US president rolls out orders for bank mergers, financial data sharing

The Biden administration pointed to ‘excessive consolidation’ from bank mergers and the impact rural and non-white-majority communities have felt as a reason more scrutiny is needed regarding financial services M&A. ‘ Though subject to federal review, federal agencies have not formally denied a bank merger application in more than 15 years,’ the administration said, citing a paper by Jeremy Kress, a University of Michigan professor who previously worked on bank merger oversight at the Federal Reserve.

‘Excessive consolidation raises costs for consumers, restricts credit for small businesses, and harms low-income communities,’ the administration said. A source with knowledge of the orders told Reuters ‘a rash of bank closures across the United States’ has led to ‘a crisis of competition'.

The US has lost around 10,000 banks, or 70%, over the past 20 years, according to data from the Federal Financial Institutions Examination Council and the Federal Reserve Bank of St. Louis. The Biden administration’s plan to encourage financial data sharing in the banking industry is welcome news to fintechs and proponents of Open Banking. 

The debate over who owns customers’ financial data has pitted some fintech startups against some of the largest financial institutions since 2020, as data aggregators’ screen-scraping practices have been blocked by some banks citing privacy concerns. Some aggregators, such as Plaid and Finicity, use the practice to connect consumer accounts to fintechs such as peer-to-peer (P2P) payment platform Venmo and robo-adviser Betterment. 

JP Morgan and PNC have blocked some aggregators from accessing passwords through screen scraping in favour of entering into data access agreements with fintechs through the use of application programming interfaces (APIs), a tokenized method that many banks say is more secure. But not all banks have the technology budget to build their own APIs, a disparity that perpetuates a lack of consumer choice, fintechs have argued. 

In October 2020, the CFPB issued an advance notice of proposed rulemaking (ANPR), which addresses Section 1033 of the Dodd-Frank Act, a statute that gives consumers the right to access their financial information held by a bank. The White House hopes the executive orders will encourage the agency to push ahead with those changes, a source told Reuters.