Regulatory Note — Bank Mergers – Policy Changes?
Possible changes to the federal banking agencies’ review of bank mergers, foreshadowed in an Executive Order in July, were signaled on December 9. CFPB Director Rohit Chopra published a blog post, “How Should Regulators Review Bank Mergers?” The post recited the Director’s ex officio position on the FDIC board and stated that the FDIC Board had voted to approve a review of the FDIC’s Bank Merger Act policies.
Linked to the post were a Request for Information and Comment on Rules, Regulations, Guidance, and Statements of Policy Regarding Bank Merger Transactions (the “Request”) and a Joint Statement (the “Joint Statement”) of two members of the FDIC board, Director Chopra and Martin J. Gruenberg, who had approved the Request. Later in the day, the FDIC issued a press release stating that no valid Board vote had been taken and that the Request had not been approved for publication in the Federal Register.
No matter whether the Request is published, the document surely reflects the Biden Administration’s approach to bank merger policy. And a policy review could take place through other channels. The Request comes formally via two FDIC board members. According to news reports, Acting Comptroller Michael Hsu, another ex officio member, also approved the Request. [1] Whatever the fate of the Request, the substance of a merger policy review will almost certainly be a subject of interest at the Senate hearings for the nominees to the positions of Comptroller of the Currency and Vice Chair of Supervision at the Federal Reserve Board (whenever the nominations are forwarded).
A reading of the Request and the Joint Statement suggest that a review of bank merger policies would pay more but not exclusive attention to large banks and would cover the following:
Financial stability. The review would consider incorporation into a policy of the Dodd-Frank requirement that the agencies assess the risks to financial stability of a proposed bank merger. In particular, the review would consider whether a merger of a pre-determined size – e.g., a merger resulting in a bank with $100 billion or more in assets – would trigger the financial stability assessment.
Prudential factors. The review would assess the possibility of bright line minimum standards for these factors, specifically including capital, management, and earnings. Notably, for transactions “of significant size” these standards could be more stringent than those imposed on existing, comparably sized banks.
Convenience and needs. This factor would be a “key objective.” The review would consider whether the agencies have implemented the expectation that a resulting institution provide greater public benefit than the existing banks, whether the agencies should continue to rely significantly on the merging banks’ CRA performance evaluations (and if so whether the satisfactory/unsatisfactory ratings are an appropriate dividing line), and how the agencies should consider the impact of branch closings and consolidations. With respect to banks with over $10 billion in assets (and therefore examined by the CFPB on consumer compliance issues), the review would address how the banking agencies should consult with the CFPB.
Competitive impact. The review would include an assessment of quantitative measurements in addition to the HHI and of methods for a more careful examination of a bank’s true competitors.
Approval decisions. The review would consider whether the current review process creates an implicit presumption of approval and the appropriate burden of proof borne by an applicant bank.
Exception for probable failures. The review would address the impact of the exception on bank resolutions, particularly of large banks, and whether there are other approaches to resolutions without resort to a supervisory merger.
[1] Although it does not have a seat on the FDIC Board, the Federal Reserve Board has (with respect to state member banks) a responsibility for and interest in the Bank Merger Act that is equal to those of the FDIC and the OCC. However, the position at the Federal Reserve Board, the Vice Chair for Supervision, that oversees bank merger policy, is vacant.