By Hugh Carney
ABA Viewpoint
Improving the efficiency of government processes is a popular topic right now. One area where meaningful progress is possible is the government’s review of bank applications for various regulatory approvals, which would have concrete benefits for consumers and for the economy. Applications for approval of mergers, branch changes, new financial activities, and other business innovations, though an appropriate aspect of bank supervision, shouldn’t be a source of delay and impairment of customer and community service.
In a case the Fed Vice Chair of Supervision nominee Michelle Bowman described as “emblematic of the current deficient approach to processing applications,” she called out a growing and problematic trend: the failure of federal regulators to act in a timely manner on bank applications. Similarly, FDIC Acting Chair Travis Hill has raised concerns about the FDIC process, saying “our application review process is, in too many cases, taking way too long, and the problem has worsened noticeably in the past couple years.”
Delays in regulatory decisions are more than bureaucratic issues. They pose real threats to banks, the communities they serve and the broader financial system.
The concerns are particularly acute when it comes to bank merger applications. Every week, month, and occasionally, years of regulatory limbo carries consequences. Delays introduce uncertainty, stall progress, and can ultimately undermine the safety and soundness of the institutions, the very objective of prudent supervision. And delays in applications affect banks of all sizes, from the 14-month wait for approval of the Capital One-Discover merger to a six-month wait for Fed approval for a community bank to open a new branch.
Merger policy: Timely action on bank applications matters
When a merger application sits idle, both banks face what might be called “planning paralysis.” Integration of operations, systems, management structures, talent and even culture must remain on hold. This has ripple effects across the institutions.
Resources are drained by the need to plan for a future that remains uncertain. Legal and compliance teams are tasked with navigating not only complex regulatory frameworks but also performing their regular functions during prolonged periods of ambiguity. Consultants, attorneys and other advisors remain on retainer for far longer than budgeted, driving up costs with no clear end in sight.
Perhaps most damaging is the human toll. Customers become confused about the future direction of the institutions. Key personnel, unsure of their roles in the combined organization, often opt to leave rather than wait out an indefinite process. Investor confidence can erode. And other institutions, watching from the sidelines, may think twice before pursuing a merger of their own.
In today’s highly competitive financial landscape, many midsize and smaller institutions look to strategic mergers to gain scale, invest in technology, manage ever-increasing regulatory burdens and costs and compete more effectively against larger banks and rapidly growing nonbank firms. Delayed approvals threaten to freeze these plans in place, leaving banks exposed to market shifts, rising costs and missed opportunities.
Meanwhile, as banks await decisions, competitors can act. Markets don’t wait. Competitors don’t wait. Customers won’t wait.
Inaction is not a neutral stance. It is a decision with consequences. And in the case of merger applications and other significant corporate moves, it is a decision that risks doing real harm.
The path forward
Streamlining the application process is not about cutting corners or “rubber stamping,” it’s about having a rigorous but fair and timely review that enables banks to serve their communities, compete effectively and remain safe and sound in a dynamic environment. In February, at ABA’s Conference for Community Bankers, Bowman called for reform in two key areas: the public comment process and the Federal Reserve’s approach to competition.
As Bowman highlighted in her unusual statement about a recent branch approval by the Fed, the public comment process needs a rethink. Currently, the receipt of negative comments from a single source can cause substantial delays in an application by removing it from “delegated” processing by the local Federal Reserve Bank and sending the decision to the Board of Governors in D.C.
This can be a time-consuming process. On a routine application regarding a branch opening, it took nearly six months to move from the reserve bank to the board because of a single complainant. The public certainly must have a voice in these decisions, but one objector, particularly a habitual objector, should not be allowed to hijack the entire process. Likewise, the vast majority of negative comments on the Cap One-Discover deal were form letters from a single entity. Moreover, banks can sometimes proactively address complaints during the application process; for cases in which the supervisory record has already addressed the concerns raised, the reserve banks should still have delegated authority to approve. Fixing the application process is a necessary first step in fixing merger delays.
Recognizing the challenges in processing applications, Hill introduced an FDIC board resolution in June 2024 requiring staff to brief the board on any application pending for more than 270 days. These briefings must be added to the closed agenda of the next board meeting, with the issue revisited every three months until a final decision is made. The resolution was approved and has drawn renewed attention to the application process. While not solving the issue entirely, early results suggest the approach may be somewhat effective, with the number of applications pending beyond 270 days dropping from 11 when the resolution was adopted in June 2024 to three as of October 2024.
Bowman has also raised important concerns about how outdated competition analysis distorts merger reviews, particularly for banks operating in rural, concentrated markets. The Federal Reserve, like other banking agencies, continues to rely on traditional competitive “screens” that assess market concentration based solely on the hypothetical combination of two banks, without adequately considering the evolving competitive landscape. This rigid approach often triggersadditional scrutiny and delays, especially in small communities, where market overlap is more common yet the pool of competitors is far smaller. Bowman rightly points out that this method ignores more realistic outcomes, such as the risk of bank closures or acquisitions by nonbank entities like credit unions, which may ultimately reduce competition and harm communities. And though regulatory agencies are groping with modernizing their process, they still have no transparent, consistent approach to assessing competition from online banking channels, fintech competitors or other nonbank lenders like the Farm Credit System.
Conclusion
As a threshold issue, the application process, particularly as it relates to mergers and similar transactions, needs to change. Moreover, the Federal Reserve, along with the other agencies, needs to modernize its approach to competition by considering credit unions, fintechs, internet banks and other types of competitors.
Delays are putting not only banks at risk. Without changes, the current merger review process hurts the consumers and communities banks are hoping to serve. As the banking agencies make staffing decisions in the coming months, it is essential that the application review process, and efforts to streamline the process, are supported rather than hindered.
ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.
