The Promises and Perils of Community Benefits Agreements: Evidence from a Large Bank Merger

Background: Communities around the country are increasingly using community benefits agreements (CBAs) for bending capitalism to their advantage and ensuring that mergers or development projects provide economic benefits through legally-binding contracts. Negotiations for CBAs may be more successful when they occur at strategic pressure points, like in the midst of permit approvals or mergers. One of the largest CBAs in U.S. history was announced in March 2016. The five-year $16.5 billion agreement transpired when KeyBank was negotiating a merger with First Niagara. To receive approval for the merger, KeyBank needed to address concerns that any branch closures or service delivery changes would not disproportionately impact communities of color or lower-income White communities. The Board of Governors of the Federal Reserve invited public comments to examine these concerns. This study uses a novel approach for investigating CBAs and the contexts in which they occur. We analyze public comments in response to the KeyBank and First Niagara merger for understanding how federal regulators consider communities’ concerns and communities’ strategic opportunities to negotiate CBAs.

Methods: This study analyzed the 439 letters that were received by the Board of Governors of the Federal Reserve in response to the call for public comments about the merger between KeyBank and First Niagara. Letters were procured through a Freedom of Information Act (FOIA) request, and were subsequently read and deductively and inductively coded for themes. The resulting themes were also compared to the Federal Reserve’s own analysis of public comments in their order approving the merger.

Results: The Federal Reserve identified 388 letters in support of and 51 letters against the merger; however, our analysis revealed nuances that were not documented in the Federal Reserve’s order. Eighty-one letters against the merger were identified, including letters written by individual community members citing concerns that communities of color would have fewer banking options, jobs would be lost, quality and customer service would decline, and a monopoly would be created. These letters cited research and legislation to methodically document historic banking trends. Letters in support of the merger were written by leaders of nonprofit organizations like Goodwill and the United Way, who cited KeyBank’s philanthropy and the receipt of millions of dollars in programmatic funding as reasons for their support. Their letters lauded KeyBank for investments in communities of color and lower-income White communities—major factors in the regulator’s decision-making to approve the merger.

Concluding Implications: Communities may only seek a CBA as a measure of last resort when their concerns fail to be recognized by federal regulators. While mergers provide a strategic opportunity for negotiation, communities no longer have the upper hand to renegotiate a new agreement once the original CBA expires. With the merger complete at the end of five years, KeyBank will have full authority to define its future levels of investment and the contours of its generosity. Community benefits agreements may provide much-needed resources; though, CBAs give the illusion of equal tradeoffs and are a consequence of an economic system that exploits and divests from communities.