banking

Regulators seek to provide clarity and transparency on the bank merger review process, but changes may increase application complexity and unpredictability.

By Arthur S. Long, Pia Naib, and Deric Behar

Consistent with ongoing initiatives to strengthen US antitrust regulation,1 the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Department of Justice (DOJ) recently announced changes that may reshape the landscape of bank mergers. These updated rules, policies, and guidelines aim to enhance clarity and transparency in the bank merger process. However, they signal increased regulatory scrutiny for financial institutions and may complicate the merger review and approval process.

On September 17, 2024, the Board of Directors of the FDIC approved a final Statement of Policy on Bank Merger Transactions (FDIC Statement of Policy), and the OCC approved a final rule updating its regulations for business combinations involving national banks and federal savings associations (OCC Final Rule). The OCC Final Rule also includes a policy statement mirroring the FDIC Statement of Policy regarding the Bank Merger Act2 (BMA) statutory factors, but also describes the general principles the OCC applies when reviewing bank merger applications (OCC Statement of Policy).

Also that day, the DOJ announced it would stop using the 1995 Bank Merger Guidelines, and begin to consider bank mergers under its enforcement-oriented 2023 Merger Guidelines. The 2003 Merger Guidelines describe the procedures and enforcement practices the DOJ’s Antitrust Division most often uses to investigate whether mergers across all industries violate federal antitrust laws. The DOJ also published a 2024 Banking Addendum to the 2023 Merger Guidelines (the 2024 Addendum), which highlights aspects of the 2023 Merger Guidelines that the DOJ’s Antitrust Division considers to be frequently relevant when it evaluates a bank merger’s competitive effects. Although the DOJ focuses on the competitive factors analysis in any bank merger review, “competition concerns may impact other factors” (i.e., the other BMA statutory factors, described below).

FDIC Statement of Policy

The FDIC Statement of Policy adopts a principles-based approach and aims to update, strengthen, and clarify the FDIC’s policies and expectations on the evaluation of bank merger transactions subject to FDIC approval under the BMA. These are transactions in which the FDIC is the primary federal regulator for the surviving or assuming bank, i.e., an insured depository institution (IDI) that is a state-chartered nonmember bank. It addresses the scope of transactions subject to FDIC approval, the FDIC’s process for evaluating merger applications, and evaluative considerations for each statutory factor applicable to a merger transaction.

The FDIC Statement of Policy hews closely to the proposal released on March 21, 2024 (for more information, see this Latham blog post), and supersedes the existing Statement of Policy, which was last updated in 2008. It reflects intervening legislative developments3 and takes into consideration 23 comment letters submitted in response to the March 2024 proposal.

Key Points:

  • Applications Process: pre-filing meetings are critical, as well as the submission of a substantially complete application that includes all of the information necessary for the FDIC to evaluate the statutory factors.
  • Jurisdiction and Scope: when determining whether a transaction constitutes a merger subject to FDIC approval under the BMA, the FDIC will look to substance over form.
  • Process and Adjudication: the imposition of conditions will be taken into account as part of the FDIC’s consideration of the merger application, but will not necessarily lead to the favorable resolution of any statutory factor if the facts and circumstances are otherwise unfavorable.
  • Statutory Factors: the FDIC Statement of Policy provides more clarity on what features of merger transactions may be consistent with a favorable finding on each statutory factor.
    • Monopolistic or Anti-competitive Effects: the FDIC will generally evaluate a merger’s competitive effects by taking into account concentrations beyond deposits, including small business or residential loan originations. The FDIC may also take into account certain non-bank competitors (e.g., credit unions, thrifts, and Farm Credit System institutions).
    • Financial and Managerial Resources: management of the IDI resulting from a merger must possess the capabilities to administer the resulting IDI’s affairs in a safe and sound manner, and to implement post-merger integration plans and strategies effectively (unchanged from the proposal).
    • Future Prospects: the resulting IDI must operate in a safe and sound manner on a sustained basis following consummation of the merger (unchanged from the proposal).
    • Convenience and Needs of the Community to Be Served: a merger should enable the resulting institution to better meet the convenience and needs of the community to be served.
    • Risk to the Stability of the United States Banking or Financial System: a merger should result in less financial risk than the risk posed by the institutions on a standalone basis; transactions resulting in an institution with $100 billion or more in total consolidated assets will be subject to additional scrutiny. (However, the FDIC Statement of Policy does not incorporate the Proposal’s assertion that the FDIC will not find favorably on the financial resources factor if the merger would result in a weaker IDI from a financial perspective.)
    • Effectiveness in Combatting Money Laundering Activities: merger transactions should result in IDIs with effective programs to combat money laundering and counter the financing of terrorism (unchanged from the proposal).
  • Public Hearings: the FDIC expects to hold public hearings for mergers resulting in an institution with $50 billion or more in total consolidated assets (unchanged from the proposal).

The FDIC Board of Directors approved the Statement of Policy with a 3–2 vote:

  • FDIC Chairman Martin Gruenberg supported the FDIC Statement of Policy, stating that it “is a significant milestone in the FDIC’s efforts to update, strengthen, and clarify its approach to bank mergers.”
  • Director Michael Hsu (Acting Comptroller of the Currency) supported the FDIC Statement of Policy, stating that its “transparency should help promote a diverse and dynamic U.S. banking system – one that is safe and sound, pro-community, pro-competition, and pro-financial stability.”
  • Rohit Chopra, director of the Consumer Financial Protection Bureau, supported the FDIC Statement of Policy, stating that it “dramatically improves the rigor of the agency’s competition analysis.”
  • FDIC Vice Chairman Travis Hill voted against the FDIC Statement of Policy, stating that although it “makes a few small improvements over the proposal,” it still makes the merger process “longer, more difficult, and less predictable.”
  • FDIC Director Jonathan McKernan voted against the FDIC Statement of Policy, stating that like the proposal, it “reflect[s] a bias against bank mergers that [is] bad policy and contrary to law.” The revisions, he asserted, do not address specific concerns that he or public commenters raised against the proposal.

The FDIC Statement of Policy becomes effective 30 days after publication in the Federal Register.

OCC Final Rule

The OCC Final Rule amends the OCC’s procedures for reviewing bank merger applications under the BMA.4 Although concise in scope, it may significantly affect bank merger applicants.

Notably, it eliminates provisions5 on expedited review and the streamlined business combination application.

The OCC states that eliminating the expedited review process “will more closely align the regulatory framework with the OCC’s current practices and promote transparency.”

Furthermore, by requiring that all applicants use the Interagency Bank Merger Act Application (which requires more information with the initial submission), the OCC intends to obtain a “more complete record” at the outset of a merger transaction. The OCC asserts that this approach “provides the appropriate basis for the OCC to consider a business combination application.”

Critics, however, contend that the OCC is potentially increasing the complexity, cost, and processing times of the application for certain transactions and smaller institutions. The OCC, for its part, stated in the OCC Final Rule that these changes will not “result in a significant change to the time in which the OCC processes merger applications”; “should not significantly increase the burden on applicants”; and “will have a de minimis impact on small entities.”

OCC Statement of Policy

The OCC Statement of Policy serves as an appendix to the OCC Final Rule (discussed above), and summarizes the principles the OCC will use when it reviews proposed bank mergers. According to Acting Comptroller Hsu, it “is broadly consistent” with the FDIC Statement of Policy (discussed above), and aims to provide clearer guidelines for institutions and transparency into the OCC’s review process. It applies to mergers in which the surviving bank is an OCC-regulated national bank.

The OCC Policy Statement summarizes the statutory factors under the BMA that the OCC would consider when reviewing bank merger applications (identical to those the FDIC would consider, discussed above), as well as general principles for merger application review, including:

  • indicators for applications that are more likely to withstand scrutiny and be approved expeditiously (such as well-capitalized acquirers and no significant adverse effects on competition);
  • indicators for applications that raise supervisory or regulatory concerns which most likely need to be resolved prior to OCC approval (such as poor CRA ratings or ongoing enforcement actions); and
  • criteria and process for extending the public comment period or holding a public meeting.

The OCC Final Rule and OCC Statement of Policy will become effective on January 1, 2025.

Conclusion

Notably absent from this parade of announcements was the Board of Governors of the Federal Reserve System (FRB), which must approve acquisitions and mergers of bank holding companies and is therefore the critical bank regulator for these purposes. It is unclear to what extent the FRB is or is not aligned with the various statements and initiatives,6 and therefore unclear to what extent the potential lack of coordination may negatively affect the merger review process for pending and prospective deals.

As for the DOJ, it noted that even if the banking regulators approve a merger after their review, “[t]he Antitrust Division may, at its discretion, challenge the legality of a merger transaction pursuant to relevant enforcement authorities following approval by the relevant banking agency.” The DOJ further reminded the public that the “[f]iling of a legal challenge by the Antitrust Division pauses the effectiveness of a banking agency’s approval of the deal pending federal court review.” Furthermore, any DOJ challenge to a merger approval by the banking agencies would “proceed[] under a standard that includes consideration of the full range of factors considered by the banking agencies.”

In any case, the revised OCC and FDIC Statements of Policy, OCC Final Rule, and the DOJ’s transition to the 2023 Merger Guidelines signal a tangible change in the regulatory landscape for bank mergers (subject of course to a change in administrations in Washington, D.C.). Bank integration plans may face increased regulatory scrutiny, unpredictability, and hurdles to completion, especially those resulting in institutions with $100 billion or more in total consolidated assets.

  1. See Executive Order on Promoting Competition in the American Economy (July 9, 2021), available here. ↩︎
  2. Section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(c)). ↩︎
  3. Including the Dodd-Frank Wall Street Reform and Consumer Protection Act’s 2010 amendment to the BMA, and a 2022 Request for Information and Comment on Rules, Regulations, Guidance, and Statements of Policy Regarding Bank Merger Transactions. ↩︎
  4. I.e., the OCC’s implementing regulation of the BMA, 12 CFR § 5.33. ↩︎
  5. 12 CFR §§ 5.33(i) and (j), and related 12 CFR § 5.33(d)(3). ↩︎
  6. Although the FDIC noted that it “continues to coordinate with the [DOJ] and the other federal banking agencies in modernizing bank merger oversight,” and the DOJ noted that its announcement “was the result of a collaborative consultative process with the department’s close partners at the [FRB, FDIC, and OCC].” ↩︎