The FDIC and Office of Comptroller of the Currency today issued new policies that expand the factors both will take into consideration when reviewing bank merger applications, with the OCC eliminating its expedited review process and the use of streamlined applications.
The FDIC board voted 3-2 in favor of a final statement on bank merger policy. Among the changes, the policy states that when reviewing a proposed merger’s competitive effects, the agency can consider concentrations on products and services beyond those based on deposits, such as the volume of small business or residential loan originations. It applies additional scrutiny to proposed mergers resulting in an institution with $100 billion or more in total assets and requires public hearings for mergers resulting in an institution with more than $50 billion in total assets. It also establishes a policy against banks entering into or enforcing noncompete agreements with any employee of the divested entity.
One modification from the proposal issued in March is that the final document no longer states that the FDIC will penalize applications if the merger results in a weaker institution from a financial perspective as long as the resulting institution would be financially sound, FDIC Chairman Martin Gruenberg said. However, it stresses that a proposed merger must “better meet the convenience and needs of the community to be served than would occur absent the merger in order for FDIC staff to find favorably on this factor,” he added.
The two Republican board members voted against the statement, saying it would make the merger application longer and more difficult. “I continue to believe the revised approach to the competition factor will add considerable unpredictability, by deemphasizing the use of [Herfindahl-Hirschman Index] thresholds, long a predictable proxy for concentrations and by elevating consideration of ‘concentrations in any specific products or customer segments,’” FDIC Vice Chairman Travis Hill said.
OCC removes automatic approval trigger
The OCC final rule focused on separating mergers that can be quickly approved from those that require more scrutiny. The rule ends the practice of automatically approving merger applications on the 15th day after the close of the comment period unless the agency takes action to remove the filing for expedited processing. It also amends how the OCC considers financial stability, financial and managerial resources, future prospects, and convenience and needs factors.
“Merger applications exist along a spectrum,” Acting Comptroller of the Currency Michael Hsu said earlier this year in a speech about the changes. “Some have significant deficiencies. Others are straightforward because the acquiring bank is a model of safety and soundness and has earned the trust of the community and supervisors. The majority lie somewhere in between and require varying degrees of scrutiny and multiple rounds of inquiry. The transparency provided in our proposed policy statement effectively proposes chalk lines demarcating these three groups.”
ABA: Merger policies lack needed transparency, predictability
While the FDIC and OCC statements indicate that regulators are increasingly aware that the traditional analysis of competition banks face needs to be updated to reflect today’s financial services landscape, they do not provide the needed transparency, greater predictability and more timely merger approvals banks deserve, ABA President and CEO Rob Nichols said. It is also clear that the FDIC board has not yet achieved consensus on these matters, he added.
“With the ongoing regulatory tsunami creating increased pressure for consolidation, regulators must ensure that banks that decide to combine have clear standards for how proposed mergers will be evaluated, that regulators’ decisions will be made promptly and that the approval process will not reflect a bias against mergers,” Nichols said.
