a geora peals court is set to decide whether to take up that issue in the coming week. >> the house will be in order. >> this year, c-span celebrates 45 years of covering congress like no other. we have been your primary source for capitol hill, providing balanced, unfiltered coverage of government, policy debated and decided in support of the american cable company. c-span, 35 years and counting, powered by cable. >> next, a discussion on banking regulations and the state of bank mergers with rohit chopra, this is about 40 minutes. [applause]

>> thank you, sabrina. thank you all for being here. as you know, recently there has been a lot more interest in the role banks play in global economies and communities, particularly when it comes to very big mergers. the failure of the silicate valley bank, generated a lot of talk and those of you who have been community groups on the front line, and crc on others, have been asking some tough questions about what we are doing to make sure banks are serving the community. more recently, there has been some announcement of big proposed mergers between credit card giants. in february, the banking industry sued the regulators

regarding community reinvestment act. so i thought i would spend a little time today talking about how we should think about why banks serve communities and neighborhoods. i think a lot of people want to believe that banks are serving the underserved because it is charitable. so i'm going to first discuss some of the history about banking law and that terms convenience and needs. next i am going to discuss the bank merger act and all of the ways the regulators drifted from the original legal purpose over time. i'm going to close by highlighting a few provisions of the new proposed policy on bank merger review as it relates to the needs of the community.

so throughout the history of our country the government has recognized that certain sectors of the economy, telecommunications, transportation, energy, and banking, are special. they are effectively economic and social infrastructure that facilitate democracy, money, commerce, and so much that underpins our society. so when they turn off like the power grid or shut down like they roads, chaos erupts and opportunity is foreclosed. if access is unavailable or limited for certain segments of the population, their lives are diminished and the american dream becomes fake. it is one of the reasons i am personally so drawn to the business of banking and finance. it is as essential to all of our

lives as electricity or roads. it is banks that control the flow of money, payments, and credit that we need to succeed. so for these industries that i mentioned, energy, communication, the government provides a lot of public privileges. in turn, the companies face special obligations to serve the public. that has really been the basic bargain at the heart of our laws on essential infrastructure and utilities. state and federal laws governing utility industries include public interest provisions reflecting this covenant. a very common phrase in our statute at state and federal law relates to the requirement that the convenience and needs,

sometimes called convenience and necessity of the community to be served. in the mid-to-late 1800s, after the civil war, states began adopting the standard primarily as a threshold for approving and relating new projects in the utility industries and in the early 1900s the phrasing was adopted in several laws as a consideration for so many different actions requiring regulatory approval. we looked it up. transportation act of 1920, communication act of 1934, natural gas act of 1938, motor carrier act of 1935. and our banking laws contain some of the same words. state and federal laws governing the chartering of banks and the

granting of deposit insurance like the national bank act, they include this language as a core requirement for considering application. so my view is that a plain reading of the law suggests that there are two questions in this standard. does the application address a gap or unmet need that would truly be in the community's interest? does the application improve access to products, services, outcomes that the community needs to benefit from? this interpretation that i am sharing is by no means creative. it is supported by a review we have done of 19th century and early 20th century case law and orders issued by all sorts of

regulators. so this standard meant that a company could meet financial, safety, or other qualifications, but if the new firm was not having obligations or meeting public interest and convenience and needs of the community, it was a no go. the application could be denied. and this standard is designed to ensure that the privileged positions of banks or other companies advances the interest of our nation, our local neighborhoods, towns, cities, and not simply exploited for private gain. we fast-forward a little bit. in 1955, an outfit called chase national bank, the third largest commercial bank in the country, merged with the company called

the bank of the manhattan company, the 15th largest bank, to form chase manhattan. this was one of a wave of bank mergers in the 1950's that really created significant public concern. in response, congress passed the bank merger act in 1960 two rain in the merger spree and initially there were a couple of factors, three in particular for the regulators to think about. competition, financial and managerial resources, and the prospects of the company like a business plan, and yes, convenience and needs of the community. and then the supreme court in 1968 states on a case involving the bank merger act, congress concluded that a merger should be judged in terms of its interest of its effect on the public interest. so this was not just some random

free-market play, it is a recognition that banking is infrastructure and banking is required to meet the needs of local communities. after evaluating a range of merger approval orders from the past few decades, and we have been looking at this carefully with many of you, it is clear that the robust review and connection to the community from that 1960 law slowly whittled away into much. for example, agencies have increasingly relied on emerging banks community reinvestment act rating as a proxy for that convenience and needs of the community fact there and merger review. we know cra was passed after. there is a whole host of problems with this approach.

the cra rating is backwards looking. it rates on judges how well the banks bet that needs of the community in the past. given how infrequent some of the cr rating cycles are, that regulators, the ratings of the regulators could actually be quite stale and in addition the rating represents the judgment how each individual bank was doing. it does not provide much information at at best is a muddled picture of how the combined entity would serve the community. we all know this. the target banks may be really good at mortgage lending to certain neighborhoods or really good at serving local poultry growers or others in rural areas. the large banks that going on the merger spree might have absolutely no experience in that

or no interest in doing that. so surprise, surprise, what do we often see closing down those business lines, converting the branches not to a place where you can actually talk to someone and get information about a loan, but you go in and they say, here is the number you can call. the large acquiring banks has different sets of incentives. community reinvestment act is an important statute but it asks the different question that regulators should be asking when reviewing a merger application. this shift away from responsibility to the community and the public that was baked into the law really has created a void. we see so many individual towns, cities, communities have dealt with the harms inflicted by the

creep of consolidation across the banking sector. and so many of you local groups have attempted to step up to fill the void. you go up and you negotiate agreements with the emerging banks, you sometimes know you will not be able to stop the merger, but you use your voices, relationships and own community organizing to convince banks to come to the table and have some semblance of basic service and provision of credit to those who you represent. and as we have talked to all of you over the past year, i think you rightfully point out there is really some problems with this approach. first, community groups do not have the authority to enforce those terms of the agreement. they can sign something, but you cannot easily go to court to make sure that it actually

happened. you cannot go to court to undo the merger. and of course, if banks and no that convenience and needs factor is not going to lead to a denial, if it is just something that is part of the process that ultimately leads to a rubberstamp anyway, you will ultimately will have less leverage. so we are going to change that. i want to talk about what we are doing and to some of the features of our new proposed policy that we have voted on by the fti seaboard. these are attend -- fbi c board. these are intended to restore a reconnection to service the community and the public and make sure that mergers do not end up harming the local residents and small businesses that we have seen too often

suffer. so it is important to reiterate first the review of convenience and need is totally distinct from the evaluation of effect on competition. in fact, we may know that anticompetitive mergers also end up leading to harm to the community. but at its core, a transaction is under existing law. a transaction that undermines competition will have a negative effect on the community and there are very rare exceptions for when those types of mergers should be allowed. so first, or policy statement sets a clear standard for review. the community should be better served as a combined institution, not just showing that it will be worse.

rojit: burden of proof is on the applicant, not on corporate latitude developed by consultants and lawyers. we have to have answers to the question does the merger meet an unmet need, will it improve product services and channels the community has or does not have now. is there any benefit at all? there are strong laws to ensure shareholders and executives will benefit. the lar requires that they factor into that impact on the community that the merger will affect. this is real, it is in the law, and we should enforce it

properly. so when there is no clear benefit you deny the application. i think we have tried to make clear that the ink on the rubberstamp has dried cap and we now need to make sure we are thinking about this in ways that actually benefit. the proposed policy restores accountability for regulators. if banks make representations or commitments in the application about how the community will be better off as well as inking agreements, we may make these formal conditions of approval. i will just say i've shared this with some of you, we have to be skeptical, we've seen this we

would do this type of lending and then a few years later, it is gone. we want to make sure that we are putting it in as conditions so that they face real sanctions when they do not live up to it. third, the proposed policy asserts that the agency will absolutely consider branch closures in the review of convenience and ease. over the past 15 years, regulators have ignored branch closures in the context of merger review. so we looked at the data on this. since 2009, branches have increased by 59%.

the trend has been driven by large mega mergers and closures by the largest banks. since 20, banks with the largest net reduction were truest, wells fargo, pnc, bank of america and u.s. bank. they kind for the reduction and smaller banks or lenders with $10 million or less increased their branches by 1.1%. even online banking functionality has proliferated but people find it useful to talk to a real person and i think we all intuitively know this. dealing with complex transactions, dealing with cash, the list goes on and on. i asked people, you do not just

text your parents, you call them, you visit them. there are things you do to maintain a relationship and i think if we look in 2019, 80 3% of households with a bank did visit a branch. it is a myth that everyone is solely digital and of course we want fairness in digital interactions because we know it is important. but i don't think it is one of the two, it is both. updated 2021 data shows 15% of households with a bank account use a branch at their primary -- as their primary method of accessing their account we know this is important in lower income neighborhoods, older families and rural households and knees have been the ones most impacted by these branch closures over the past 15 years,

so we've seen this firsthand. some of my colleagues have heard from people in rural communities, mexico, montana. uniontown, alabama, where katydids bank closed the town's last remaining branch. thank branches are so vital for the health of their economy and you know we have seen closures, small business lending dries out. businesses may close shop, jobs are lost in the local economy suffers. so i just want to highlight our proposed policies of the emerging bank record of compliance with consumer protection and fair dealing laws. now just speaking intuitively,

i'm not sure it makes sense to permit a bank that has repeatedly violate the law to expand its reach. that simply puts more consumers and businesses in harm's way and mergers can further aggravate a repeat offender's propensity for illegal contact -- illegal conduct. as banks become bigger and more complex, it becomes more difficult to manage and i've seen this with many examples, one of the best known is wells fargo. as the firm grew before during the financial crisis it lost control of its financial empire and consumers and the public became collateral damage. in the wake of mergers we see

debauched i.t. systems integration, complex governments, misaligned incentives throughout the expanded empire. i guess i am over my time. ultimately, i say this, the purpose of the banking system is to provide a neutral source of power for businesses and people to get ahead, to buy a home, to start their business. and that is a privileged position that banks hold within our economy and society, so i hope we all reflect that what we are expecting is not charity, it is the original meaning of the founding laws really in our country and i think it is really important that some of those

basic ideas carry through when it comes to reviewing big mergers. thank you so much. [applause] >> how about another round of applause? [applause] >> wow, what a lot you covered there rojit chopra. i am reminded that the history of baking is a history of failure, implosion, necessitating various government intervention and i think maybe people forget that the banking system that we have is not a fully private system insured by the fbi see. not just insured by the fdic, lots of other things we have

done to ensure that banking works effectively and well. the qualified mortgage rule, other things that are critical components in restoring faith in u.s. mortgage markets for foreign investors. you really laid out a basis for public interest in banking because really, the chassis upon which banking is built is a public one. rojit: i think we often do not think about banks this way. many in this room -- of course, everyone will sometimes point to practices that they find objectionable, but we also probably would agree the reason we focus on it a lot is because they are so important. they make the difference about

the lives of so many and i think they are infrastructure of society. they are as important and you are right, jesse, we, as citizens of the country and people of the country, provide a lot to them, when they get in trouble they can borrow at the federal reserve discount window. we give them exclusive rights when it comes to collecting deposits. so i hope that we remind ourselves that this is actually a creation of we as people. and it is a different type of business. and i hope that we always remember that history and constantly i worry that people will forget about the devastation of the financial crisis.

not just financially, but emotionally and socially. we forget that history and we read these in social study books in high school. the panic. it was a panic. people thought overnight they would lose their money in their future, so banking is a covenant between the public and those individuals. we reward them richly for making decisions about pricing and intermediate in credit, but it is a joint venture. jesse: mergers are important times. banks are chartered by the government. charters historically maintain the power of the government over the chartered entity if you look back historically. you know, columbus's voyage for example. other types of charters. practically speaking, we do not really re-examine a charter except a merger is a time when

two charters get combined, so the public interest that comes in, this notion that the public benefits should outweigh adverse effects from a merger. and really important aspect of your policy station is the convenience in this review is forward looking analysis, not retrospective. how well did you do on cra? what is going to happen as a result of the merger that is good for consumers, and it cannot be just fluff and platitudes. i am reminded historically of when capital one bought ifc direct. more atm's and direct customers will get access to capital one mortgage. of course, they got out of mortgage so what was the public benefit? could you type about the type of evidence you would be looking to see, to offer that the community

will be better off, that consumers will benefit from the transaction? rojit: yes, just to give context, we have a different tradition in the u.s. than europe, where the history of our country is one that is more suspicion of what boardrooms call inorganic growth. if you are gaining customers and markets because of products and services that are great, our laws tend to prefer that and have more suspicion about flip overs. we should be suspicious, why are you taking it over? are you trying to get rid of key competitors? and that really animated a lot of debate in the late 1800s.

when you fast-forward today in the context of banks, you have to ask why do you want to do this? and i think a lot of the response is we are going to get to serve more. and it is obvious you're doing it because you want to make money, but what is the actual benefit? i think we lost that in terms of tangible evidence. so i think as i mentioned earlier, we are going to be looking at the issue of branches and service. looking at the business plans and how long there will be continued offerings of products. will there be expanded offerings of products? what are we looking at in terms of how are they going to make things more affordable? i think in some ways, zooming back to the core law is calling

the bluff on the platitudes. i think we have heard it when we do retrospective analysis on were there benefits for mergers? the picture is not so great. i think that is going to also help really force a bit more in the merger process upfront. i think they will consults. more. their customer base more, to figure out how they can serve them better. jesse: how do you see that overlapping and the type of evidence that would show public benefit, consumer benefit and commitments and targets that do get made in community benefit agreements? rojit: i want everyone here to file formal feedback on what we've done because i think you are close to the ground on engaging with institutions and coming up with agreements.

i think we want to make sure fact and evidence base is real and that there is enforcement behind it, so i hope that as part of the process, there will be -- we have proposed in the policy public hearings for major transactions. more input through the process so that there is more tangible evidence about whether it will be good or not. jesse: you talked about how they have retreated from a comprehensive public interest analysis and how committees stepped in for that reason. we came up with our committee benefits agreement framework and the argument was they not enforcing public interest and you do not just need to look at cra, you need to look at a prospective statement of what will happen. what we've always argued for is for that to be put in the

application. how do you see as regulators returned to this notion, given the fdic's new policy statement, how do you see interplay between regulators and community groups? we have a concern that given the history of failure to enforce, what we do not want his banks and regulators saying what the community needs are. there needs to be a way to ascertain what those needs are. rojit: yes, it is not an easy one because on the one hand, you want regulators held accountable for their actions. we have concerns when the order to approve does not condition the merger on the agreement, but it footnotes it, but it is hard to enforce it. what are the sanctions, they do

not live up to it. jesse, i know you will tell us, but everyone should tell us what is the right process to make sure that regulators are not dreaming up some sort of thing about what the needs are and what is the language they can ascertain. my hope is that there is a way to be clear when it comes to business lines. not just mortgage, small business, but also really some demographic type cuts. i see this a lot, they really stop serving smaller farmers or they stop serving certain types of businesses and i think that is really relevant to thinking about competition, but also needs of the community. jesse: people forget that that is your mission statement, ensuring competitive markets. and how do you think about that

in the context of the power that some financial institutions have? adams in his original theory of capitalism was a radical notion based on mutual benefit to each party. but it was presumed perfect information on both sides. so much of what the cfpb does is competition and transparency. rojit: yes, so i think take a look at what we recently published about credit cards. some of you know i care a lot about subprime credit cards. it is one of the major ways in which so many people get by month to month and what we have found in our analysis is pretty interesting. so the credit card market is dominated by big credit card

issuers. interestingly, even when we control for credit tier, subprime to prime, the largest banks are offering materially higher interest rates, sometimes several hundred basis points higher than smaller competitors. credit unions and community banks. and of course, we did other analysis, maybe an extra $25 billion of interest that people are paying even when you look at the rate increases across the market, we found that credit card companies have increased interest rates way more than the fed increased interest rates. so the amount of profit from that is almost -- the margin is one of the highest since we have been tracking it.

this begs the question for us, and a lot of times with these mergers, they say this is going to allow us to pass through lower rates to everybody and i just want us to be able to see it and i think often it is hard to see when there are fewer people in play or when they create barriers to switching, making it tough to switch your bank account, credit card or others. we are trying to think about how do we create competition that is a race to the top, not the bottom in terms of predatory practices. jesse: not only has there not been public benefit, in some cases it has been a public harm in consolidation. adverse effects to these higher prices, less availability, branch closures. and not just document what the

benefit is, but also what the adverse effect is and one of those effects of course, bad actors that are allowed to grow. banks that have compliance issues. you talked about the fbi proposal statement, talked about stronger language coordinating with straight -- with state and federal, you may have insight into legal compliance and other information pertinent to the transaction. can you talk about the importance? rojit: yes, i've talked to some of you about it. i think people ask a very legitimate question. why is a bank caught redlining allowed to merge? and so, i think you need to be able to really look at what are the issues and what are the data

about an entity's record when it comes to following the law. and honestly, is not that they're being stopped from growing. they can grow by opening branches in more neighborhoods. they can grow by expanding their products and competing aggressively. a takeover of another competitor i think that has to be a major, significant look. and frankly, whether they are fit to be able to grow, we've seen last year, we ended up having to use emergency powers to assist silicon valley bank who had not only emerged, they took over boston private, they grew so quickly and there needs to be more due diligence around why would we be ok with a firm, if a firm has a repeated violation of the law, that is a serious problem.

isn't the merger going to make it worse? jesse: i think that has been our view, so you are speaking music to our ears. i want to thank you, director for coming. i want to give another warm round of applause for your work. >> all this week we are showing recent -- supreme court cases anwe talk with reporters about some of the legal issues involved. it begins each night at 9:30 eastern. tonight's rgument is united states v rohini. watchheupreme court case tonight and other recentra arguments all this weekend 9:30

eastern on c-span. uld find all of our coverage on c-span.g/ supremecourt. >> we will have live coverage of the oral art beginning at :0 a.m. eastern. our c-span free mobile app and online at c-span.org. ♪ >> celebrating the 20th anniversary of our student competition. this year c-span asked middle and high school students to look forward while considering the past. they were given the option to look 20 years into the future or 20 years into the past. we received inspiring and

thought-provoking documentaries from 3200 students. our top award of $5,000 for a grand prize goes to nate coleman and jonah rockline. there compelling documentary, innocence held hostage, navigating past and future conflicts with iran. >> in the next 20 years the u.s. must make more policy. not only will we see less hostagetaking but the united states will no longer have to participate in such considerable negotiations. >> congratulations to our winners paired watch the top 21 on c-span every day this month starting at 6:50 a.m. eastern. or on line at any time. >> the house will be in order. >> each year,'s -- this year's out