Industry Conditions Beg FOM Reform
Yesterday, Governor Cuomo wrote a strongly worded letter urging the Justice Department to block the acquisition of First Niagara by Key Bank arguing that the merger would cost thousands of jobs and leave consumers no alternative but to seek out high cost alternative lenders.
On October 30th Key announced an agreement to acquire First Niagara. According to the Albany Business review, First Niagara and Key employ approximately 2,000 workers in the Albany area. Crucially, from the Governor’s perspective, about 30 percent of the banks’ branches overlap so there will be branch closings and job cuts.
“The consolidation is expected to result in thousands of lost jobs at the corporate and branch levels, with little hope these individuals will find alternative work in the retail banking field due to the oversaturated market conditions. In addition, to the loss of jobs in local communities, consumers will face further limitations on branch access. As it stands, tens of thousands of Buffalo area residents do not have access to reliable bank deposit services. Eliminating branches will only exacerbate the existing problem.” [from the Governor’s letter, reprinted by the Review].
In addition, the loss of banking services “will likely push consumers to rely on non-bank alternatives, such as payday loans and check-cashing, which come with higher consumer transaction costs.”
I can’t help but think about the fact that even as dynamics within the industry understandably push banks like Key push to further consolidate the financial services industry, the Banking industry is strenuously objecting to NCUA’s proposed Field Of Membership regulations. By giving community credit unions greater flexibility to expand to areas in and around Core Based Statistical Areas, and making sure that proper classifications are made when analyzing whether areas are underserved by other financial institutions, the FOM regulations would help areas like Buffalo and Niagara that were already in need of more banking options even before this acquisition was announced.
I have no way of knowing if the DOJ will block this merger, but I do know that Consolidation is inevitable and FOM reform could help consumers impacted by this trend.