The Consumer Financial Protection Bureau and the Department of Justice are conducting reviews of bank mergers policies. Regulatory comments collected from the rural stakeholders collected by Basel Musharbash's law firm will help inform the proceedings. (Photo by Bryce Spivey / BCFP)

A Northeast Texas law firm focused on building capital assets is producing regulatory comments to submit to the Department of Justice and the Consumer Financial Protection Bureau. The comments will add a rural perspective to inform their ongoing reviews of bank merger policy. 

Basel Musharbash, who’s in charge of the law firm, is encouraging rural stakeholders to take part. He plans to start collecting comments from downtown and Main Street groups, local chambers, municipal governments and others. 

“My goal is to collect input reflecting how the loss or consolidation of local banks affects members of those groups in a tangible way, and synthesize that input into a comment to CFPB/FDIC on bank merger guidelines and DOJ/FTC on horizontal (economy-wide) merger guidelines,” he said in an email to The Daily Yonder. “Hopefully that helps build and demonstrate to policy makers the constituency for antitrust enforcement in Northeast Texas and rural communities more broadly. 

Over the past three decades, bank mergers have eliminated thousands of locally owned banks across rural America and consolidated control over 80% of national banking assets in the hands of large, metro-headquartered financial institutions, according to a report authored by Musharbash. 

The report noted that in 1995, only 14% of rural counties did not have a locally owned bank. Today, that percentage is more than a third. Between 2012 and 2017, nearly 100 rural banking markets lost all of their bank headquarters and over 40% of rural counties lost a significant number of bank branches.

The report also found  that the consolidations mean there’s less access to credit, economic vitality and wellbeing for those living in rural America.

The change has occurred for mainly three reasons, Musharbash said in an interview with The Daily Yonder. First, there are fewer regulations.

“The problem with that is, it’s sort of what we see in lots of deregulated industries, you sort of see a flurry of increased competition at first, but then you have the folks with the largest amount of capital or the easiest access to capital, the folks who are already large, starting to eat up the folks who are smaller in order to grow bigger,” he said. “And so that’s when we started seeing the market share, the percentage of banking assets, that’s held by banks that have more than $100 billion dollars in assets starting to grow dramatically.”

Additionally, there was a movement to halt enforcing antitrust laws, he said. 

“Starting in the ‘80s, we started looking at antitrust laws just through the consumer,” he added. “So we evaluate a merger, just based on whether we think the new company is going to increase prices, in the case of banks, whether they’re going to increase deposit fees, or they’re going to reduce interest rates for depositors for the consumer. And the problem with that is that it’s an inherently speculative exercise.”

Other reasons might simply be that it’s a positive for executives, Musharbash said. 

“[If] they’re leaving the company, they tend to get a golden parachute. So get a massive payout,” he said. 

“Even in rural counties where locally owned financial institutions still exist, their presence has thinned dramatically. In 1976, around 70% of financial institutions in micropolitan counties—and close to 80% in more rural counties— were locally owned. By 2007, that percentage was less than 20% in both types of counties,” according to the report. 

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