a target of progressives including Senator Elizabeth Warren, who says consolidation harms consumers.

The executive order, which would also address merger guidelines of two other federal agencies that oversee banks, could drag big banks into a high-stakes antitrust debate even as they warn they need help from Washington to compete with financial technology upstarts. The Bank Policy Institute, which represents the nation's biggest lenders, argued in 2020 that banks face a barrage of competition from such players.

Reuters first reported Biden's plan to issue a competition executive order. Details have since emerged on specific actions the administration plans to take that will impact industries such as farm equipment manufacturers, rail and sea shipping, and the labor market.

The actions are part of Biden's moves to strengthen competition by not just enforcing antitrust laws but using federal power to ignite competition in an array of businesses.

Since taking office, he has appointed advocates of tougher antitrust enforcement to top roles at the White House and agencies such as the Federal Trade Commission.

Former President Barack Obama's administration issued a similar order in 2016, but it failed to yield results. The Biden order includes details on how government agencies should review deals and competition in industries, the source said.

Biden's order also pushes to allow customers to switch banks by taking their financial transaction history data with them.

In October, the CFPB sought comment on a potential proposal to increase consumers' access to their own financial data, which is collected by a growing number of financial institutions and apps. The agency's new leadership has yet to move ahead with it.

The source said the White House hopes the executive order would spur the agency to push ahead with the changes. The increased ability to share such data could also help drive more accurate credit scoring models, helping to boost access to credit for under-served and minority communities, the source added.