Academic journal article Federal Reserve Bulletin

Statement by Laurence H. Meyer, Member, Board of Governors of the Federal Reserve System, before the Committee on Banking and Financial Services, U.S. House of Representatives, April 29, 1998

Academic journal article Federal Reserve Bulletin

Statement by Laurence H. Meyer, Member, Board of Governors of the Federal Reserve System, before the Committee on Banking and Financial Services, U.S. House of Representatives, April 29, 1998

Article excerpt

Statement by Laurence H. Meyer, Member, Board of Governors of the Federal Reserve System, before the Committee on Banking and Financial Services, U.S. House of Representatives, April 29, 1998

I am pleased to appear before this committee on behalf of the Federal Reserve Board to discuss issues related to mergers among U.S. banking organizations and other financial services firms. The past two decades have seen a steady and sometimes breathtaking consolidation of our banking system, a process that will likely continue for quite some time. This ongoing consolidation is in many ways a natural response to our rapidly changing banking environment. However, the very large mergers and acquisitions of recent years, and those approved or announced in the past few weeks, have raised a number of public policy questions and concerns in the minds of many observers.

As the committee knows well, this is not the first time the Board has testified on the subject of bank mergers. The Board continues to believe that the primary objectives of public policy in this area should be to ensure a safe and sound banking system, preserve the benefits of competition for consumers of financial services, meet the convenience and needs of local communities, and allow U.S. financial services firms to evolve with the needs of the marketplace. My statement today will discuss how, within the context of existing law, the Federal Reserve is pursuing these goals and will review the potential economic effects of bank mergers. I will also argue that the consolidation of the U.S. financial services industry reinforces the need for legislation to modernize our banking and financial systems.

One of the reasons we are here today is the recent announcements of several large and interesting mergers. My statement purposely does not include any substantive discussion of specific mergers and acquisitions that have been proposed recently. Several of the recently announced proposals will require that a company obtain the Board's approval under the Bank Holding Company Act. Each proposal subject to the Bank Holding Company Act will be thoroughly reviewed by the Board on a case-by-case basis in conformance with current law and under the Board's well-established policies and procedures. It is important to note, however, that the Bank Holding Company Act does not give the Board unfettered discretion in acting on such proposals. Instead, the Bank Holding Company Act specifies the factors that the Board must review in these cases, and the Board's power to approve or deny a proposal is significantly limited by these factors.

These factors include the competitive effects of the proposal, the financial and managerial resources and future prospects of the companies and banks involved in the proposal, and the effects of the proposal on the convenience and needs of the community to be served, including the performance record of the depository institutions involved under the Community Reinvestment Act. In addition, the Board may enforce compliance with the requirements of the Bank Holding Company Act and must be assured of access to information needed to enforce compliance. The Bank Holding Company Act also establishes nationwide and individual state deposit limits for interstate bank acquisitions and consolidated home country supervision standards for foreign banks. In proposals involving the acquisition of a nonbanking company, the Board must consider whether performance of the activity by a bank holding company affiliate can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency that outweigh possible adverse effects such as undue concentration of resources, decreased or unfair competition, conflicts of interests or unsound banking practices.

The Board is not granted authority under the Bank Holding Company Act to disapprove a proposal that meets all of these statutory factors. …

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