Enhancing the transparency around the process of reviewing bank mergers under federal law, and providing guidance to stakeholders around the review of applications, is the aim of a rule and policy statement addressing the mergers and “business combinations” issued Tuesday by the regulator of national banks.
The statement issued by the Office of the Comptroller of Currency (OCC) is substantially similar to a statement also approved the same day by the board of the Federal Deposit Insurance Corp. (FDIC). The FDIC Board approved the statement on a split vote of 3-2, with the Republican appointed members voting no.
The OCC final rule was issued in conjunction with a policy statement also issued by the agency, which the OCC said discusses its review of applications submitted under the Bank Merger Act (BMA). That includes:
- General principles for the OCC’s review of applications under the BMA, including indicators for applications that tend to be more likely to withstand scrutiny and be approved expeditiously; and indicators for applications that raise supervisory or regulatory concerns that most likely need to be resolved before the OCC will approve them;
- The OCC’s consideration of the financial stability; the managerial and financial resources and future prospects; and the convenience and needs statutory factors under the BMA; and
- The OCC’s decision process for extending the public comment period or holding a public meeting.
“This final rule and policy statement provide clarity and transparency around the OCC’s consideration of bank mergers to improve outcomes to benefit communities, enhance competition, and support a diverse banking system,” Acting Comptroller Michael Hsu said in a statement.
In a separate statement, Hsu said he supports the FDIC’s action (which also issued a policy statement), noting it is “broadly consistent” with the OCC’s statement.
He said, regarding the FDIC action, that its merger policy must be balanced to ensure communities are well-served by a strong, vibrant, and diverse banking system.
“Mergers can and should strengthen individual banks and the banking system as whole,” he said. “While regulators must remain vigilant and reject mergers that would weaken competition, hurt communities, or threaten financial stability, we must also be open to embracing and approving mergers where strong banks that have earned the trust of their communities and regulators seek to acquire weaker ones and have credible plans and capabilities to improve them.
“Striking this balance will help promote a dynamic and diverse U.S. banking system by making it more competitive, more pro-community, and safer and sounder,” he said.
On Tuesday, the FDIC said its final statement supersedes the existing Statement of Policy (SOP), which was last updated in 2008.
“The updates approved by the FDIC Board today account for the significant changes that have occurred in the banking industry and financial system over the last several decades,” the agency said in a release. ‘The Final SOP refines, and in some cases, broadens the description of the analytical considerations for each statutory factor.”
Key points of the FDIC policy statement, the agency said, are that it:
- Confirms that the FDIC’s evaluation of a merger’s competitive effects may take into account concentrations beyond deposits, including small business or residential loan originations;
- Clarifies that the proposed merger should result in less financial risk than the risk posed by the institutions on a standalone basis;
- Elaborates on the FDIC’s expectation that a merger will enable the resulting institution to better meet the convenience and needs of the community to be served;
- Applies additional scrutiny to the evaluation of financial stability for transactions resulting in an institution with $100 billion or more in total assets; and
- Communicates the FDIC’s expectation to hold public hearings for mergers resulting in an institution with over $50 billion in total assets.
The proposal by the FDIC Board, released in March, was issued for comment on a split vote of 3-2, with the Republican appointees to the board opposing the proposed statement. FDIC Board Chairman Martin Gruenberg, who voted to issue the statement for comment, said it was vital that ” the FDIC provide guidance on how it would apply the critical statutory factors under the Bank Merger Act relating to competition, financial resources, the convenience and needs of communities, financial stability, and money laundering.”
Board Vice Chairman Travis Hill, a Republican appointee, voted in March against issuing the statement for comment stating that it “moves in the wrong direction, potentially making the (merger) process longer, more difficult, and less predictable.”
Acting Comptroller Issues Statements at FDIC Board Meeting on Bank Merger Policy and Recordkeeping
Business Combinations Under the Bank Merger Act: Final Rule
OCC Approves Final Rule and Policy Statement on Bank Mergers
FDIC Board of Directors Approves Final Statement of Policy on Bank Merger Transactions
Final FDIC Board Statement of Policy on Bank Merger Transactions (PDF)