The FDIC board today voted 3-2 to pursue potential changes to how the agency will evaluate bank merger applications, including broadening the number of competitive factors it will take into consideration when deciding whether to approve or deny applications, and requiring a “thorough accounting” of the potential effects on communities, including possible branch closures or relocations.
The FDIC last updated its policy statement on bank mergers in 2008. Under the proposal unveiled today, the FDIC would clarify that its assessment of a proposed merger’s competitive effects would consider concentrations on products and services beyond those based on deposits, such as the volume of small business or residential loan originations, FDIC Chairman Martin Gruenberg said. In cases where divestiture may be necessary, the statement would clarify that divestitures are expected to be completed before consummation of a merger transaction. It also would establish a policy against entering into or enforcing noncompete agreements with any employee of the divested entity.
The policy would state that the FDIC expects the resulting depository institution to reflect sound financial performance and condition, Gruenberg said. It would articulate the considerations used to assess the merged entity’s effectiveness in combating money laundering. It would also clarify and emphasize the FDIC’s expectations for the merged entity to meet the needs of the community, such as through higher lending limits or greater access to products, services and facilities. As a result, applicants would be required to list expected branch expansions, closures, consolidations and relocations for the first three years of the merger, he said.
The policy also would spell out the FDIC’s general expectation to hold public hearings for transactions when the resulting institution would exceed $50 billion in assets, or when a significant number of Community Reinvestment Act protests are received, Gruenberg said. It also puts into writing a Dodd-Frank Act requirement that bank mergers be evaluated for potential risk to the U.S. financial system, which has been agency practice since passage of the law.
FDIC Board split on proposed policy
The FDIC Board moved forward with a proposed update of its bank merger policy over the objections of its two Republican members, who said it would add even more obstacles and hurdles to an application process that is already slow and cumbersome.
“The proposed statement of policy under consideration today moves in the wrong direction, potentially making the process longer, more difficult and less predictable,” FDIC Vice Chairman Travis Hill said. Among his concerns, Hill said the statement gives little clarity about what products the FDIC will evaluate or how that analysis will factor into the agency’s final decision.
FDIC Board Member Jonathan McKernan acknowledged that given the age of the current policy, a review and possible update was needed. But he said the proposal “really reflects and implements a bias against mergers that, at the end of the day, is bad policy and also contrary to law.”
ABA: Policy raises ‘significant concerns’
While the American Bankers Association appreciates regulators’ desire to update the framework governing bank mergers, the FDIC’s proposed statement of policy raises several significant concerns, ABA President and CEO Rob Nichols said. Because the policy lacks details about the updated competitive analysis, it would introduce more unpredictability and potential delays in merger approvals, which could have serious adverse effects on banks seeking a merger, he said.
“At a time when regulators are imposing major rule changes on the industry that will almost certainly force more consolidation, it’s ironic that they appear to be moving the goalposts and making it even harder for banks to combine,” Nichols said. “We will closely review today’s proposed policy statement and the recent [Office of the Comptroller of the Currency’s] proposal and will be prepared to offer our comments, including whether the proposals comply with statutory requirements and enable banks of all sizes and business models to flourish.”
