The FDIC, the OCC and the Justice Department earlier this month issued updated standards for bank mergers. The three agencies acted separately, although officials noted that they had worked with the other agencies involved.
“Continued engagement with our fellow regulators is vitally important, especially as it relates to evaluating the competitive effects of mergers,” FDIC Chairman Martin Gruenberg said. “The federal banking agencies coordinate with the Department of Justice when evaluating a bank merger’s effect on competition, and the FDIC looks forward to continuing to collaborate with our fellow agencies as we evaluate bank merger transactions.”
The FDIC approved a final Statement of Policy on Bank Merger Transactions on Sept. 17. FDIC officials said the new statement addresses the scope of transactions that will be reviewed, the process for that review and whether a proposed deal follows the standards established in the Bank Merger Act.
The new policy:
- Confirms that the evaluation of a merger’s competitive effects may take into account concentrations beyond deposits, including small business loans and mortgage loans.
- Makes it clear that the proposed merger should result in less financial risk than the risk posed by the separate institutions.
- Provides additional details concerning the FDIC’s expectation that that the merged institution would better meet the convenience and needs of the community to be served.
- Applies additional scrutiny to the evaluation of financial stability for transactions that would result in an institution that having $100 billion or more in total assets.
- States that the FDIC intends to hold public hearings for transactions that would result in a financial institution with more than $50 billion in assets.
Acting Comptroller of the Currency Michael Hsu, a member of the FDIC’s board, voiced his approval of the FDIC’s changes.
“While regulators must remain vigilant and reject mergers that would weaken competition, hurt communities, or threaten financial stability, we must also be open to embracing and approving mergers where strong banks that have earned the trust of their communities and regulators seek to acquire weaker ones and have credible plans and capabilities to improve them,” he said at the FDIC board meeting.
The OCC issued its own updated merger guidelines. Those guidelines describe transactions that are more likely to withstand review and may be easily approved. They also provide indicators for proposed mergers that might raise regulatory concerns that must be addressed before a merger is approved. The guidelines also describe the OCC’s “consideration of the financial stability; managerial and financial resources and future prospects; and convenience and needs statutory factors under the” Bank Merger Act. Finally, the guidelines explain the OCC’s process for extending a comment period or deciding to hold a public meeting.
The DOJ said it has withdrawn from the 1995 bank merger guidelines and stated that it would use its 2023 merger guidelines. The department said it had conferred with the OCC and the FDIC in updating its merger process.
Although we do not believe the changes in the analysis of competitive impacts will have a significant adverse effect on community bank mergers and acquisitions, larger financial institutions are likely to find the competitive impacts of a combination scrutinized more closely. Further, all financial institution applicants are likely to be tasked to address the financial risks of any proposed combination in greater detail in any application and the FDIC requirement that the proposed merger should result in less financial risk than the risk posed by the separate institutions may make a combination with a troubled institution more challenging.