2021 was a record year for bank mergers. But banking consolidation could get more scrutiny after political drama at the Federal Deposit Insurance Corporation (FDIC) pushed out Washington’s last remaining Trump-era bank regulator.
The unrest at the FDIC, best known for its guarantee on deposits at insured banks up to $250,000, stems from a battle over how to handle larger bank mergers.
On New Years’ Eve, FDIC Chairman Jelena McWilliams abruptly announced she would be resigning from her role, effective Feb. 4. The move leaves only Democrat-appointed officials on the FDIC’s board. There are two other major bank regulators: the Comptroller of the Currency and the Federal Reserve’s vice chairman of supervision. The Biden administration tapped Michael Hsu for the former role, and is about to name a pick for the latter role.
“We expect near-term pressure on financials on the accelerating regulatory shift, particularly for banks with pending deals that would form a combined entity with assets over $100 billion,” wrote Raymond James analyst Ed Mills.
In addition to freezing any possible merger discussions, the turn in regulatory winds calls attention to a number of previously-announced deals of significant scale. In September, U.S. Bancorp said it would be buying MUFG Union Bank NA and in December, BMO Financial Group said it would purchase Bank of the West.
Data from S&P Global Market Intelligence shows that 2021 has been a big year for bank mergers and acquisitions, perhaps to get ahead of leadership changes at the regulators. As of November (so excluding the BMO deal), over $60 billion in transactions were inked last year, surpassing 2007 as the biggest year for U.S. bank M&A.
Isaac Boltansky, an analyst at BTIG, acknowledged the “soap opera” at the FDIC but noted that he would not expect the regulators to start swatting down any and all deals.
“We continue to believe that there will be M&A headwinds for banks, which will extend approval timelines, but our sense is that deals with pro forma assets either near or below $100 billion should have a clearer path to approval, all else being equal.”
What’s going on at the FDIC?
The leadership shake-up is the latest development to come from an internal battle over the exact topic of bank mergers.
The spat began in early December, when the FDIC requested public comment on the regulatory approach to bank mergers, with a particular focus on the financial stability concerns associated with deals that would involve banks or create a bank larger than $100 billion.
But the proposal was not signed off by the chairman. Instead, it was issued by two of the FDIC’s Democratic board members: Martin Gruenberg and Rohit Chopra (also the head of the Consumer Financial Protection Bureau).
The action triggered an uproar on Capitol Hill, where Republicans accused the rogue regulators of engineering a “coup” at the FDIC. McWilliams, a Trump-appointee, would veto the measure before stepping down entirely only two weeks later. She provided no reason for the sudden departure in her resignation letter to President Joe Biden.
On the other side of the aisle, Rep. Maxine Waters (D-Calif.) egged the Democrats on and further asked the bank regulators to freeze all merger applications above $100 billion in total assets.
The regulators have not implemented such a moratorium.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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Source: finance.yahoo.com
