The country benefits from a diversified banking system, from community banks to regional banks to large banks. Done right, bank mergers can be a healthy part of that system but, done wrong, they can be destructive and counterproductive. Unfortunately, the current merger process is seriously deficient, impairing the viability of community banks, allowing the elimination of healthy competition, and creating gigantic too-big-to-fail banks that cannot be resolved without catastrophic damage to the country.
The foundation of the U.S. banking system is the community bank. They are the lifeblood of almost every town in America, supplying banking services and credit to Main Street families, small businesses, and farms. They know and fund the local car and truck dealers, pharmacy and food stores, hardware and farm supply stores, and gas and repair stations, while also supporting local sports teams, town days, and other community events and activities. This foundation, however, is being undermined by threats from a failed merge policy that favors and enables large and too-big-to-fail (“TBTF”) banks at the expense of community banks.
The dramatic increase in the largest, TBTF banks over the last several years and decades starkly illustrate these failures and should concern everyone given the catastrophic threat they pose to the financial system and economy as well as to the livelihoods and standard of living of every American. That threat became a reality in the 2008 financial crisis (“2008 Crash”), causing a $20 trillion impact to the economy through the massive number of lost jobs and homes and in far too many cases the loss of a lifetime of personal savings.
That continuing threat is why TBTF banks on the brink of collapse and catastrophe are bailed out by policymakers, rather than allowed to fail and go bankrupt like nearly every other company in America. The three bank failures in spring 2023 were among the largest in history and prove that TBTF is stronger than ever. This special carve out from the most basic rules of capitalism not only creates indefensible moral hazard but allows those banks to shift the costs of their unwise, negligent, reckless, or illegal conduct to the public. Together, the failures of Silicon Valley Bank, Signature Bank, and First Republic have directly cost more than $30 billion. It is the worst example of privatizing gains and socializing losses.
The creation of ever-bigger banks can also lead to a reduction in the availability of consumer banking products and services, increased costs associated with products and services, or even a lack of access altogether when bank branches are closed. For those with insufficient access to banking services, there is increased use of alternative and costly financial services such as check cashing or payday loans. Additionally, the size of and access to small business loans decline with a greater share of banking system assets held by larger banks,  making it more difficult to open or sustain successful small businesses that can lead to increased employment and higher incomes for community residents.
The current process utilized by the banking regulatory agencies (“Agencies”)—Federal Reserve (“Fed”), Office of the Comptroller of the Currency (“OCC”), and Federal Deposit Insurance Corporation (“FDIC”)— to review applications by banks that want to acquire or merge with another bank (“merger review process”) is grossly insufficient. It has allowed the TBTF problem to proliferate and become larger and harder to solve. The Agencies must update their merger review process to more fully account for the risks to consumers, taxpayers, the financial system and stability, and, ultimately, the economy. Otherwise, this trend of increasing and basically unchecked consolidation within the banking system will continue, increasing the threat of catastrophic damage as was caused by the 2008 Crash.
 These circumstances are made worse by the failure to properly regulate and supervise large banks as was made painfully clear in the recent bank failures. See Better Markets Fact Sheet Ten Actions Necessary to Prevent Large Bank Failures, Strengthen the Financial System, and Protect Main Street Families (May 9, 2023), https://bettermarkets.org/wp-content/uploads/2023/05/Better_Markets_Policy_Brief_SVB_Banking_Crisis_Responses_5-9-2023.pdf.
 See Vitaly M. Bord (2018). Working Paper. “Bank Consolidation and Financial Inclusion: The Adverse Effects of Bank Mergers on Depositors [Job Market Paper].” Harvard University, https://scholar.harvard.edu/files/vbord/files/vbord_-_bank_consolidation_and_financial_inclusion_full.pdf.
 An examination of national data from the Federal Financial Institutions Examination Council on assessments related to the Community Reinvestment Act shows that the average small business loan size decreases significantly across bank groupings of increasing size.
 Of course, other policymakers must also fulfill their responsibilities regarding mergers. See Remarks by Assistant Attorney General Jonathan Kanter, U.S. Department of Justice, Promoting Competition in Banking (June 20, 2023), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-keynote-address-brookings-institution.