When federal banking regulators bailed out Silicon Valley Bank’s wealthy depositors and gave its new owner a $17 billion discount, it turns out they offered no such rescue to another group impacted by the bank’s historic collapse: low-income communities to whom it had promised billions in lending.

Banking regulators told The Lever this week that “these pledges ended with the failure of the bank,” evaporating an expected source of affordable mortgage and small-business loans in California. The move could leave thousands of planned Bay Area affordable housing units in jeopardy at a time when a quarter of area residents are struggling to afford basic necessities, and halted a $10 million program to increase homeownership in communities of color.

Those pledges were made as part of an $11 billion community benefits agreement signed by Silicon Valley Bank, or SVB, ahead of a major merger in 2021. Progressive lawmakers and financial reform groups had urged regulators to preserve the agreement as a condition of SVB’s sale to First Citizens Bank & Trust Company, but no such terms were included in the deal they ultimately struck.

“Federal regulators missed an opportunity to show the American public that they work in their best interest, and not in the interests of banks,” said Paulina Gonzalez-Brito, executive director of the California Reinvestment Coalition (CRC), which collected 22,000 signatures on a petition calling on regulators to enforce the agreement, one of the most comprehensive negotiated to date with a major bank.

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Advocates push for fair lending commitments from banks seeking to merge because regulators rarely do. While new megabanks can mean less equitable lending and more consumer fees, federal agencies typically rubber-stamp the deals — as they did with SVB’s $900 million acquisition of a Boston-based bank in 2021, writing that the deal posed no serious risks.

The recent string of bank failures has already triggered calls to reverse Trump-era deregulation of large banks. But advocates like Gonzalez-Brito say it should also prompt a freeze on the mergers allowing those banks to grow so large in the first place, absent new rules to mandate such deals provide tangible benefits for the public.

First Citizens, the bank that purchased SVB at a deep discount in March, is a case in point. The Raleigh, North Carolina-based bank has grown more than tenfold since the 2008 financial crisis through its acquisitions, scooping up a slew of failed rivals and winning approval — or waivers — from regulators for a series of major mergers.

In 2021, when First Citizens’ plan to purchase the financial services company CIT Group — itself the product of a highly controversial 2015 merger — was in the public eye, the bank agreed to a community benefits plan. But First Citizens has to date been silent on whether it will fulfill the pledges made by SVB.

“We remain concerned about the full adoption of the community benefits agreement and are ready to fight for it if needed,” said Gonzalez-Brito. CRC will meet with First Citizens next week to ask them to honor the agreement.

Mergers Get Rubber-Stamped

When banks want to merge, regulators are supposed to consider several factors, including whether the deals entail any benefit to the public, and whether they pose risk to the stability of the financial system.

But in practice, regulators typically perform only a “perfunctory” public interest analysis before rubber-stamping the deals. From 2006 to 2017, the Federal Reserve did not reject a single one of the nearly 4,000 merger applications it received.

Banking consolidation often reduces the availability and increases the cost of credit and financial services for consumers.

In the absence of stronger oversight, and with a new wave of mergers underway, financial reform advocates have increasingly sought to extract voluntary commitments from banks to provide affordable loans and services to low-income communities.

Take SVB’s $900 million acquisition of a Boston bank in 2021.

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The Federal Reserve approved the deal without fanfare, asserting that “customers of both banks would benefit.” To try to ensure that those benefits actually accrued outside of SVB’s tech and venture-capital bubble, community groups negotiated an agreement that included pledges of $4 billion in small-business lending, $1 billion in residential mortgage loans, and $10 million in down payment and other assistance for low-to-moderate income homebuyers.

But SVB’s collapse and the dissolution of that agreement is a prime example of why voluntary commitments are no substitute for robust regulation, said CRC’s Gonzalez-Brito — and why regulators should stop the practice of rubber-stamping mergers.

“Often we hear the rationale from regulators that a merged bank is a stronger bank,” Gonzalez-Brito said. “Silicon Valley Bank really calls that into question.”

President Joe Biden’s administration has signaled it may revisit the rules for reviewing bank mergers. Last year, the Federal Deposit Insurance Corporation (FDIC), one of the agencies involved in approving the deals, solicited comments on whether the approval framework should be updated to account for the risks of increasing consolidation in the banking sector.

Bank lobbying groups submitted comments opposing any far-reaching changes, as did an investment bank that regularly advises on such mergers and was recently hired by the FDIC to auction off SVB. No proposed rules have been issued to date.

A Bailout For Some

When Silicon Valley Bank failed in March, the FDIC promptly stepped in to rescue its customers — just ten of whom held more than $13 billion in largely uninsured deposits. (The FDIC only insures the first $250,000 of a customer’s deposits.)

Soon after, Rep. Maxine Waters (D-Calif.) wrote a letter urging the agency to oversee continued implementation of the community benefits agreement, noting that the temporary bridge bank set up by the agency was “assuming and fulfilling SVB’s other contractual obligations.”

“Failing to require any new buyer of the bank to continue implementation of SVB’s community benefits plan would mean a loss of at least $2 billion in loans and investments to support affordable housing in California communities,” Waters wrote.

At least 11 Bay Area affordable housing projects were dependent on loans from SVB, according to local outlet KQED. The bank’s collapse brought construction screeching to a halt on a 112-unit building across from San Francisco’s City Hall that would have provided affordable housing for people with disabilities.

The impact extends beyond California. As the result of its 2021 merger with Boston Private Bank & Trust, SVB was also involved in the financing of at least 700 affordable housing units currently under construction in the Boston-area, according to a letter sent to First Citizens last week by ten members of Massachusetts’ congressional delegation.

“In the middle of a worsening affordable housing crisis, it is critical that there is a continuation of these activities under new ownership to avoid the disruption of local affordable housing development pipelines and initiatives,” reads the letter, led by Democratic Reps. Ayanna Pressley and Stephen Lynch.

First Citizens has said it is in discussion with Boston community leaders. The bank did not respond to The Lever’s questions about whether it would fulfill specific lending commitments.

Under the terms of its deal with the FDIC, First Citizens paid nothing upfront for SVB’s assets, deposits, and loans, and the FDIC will cover its losses on commercial loans in the portfolio for the next five years. While First Citizens is now among the top-20 largest U.S. financial institutions, it remains just below the $250 billion threshold that would trigger tougher regulation.