The OCC recently released a proposed rule and policy statement on business combinations involving national banks and federal savings associations (banks), which includes mergers, acquisitions of assets, and assumptions of deposit liabilities. The proposals appear to reflect the OCC’s intention to provide greater transparency into how it reviews proposed business combinations and tighten the standards it uses to evaluate them.

The proposed rule would eliminate expedited filings on the grounds that “any business combination subject to a filing is a significant corporate transaction requiring OCC decisioning.” That apparently would include internal reorganizations.

The OCC’s proposed policy statement would draw “chalk lines demarcating” the considerations and varying levels of scrutiny the OCC would (or perhaps, already does) use to evaluate business combination applications, the factors it considers at each step, how it weighs them, and criteria for deciding whether a public meeting is needed.

Acting Comptroller Hsu also announced that the OCC would endeavor to make business combination data and statistics—including applicant information, asset size, Community Reinvestment Act (CRA) ratings, target bank information, and the outcome of the OCC decisions—publicly available online later this year.

Comments are due 60 days after publication in the Federal Register.

Key Takeaways

• The proposed rule would remove OCC provisions for expedited reviews of business reorganizations and streamlined applications. This would affect, among other things, internal reorganizations.
• The proposed policy statement would draw from eligibility criteria for expedited reviews and streamlined applications and apply them more generally to all business combinations—without the benefit of expedited review.
• The proposed policy statement would appear to favor well-capitalized, smaller institutions (total assets less than $50 billion; when a target’s combined total assets are no more than 50% of an acquirer’s total assets).
• Being a GSIB, or a subsidiary of a GSIB, would be considered a concern.
• Ratings will be key amid tougher supervision and regulation—including harder exams and more prescriptive and harder rules (e.g., the interagency CRA rule, the proposed capital and other anti-tailoring rules).
• While eligible banks are those that do not have any formal enforcement actions, the proposed standards for general approval for all banks would favor acquirers that have no open formal or informal enforcement actions.
• BSA/AML and fair lending concerns remain key issues and would likely seriously impede a proposed business combination.
• The OCC has acted independently, short of an interagency approach and without any release of updated DOJ bank merger guidelines.

Eliminating Expedited Reviews

The current OCC regulations allow for expedited reviews of certain applications that allow them to be automatically deemed as approved 15 days after a public comment period ends, assuming there is no intervening action by the OCC. These provisions currently apply to applications for “business reorganizations” and banks eligible to use “streamlined applications.” These concepts were originally adopted in 1996 as part of the OCC’s effort to streamline regulation and reduce unnecessary regulatory costs and burdens, particularly for healthy, well-managed banks. The OCC explained in the preamble to the final rule in 1996 that these provisions were overwhelmingly supported by commenters at the time and that the approach would allow the OCC to “maintain[] the focus of the OCC’s review on those areas that pose significant risks to [banks].”

Under the proposed rule, these transactions would be treated as regular business combinations under the standard review process—which likely will entail more scrutiny.

Proposed Policy Statement

A proposed policy statement would be added as an appendix to Part 5, Subpart C, of the OCC’s regulations. When considering an application under the Bank Merger Act, the OCC must consider and weigh certain factors, as explained in current OCC guidance. The proposed policy statement would supplement these details and standards—effectively listing what the OCC wants to see and what it doesn’t want to see in a business combination under its jurisdiction.

The proposed policy statement would also discuss the OCC’s consideration of financial stability, current and future financial and managerial resources, and convenience and needs factors.

Financial stability. The OCC would apply a balancing test that weighs various factors, any one of which could be grounds for denying a proposed transaction:

• Whether the size of the combined institutions would result in material increases in risk to financial stability
• Any potential reduction in the availability of substitute providers
• Whether the resulting institution would engage in any business activities or participate in markets in a manner that, in the event of financial distress of the resulting institution, would cause significant risks to other institutions
• The extent to which the combination contributes to the complexity of the financial system
• The extent of cross-border activities
• Whether the proposed transaction would increase the difficulty of resolving or winding up the resulting institution’s business in the event of failure or insolvency

Financial, managerial resources. The OCC would individually and holistically consider the current and future financial and managerial resources of the combining and resulting institutions, to determine whether the resulting institution can be operated in a safe and sound manner. The OCC would be less likely to approve a transaction when the acquirer:

• Has a less than satisfactory supervisory record
• Has experienced rapid growth
• Has engaged in multiple acquisitions with overlapping integration periods
• Has failed to comply with conditions imposed in prior OCC licensing decisions
• Is functionally the target in the transaction

Convenience and needs. The OCC would evaluate a proposed transaction’s probable effects on the community to be served by considering the following factors, at a minimum:

• Any plans to close, expand, consolidate, or limit branches or branching services, including in low- or moderate-income areas
• Any plans to reduce the availability or increase the cost of banking products/services, or plans to provide expanded or less costly banking products/services to the community
• Credit availability throughout the community
• Job losses or reduced job opportunities from branch staffing changes
• Community investment or development initiatives, including community reinvestment, community development investment, and community outreach and engagement strategies
• Efforts to support affordable housing initiatives and small businesses

The OCC would also consider an applicant’s CRA record during this evaluation.

Public comments. The OCC would also consider public comments or discussion from hearings or meetings. The OCC’s decision on whether to hold a public meeting would be informed by the following non-exhaustive criteria:

• Public’s interest in the transaction
• Appropriateness of a public meeting to document or clarify issues raised during the public comment process
• Significance of the transaction to the banking industry
• Significance of the transaction to the communities affected
• The potential value of any information that could be gathered and documented during a public meeting
• Acquirer’s and target’s CRA, consumer compliance, and fair lending, or other pertinent supervisory records, as applicable