Given changes in the social and economic environment, it is clear to us that the proposed merger between US. Bancorp and Union Bank is in serious trouble and should not, for reasons described below, be approved. (See: https://drive.google.com/file/d/1jWBxbggqJrhh3pLqBvrCNLJqelxpuWX1/view?usp=sharing)
As with majority of large bank merger proposals over the past thirty years, the lead entity, in this case, US Bank, has claimed the transaction will provide significant social benefits. The bank stated the merger would “provide benefits for both customers and the communities served by the combined organization through improved technology, products and customer choice.” A review of bank mergers over the past forty years shows that this is untrue. There is no objective, fully independent data to support this contention. In fact, inequality has risen over the intervening years.
Many merger opponents cite Covid-19 and the significant racial and economic divisions the virus revealed as reason to delay or oppose the merger. Other opponents have requested a public hearing on the proposed transaction to provide community members with an opportunity to provide guidance.
There may be a more serious issue, however. We believe the Federal Reserve Board is simply unable to evaluate the application in a manner consistent with legal requirements.
According to the New York Times, two senior Federal Reserve officials, Robert S. Kaplan and Eric S. Rosengren, bought and sold securities whose value fluctuate due to changes in Fed policy. This has led an already suspicious public to question the ability of the central bank to look out for the public interest. These ethical failings have real implications for the industry and for the public.
The Board may have abdicated its responsibility to consider the public interest, if that interest includes maintaining a competitive industry. The Fed has approved the vast majority of large bank merger applications proposed. Due, in part to this merger-friendly policy, the number of banks in the US has fallen from 8,300 FDIC-insured banks in the country to fewer than 4,500 from 2000 to 2020.
Our forecast indicates that by 12/31/2039, if current trends continue in a linear manner, the number of FDIC insured institutions will be approximately 1-2. Note that, with growing competition from fintech firms and alternatives, like bitcoin, this may imply the wholesale exit of banking institutions from both the FDIC and Federal Reserve systems. This would not be in the public interest.
Another negative factor arises from the fact that the Federal Reserve Board has no mechanism to consider environmental issues when evaluating bank merger applications, this in a year determined by NASA to be one of the warmest on record. We believe in the need to continue integrating, at the time of merger application, sustainable and creative pathways to fund restoration and conservation.
In 1996, we opposed another bank merger filed by Morgan Guaranty Trust Company of New York. At the time, we stated “our belief that tensions in the country are a result of, in part, a widening income gap. We feel the increased concentration of wealth has contributed to and encouraged the development of, in certain individuals and groups, a ‘bunker,’ or militia mentality that has a negative impact on the country, including its capital markets.”
In the years since, these problems have only grown worse. By rejecting this merger, the Fed may start to redress some of the issues we raised.