Federal Reserve Governor Michelle Bowman called on federal policymakers to analyze the impact of credit unions and non-bank lenders in local markets before approving bank combinations, during the Conference of State Bank Supervisors’ Community Bank Research Conference on September 28.
As bank regulators and the United States Department of Justice revisit their guidelines for bank mergers and acquisitions for the first time in over 25 years, Bowman asserted that a more comprehensive review of the competitive landscape is necessary given shifts in the marketplace throughout the last two decades.
One of those major changes has been the evolution of credit unions, which in 1995 had 68 million members and assets of $312 billion as reported by the Federal Reserve Bank of Cleveland. As their field of membership requirements have been relaxed and their powers have expanded, particularly pertaining to commercial lending, credit unions have grown their membership to over 130 million and assets to more than $2.1 trillion.
Bowman contends that these credit union industry trends, together with the emergence of digital firms and other non-bank lenders, have altered market dynamics, especially in the context of bank mergers. “Credit unions whose field of membership includes all, or almost all, of the market populations, whose branches are easily accessible to the public, who engage in a significant amount of commercial lending and who have staff available for small business services, or who have acquired a community bank should be part of any initial competitive screen,” Bowman said.
She also noted that the National Credit Union Administration should “collect more granular deposit information from credit unions so we can better understand their local market power.” Echoing prior comments from Federal Reserve Chair Jay Powell, she added “similar activity should be subject to similar data collection and regulation.”
Bowman invited additional research to determine whether the existing regulatory environment puts banks at a competitive disadvantage. While “[our] current framework is meant to promote a competitive marketplace for banking products and services,” Bowman said, “we’re only restricting banks from making strategic merger choices, while allowing those outside the framework to proliferate” if regulators do not account for competition from credit unions, digital banks, and non-banks.
As credit unions continue to seek policy changes that will further dilute their field of membership requirements and enhance their commercial lending capabilities, regulators should heed Governor Bowman’s advice and examine how this unfettered growth impacts the competitiveness of local markets.