The Federal Deposit Insurance Corporation (FDIC) approved a final statement of policy (SOP) this week on bank merger transactions.
The final SOP addresses the scope of transactions subject to FDIC approval, the FDIC’s process for evaluating merger applications, and the principles that guide the FDIC’s consideration of the applicable statutory factors.
Specifically, the final SOP:
• Confirms that the FDIC’s evaluation of a merger’s competitive effects may take into account concentrations beyond deposits, including small business or residential loan originations;
• Clarifies that the proposed merger should result in less financial risk than the risk posed by the institutions on a standalone basis;
• Elaborates on the FDIC’s expectation that a merger will enable the resulting institution to better meet the convenience and needs of the community to be served;
• Applies additional scrutiny to the evaluation of financial stability for transactions resulting in an institution with $100 billion or more in total assets; and
• Communicates the FDIC’s expectation to hold public hearings for mergers resulting in an institution with over $50 billion in total assets.
“The final statement of policy on bank merger transactions approved today by the FDIC Board updates, strengthens, and clarifies the FDIC’s approach to evaluating transactions subject to its approval under the Bank Merger Act,” FDIC Chairman Martin Gruenberg said.
The updates consider the significant changes that have occurred in the banking industry and financial system over the last several decades. They also consider the feedback from the 23 comment letters submitted in response to the FDIC’s April 2024 Request for Comment on the matter. Further, the final SOP supersedes the existing statement of policy, which was last updated in 2008.
The Bank Policy Institute (BPI) came out against the changes, saying they exacerbate the problems in an already uncertain bank M&A market.
“Merger policy should ensure that applications are processed on a timely and predictable basis consistent with standards established by statute. Rather than sticking to the law, the FDIC and OCC chose to improvise new, subjective standards to evaluate bank mergers. The agencies’ merger approval process needs a shot clock; instead they give us the Four Corners, extends the time for the game and creates strange new rules,” BPI President and CEO Greg Baer said.
Baer added that the policies start with a presumption against timely approval for many mergers that would drive banks to avoid pro-competitive, healthy deals.
[M]ergers and acquisitions entail a high-cost, high-risk process that would not be worthwhile if the chances of approval are remote or if the process is a black box. Banks and consumers alike would suffer from an opaque and uncertain process. Unfortunately, the final policy measures entrench that uncertainty,” Baer said.