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Letter to Federal Reserve Chairman Greenspan on review of bank mergers

April 22, 1998

Alan Greenspan
Federal Reserve System
20th Street & Constitution Avenue, NW
Washington, DC 20551

Subject: Review of Bank Mergers

Dear Chairman Greenspan:

We are writing to express concerns about the recent wave of bank mergers, and in particular, the announcement of the proposed merger of NationsBank and Bank of America. As the regulators responsible for deciding whether large mergers move ahead, we urge you to ensure that merging banks meet the needs of the community and respond to their obligations under the Community Reinvestment Act, and to scrutinize whether the mergers will adversely affect consumers.

Each of these mergers should be structured to ensure that competition is enhanced, that the safety and soundness of the nation’s financial system is not compromised, and that the new entity is effectively regulated. Regulators should be leery of deals that will result in institutions deemed too-big-to fail, thereby exposing taxpayers to severe financial risk.


Obviously, mergers that substantially concentrate market power and reduce competition must be disapproved. In addition, before any merger that raises competitive or public interest concerns can receive approval from federal banking and antitrust regulators, the acquirer should provide specific guarantees which provide baselines for how consumers and communities will benefit. Written guarantees should be made part of the merger process so that these guarantees can be enforced by federal banking regulators. Banks seeking to merge should be required to:

  1. Commit to not increase current fee levels and minimum balance requirements, or to introduce new fees on existing products or services for a reasonable period of time, which will benefit, in particular, consumers who have limited banking choices because of resource constraints or geography. We know from the experience of customers in California after previous mergers of Bank of America/Security Pacific and Wells Fargo/First Interstate, that, in the short term, consumers face confusion, changes in accounts, and loss of convenience while systems are being integrated. Moreover, while banks tell consumers that "bigger is better," studies by the Board and others show that large banks charge higher fees for many types of accounts than smaller banks, and that multi-state banks charge higher fees than single state banks.
  2. Dedicate a significant portion of the projected benefits in cost-savings from each merger for the first five years after the merger to increase access to banking services and credit for low-income consumers. The set-aside of some of the promised cost savings from a proposed merger for the unbanked and other low income consumers would help to ensure that even more consumers are not excluded from the banking system as a consequence of these mergers.
  3. Commit to reach an agreement with community groups and Community Reinvestment Act coalitions in every affected state and to reach agreement with each of those groups on future CRA commitments before regulatory approval of the merger. These agreements should describe specific programs and specific dollar goals for CRA activity in each area. This guarantee would help focus the attention of new nationwide banks on local needs. Vague promises to community groups of a post-merger open door have little meaning if there are no specific pre-merger commitments to serve local needs, with dollar goals attached to those commitments.
  4. Out of state entities must commit to comply with all state consumer laws, rules, and regulations. This would ensure that consumers get the benefit of their own state’s consumer protection laws even when their bank is an out-of-state bank.
  5. Adopt strong consumer safeguards on retail sales activities and agree to be responsible for losses arising from violations of these safeguards. Safeguards are needed to protect consumers from being coerced into buying products they don’t need to get the products they want, from the loss of financial privacy, from being deceived about whether a product is federally insured, and from being sold products not suitable to a particular consumer’s financial needs. And, most importantly, a redress mechanism is needed for consumers to be able to recover losses from the banks when they violate the rules. We anxiously await promised action by the federal bank regulators to implement these safeguards. Since these regulations have not yet been put in place, we believe it is essential that, as a condition of the merger, the banks agree to support and comply with protections against deceptive and misleading practices. The need for these protections is clear. Last year, NationsBank paid more than $30 million to settle a case that involved allegations that it tricked its customers into buying mutual funds and stocks they thought were insured by the federal government.


Additional details are needed so that you can evaluate fully the consumer impact of the proposed merger. Following is a list of questions every large bank seeking a merger should answer:

Branch closures, fees, and customer service

  • Will any branches be closed to pay for this merger? Which branches?
  • Will the merger result in higher bank fees? Will the banks commit not to impose new fees on checking accounts, savings accounts, and ATM users? Will they commit to a moratorium on new fees and on fee increases?
  • What will the merged bank do to make sure that it offers affordable checking and savings accounts for low- and moderate-income consumers?
  • Will the merged bank offer a low-cost account for persons receiving Social Security or public benefits?

Preservation of existing Community Reinvestment Act commitments and support for nonprofit organizations

  • Will merger candidates honor all existing Community Reinvestment Act commitments? Will they expand existing commitments to reflect the larger size of the merged bank? How will they ensure that each state gets a fair share of loan funds for affordable housing and community economic development?
  • What specific commitments will each merged bank make to serve low-income consumers and communities? Will each merger candidate commit to work with community advocates to create specific programs and make commitments before it files for regulatory approval?

Loss of local control in the local banking market

  • The shift toward nationwide banking raises many questions about how local economies will be affected. Branch closures, higher fees, changes in the location and method of customer service, and changes in the product mix are possible. How will these changes affect the local economy? How will local needs be served by out-of-state financial institutions?
  • Will bank customers in one part of the country be expected to accept products and services designed for other parts of the country?
  • How will a bank based across the country analyze and respond to the special needs of consumers in certain areas? For example, higher housing prices and different demographics may mean consumers in one part of the country need different banking products and services than those offered in other parts of the country.

As the Federal Reserve assesses each new proposed merger, these issues deserve careful and thorough review. Unless there are clear consumer safeguards, strong means to ensure that all consumers share in the benefits of possible efficiencies, and detailed commitments to meet local and regional community reinvestment needs, these mergers are likely to be harmful to consumers.


Frank Torres
Washington Office

Gail Hillebrand
West Coast Regional Office

Mary Griffin
Washington Office

Reggie James
Southwest Regional Office

cc: Office of Comptroller of the Currency
Antitrust Division, Department of Justice