On September 17, 2024, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued formal statements of policy on reviewing transactions under the Bank Merger Act (BMA). The FDIC policy statement (relevant to mergers where the surviving bank is a state-chartered nonmember bank) and the OCC policy statement (relevant to mergers where the surviving bank is a national bank) were released on the same day the Department of Justice (DOJ) announced its withdrawal from the 1995 Bank Merger Guidelines — guidelines that had been relied upon for nearly three decades to assess the competitive effects of bank merger transactions and that provided a safe harbor for transactions that did not exceed certain deposit-based market share concentration levels. The 2023 Merger Guidelines, which have been criticized as an overly aggressive and expansive approach to antitrust enforcement, are now the “sole and authoritative statement across all industries,” according to the DOJ. The DOJ has released commentary on how these guidelines will apply to bank merger transactions going forward.
These coordinated actions collectively represent a notable development in bank merger policy. However, they raise more questions than answers, not least of all because the Federal Reserve Board — the principal agency that approves mergers of bank holding companies — was not part of these actions.
Below are 10 takeaways from these developments. Other implications and reflections will emerge as these developments are understood more fully by the industry and grappled with in the context of proposed transactions.
1. The DOJ’s withdrawal from the 1995 Bank Merger Guidelines disrupts a decades-old interagency approach. Over the past three decades, the DOJ and the banking regulators have generally been coordinated on the antitrust review of bank mergers. The 1995 Bank Merger Guidelines provided a mechanical and predictable approach centered on deposit market share in predefined geographic banking markets. Such regulator alignment facilitated the review and approval of bank mergers and avoided DOJ challenges of transactions in court after banking agency approval.
With the DOJ’s withdrawal from the 1995 Bank Merger Guidelines and embrace of the enforcement-oriented 2023 Merger Guidelines — as well as statements by leadership at the DOJ, OCC and FDIC, but not the Federal Reserve Board, that bank mergers will be scrutinized using a broader and less predictable set of analytical approaches — it is unclear how the regulators will approach bank merger antitrust reviews going forward. There is greater risk of a lack of interagency coordination, if not disagreement among regulators, regarding the competitive effects of transactions, leading to longer merger review periods and difficulties in structuring transactions that will be reliably approved.
2. The silence from the Federal Reserve Board is noteworthy. The Federal Reserve Board did not release any new guidance on its approach to bank merger reviews, nor has it withdrawn from the 1995 Bank Merger Guidelines. Past statements from principals and staff have indicated that the Federal Reserve Board is not actively planning to alter its approach to bank merger reviews. The banking regulators have generally not approved a merger transaction without consensus among other approving regulators. Given that the Federal Reserve Board, as the primary regulator of bank holding companies, plays a central role in reviewing significant bank merger transactions, a potential disconnect between it and other regulators raises questions about the processing of applications.
3. Scrutiny on large bank mergers will continue. The policy statements formalize the banking regulators’ current approach of applying heightened scrutiny to transactions involving large banks. The FDIC will apply enhanced scrutiny to transactions resulting in a bank with over $100 billion in assets, while the OCC will apply enhanced scrutiny to transactions where the acquirer is a global systemically important bank (G-SIB) (or a subsidiary thereof), the resulting institution will have $50 billion or more in assets, or where merger parties are similarly sized (i.e., merger of equals).
4. Banks can expect longer application review processes, including greater use of public meetings, and the repeal of expedited OCC merger review procedures. The DOJ’s withdrawal from the 1995 Bank Merger Guidelines will likely result in more involved and time-consuming competitive analyses by both applicants and the banking agencies, as well as potentially less interagency coordination, all of which could extend review periods. The policy statements indicate a greater use of public meetings for large bank mergers, which may prolong processing times by introducing logistical delays associated with setting up meetings and causing the banking agencies and the merger parties to spend more time engaging with the public about the merits of the merger. The OCC also repealed its expedited merger review procedures, but the impact of this change is limited for larger transactions, which generally did not qualify for the expedited procedures.
5. FDIC potentially imposes greater obligations for meeting the convenience and needs of the community to be served. In assessing the “convenience and needs” factor under the BMA, the FDIC will expect that “a merger between [banks] will enable the resulting [bank] to better meet the convenience and the needs of the community to be served than would occur absent the merger” (emphasis in original). To demonstrate this, applications must provide “specific and forward-looking information,” and any “claims and commitments made to the FDIC to support the evaluation of the expected benefits of the merger may be included in the [approval order].” This “better” standard is likely to engender questions as to its statutory basis and how the FDIC will apply it in practice.
6. Enforcement actions and unresolved compliance issues continue to risk derailing mergers. The policy statements encompass the banking regulators’ long-standing position that enforcement actions relating to the acquirer can prevent the approval of a merger. The OCC’s policy statement notes that multiple enforcement actions against the acquirer over the prior three-year period can frustrate a merger, and both of the policy statements indicate that pending enforcement actions can also potentially prevent an approval. The statements are silent as to whether open investigations provide a sufficient basis for a banking regulator to deny a merger application, though regulators may be more reticent to approve a transaction when a significant investigation is outstanding.
As for unresolved compliance issues, such as a significant number of open matters requiring attention (MRAs), these will continue to be problematic. Timely approvals will depend greatly on there being no significant weaknesses in the areas of anti-money laundering, fair lending, and consumer compliance. In this regard, the policy statements do not reflect a change from existing practice.
7. There will be greater integration-related scrutiny. Banking regulators have increasingly asked detailed questions of applicants on their integration plans, especially with regard to technology and operating systems, customer account migration, human capital issues and various back-office functions. In addition, applicants’ records in integrating prior acquisitions have been scrutinized. The new policy statements reflect many of the concerns that the regulators have raised in recent years during the application process. In particular, the OCC’s policy statement notes that applications involving acquirers that have engaged in multiple acquisitions with overlapping integration periods are less likely to be approved. For mergers of two similarly sized institutions, the OCC regards integration as more likely resulting in more changes to the combined bank, necessitating closer review by the OCC.
8. New guidance addresses transactions that merit greater financial stability scrutiny. The new policy statements provide guidance on the items that may lead to a determination that the proposed transaction would adversely affect the stability of the U.S. banking or financial system. The FDIC does not view the size of merger parties as the “sole basis” for finding a transaction increases U.S. financial stability risks, but transactions resulting in institutions with $100 billion or more are expected to be subject to “added scrutiny” in the form of “additional information requests, more frequent discussions and correspondence with application parties, and supplementary meetings and discussions with regulators and community groups.” The OCC declined to set $100 billion as a threshold relevant to the financial stability analysis, but it identified a combined bank’s total assets of less than $50 billion as an indicator of a transaction that would “tend to withstand scrutiny more easily” and be “more likely to be approved expeditiously.”
9. Rapid growth history and inadequate financial projections will present approval hurdles. Applications by acquirers that have recently experienced rapid growth should expect more scrutiny and, according to the OCC, are less likely to be approved. Similarly, applications that include incomplete, unsustainable, unrealistic or unsupported financial projections are problematic. According to the FDIC, such projections will likely result in unfavorable findings in the FDIC’s review of various statutory factors.
10. Merger reviews may pay closer attention to projected job losses and employment considerations. The BMA requires consideration of the impact of a proposed merger on the “convenience and needs” of the communities to be served. This is a prospective test, and the banking agencies have traditionally considered a range of data points, from proposed branch closures to changes in product and service offerings. The BMA does not explicitly require that job losses be considered, a point the OCC acknowledged in its policy statement. However, the OCC’s and FDIC’s policy statements make clear that the impact of a proposed merger on employment is relevant to understanding how the transaction will serve the convenience and needs of the community. Going forward, acquirers should expect to quantify or provide other detailed information on job losses or reduced employment opportunities, to the extent those are known or knowable.
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