In the Words of Nancy Reagan, “Just Say No.”

Since the turn of the century, nearly 7,000 U.S. banks have disappeared from the ranks. As the quantity goes down, the assets of those that remain go up. As a result, we now have four U.S. banks that exceed the $1 trillion asset mark.  But how did we got here?

Most observers will say this is a result of the Great Recession when hundreds of banks failed. The deposits and remaining assets of those banks naturally had to be assumed by another, generally larger bank. And so it was with such behemoths as Washington Mutual (WAMU) and Wachovia Bank.

With $307 billion in assets, it was going to take a very large bank (or several small ones) to resolve WAMU when it failed in 2008. It took just one, but it was the nation’s largest: 5-Star JPMorgan Chase Bank.

Wachovia Bank didn’t go down as a failure “officially”. It was (although they don’t like to admit it) too big to fail. Using the new systemic risk exemption (SRE), officials from the FDIC, Treasury and the Federal Reserve together, allowed 4-Star Wells Fargo, to quietly acquire the $800 billion asset Wachovia Bank.

In just a few short months, two of the nation’s largest banks were suddenly much larger… and much more systemically risky. It was understandable. The situation at the time was dire and there were no viable alternatives. The banks had to be resolved and the depositors (and the deposit insurance fund) had to be protected.

What is less understandable is why regulators would allow big banks to keep purchasing. Since the turn of the century, JPMorgan Chase has assumed 41 banks and countless non-depository companies; Wells Fargo has acquired 154 banks. These monster banks have been allowed to grow without discretion.

Until now. Last July, President Biden signed an Executive Order aimed at promoting competition in the US economy, including in the banking sector. The FDIC as a result, is seeking comments and suggestions that will help improve the Bank Merger Act (BMA) that’s been in effect since 1998. A request for information and comment (RFI) was published in the Federal Register (March 31, 2022). It’s time. The BMA has not been revisited since 2008.

Considerations of a merger approval include, but are not limited to:

• Must not create a monopoly or produce substantial anticompetitive effects (reduce or eliminate) within the geographic area;
• Must consider both the needs and convenience of the public; and
• The effectiveness of the banks involved in combatting money-laundering.

As we saw with Wachovia, any (and all) of these bullet points can be overlooked if a Big Bank is at risk of failing. That being said, already this century we have seen 564 bank failures; and we’ve lost a total of 6,898 banks. That means that, for better or worse, more than 6,300 acquisitions got rubber-stamped.

Each of the 52 banks listed on page 7 has acquired more than 21 banks this century (either directly or indirectly), an average of at least one per year. As you can see, the list includes some of the largest banks in the country, like  4-Star Truist Bank, Charlotte, NC. Between the banks that SunTrust acquired in the 2000s and those that BB&T acquired, by the time the two merged (Dec. 2019), the combined Truist Bank (now the 7th largest bank in the U.S.) had one way or another, consumed 208 banks (JRN 36:46).

While the combination of SunTrust and BB&T did not create a “monopoly”, per se, there is no doubt that it substantially limited competition in some areas, particularly in Florida, Georgia, North Carolina and Virginia. And that was before it started shedding branches. Truist was required to divest 30 branches before the deal was ever approved. Not a problem. In fact, in less than 18 months, it had closed more than 300.

But that was then. Today, both 4-Star U.S. Bank N.A., Cincinnati, OH and 5-Star TD Bank, Wilmington, DE are anxiously, awaiting their approvals. They may be disappointed.

Last September, U.S. Bank, the fifth largest U.S. Bank (by assets) agreed to acquire 4-Star MUFG Union Bank, N.A., San Francisco, the 28th largest bank (by assets). This deal was expected to close this quarter, but regulatory approval is still pending.

Knowing that, (#9) TD Bank’s $13.4 billion deal to acquire  (#40) 4-Star First Horizon Bank, Memphis, TN was written with contingencies. If the acquisition is not completed by Nov. 27th, TD Bank will pay an additional 65¢ per share; if it is not completed by year-end, it will be cancelled altogether. Gone are the days of a quick and easy rubber-stamp. At least we hope.