Without oversight or transparency, federal banking regulators at the Office of the Comptroller of the Currency (OCC) and FDIC are rolling out onerous new restrictions on bank mergers that will impede free-market activity and harm the financial system. Specifically, the new proposals scuttle certain expedited review procedures, eliminate the streamlined business combination application, and threaten to subject vital business decisions to expansive and vague bureaucratic discretion.

FDIC chair Martin Gruenberg, Acting Comptroller Michael Hsu, and other regulators claim that these changes would increase transparency and help clear up the process for “good” or “healthy” mergers”—defined by Hsu as those that “benefit communities, support bank resilience and financial stability, and enhance competition.” In reality, the proposals add needless complexity to routine business dealings, discourages many “good mergers” from taking place, and leaves banks’ investors and employees hanging in limbo during the drawn-out merger process.

At the heart of the issue is some policy-makers’ misunderstanding of the U.S. banking sector. Support for more regulations on the banking sector are often justified by the fact that ten banks control two-thirds of all domestic deposits.

Contrary to conventional wisdom, however, the banking sector is less consolidated than numerous other industries, including airlines and department stores. Regulations on bank mergers are more stringent than less regulated competitors such as FinTechs. Moreover, the primary reason for concentration on banks and many other financial institutions is the ever-increasing regulatory burden imposed upon them, sometimes with good reason, but all too often to excess. The regulatory burden, rather than concentration, is the problem.

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This burden places smaller institutions at a competitive disadvantage to their larger counterparts who enjoy lower compliance costs per customer, per employee, and per dollar of revenue. In large part, this is why a small cadre of registered investment advisors (RIAs) and two proxy advisory firms have such a powerful influence over virtually every publicly traded company in the country. It is also why we continue to see a steady decline in the number of broker-dealers and, incidentally, the number of public issuers.

Regulation imposes disproportionate amount of costs on smaller firms, giving a government-induced competitive advantage to larger firms. Reducing, rather than increasing, the regulatory burden will alleviate concentration over time.

In general, mergers create value both for shareholders and the public. The core determinant of whether a merger with a large institution should be permitted is whether the merger meets the current standard of promoting consumer welfare. For mergers in the banking sector, this includes evaluating how a merger may impact systemic risk, especially in this era of “too big to fail. The agencies, however, appear to disregard this all-important analysis.

Targeting mergers and acquisitions (M&As) is an especially misguided approach to addressing concerns about banking-sector competition and stability. The long-term consequences of these proposals will ultimately affect consumers. M&As allow larger, well-capitalized banks to acquire weaker banks. This strengthens the system’s stability by merging weaker banks with stable ones. Especially in economic downturns, adding more uncertainty and time to this process will leave the entire financial system more vulnerable to individual bank failures.

The current OCC and FDIC proposals also threaten to impede the efficiency gains from M&A that keep operating costs down. According to the Federal Reserve Bank of New York, smaller institutions incur higher costs in delivering banking services. Banks pass along these costs to customers. As a result, shareholders are not the only beneficiaries when two banks merge. Enhanced efficiency enables banks to diversify their services, provide consumers with a wider array of options, and increase their lending capacity.

Already, the cumbersome regulatory process is preventing promising deals from taking place. For example, TD Bank dropped its planned merger with First Horizon last year specifically because of the daunting timeline and uncertainty created by regulators. This merger included a community-benefits agreement that dedicated $50 billion to opening dozens of new branches in underserved communities. Similarly, some “populist” and progressive politicians continue their outcry against Capital One’s attempt to acquire Discover. Combining Capital One’s clientele with Discover’s credit-card-interchange platform would inject competition into the transactions-processing sector. This could diminish costs for merchants while providing consumers with enhanced rewards.

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Expect an abundance of similar missed opportunities as federal agencies continue to multiply unclear and onerous regulations. In an environment where approvals aren’t based on clear criteria and the odds of success may be contingent on the political aspirations of the current regulators, more and more companies are already choosing to avoid the risk of engaging in M&A at all.

This directly threatens the health of America’s small-business community by depriving them of the capital they need to thrive. In a recent Goldman Sachs survey, nearly 80 percent of small business owners expressed concern about their ability to access capital. The proposals by the OCC and FDIC would only further weaken banks’ ability to help communities across the country in need of investment.

The fact that the FDIC and the OCC aren’t even on the same page in developing a joint proposal exemplifies the disfunction and demonstrates that these changes aren’t in the nation’s best interest. For example, the OCC proposal subjects mergers to heightened scrutiny if the resulting entity has more $50 billion of assets—half the $100 billion threshold of the FDIC proposal. If any changes are necessary, the OCC and the FDIC should coordinate with each other and the antitrust divisions of the Federal Trade Commission (FTC) and Department of Justice (DOJ) rather than act unilaterally.

In the meantime, the agencies should withdraw these unnecessary, harmful proposals and instead focus on their core mission of ensuring the safety and soundness of the industry and ensuring that consumers are treated fairly and in accordance with the law.