Six months ago, we wrote about a notice of proposed rulemaking from the Office of the Comptroller of the Currency (OCC) and a statement of policy from the Federal Deposit Insurance Corporation (FDIC). The proposals followed the current administration’s goals to tighten up the scrutiny on merging banks and to address the government’s approach to competition overall. The rule and policy are now final, as the OCC and FDIC, as well as the Department of Justice, all issued guidance on bank mergers in September.
Signed into law by President Eisenhower, the Bank Merger Act of 1960 established the requirement that regulators approve mergers between insured institutions. The OCC’s final rule changes two procedural elements of its review of proposed mergers under that law. There will be no more expedited procedures for reviewing bank mergers, and streamlined applications for OCC review, which were already limited, will be eliminated.
The OCC’s corresponding final policy statement also provides guidance on the principles it will apply when considering the Bank Merger Act’s factors of financial stability, financial and managerial resources, and the convenience and needs of the community. As expected, these principles focus on the size of the resulting institution, the risk of failure, the risk to the system, the effect of economic conditions, and the probable effects on the community, among other factors.
The FDIC’s final statement of policy similarly promote the administration’s goal to promote competition in the American economy. The FDIC has expanded its interpretation of its jurisdiction, increased scrutiny on mergers resulting in institutions worth more than $100 billion, increased the standard for what would “better meet” the community’s convenience and needs, and expanded its analysis of the effects of a merger on competition.
The Department of Justice issued a banking addendum that clarified its intent to withdraw from 1995 bank merger guidelines and to rely on 2023 merger guidelines. The DOJ has shifted its analysis of bank mergers from focusing on branches and deposits to an expanded look at competition, convenience, service quality, and how it affects customers.
Mergers that would be presumed legal under the 1995 guidelines could be presumed illegal under the 2023 guidelines because of this shift of analysis. Instead of looking for deals it can approve without a closer look, the DOJ will now look to see what proposed mergers bear a presumption of illegality.
These new regulations appear to bring clarity and focus to the bank merger process, working together with the goal of making merger approval more rigorous and likely less common. Time will tell if they achieve the administration’s goals, depending on how they work together and whether the Federal Reserve jumps in with new merger guidelines of its own.
The Banking and Financial Institutions Team at Dalton & Tomich has experience in all phases of the process, from transactions to workouts to litigation and regulatory compliance. To learn more, contact us today.
