The U.S. banking industry is in flux, largely thanks to federal policy that has made it easier (and faster) for institutions to merge. As concerns are raised about how industry consolidation might impact competition, Federal Reserve Chairman Jerome Powell is warning that it could hinder small businesses' access to capital and financial services.
Earlier this month, the Federal Reserve released new data that found the average merger review time for deals in the banking sector declined to 3.8 months in the first half of 2018, from 5.6 months in the first half of 2017. The average merger review time at the Office of the Comptroller of the Currency (OCC) declined between 2016 and 2018, too, reports in The Wall Street Journal said.
That may be good news for banks, but some policymakers are concerned that industry consolidation is reducing access to financial services in rural areas. Senator Elizabeth Warren (D-MA) recently sent a letter to Powell raising this concern, noting that the Fed's "anemic scrutiny of applications for mergers and acquisitions [M&A] raises concerns that [it] may oversee a wave of bank consolidation to the detriment of consumers and the financial system."
Other critics have raised the issue that the OCC is advising examiners to take community group concerns into consideration separately from their M&A approval processes.
"As banks grow and they hold more market share, they should produce more of a public benefit," said National Community Reinvestment Coalition Chief Executive Jesse Van Tol in a statement earlier this month, noting that merger review processes are often a way for community groups to urge focus on how those deals would impact their local communities. "A way of ensuring that accountability is to have the public involved in the oversight of what they're doing."
Now, Powell is also raising concerns about how bank industry consolidation could negatively impact the small business community.
"The loss of the branch often meant more than the loss of access to financial services. It also meant the loss of financial advice, local civic leadership and an institution that brought needed customers to nearby businesses," Powell said last week, according to reports. "Small businesses, older people, and people with limited access to transportation" are among the most impacted by industry consolidation, he added.
The remarks were made at a conference, focusing on the issue of "financial deserts," involving the struggle for rural communities to feel the benefits of overall national economic strength and a declining unemployment rate. According to Powell, the Fed's resources to tackle this issue can only go so far. He pointed to the Community Reinvestment Act, which encourages banks to loan to small businesses.
Reports said Powell noted that looser community bank regulations may help keep branches open.
Bank mergers aren't the only factor behind closing bank branches, however. A rise in alternative lending and FinTech service providers has driven the digitization of both traditional and alternative financial services, leading some banks to invest in their online platforms and cut costs by shutting down physical branch locations.
However, other financial institutions are hitting back against the consolidation wave. Last year, JPMorgan Chase announced plans to open 400 new bank branches, focusing on the bank's ability to serve small businesses and entrepreneurs.
"For business owners, the absence of branches and the face-to-face relationships that go with them can complicate everything, from getting financing to depositing earnings to making payroll, and local economies can suffer as a result," said reports in Fortune at the time.
Earlier this month, separate reports revealed that MOXY Bank has been approved by the Federal Deposit Insurance Corporation (FDIC) to launch in Washington, D.C., making it one of the nation's first new community banks in years. MOXY also has its sights set on the small business community, the report said.