WASHINGTON — The Federal Deposit Insurance Corp. Thursday issued a proposed statement of policy that would subject U.S. banks seeking to merge to greater scrutiny, with a particular emphasis on the financial stability of post-merger firms and community engagement.
The proposal — which passed by a 3-2 vote by the FDIC board — aims to update the agency's current statement of policy — last revised in 2008 — to place greater emphasis on assessing the post-merger institutions' financial stability implications and their capacity to adequately serve the needs of low- and moderate-income individuals in the areas they operate.
"Given 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 bank merger act relating to financial resources, the convenience and needs of communities, financial stability, and money laundering," said FDIC Chair Martin Gruenberg. "The comments received in response to the 2022 request for information have helped inform the content of this Proposed Statement of Policy, and publishing this Proposal for public comment gives the FDIC an additional opportunity to benefit from public input."
The Bank Merger Act of 1960 mandates that the primary federal regulator overseeing the resulting institution of a merger must grant approval of the transaction. By law, the FDIC is required to consider any effects on competition, future prospects of the institutions, money laundering compliance, community needs and financial stability in evaluating each merger.
The FDIC last published the statement of policy on bank merger transactions for comment in 1997 and subsequently revised it in 2002 and 2008.
The proposal indicates that resulting institutions exceeding $100 billion in total assets are more likely to raise financial stability concerns and will face heightened scrutiny. The proposed SOP requires any merger to allow consumers to retain meaningful choices for services. In calculating the competitive effects, the SOP proposes considering concentrations beyond deposits including the volume of small business or residential loan originations.
Under the proposal, the FDIC may require divestitures prior to merger advancement. In such instances, the divestiture would need to occur before the merger proceeds and the agency would prohibit non-compete agreements being issued with any employee of the divested company.
The proposal comes as Capital One — one of the largest credit card issuers — formally submitted its application to acquire Discover with the Office of the Comptroller of the Currency. The merger would be one of the biggest in recent years and has
The proposal stipulates that the FDIC expects a merger to enhance the resulting institutions' ability to serve its community compared with the pre-merger.
"This may be demonstrated through higher lending limits; greater access to products, services and facilities; introduction of new or expanded products or services; reduced prices and fees; or other means," said Gruenberg. "The FDIC's review is broad in nature and not limited to the Community Reinvestment Act record of the institution. The FDIC will consider the record of each institution in complying with consumer protection requirements and maintaining a sound and effective compliance management system."
Notably, the FDIC may also require public hearings for transactions involving assets exceeding $50 billion or significant CRA objections. The proposed statement of policy will be published in the Federal Register and will take public comment for 60 days after publication.
Republican-appointed board members Travis Hill and Jonathan McKernan — who voted against the measure — disagreed with the proposed SOP. Hill — who is also FDIC board's vice chair — argued the proposal added unnecessary complexity and opaqueness to an already slow and arduous process.
"The proposed Statement of Policy (SOP) under consideration today moves in the wrong direction, potentially making the process longer, more difficult and less predictable," he said. "We should work to develop a regulatory framework that allows banks of all sizes and various business models to flourish, is not biased in favor of one class of bank over others and otherwise leaves it up to the market and the American people to determine how banking assets are allocated across the system."
McKernan noted that while he welcomes the opportunity for concerned organizations and industry voices to weigh in on FDIC merger policy, he believes the proposal is biased against consolidation. McKernan did leave the door open for potential support if substantial changes are made, however.
"This update makes explicit what we all sort of already knew — the FDIC takes a quite skeptical view of bank mergers," he said. "I look forward to comments on this proposal, and hope that I will be able to support an eventual final statement of policy that takes a more balanced approach."
