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Feds Propose New Hurdles for Bank Mergers

My bank isn’t my bank anymore. They’ve changed the name. Things aren’t the same. I’m a number, nothing more.

A shout-out to First Source Bank in South Bend, Indiana, whose catchy jingle is still in my head 25 years after leaving town.  It effectively highlighted First Source as the stable local bank that was not being gobbled up by larger institutions.

At the one-year anniversary of the significant bank failures of 2023, and following several mergers in recent years, government regulators are proposing changes that appear to make it bank mergers more difficult and, probably, less common.

Regulatory jurisdiction over banks rests in the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Reserve Board, depending on the nature of the institution involved.  Generally speaking, the FDIC regulates state-chartered banks that are not members of the Federal Reserve system, and the OCC regulates national banks and federal savings associations. 

This is relevant because both the OCC (through a Notice of Proposed Rulemaking) and the FDIC (through a Statement of Policy) have put out policy statements in recent months that appear to raise the bar and make it more difficult for banks to merge. The OCC’s notice period just expired last week, while the comment period on the FDIC’s statement will expire 60 days following publication in the Federal Register.

The Department of Justice issued its Bank Merger Guidelines in 1995, and the FDIC hasn’t issued a statement of policy (until recently) since 2008.

The policy statements suggest the agencies will engage in extended (and supposedly transparent) reviews that result in additional regulatory expenses.  Expedited reviews will likely disappear.

Resulting organizations with assets of $50 billion or more will face heightened scrutiny.  Those with $100 billion or more will continue to face heightened scrutiny and may be required to submit bank resolution plans in order to be approved.

If either or both merging institutions have had recent compliance or performance issues, they will face extended processing and heightened scrutiny. Mergers of any type often include one party that’s had some issues, so this will likely have its intended limiting effect.

None of this is surprising, as the Department of Justice has taken a tougher stand on anti-trust issues under this administration. Just ask Spirit and Jet Blue.  Financial institutions are being equally scrutinized, if not more.

Some FDIC directors did not support the SOP, however, with one noting that it shows “a bias against bank mergers that is bad policy and contrary to law.”

Whether the apparent bias reduces the number of bank mergers remains to be seen.  At Dalton & Tomich, our banking and financial institutions team has experience in all phases of the process, including regulatory compliance. Call us today to learn how we can help your organization.

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