Testimony Before Federal Reserve Concerning BofA/Fleet Merger
January 14, 2004
Good morning. My name is Chris Cole, and I am Regulatory Counsel for the Independent Community Bankers of America, a trade association representing approximately 4600 banks with 17,000 locations nationwide, including many community banks and mutual thrift institutions in the New England area. Nationally, ICBA members hold more than $624 billion in assets and more than $391 billion in loans for consumers, small businesses and farms. We are pleased to have the opportunity to comment on the proposed merger of FleetBoston Financial Corporation into Bank of America Corporation.
ICBA is concerned with the continued concentration of banking assets in the United States and the effect this concentration has not only on bank competition but on consumers, small businesses, and communities. This merger will catapult Bank of America Corporation into the second largest bank holding company in the United States in terms of assets and will mean that the top eight financial institutions in this country will control approximately 51% of total U.S. banking assets. In eight states-Arizona, California, Connecticut, Florida, Massachusetts, North Carolina, Rhode Island, and Washington-the resulting bank's market share of statewide deposits will exceed 20%. In nine other states, the market share will be between 10-20%. In Massachusetts alone, Bank of America's share of deposits will exceed 24%.
Unfortunately, the evidence shows that increased concentration in the banking industry has not benefited bank customers and has not had a positive effect on the convenience and needs of the communities served by the acquired banks. The economies of scale that supposedly justify large bank mergers either do not materialize or are not passed on to customers. For example, large bank mergers often have an adverse effect on consumer deposit pricing and often result in higher fees to consumers. A Harvard study showed that instances of improved operating results after a large bank merger were due primarily to higher repricing, not economies of scale, suggesting the use of increased market power by the large banks to raise prices. The Federal Reserve's own annual survey of bank retail fees shows that the average fees charged by multistate banks are significantly higher than those charged by single-state banks. We therefore urge the Board to examine closely the effect that this merger will have on deposit pricing and fees in the New England area and whether consumers will be adversely impacted by the merger.
Bank mergers and large bank consolidation often have an adverse effect on small business lending which is a key engine for sustaining the U.S. economy. Commercial banks are the leading suppliers of credit to small businesses and community banks account for 33 percent of all small business loans, which is more than twice the community banks' share of total banking assets. In contrast, the large banks tend to devote much smaller portions of their assets to small business lending. Mergers involving small banks tend to increase small business lending while mergers of large banks tend to reduce it. ICBA therefore urges the Board to look at the impact that the merger will have on small business lending in the New England area.
Along with consumers and small businesses, it is often the case that local communities are also adversely impacted when statewide banks are acquired by large, national bank franchises located outside the state. The new, larger bank seldom has the same commitment as the acquired bank to the local communities and to local charities and civic groups. ICBA notes that Bank of America has pledged $750 billion for community economic development over the next decade and that $100 billion of that will be earmarked for loans and investments in Fleet's markets. However, the details of the commitment are unclear and Bank of America has not explained even in broad terms what investments in the New England area will be made. In this regard, ICBA thinks that the large, national banks like Bank of America should be examined locally under the CRA-as community banks are examined--instead of simply at the main office of the bank. That way, the banking agencies can tell whether the national bank's CRA program is actually impacting the local community. During the first two CRA exams following the merger, we would urge the OCC to review Bank of America's commitment to the New England community to see if they are indeed spending the money that they have pledged to spend and to and compare their actual community spending with Fleet National Bank's programs prior to the merger.
To address some of the public concerns regarding large bank mergers, when Congress passed the Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994, the Bank Holding Company Act was amended to prohibit merger transactions where "the resulting bank upon the consummation of the transaction, would control more than 10% of the total amount of deposits of insured depository institutions in the United States." Unfortunately, the statute is unclear as to how to calculate the total amount of deposits of insured depository institutions in the United States. In its application to the Federal Reserve Board, Bank of America broadly interprets the term "deposits" in the statute to include escrow deposits held by insured thrift institutions as well as deposits from outside the United States (e.g., from Puerto Rico and U.S. territories such as the U.S. Virgin Islands, American Samoa, etc.). By including these additional deposits in the denominator of the formula, Bank of America barely complies with the 10% cap. It is not at all clear that Congress intended this broad of an interpretation.
In any case, consumers, small businesses and local communities often suffer when large, national banks merge and dominate the banking industry. That is why community banks will resist any attempt to increase the 10% cap imposed by the Reigle-Neal Act or to broaden the definition of "deposit" under that Act.
Thank you again for giving ICBA the opportunity to testify at today's hearing.