FDIC Proposes Increased Scrutiny of Bank Mergers

Today, a divided Federal Deposit Insurance Corporation’s (FDIC) Board of Directors issued a proposed Statement of Policy (SOP) on bank merger transactions that would create a combined bank with more than $100 billion in assets. The proposed SOP would replace the FDIC’s current SOP on bank merger transactions and proposes a principles-based overview that describes the FDIC’s administration of its responsibilities under the Bank Merger Act (BMA).

As the FDIC notes, it believes that greater attention to the financial stability risks that could arise from large bank mergers necessitate the revised SOP. The updated SOP continues a trend of greater scrutiny of bank mergers and follows the January 31 action by the Office of the Comptroller of the Currency (OCC) to eliminate expedited and streamlined review of large bank mergers. FDIC Director Jonathan McKernan stated that the proposal would implement a bias against bank mergers and that the proposal “makes explicit what we all sort of already knew — the FDIC takes a quite skeptical view of bank mergers.”


The BMA prohibits an insured depository institution (IDI) from engaging in a merger transaction without regulatory approval and provides statutory factors to be considered for approval. The FDIC is one of three federal banking agencies (along with the OCC and the Federal Reserve Board) with responsibility for evaluating transactions subject to the BMA and has jurisdiction to act on merger applications that involve an IDI and any non-insured entity, notwithstanding the IDI’s charter. The FDIC also has jurisdiction over merger applications that solely involve IDIs in which the acquiring, assuming, or resulting institution is a state nonmember bank or state savings association.

The current FDIC SOP was last revised in 2002 and 2008. These changes addressed the anti-money-laundering statutory factor and amendments to the BMA resulting from the Financial Services Regulatory Relief Act of 2006. The proposed SOP includes new content to make it more principles based, communicates the FDIC Board’s expectations regarding the evaluation of merger applications filed pursuant to the BMA, and describes the types of applications subject to FDIC approval. The proposed SOP also takes into account comments received in response to the FDIC’s March 2022 Request for Information and Comment on Rules, Regulations, Guidance, and Statements of Policy Regarding Bank Merger Transactions.

Key Considerations for Each BMA Statutory Factor Under the Proposed SOP:

  • Monopolistic or Anti-Competitive Effects.
    • The proposed SOP approaches the evaluation of monopolistic or anti-competitive effects under the BMA with the expectation that a resulting institution operate in a market environment in which affected consumers would retain meaningful choices for banking products and services. This evaluation would include an assessment of all relevant financial services providers that compete in the relevant geographic and product markets. This evaluation would continue to use deposits as an initial proxy for commercial banking products and services, but the FDIC may tailor the product market definition in some circumstances.
    • The proposed SOP would clarify that the FDIC’s assessment of competitive effects considers concentrations beyond those based on deposits, such as consideration of the concentration in any specific products or customer segments like the volume of small business or residential loan originations.
    • In cases where divestiture may be necessary, the proposed SOP clarifies that divestitures are expected to be completed beforeconsummation of a merger transaction and would establish a policy against entering into or enforcing non-compete agreements with any employee of the divested entity.
  • Financial Resources, Managerial Resources, and Future Prospects.
    • The proposed SOP provides that a resulting IDI must demonstrate that it will continue to operate and perform in a safe and sound financial condition.
    • The proposed SOP indicates that the FDIC will not support a BMA application based on this factor if the merger would result in a weaker IDI from an overall financial perspective.
    • The proposed SOP specifically states that the FDIC will specifically review financial valuations when evaluating the resulting IDI’s risk profile, including valuations related to goodwill and the target entity.
  • Effectiveness in Combatting Money Laundering Activities.
    • Another important factor under the proposed SOP is consideration of the effectiveness of the resulting IDI’s program in combatting money laundering.
  • Convenience and Needs of the Community to be Served.
    • The proposed SOP would clarify the FDIC’s expectation that a merger subject to its approval will result in an IDI that is positioned to better meet the convenience and needs of the community(ies) it serves.
    • This evaluation includes the proposed assessment area considerations; expectations for meeting the needs of the entire community, including low- and moderate-income neighborhoods; and a thorough accounting of the resulting IDI’s expected branch expansions, closures, consolidations, and relocations for the first three years following the merger. This evaluation will also consider input from the public.
  • Risk to the Stability of the U.S. Banking or Financial System.
    • The proposed SOP addresses the assessment of the potential systemic risks to the U.S. banking system, including evaluation of the size of the entities involved in the transaction; the availability of substitute providers for any critical products or services to be offered by the resulting IDI; the resulting IDI’s degree of interconnectedness with the U.S. banking or financial system; the extent to which the resulting IDI contributes to the U.S. banking or financial system’s complexity; and the extent of the resulting IDI’s cross-border activities.

In a press release issued concurrently with the announcement of the proposed SOP, FDIC Chairman Martin J. Gruenberg stated “[g]iven the rapid pace of change and consolidation in the banking industry today, it is vital that the FDIC provide guidance on how it would apply the critical statutory factors under the [BMA] relating to competition, financial resources, the convenience and needs of communities, financial stability, and money laundering. We look forward to receiving thoughtful public comment on the proposal.”

Interested parties wishing to submit comments on the proposed SOP have until 60 days after publication in the Federal Register.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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