A Warranted Bill? The Bank Merger Review Modernization Act and its Potential Effects on the Banking Industry

(Excerpt) In early 2023, three small to mid-sized banks failed, accounting for three of the largest banking failures in modern United States history. The three banks were Silicon Valley Bank, First Republic Bank, and Signature Bank, and their failures were found to be due to their lack of risk management. At the time of their respective failures, Silicon Valley Bank, First Republic Bank, and Signature Bank were large, regional banks in the United States with combined holdings of over $530 billion in assets. Their clientele were all mainly in the technology sector, including venture capitalists, cryptocurrency, and high net worth individuals. In an effort to stabilize the market, Silicon Valley Bank, First Republic Bank, and Signature Bank were acquired in emergency sales. After this widespread disruption in the banking industry, government officials and politicians started to address potential solutions; albeit, the problem remains unsolved. Some believed that these banking failures were indicative of the need for further consolidation in the banking industry. However, others believed these failures demonstrated that there was a need for reform in the bank merger review process to facilitate competition and strengthen small to mid-sized banks. One such solution is the Bank Merger Review Modernization Act (“BMRMA”), which is a twice-proposed bill that aims to add more protection to the bank merger review process and ensure that both consumers and the industry are protected. This Note argues that although the BMRMA is a good starting point for ending the rubber-stamping of bank mergers, it does not address the root issue of the banking failures and focuses too much on the adverse effects on small community banks. Part I covers the history of bank merger law in the United States, dating back to 1960 with the Bank Merger Act, and illuminates how other laws and administrative agencies also play a role in the approval or denial of bank mergers. Part I also addresses the history of banking failures in the United States, particularly the 2008 financial crisis and the recent banking failures that occurred in 2023. It discusses how they occurred, the aftermath, and the divide in proposed solutions. One solution, the BMRMA, aims to strengthen the bank merger review process. On the other hand, others advocate that bank mergers are not the issue and, instead, may be necessary to strengthen the industry. Part II of this Note applies the BMRMA to recent banking failures and attempts to determine if the BMRMA would have been beneficial. It compares the recent banking failures to the 2008 financial crisis and the Dodd-Frank Act that was subsequently passed into law in 2010. Part III of this Note argues that the BMRMA would not solve the issue of bank mergers and their effect on potential future banking failures. This section analyzes the BMRMA and discusses that while adding in quantifying metrics is, in theory, effective, there is no guarantee this will prevent excessive banking consolidation or the end of rubber-stamping. Lastly, Part IV of this Note proposes steps that should be taken to address the issue of bank merger regulation law in the United States.