Biden’s Big Bank Contradiction

Regulators stymie a midsize bank merger but help JPMorgan get bigger

WSJ editorial.

"Regional banks took another market drubbing on Thursday, as the financial panic rolls on despite regulatory assurances that all is well. The turmoil wasn’t helped Thursday when midsize TD Bank and First Horizon Bank called off their merger, blaming regulatory impediments.

The merger cancellation followed the Biden Administration’s decision on Monday to give JPMorgan a sweetheart deal to acquire failed First Republic Bank. It’s good to be a really, really big bank these days.

Memphis-based First Horizon and TD announced their $13.4 billion tie-up in February 2022, long before turmoil rocked midsize banks. The goal was to diversify their deposits and better compete with the giants. Combined they’d have $466 billion in assets, which would make the new bank the ninth largest in the U.S. TD is currently the tenth.

TD and First Horizon appear far healthier than other regional banks such as PacWest and Western Alliance. They haven’t experienced large deposit outflows and are carrying fewer unrealized losses on their books, which are what took down First Republic, Signature and Silicon Valley Bank. Nonetheless, the deal ran into the Biden Administration’s political and regulatory buzzsaw. 

Last March, Federal Deposit Insurance Corp. Chair Martin Gruenberg and his left-hand man Rohit Chopra, who heads the Consumer Financial Protection Bureau, solicited public comment on whether mergers that result in banks holding more than $100 billion in assets should be summarily rejected on grounds they’d present a systemic risk.

The FDIC hasn’t published new merger rules, but it appears to have pocket vetoed the TD-First Horizon deal. “TD does not have a timetable for regulatory approvals to be obtained for reasons unrelated to First Horizon,” TD said. Thus, “the parties mutually agreed to terminate the merger agreement.” First Horizon’s stock fell 33% on Thursday.

This means Biden regulators won’t let two ostensibly sound regional banks combine to compete with the giants. Yet the FDIC helped the nation’s largest bank, JPMorgan, purchase an ailing bank with $50 billion in financing and an agreement to cover 80% of its losses on residential real-estate and commercial loans.

An additional policy contradiction is that the Dodd-Frank Act expressly prohibits bank mergers if more than 10% of U.S. deposits would be concentrated at any bank. This would have barred JPMorgan from purchasing First Republic had the latter not failed. But by putting First Republic into receivership, the FDIC let JPMorgan CEO Jamie Dimon sweep in and scoop up its wealthy depositors.

The FDIC also did Mr. Dimon a solid by placing nonbanks at an unfair disadvantage in the auction for First Republic. Nonbanks weren’t offered government financing or loss-share agreements. Asset managers backed a bid by regional bank PNC, which might have been more competitive had the FDIC offered them the same terms as banks.

Biden regulators are shielding the biggest banks from more competition while entrenching the policy of too-big-to-fail. Federal Reserve Vice Chair for Supervision Michael Barr last week proposed extending too-big-to-fail regulations to banks with more than $100 billion in assets. This would give the FDIC the apparent pretext it wants to block other midsize bank mergers.

Keep this episode in mind the next time some Democrat gripes that banks are too big. It’s hard not to conclude that regulators prefer a system dominated by a handful of big banks that they can politically control."