FedFin on: FHLB Advance Availability
The FHFA has issued an advisory bulletin (AB) building on its 2023 over-arching plan for FHLB reform and bank-regulatory efforts to clarify and constrain FHLB lending to troubled IDIs which received considerable “lender-of-second-resort” FHLB funding during the 2023 crisis. FHFA says that this bulletin does nothing more than “memorialize” longstanding FHFA standards; in fact, it makes significant changes and is likely to require at least some Home Loan Banks to improve member-related credit-risk management by no longer solely counting on collateral and contacting an IDI’s primary regulator, the FDIC, or a Reserve Bank to confirm that ….
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FedFin on: Deposit Record-Keeping
Stunned by the impact of a recent fintech failure (Synapse) and growing risks in this arena, the FDIC is seeking comment on a proposal requiring IDIs doing business with third parties related to transaction-empowered deposit accounts to keep timely and daily reports of each deposit and its beneficial owner. The FDIC believes that this would prevent harm to third-party customers who believe funds given to the third party are FDIC-insured when these funds are in fact aggregated into a single account for which the third party is the beneficial owner and the arrangement is not covered by FDIC pass-through insurance….
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Karen Petrou: How DOJ’s Case Against Visa Could Make Debit-Card Markets Still More Concentrated
In our recent paper on bank-merger policy, we noted that over-stringent merger policy is likely to lead to unintended and perverse consequences. This emphatically is not to say that all bank mergers are good mergers, but rather to emphasize that blocking all mergers based on arbitrary criteria may well backfire and lead to still-greater concentration in a market defined as much by regulatory-arbitrage opportunities as competitiveness. Case in point: Justice may rightly want to bring Visa to heel, but its bank-merger policy could simultaneously block the kinds of bank consortia that would otherwise be able to continue market-critical card processing and also bring it under the regulatory umbrella. If DOJ successfully sues Visa, its bank-merger policy is likely to replace one disgraced omnipotent network-effect competitor with another omnipotent network-effect competitor rather than one or more regulated networks comprised of regulated, competing banks.
One of the often-overlooked – but very important – aspects of new merger policy from the Department of Justice is its dark view of financial networks and platforms. These are of course most pertinent in the payment system where, as one payment executive recently put it, “payment is a matter of volumes. If you don’t have volumes, you don’t have the capacity to be competitive.” Put another way, payment systems are network-effect entities and, unless Justice understands this, the only bank payment-system providers will be one or more of the very biggest banks that don’t need third-party networks to generate scale. Existing bank consortia of different-sized banks now challenging giant tech-platform companies face antitrust threats that may force them to cede markets to the largest players whose organic growth never comes under DOJ review.
The heart of DOJ’s case against Visa is the firm’s dominant debit-market position that even squeezed out once-powerful competitors such as Mastercard. […]
FedFin on: DOJ Bank-Merger Policy
In conjunction with final merger-policy statements from the FDIC and OCC, the Department of Justice (DOJ) released “commentary” expanding on how the 2023 guidelines it issued along with the Federal Trade Commission expressly apply to bank mergers. The DOJ’s commentary and that from the other banking agencies revise merger policy last set in 1995. However, the Fed has yet to do so or even clarify how all of these actions affect its approach beyond a statement earlier this year that the FRB was working with other agencies and a more recent answer from Vice Chair Barr that he is content with Fed policy as it stands…
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FedFin on: OCC Bank-Merger Policy
In conjunction with final FDIC action on its merger policy, the OCC also finalized its proposal. The final OCC standards include a rule revising merger-review procedures to eliminate streamlined and expedited consideration in favor of OCC commitments to act in a timely fashion, especially for smaller deals it believes will be considered on a schedule no different than that now governing these deals or perhaps even more quickly. However, long delays are still more likely for larger transactions or those with controversial elements…
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FedFin on: Bank-Merger Policy
In a final statement of stringent bank-merger policy, the FDIC has finalized a little-changed version of its March proposal to do so. It will make it difficult for all but the smallest and simplest transactions within its jurisdiction to have the clear prospect of regulatory action usually necessary in nonemergency transactions, subjecting other M&A applications to protracted review with a high likelihood of denial. Strategic alliances involving nonbanks and/or nonbank affiliates and BHCs with nonbank activities may also come under critical FDIC scrutiny, complicating transactions otherwise under the FRB or OCC’s review. Transactions over $100 billion would face the toughest scrutiny, but even small bank mergers could be denied if the FDIC is dissatisfied with the bank’s prior supervisory, enforcement, or community/consumer record…..
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