FDIC Requests Comment on Bank Merger Regulatory Framework

On March 25, 2022, the Federal Deposit Insurance Corporation (“FDIC”) published a request for public comment on “the application of the laws, practices, rules, regulations, guidance, and statements of policy  for merger transactions involving an insured depository institution.”

Currently, the existing framework is governed by section 18(c) of the Federal Deposit Insurance Act (known as the “Bank Merger Act”). The FDIC is questioning the effectiveness of the Bank Merger Act due to the following “significant changes” that have occurred in the banking industry and across the financial system as a whole in the past several decades since the Act’s enactment:

• The significant reduction in the number of smaller banking organizations due to acquisitions and consolidations by larger and systematically important banking organizations;

• The promotion of a financial stability factor, as facilitated by the amendment of the Bank Merger Act by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”); and

• Consideration of the impact that the increased consolidations have had on the United States’ ability to maintain a competitive marketplace. 

The FDIC feels that review of the Bank Merger Act is necessary due to the FDIC's responsibility to “promote public confidence in the banking system, maintain financial stability, review proposed mergers, and resolve failing large insured depository institutions.

The FDIC has specifically requested comments for the following prompted issues:

1. Does the existing framework reflect all aspects of the Bank Merger Act?

2. What additional requirements or criteria should be added to the existing regulatory framework? Examples of possible additions include:

   • quantitative or qualitative measures for addressing financial stability risks arising from bank mergers

   • consideration of automatically assessing risk to a predetermined asset size threshold for financial institutions engaging in a potential merger

3. To what extent should prudential factors be considered in acting on a merger application and what standards should be established and for which prudential factors?

4. The effectiveness of the current “convenience and needs factor” under the existing framework, recommendations for improving these factors, and the consideration that should be afforded to these factors in reviewing an application for bank merger.

5. Additional quantitate measures that the federal banking agencies should consider when reviewing an application for bank merger and the differentiation that should be afforded to small bank merger applications versus large insured depository institutions.

6. How and to what extent should the following factors be considered in determining whether a merger transaction creates a monopoly or is otherwise anticompetitive? Factors to consider include:

   • The merging parties do not significantly compete with one another;

   • Rapid economic change has resulted in an outdated geographic market definition and an alternate market is more appropriate;

   • Market shares are not an adequate indicator of the extent of competition in the market;

   • A thrift institution is actively engaged in providing services to commercial customers, particularly loans for business startup or working capital purposes and cash management services;

   • A credit union has such membership restrictions, or lack of restrictions, and offers such services to commercial customers that it should be considered to be in the market;

   • There is actual competition by out-of-market institutions for commercial customers, particularly competition for loans for business startup or working capital purposes; 

   • There is actual competition by non-bank institutions for commercial customers, particularly competition for loans for business startup or working capital purposes.

7. Does the existing framework “create an implicit presumption of approval” and, if so, how can this presumption be addressed by the FDIC?

8. The effectiveness of the existing regulatory framework in imposing a burden of proof on the applicant to establish that they are in compliance with the Bank Merger Act, and any suggestions for furthering or achieving greater effectiveness.

9. The benefits or detriments stemming from the Bank Merger Act’s exception to its requirements where a responsible agency determines that immediate action must be taken to “prevent the probable failure of one of the insured depository institutions involved in the merger transaction.”

Any contrasting opinions from those provided in response to questions 1-9 that are specific to merger applications involving a small insured depository institution. Specifically, should applicable bank merger policies provide a distinguished approach to these types of applications.