FRB Governor Addresses Bank Merger Application Delays
On February 13, 2023, Federal Reserve Board (FRB) Governor, Michelle W. Bowman, spoke at the American Bankers Association Community Banking Conference and addressed the bank merger application delays. Bowman stated there has recently been “an increase in average processing times in the merger review process” which she fears may be the “new normal.”
Congress has established factors that must be considered when the Federal Reserve or other regulators review a bank application, including:
competitive effects of the proposed merger;
financial and managerial resource;
future prospects of the merged institutions;
convenience and needs of the communities to be served;
compliance with money laundering laws; and
the effect of the transaction on the stability of the financial system.
The review framework is consistent for all applications, but Bowman says “the facts of each case can vary widely,” necessitating an in-depth review of each transaction.
Bowman warned that firms may face significant consequences from applications not acted on in a timely manner, including “increased operational risk, the additional expense associated with running two institutions in parallel over a longer period of time, employee retention issues, and perceived reputational risk.”
Some of the delays stem from “inaccurate information or information that does not meet the expectations for an approvable transaction[,]” which Bowman believes may be mitigated with clearer guidance to ensure applicants understand regulators’ expectations. Delays can also occur when new supervisory information comes to light, “particularly if new supervisory issues need to be remediated before the application can be approved.” In these cases, Bowman believes the regulator should be transparent with the applicant about the potential delays.
Another “key difference in processing times is whether the application will be acted on by the Reserve Banks on a delegated basis or will require Board action.” The most common reason for an application to be brought to the Board is a protest from a member of the public. Bowman encourages finding ways to improve the timeliness of this process while still considering genuine concerns raised by the public. Bowman says she welcomes discussion and public feedback to see if the process can be improved.