The availability of bank credit and services is the life blood of local communities. When banks curtail loans to small businesses, homeowners and development and housing projects, neighborhoods can deteriorate rapidly.
That’s why community groups are concerned when big multi-state banks announce plans for mergers and acquisitions. It means less competition and the potential for neighborhoods to lose services when bank branches are padlocked in the wake of mergers.
The wave of mergers places a heavy responsibility on the federal bank regulators to make certain that neighborhood concerns are considered when banks file applications for mergers. Some of the recent mergers, however, raise questions about how seriously the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board take this responsibility.
Under the Bank Merger and Holding Company Acts, the regulators are required to determine how mergers of banking corporations meet the “convenience and needs” of communities. But, that statutory mandate seems to take a back seat to demands of the banking corporations for speedy approvals of their grandiose plans to swallow up their competitors and expand.
There is never a surprise ending in the merger game. If an application is filed, it gets a stamp of approval–even when some of the data on which it is based is stale, unavailable or deemed top secret and unfit for public inspection.
Speed is the most consistent factor. The recent merger of First Union National Bank of North Carolina with Signet Bank of Virginia is a prime example.
Despite the fact that the merger affects the availability of banking services and credit across a wide area of Virginia, District of Columbia and Maryland, the Federal Reserve stamped the application approved within 47 days of the filing. OCC looked at the file for 89 days, but they came out the same place as the Fed–approval with few questions asked and even fewer answered.
In examining the banks’ performance under the Community Reinvestment Act, the two regulatory bodies apparently depended heavily on a nearly four-year old examination which gave First Union an “outstanding” rating in meeting community needs and a 22-month old examination of Signet which resulted in a “satisfactory.” community rating.
First Union, one of the nation’s most expansive-minded banking corporations, has undergone major change since the 1994 examination. It now has multi-state presence extending from Florida to New Jersey.
Realizing how stale a four-year old examination might appear to the public, both the OCC and the Federal Reserve took care to note that they had also considered a CRA examination that was currently underway, but not yet completed.
But, that CRA evaluation and rating has not been made available to the public and this means that community groups had no way of analyzing the CRA data before the two agencies grabbed for their approval stamps.
Nowhere in the approval letters did the two agencies suggest that they had considered withholding the approval until the new CRA examination was completed and the written evaluation and rating made public as required by the 1989 amendments to the Community Reinvestment Act.
Once again, it was obvious that the object was to accommodate corporate needs for speed rather than provide the public with timely and full data on which to judge the banks’ performance or the validity of the analysis performed by the regulatory agencies.
One of the great concerns of local communities is the potential for closing branches in low and moderate income neighborhoods in the wake of mergers like First Union-Signet.
But, both OCC and the Fed concede they don’t have hard information about First Union’s plans to close branches when the marriage with Signet is consummated. The two agencies admit they closed out this area on incomplete and preliminary information.
“As an initial matter, it is important to recognize the tentative nature of First Union’s preliminary branch closing plans in this case,” OCC wrote in its approval letter.
Similarly, the Federal Reserve noted that First Union has not “developed final plans” for branch closing, but claimed that it was privy to “preliminary and confidential” information about some of the planned branch closing. But the Fed flatly refused to provide the data to citizens challenging the merger. Again, speed dictated the quick dust-off of the critical question of what neighborhoods might lose banking services under First Union’ secret branch closing scheme.
When regulators fail to collect or release such key information, the rights of community groups to challenge mergers are effectively denied. The paucity of data also greatly diminishes the ability of Congress and the public to evaluate the performance and fairness of regulatory agencies in processing merger applications.
If branch closings got short shrift in the regulators’ considerations, the issue of bank fees charged to consumers and depositors was barely mentioned in the approval documents.
In a footnote, OCC, whose salaries are paid out assessments on banks, simply declared that “since an adequate number of alternative financial service providers will remain, fees should continue to reflect the effects of a competitive market.” The Comptroller provided no data to support such a deplorable claim in a banking market with uniformly high fees.
The Federal Reserve Board was totally dismissive, suggesting that the burden of proof about excessive fees was on the citizens, not the regulators.
Neither agency indicated that it had conducted a survey of fees in the territory served by First Union or had collected any data on how the “convenience and needs” of low and moderate income families could be met under First Union’s high fee schedule.
The First Union-Signet merger was also accompanied by a general pledge to commit “two billion dollars in community investment activities” in Virginia, D.C. and Maryland over the next three years. Such commitments have become standard public relations and regulatory sops to rush through big bank mergers and acquisitions.
Outside of broad categories, for example, the approval letters of the two agencies are devoid of details on how, when and where the investment funds will be allocated. Even more important, the regulators give no indication that they will monitor or enforce the commitments or provide ongoing publicly available data that would enable community groups to track and evaluate such amorphous promises.
The concentration of economic resources is a serious problem for the nation, but the negative consequences of the bank mergers are made many times worse when the regulators don’t take steps to ensure that communities and neighborhoods have adequate banking services. The regulators’ obligation to the public and local communities should not be given short shrift just because banking corporations want overnight service in the approval of merger applications. Surely, banking corporations which enjoy free taxpayer-backed deposit insurance, access to below market interest rate loans at Federal Reserve Banks and other subsidies can wait long enough for the regulators to properly meet their responsibilities to consumers, taxpayers and communities.