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Proposed Rule2024-08020

Request for Comment on Proposed Statement of Policy on Bank Merger Transactions

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Published

April 19, 2024

Issuing agencies

Federal Deposit Insurance Corporation

Abstract

The FDIC invites comments on a proposed Statement of Policy (SOP) on Bank Merger Transactions (Proposed SOP) that is relevant to all insured depository institutions (IDIs). The Proposed SOP would replace the FDIC's current SOP on Bank Merger Transactions (Current SOP) and proposes a principles-based overview that describes the FDIC's administration of its responsibilities under the Bank Merger Act (BMA). The Proposed SOP focuses on the scope of transactions subject to FDIC approval, the FDIC's process for evaluating merger applications, and the principles that guide the FDIC's consideration of the applicable statutory factors as set forth in the BMA. The Supplementary Information section below contains explanatory content, including historical data, to provide additional context for the Proposed SOP.

Full Text

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<title>Federal Register, Volume 89 Issue 77 (Friday, April 19, 2024)</title>
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[Federal Register Volume 89, Number 77 (Friday, April 19, 2024)]
[Proposed Rules]
[Pages 29222-29244]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08020]

[[Page 29221]]

Vol. 89

Friday,

No. 77

April 19, 2024

Part V

Federal Deposit Insurance Corporation

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12 CFR Part 303

Request for Comment on Proposed Statement of Policy on Bank Merger
Transactions; Agency Information Collection Activities; Proposals,
Submissions, and Approvals; Proposed Rule and Notice

Federal Register / Vol. 89 , No. 77 / Friday, April 19, 2024 /
Proposed Rules

[[Page 29222]]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 303

RIN 3064-ZA31

Request for Comment on Proposed Statement of Policy on Bank
Merger Transactions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Proposed Policy Statement; Request for Comment.

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SUMMARY: The FDIC invites comments on a proposed Statement of Policy
(SOP) on Bank Merger Transactions (Proposed SOP) that is relevant to
all insured depository institutions (IDIs). The Proposed SOP would
replace the FDIC's current SOP on Bank Merger Transactions (Current
SOP) and proposes a principles-based overview that describes the FDIC's
administration of its responsibilities under the Bank Merger Act (BMA).
The Proposed SOP focuses on the scope of transactions subject to FDIC
approval, the FDIC's process for evaluating merger applications, and
the principles that guide the FDIC's consideration of the applicable
statutory factors as set forth in the BMA. The Supplementary
Information section below contains explanatory content, including
historical data, to provide additional context for the Proposed SOP.

DATES: Comments must be received by June 18, 2024.

ADDRESSES: All comments related to this Proposed SOP must include the
agency name and RIN 3064-ZA31. Please send comments by one method only
directed to:
<bullet> Agency Website: <a href="http://www.fdic.gov/regulations/laws/federal/">http://www.fdic.gov/regulations/laws/federal/</a>. Follow the instructions for submitting comments on the
agency's website.
<bullet> Email: <a href="/cdn-cgi/l/email-protection#f4b79b9999919a8087b492909d97da939b82">[email&#160;protected]</a>. Include RIN 3064-ZA31 in the
subject line of the message.
<bullet> Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments-RIN: 3064-ZA31, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
<bullet> Hand Delivery: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street NW, building (located on F
Street NW) on business days between 7:00 a.m. and 5:00 p.m. ET.
Public Inspection: All comments received will be posted without
change to <a href="http://www.fdic.gov/regulations/laws/federal/">http://www.fdic.gov/regulations/laws/federal/</a>--including any
personal information provided--for public inspection. Commenters should
submit only information that the commenter wishes to make available
publicly. The FDIC may review, redact, or refrain from posting all or
any portion of any comment that it may deem to be inappropriate for
publication, such as irrelevant or obscene material. The FDIC may post
only a single representative example of identical or substantially
identical comments, and in such cases will generally identify the
number of identical or substantially identical comments represented by
the posted example. All comments that have been redacted, as well as
those that have not been posted, that contain comments on the merits of
this document will be retained in the public comment file and will be
considered as required under all applicable laws. All comments may be
accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: George Small, Senior Examination
Specialist, Division of Risk Management Supervision, 347-267-2453,
<a href="/cdn-cgi/l/email-protection#187f6b75797474587e7c717b367f776e">[email&#160;protected]</a>; Annmarie Boyd, Senior Counsel, Legal Division, 202-
898-3714, <a href="/cdn-cgi/l/email-protection#9ffefdf0e6fbdff9fbf6fcb1f8f0e9">[email&#160;protected]</a>; Benjamin Klein, Supervisory Counsel, Legal
Division, 202-898-7027, <a href="/cdn-cgi/l/email-protection#ed8f8681888483ad8b89848ec38a829b">[email&#160;protected]</a>; Jessica Thurman, Chief,
Division of Depositor and Consumer Protection, 202-898-3579,
<a href="/cdn-cgi/l/email-protection#167c627e63647b77785670727f7538717960">[email&#160;protected]</a>; Mark Haley, Chief, Division of Complex Institution
Supervision and Regulation, 917-320-2911, <a href="/cdn-cgi/l/email-protection#b9d4d8d1d8d5dcc0f9dfddd0da97ded6cf">[email&#160;protected]</a>; and Ryan
Singer, Chief, Division of Insurance and Research, 202-898-7532,
<a href="/cdn-cgi/l/email-protection#89fbfae0e7eeecfbc9efede0eaa7eee6ff">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:

I. Background

The Bank Merger Act (BMA), Section 18(c) of the Federal Deposit
Insurance Act (FDI Act), prohibits an insured depository institution
(IDI) from engaging in a merger transaction without regulatory
approval. The FDIC is one of three Federal banking agencies with
responsibility for evaluating transactions subject to the BMA. The FDIC
has jurisdiction to act on merger applications that involve an IDI and
any non-insured entity, notwithstanding the IDI's charter.\1\ The FDIC
also has jurisdiction to act on merger applications that solely involve
IDIs in which the acquiring, assuming, or resulting institution is a
state nonmember bank or state savings association (FDIC-supervised
institution).\2\
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\1\ 12 U.S.C. 1828(c)(1).
\2\ 12 U.S.C. 1828(c)(2).
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In order to implement its responsibilities under the BMA, the FDIC
has codified regulations; issued a Statement of Policy (SOP); and
published the Applications Procedures Manual (APM). The FDIC's APM
provides application-processing instructions for the FDIC's
professional staff assigned to review, evaluate, and process
applications, notices, and other requests submitted to the FDIC. The
APM includes a section on processing merger applications that provides
detailed procedural instructions to staff, as well as information
regarding the assessment of each statutory factor. In 2019, the FDIC
published the APM to its external website to provide greater
transparency regarding the FDIC's internal application processes. In
light of prospective changes to the bank merger process, additional
revisions are planned for the APM chapter on mergers. Finally, together
with the other Federal banking agencies, the FDIC has issued an
interagency application form, which includes a supplemental section
specific to the FDIC. Concurrent with this Proposed SOP, the FDIC is
seeking comment on proposed revisions to its supplemental section to
the interagency form.
The current SOP on Bank Merger Transactions (Current SOP), last
amended in 2008, addresses the FDIC's process for reviewing proposed
merger applications in the context of the applicable statutory
factors.\3\ Since the Current SOP was last revised, the BMA has been
amended and significant changes have occurred in the banking industry
and financial system, including continued growth and consolidation.
This growth and consolidation, which has been ongoing for the past
several decades, has significantly reduced the number of smaller
banking organizations, increased the number of large and systemically
important banking organizations, and contributed to the need for a
review of the regulatory framework that applies to bank merger
transactions subject to the BMA.\4\
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\3\ FDIC Statement of Policy on Bank Merger Transactions, 73 FR
8870.
\4\ 12 U.S.C. 1828(c).
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The number of large IDIs, especially IDIs with total assets of $100
billion or more, has grown considerably over the past few decades. This
is due to a combination of factors, including consolidation in the
banking sector (fueled in part by mergers and acquisitions), the easing
of interstate banking restrictions,\5\ and organic

[[Page 29223]]

growth. As of December 31, 2004, there were only 12 IDIs with total
assets greater than $100 billion; however, that number increased to 33
by December 31, 2023. Of the 33 IDIs with total assets greater than
$100 billion, nine were owned by the eight U.S. bank holding companies
designated as U.S. Global Systemically Important Banks (GSIBs), and
four were owned by foreign banking organizations designated as foreign
GSIBs.\6\ While IDIs with total assets of more than $100 billion as of
December 31, 2023, comprised less than one percent of the total number
of IDIs, they held approximately 71 percent of total industry assets
and approximately 68 percent of domestic deposits.
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\5\ Prior to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, Public Law 103-328, many states did not
permit intra-state or interstate branching, and interstate branch
branching was not federally sanctioned. Following the passage of
this law, many multi-bank holding companies with subsidiary IDIs
with different home states chose to consolidate existing bank
charters.
\6\ See Financial Stability Board 2022 list of GSIBs available
at <a href="https://www.fsb.org/wp-content/uploads/P211122.pdf">https://www.fsb.org/wp-content/uploads/P211122.pdf</a>
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The FDIC has a responsibility to promote public confidence in the
banking system, maintain financial stability, and resolve failing IDIs.
Given the increased number, size, and complexity of large banks,
greater attention to the financial stability risks that could arise
from a merger involving a large bank is warranted. In particular, the
failure of a large IDI could present greater challenges to the FDIC's
resolution and receivership functions, and could present a broader
financial stability threat. For various reasons, including their size,
sources of funding, and other organizational complexities, the
resolution of large IDIs can present significant risk to the Deposit
Insurance Fund (DIF), as well as material operational risk for the
FDIC. In addition, as a practical matter, the size of an IDI may limit
the resolution options available to the FDIC in the event of failure.
After the 2008 financial crisis, the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act) amended the BMA to
include, for the first time, a factor related to the risk to the
stability of the United States (U.S.) banking or financial system
(financial stability factor). The FDIC is seeking public comment on the
SOP's approach to the financial stability factor, which integrates and
builds upon the FDIC's existing framework for assessing this factor.
On July 9, 2021, an Executive Order addressed the impact that
consolidation may have on maintaining a competitive marketplace. The
Executive Order also addressed the impact that consolidation may have
on maintaining a fair, open, and competitive marketplace, as well as
the impact on the welfare of workers, farmers, small businesses,
startups, and consumers. The FDIC continues to coordinate with the
Department of Justice (DOJ) and the other Federal banking agencies in
modernizing bank merger oversight.\7\
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\7\ E.O. 14036 ``Promoting Competition in the American Economy''
(July 9, 2021). On December 18, 2023, the DOJ and the Federal Trade
Commission (FTC) jointly released the 2023 Merger Guidelines
(guidelines). These guidelines build upon, expand, and clarify
frameworks set out in previous versions.
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On March 31, 2022, the FDIC published in the Federal Register a
request for information and comment (RFI) regarding the application of
the laws, practices, rules, regulations, guidance, and SOP that apply
to merger transactions subject to FDIC approval.\8\ The RFI requested
comments regarding the effectiveness of the FDIC's existing framework
in meeting the requirements of the BMA. After review of the public
comments received in response to the RFI, the FDIC determined that it
is both timely and appropriate to review its regulatory framework for
merger transactions as outlined in the Current SOP. The Proposed SOP
was drafted in consideration of the comments received regarding the RFI
and is being published in the Federal Register to obtain further input
from interested parties.
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\8\ 87 FR 18740 (March 31, 2022).
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II. Summary of Comments

While not all of the questions described in the RFI are pertinent
to the SOP, the FDIC is summarizing the comments received to provide
transparency with respect to the overall process for developing updated
merger-related policies and procedures. The FDIC received 33 comment
letters in response to the RFI.\9\ The majority of RFI commenters (25
or 76 percent) were in favor of at least some changes to the FDIC's
merger review processes. Six RFI commenters (18 percent) were against
changes to the FDIC's merger review processes, and two RFI commenters
(6 percent) were neither in favor of, nor against, changes to the
FDIC's merger review processes.
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\9\ Request for Information and Comment on Rules, Regulations,
Guidance, and Statements of Policy Regarding Bank Merger
Transactions. See 87 FR 18740.
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Among RFI commenters in favor of updating the FDIC's processes that
apply to merger transactions, four common themes for potential changes
were observed: (i) amend the calculation of market concentration and
the competitive effects analysis; (ii) enhance the analysis of the
convenience and needs of the community to be served factor; (iii)
establish risk criteria and thresholds for the analysis of the
financial stability factor; and (iv) create a de minimis exception (or
presumption of approval) for mergers involving small and mid-sized
IDIs.
Some RFI commenters suggested the need for an interagency approach
to the development of any new merger regulations, guidelines, and
instructions, and noted that any new elements should be applied
prospectively. RFI commenters also suggested enhancing the public's
ability to review and comment on proposed mergers, including making the
information exchange (questions posed and responses received between
the FDIC and applicants) a part of the public record. Finally, RFI
commenters requested that the FDIC review, to the extent possible, the
effects of past mergers to evaluate the appropriateness of any revised
merger guidelines. These RFI commenters requested that the FDIC make
the results of the evaluation public and apply the results to future
merger decisions.
Six RFI commenters were against updating the FDIC's merger related
processes. In general, these RFI commenters argued that the FDIC's
current framework for reviewing proposed merger transactions was sound
and that revisions might harm the banking sector. More specifically,
some RFI commenters argued that any change to the competitive review
would make bank mergers more difficult; and such changes risked
disproportionately impacting community, mid-size, and regional banks.
Multiple RFI commenters suggested revisions to the receipt and
compilation of the FDIC's Summary of Deposits (SOD) data, and
amendments to the calculations to improve the quality, accuracy, and
consistency of the data used to calculate the Herfindahl-Hirschman
Index (HHI).\10\ The RFI commenters broadly agreed that the increased
presence of non-bank firms, including those specializing in financial
technology (fintech), and increased consolidation within the banking
industry necessitate revision to the evaluative considerations for
competitive effects to reflect the economic realities and the
industry's competitive landscape. Some RFI

[[Page 29224]]

commenters posited that deposit data for institutions that rely on
technology-based delivery channels are not dependent on their branch
locations.
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\10\ The HHI is calculated by squaring the market share of each
firm competing in the market and then summing the resulting numbers.
For example, for a market consisting of four firms with shares of
30, 30, 20, and 20 percent, the HHI is 2,600 (30\2\ + 30\2\ + 20\2\
+ 20\2\ = 2,600). The HHI calculation can also be applied to other
relevant Consolidated Reports of Condition categories or other
appropriate sources of data, aside from deposits. For example, the
HHI analysis may also include data relative to commercial and
industrial loans.
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Multiple RFI commenters stated that the HHI threshold for
prospective competitive effects concerns should be increased from its
current limit. These RFI commenters contended that the HHI screens
applied to the banking industry were stricter than those that had been
applied in any other industry. In the opinion of these RFI commenters,
raising the HHI would account for the growing competition that IDIs
with physical branches face from competitors with different business
models, including fintech firms and digital banks.
Conversely, other RFI commenters suggested the overall HHI
threshold should be lowered, and the threshold for a change in HHI
should be revised from the current level. These RFI commenters
suggested that mergers disproportionally affect low- to moderate-income
and/or minority communities, and therefore, the threshold (and any
change in it) must be lowered to appropriately capture competitive
effects.
Some RFI commenters suggested consideration of alternate measures
of concentration and/or evaluating the HHI of other asset or product
categories such as business loans or residential lending. In addition,
multiple RFI commenters requested that the FDIC revise the SOD data
collection and calculation to improve precision. These RFI commenters
suggested that the FDIC: (i) differentiate corporate and centrally
booked deposits from retail deposits; (ii) amend methods and reporting
standards, and provide more guidance on how a reporting entity
attributes deposits to branches; (iii) include more data on depositors
in certain circumstances in order to increase geographic specificity;
and (iv) add data on thrifts, credit unions, fintech firms, farm credit
banks, and online entities that serve customers in the relevant market.
Multiple RFI commenters recommended revisions to the analysis of
the convenience and needs of the community to be served statutory
factor. In general, these RFI commenters recommended that the FDIC
focus the analysis on the additive benefits of the merger transaction
for consumers, particularly in low- to moderate-income and minority
communities; and place higher burden on applicants to demonstrate the
public interest benefits of the transaction. Concerns with regard to
the impact of branch closings were noted. A few RFI commenters
suggested that the applicant should be required to submit a full plan
related to branch closings.
Approximately half of the RFI commenters requested that the Federal
banking agencies establish specific stability risk considerations (e.g.
size, substitute providers, interconnectedness, complexity, and cross-
border activities) and formalize thresholds (such as total asset
metrics) for developing a resolution plan for large bank mergers.
About one quarter of RFI commenters noted a perceived burden on
small institutions. These RFI commenters requested that the FDIC create
a small bank de minimis exception whereby small bank mergers would be
presumed not to create monopolies or have anticompetitive effects if
they meet certain prudential thresholds that can only be overturned
based on other criteria such as the results of the competitive effects
analysis.
In general, RFI comments were mixed on the following topics: (i)
whether there is a presumption of approval for merger applications;
(ii) whether the existing framework considers all aspects of the BMA;
and (iii) whether prudential considerations or ``bright lines'' should
be developed for any of the statutory factors. Many of the comments, as
well as new questions that the FDIC has developed in response to public
comments on the RFI, are addressed in this preamble.

III. Description of the Proposed Statement of Policy

Overall Changes in the Proposed SOP

The Proposed SOP reflects regulatory, legislative, and industry
changes since the SOP was last published for comment in 1997. Further,
the Proposed SOP includes new content to make it more principles based,
communicates the FDIC Board's expectations regarding the evaluation of
merger applications filed pursuant to the BMA, and describes the types
of merger applications for which the FDIC is the responsible agency.
The Proposed SOP does not include the application procedures
narrative that is included in the Current SOP. The APM describes
procedural matters such as application filing, expedited processing and
notification to the Attorney General. The Proposed SOP includes a
separate discussion of each statutory factor, including: competitive
effects, financial and managerial resources, future prospects,
convenience and needs of the community to be served, risk to the
stability of the U.S. banking or financial system, and effectiveness in
combatting money laundering. In addition, the Proposed SOP includes a
declarative statement for each statutory factor to highlight the
Board's expectations and accompanying narrative to describe the
analytical considerations for the evaluation of each factor. While
historical performance provides contextual insight into the evaluation
of these factors, the SOP affirms that the evaluations are forward
looking. A detailed discussion of each statutory factor follows this
section.
The FDIC seeks comment on all aspects of the Proposed SOP.
Question:
1. Does the structure of the Proposed SOP effectively present the
FDIC's expectations with regard to review and evaluation of merger
applications? If not, please describe how the structure could be
improved.

Jurisdiction and Scope

The Proposed SOP clarifies the circumstances in which FDIC approval
is required in connection with a proposed merger transaction. The FDIC
plays an important role in the administration of the BMA, which is
codified in the FDI Act and covers a broad range of transactions.\11\
Specifically, Section 18(c)(1) of the BMA requires FDIC approval in
connection with transactions in which an IDI: (A) merges or
consolidates with any non-insured bank or institution,\12\ (B) assumes
liability to pay any deposits or similar liabilities in a non-insured
bank or institution,\13\ or (C) transfers assets to any non-insured
bank or institution in consideration of an assumption of deposit
liabilities of the IDI.\14\ The FDIC's authority extends to a variety
of transactions between an IDI and a non-insured entity, which are
``merger transactions'' for the purposes

[[Page 29225]]

of the BMA, even if the transaction is not legally structured as a
merger.\15\
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\11\ The broad scope of transactions expressly subject to FDIC
approval under the BMA evinces a clear congressional intent for the
FDIC to review a wide array of transactions between IDIs and non-
insured entities that have the potential to affect the safety and
soundness of a resultant IDI or increase the potential liability of
the Deposit Insurance Fund.
\12\ 12 U.S.C. 1828(c)(1)(A). A non-insured entity refers to any
entity that is not FDIC insured. Although there is no definition of
the term ``non-insured institution'' in the BMA, it has long been
the FDIC's interpretation that the term includes any non-insured
entity with which an IDI can legally merge. Notably, although
federally insured credit unions are insured by the National Credit
Union Administration, such credit unions are not IDIs for the
purposes of the FDI Act, see 12 U.S.C. 1813(a)-(c), and any merger
transaction between an IDI and a credit union is therefore subject
to FDIC approval under the BMA.
\13\ 12 U.S.C. 1828(c)(1)(B).
\14\ 12 U.S.C. 1828(c)(1)(C). The statutory requirements of 12
U.S.C. 1828(c)(1) originate from the Banking Act of 1935. Sec. 101,
Public Law 74-305 (adopting Section 12B(v)(4) of the Federal Reserve
Act).
\15\ 12 U.S.C. 1828(c)(1)-(3).
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Mergers and Consolidations Involving IDIs and Non-Insured Entities

Section 18(c)(1)(A) of the BMA prohibits an IDI from merging or
consolidating with a non-insured entity without the FDIC's approval.
Neither the BMA nor the FDIC Rules and Regulations define the terms
``merge'' or ``consolidate.'' \16\ The FDIC implements the BMA by
emphasizing a transaction's substance over its form and asserting
jurisdiction over transactions that substantively result in a merger
(merger in substance). The FDIC interprets the term ``merge'' in the
BMA to encompass all transactions that result in an IDI substantively
and effectively combining with a non-insured entity, regardless of
whether the transaction is structured as a merger or asset acquisition.
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\16\ A consolidation generally is a combination of the assets
and liabilities of two or more IDIs into a newly chartered IDI, and
the extinguishment or cancellation of the charters of the other
institutions. Although rare, the FDIC would consider two
institutions substantively combining with a newly created third
institution to be a consolidation in substance.
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Although acquisitions of assets are not specifically enumerated as
a category of transactions subject to FDIC approval under the BMA, an
IDI's acquisition of assets from a non-insured entity could be the
substantive equivalent of a transaction legally structured as a merger.
For example, this occurs when the acquired assets constitute all, or
substantially all, of the non-insured entity's assets or business
enterprise and if the non-insured entity dissolves, is rendered a
shell, or otherwise substantially ceases its main business operations
or enterprise. This applies when there is a transfer of all, or
substantially all, of a non-insured entity's assets to an IDI,
regardless of whether: (i) such transactions consist of an assumption
of identified liabilities, (ii) the assets acquired are tangible or
intangible (without regard to whether the assets would be considered
assets under generally accepted accounting principles), or (iii) such
acquisitions occur as a single transaction or over the course of a
series of transactions. Excluding transactions that are mergers in
substance involving IDIs and non-insured entities from FDIC review
would be inconsistent with the purposes of the BMA by overlooking
transactions that could affect the safety and soundness of an IDI and
increase the risk to the DIF.
The Proposed SOP clarifies the applicability of Section 18(c)(1)(A)
of the BMA by emphasizing that the scope of merger transactions subject
to approval encompasses transactions that take other forms, including
purchase and assumption transactions that are mergers in substance. The
Proposed SOP provides an example of a transaction that is a merger in
substance, and is therefore subject to the BMA, such as when an IDI
absorbs all (or substantially all) of a target entity's assets and the
target entity dissolves or otherwise ceases engaging in the acquired
lines of business.
Questions:
2. How can the FDIC increase clarity to interested parties
regarding the applicability of the BMA to a merger in substance?
3. What additional clarity should the FDIC provide regarding the
circumstances in which a transaction is subject to FDIC approval under
the BMA, including transactions involving an IDI and a non-insured
entity that is not a traditional financial institution, such as a
fintech firm, whose assets may be primarily intangible in nature?

Assumptions of Deposits by IDIs From Non-Insured Entities

Section 18(c)(1)(B) of the BMA prohibits an IDI from assuming
liability to pay any deposits made in, or similar liabilities of, any
non-insured bank or entity.\17\ The scope of this provision depends on
the meaning of deposit (or other similar liability) and on the
interpretation of what constitutes an IDI's assumption of such a
deposit (or other similar liability). Section 3(l) of the FDI Act
defines ``deposit'' broadly. In addition to the definition generally
encompassing unpaid balances of money, the definition expressly
includes a variety of other instruments, including trust funds and
escrow funds.\18\
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\17\ 12 U.S.C. 1828(c)(1)(B) (emphasis added).
\18\ See 12 U.S.C. 1813(l). Section 18(c)(1)(B) also includes
liabilities that would be deposits except for the provision in
Section 3(l)(5) of the FDI Act.
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In addition to the breadth of the definition of ``deposit,'' the
FDIC broadly interprets what it means to assume liability to pay such
deposits for the purposes of Section 18(c)(1)(B) of the BMA in order to
prevent circumvention of the provision. Specifically, the applicability
of Section 18(c)(1)(B) does not depend on the existence of a formal
written agreement between an IDI and a non-insured entity to transfer
deposit liabilities. In cases where an IDI and a non-insured entity
cooperate to arrange a transfer of deposits from a non-insured entity
to an IDI, the FDIC will generally consider such an orchestration to
constitute an assumption of deposits or other similar liabilities for
the purposes of Section 18(c)(1)(B).\19\
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\19\ See id.
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Unlike the applicability of Section 18(c)(1)(A) of the BMA to asset
acquisitions, which depends in part on the acquisition of ``all or
substantially all'' of a non-insured entity's assets, the applicability
of Section 18(c)(1)(B) does not depend on a finding that an IDI assumes
all, or substantially all, of a non-insured entity's deposits or
similar liabilities. The assumption of any deposits or other similar
liabilities is sufficient to implicate Section 18(c)(1)(B).
The FDIC takes the view that any expansion of an IDI's deposit base
via acquisition would be subject to approval under the BMA. As
discussed above, when an IDI assumes liability to pay a deposit or
other similar liability from a non-insured entity, FDIC approval is
required under Section 18(c)(1)(B). As discussed later in this section,
when an FDIC-supervised IDI assumes liability to pay a deposit from
another IDI, FDIC approval is required under Section 18(c)(2)(C). The
FDIC clarifies that the BMA would not necessarily be implicated by an
organic expansion of an IDI's deposit base, such as when a depositor or
a nonaffiliated third party that acts as agent, custodian, or trustee
for a depositor, elects--at their initiative--to establish a deposit
relationship with the IDI or to place deposits with the IDI. However,
in cases where the agent, custodian, or trustee itself serves as a
depository, a transfer of deposits for which it has liability to pay to
an IDI would be subject to FDIC approval under the BMA. Furthermore, if
customers are solicited to transfer their deposits to an IDI in
connection with, or in relation to, an arrangement or agreement to
which that IDI is party, the IDI is expected to seek approval under the
BMA in connection with the ultimate transfer of such deposits.
The Proposed SOP seeks to capture and convey the broad
applicability of Section 18(c)(1)(B) of the BMA by affirming that an
FDIC-supervised IDI's assumption of a deposit from another IDI, or any
IDI's assumption of a deposit from a non-FDIC insured entity, is
likewise subject to FDIC approval even in the absence of an express
agreement for a direct assumption. The Proposed SOP highlights the
broad definition of ``deposit'' in Section 3(l) of the FDI Act, and
notes that the definition extends beyond traditional demand deposits to
include, among other things, trust funds, and escrow funds.

[[Page 29226]]

Question:
4. Does the Proposed SOP sufficiently alert interested parties to
the range of transactions that could be subject to FDIC approval under
Section 18(c)(1)(B) of the BMA? If not, please comment on how the range
of transactions could be more clearly articulated.

Asset and Deposit Transfers From IDIs to Non-Insured Entities

Section 18(c)(1)(C) of the BMA prohibits an IDI from transferring
assets to any non-insured bank or entity in consideration of the
assumption for any portion of the deposits made in such IDI. Generally,
when an IDI transfers deposits to a non-insured entity, an application
to the FDIC would be necessary under Section 18(c)(1)(C) since such
transfers are typically accompanied by a transfer of assets, even if
such assets consist only of cash. As with Section 18(c)(1)(B), the
applicability of Section 18(c)(1)(C) is broad given the scope of the
FDI Act's definition of deposit. Furthermore, similar to the FDIC's
approach to Section 18(c)(1)(B), the FDIC generally views an
orchestration of a transfer of deposits from an IDI to a non-insured
entity to be subject to FDIC approval under Section 18(c)(1)(C), even
in the absence of an express agreement.
Although parties seeking to engage in transferring customer
accounts that consist of both custodial and deposit relationships may
characterize the transaction solely as a transfer of custodial
relationships, such transactions implicate the BMA if they also result
in a transfer of the deposit relationship. It has therefore been the
view of the FDIC that the BMA is implicated if an IDI transfers deposit
relationships concurrent with, or subsequent to, a transfer of the
custodial relationship. Accordingly, where customers have both a
custodial and depository relationship with an IDI, an IDI may not evade
the BMA by transferring custodial rights to a third party that, in its
newly acquired custodial capacity, causes the customer's depository
relationship to be transferred either to itself or to another entity.
This is true even if such transfer was ostensibly at the direction of a
non-insured entity pursuant to custodial rights acquired from the IDI.
The Proposed SOP communicates the FDIC's policy with regard to
transfers of deposits from IDIs to non-insured entities by stating that
a transfer of deposits from any IDI to a non-insured entity is subject
to FDIC approval.
Question:
5. What additional clarity, if any, is needed to make interested
parties aware of the circumstances in which FDIC approval would be
required in connection with a transfer of deposits from an IDI to a
non-insured entity?

Merger Transactions Solely Involving Insured Depository Institutions

Section 18(c)(2)(C) of the BMA generally prohibits an IDI from
merging or consolidating with any other IDI or, either directly or
indirectly, acquiring the assets of, or assuming liability to pay any
deposits made in, any other IDI except with the prior written approval
of the FDIC if the acquiring, assuming, or resulting bank is a state
nonmember bank or state savings association.\20\ If the acquiring,
assuming, or resulting bank is a national bank or Federal savings
association, the approval of the Office of the Comptroller of the
Currency (OCC) is required, and if it is a state member bank, the
approval of the Board of Governors of the Federal Reserve System (FRB)
is required.\21\
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\20\ 12 U.S.C. 1828(c)(2)(C).
\21\ 12 U.S.C. 1828(c)(2)(A)-(B).
---------------------------------------------------------------------------

As with transactions involving IDIs and non-insured entities, the
FDIC considers that a transaction in which an IDI absorbs another IDI
by acquiring all, or substantially all, of its assets would be subject
to FDIC approval under Section 18(c)(2)(C) of the BMA. It is less
common for the FDIC to evaluate whether a large-scale transaction
exclusively among IDIs constitutes a merger in substance since such
transactions typically include an assumption of deposits, which is
itself a sufficient basis to implicate Section 18(c)(2). As previously
stated, the breadth of the FDIC's definition of ``deposit'' causes
Section 18(c)(2) to encompass a wide range of transactions, and the
FDIC similarly takes a broad view as to what constitutes a direct or
indirect assumption of liability to pay deposits.
The foregoing discussion addresses the FDIC's policy with regard to
the applicability of the BMA to a wide variety of transactions.
However, the FDIC emphasizes that this is not an exhaustive overview of
potential transactions that are subject to FDIC approval under the BMA.
Interested parties should be alert to the FDIC's policies of
emphasizing a transaction's substance over its form, its interest in
preventing evasion of the BMA, and of the scope of the terms used in
Sections 18(c)(1) and 18(c)(2) of the BMA.

Overview of the Application Process

The Proposed SOP describes the FDIC's expectations for application
processing, emphasizing the utility of the pre-filing process and the
importance of filing a substantially complete application. The Proposed
SOP alerts applicants to the FDIC's expectation that all submitted
materials, including the financial projections and any related
analyses, be well supported and sufficiently detailed. In addition, the
Proposed SOP emphasizes the importance of the narrative supporting the
rationale for the proposed transaction, and communicates the FDIC's
expectation that the narrative be supported by studies, surveys,
analyses and reports, including those prepared by or for officers,
directors, or deal team leads.

Merger Application Adjudication

Generally, if all statutory factors are favorably resolved, and all
other regulatory requirements are satisfied, the FDIC will approve the
merger application. Approvals will be subject to the standard
conditions detailed in 12 CFR 303.2(bb) and any non-standard conditions
deemed appropriate by the FDIC. However, the FDIC will not use
conditions or written agreements that may be required as part of the
conditions, as a means for favorably resolving any statutory factors
that otherwise present material concerns. The Order and Basis for
Approval (Order) will be posted to the FDIC's Decisions on Bank
Applications page.
The Order will address all statutory factors, as well as summarize
information regarding any Community Reinvestment Act (CRA) protests.
The FDIC will summarize the related analysis and conclusions and
include any conditions imposed in conjunction with the approval.
Finally, the SOP articulates certain elements that may result in
unfavorable findings and would require action by the Board of Directors
on the application. This commentary presents a general overview of the
potential scenarios and fact patterns that would present significant
challenges to favorable findings on the statutory factors. The FDIC may
not be able to find favorably on any given statutory factor (or
therefore approve the application) if there are unresolved
deficiencies, issues, or concerns (including with respect to any public
comments), or the lack of sustained performance under corrective
programs particularly when the transaction implicates the areas that
are the subject of the corrective program.

Merger Application Activity

To provide some perspective on the volume and types of filings
subject to FDIC review and action, the tables in

[[Page 29227]]

Appendix A to this preamble were developed regarding the volume,
disposition, and size of merger transactions processed by the FDIC from
January 1, 2004, through December 31, 2023. In total, the FDIC
processed 2,497 merger applications that were either ``bank-to-bank''
merger applications solely involving IDIs where the resulting
institution was an FDIC-supervised institution or that involved an IDI
and a credit union or other non-insured institution.\22\ This does not
include pending applications or applications for corporate
reorganizations or interim mergers.\23\
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\22\ As of December 31, 2023, there were 17 pending bank-to-bank
merger applications and ten pending merger applications that involve
a credit union or other non-insured institution. Data regarding
FDIC-processed merger applications involving credit unions and other
non-insured entities is provided as Tables 3-6 in Appendix A to this
preamble. Table 7 in Appendix A provides data regarding the number
of IDIs acquired by FDIC-supervised banks or savings associations,
or by credit unions in purchase and assumption transactions.
\23\ A corporate reorganization is a merger transaction that
involves solely an IDI and one or more of its affiliates. Corporate
reorganizations may include transactions where two IDIs merge
immediately following a merger between two bank holding companies.
An interim merger transaction is a merger transaction between an IDI
and a newly formed IDI that is established solely to facilitate a
corporate reorganization. From the beginning of 2004 through
December 31, 2023, the FDIC processed 2,008 corporate
reorganizations and 483 interim mergers. As of December 31, 2023,
there were nine pending corporate reorganization applications and
five pending interim merger applications.
---------------------------------------------------------------------------

As shown in Table 1, the volume of bank-to-bank merger applications
processed by the FDIC has ranged between 49 and 152 annually from 2004
through 2023. The annual average number of such applications processed
during this period was 110. Of the 2,209 bank-to-bank applications
processed over the referenced period, 92.9 percent (2,054) were
approved, 5.4 percent (116) were withdrawn at the applicant's
discretion, 1.7 percent (39) were returned due to insufficient
information provided in the application submission, and none were
denied. Applicants that choose to withdraw an application frequently do
so before receiving a public denial. As described in the APM,\24\ when
applications are recommended for denial, FDIC staff are directed to
contact applicants, describe the concerns, and provide a final
opportunity to provide additional information that might influence the
decision. The APM also states that at its discretion, the FDIC may
offer the applicants the opportunity to withdraw the application. If an
applicant withdraws their filing, the FDIC Board of Directors may
release a statement regarding the concerns with the transaction if such
a statement is considered to be in the public interest for purposes of
creating transparency for the public and future applicants.
---------------------------------------------------------------------------

\24\ See APM, Section 1.3, ``Denials and Disapprovals.''
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Table 2 provides a breakdown of the bank-to-bank merger
applications processed during this period by the size of the resulting
IDI. Approximately 93.0 percent (2,055) of applications received and
acted upon, and 95.0 percent of applications approved, were for IDIs
that would be $10 billion or less in asset size following the proposed
merger. Of the 2,054 approved applications, approximately 4.4 percent
(91) involved resulting IDIs with an asset size between $10 billion and
$100 billion in total assets, and 0.3 percent (seven) were in excess of
$100 billion.

Statutory Factors

Monopolistic or Anticompetitive Effects

The Federal banking agencies are prohibited from approving a merger
that would result in a monopoly, or which would be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize
the business of banking in the United States.\25\ There is no exception
to this prohibition. Furthermore, the Federal banking agencies are
prohibited from approving a merger that does not constitute a monopoly
or conspiracy to monopolize, but that would nonetheless substantially
lessen competition, tend to create a monopoly, or otherwise be in
restraint of trade, unless the anticompetitive effects of the
transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs
of the community to be served.\26\ For example, this public interest
exception may apply where a transaction is necessary to prevent the
probable failure of an IDI.
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\25\ 12 U.S.C. 1828(c)(5)(A).
\26\ 12 U.S.C. 1828(c)(5)(B).
---------------------------------------------------------------------------

The FDIC conducts its own independent analysis to ensure compliance
with the BMA's prohibition against the approval of any merger
transaction that would result in a monopoly or be in furtherance of an
attempt to monopolize the business of banking in any part of the
U.S.\27\ In situations where a transaction would not result in a
monopoly but where anticompetitive effects are nonetheless identified,
the FDIC will evaluate whether the applicants have established that the
benefits to the convenience and needs of the community will clearly
outweigh any anticompetitive effects.
---------------------------------------------------------------------------

\27\ 12 U.S.C. 1828(c)(5)(A). In addition to the BMA's
prohibition against approving merger transactions that would result
in a monopoly, the BMA generally prohibits the Federal banking
agencies from approving an interstate merger that would result in an
IDI (together with its affiliates) controlling more than 10 percent
of the total amount of deposits of IDIs in the U.S. See 12 U.S.C.
1828(c)(13).
---------------------------------------------------------------------------

The way in which the convenience and needs of the community to be
served is juxtaposed against the antitrust competitive standard is
important. A non-monopolistic yet anticompetitive merger can only be
approved in situations where the proponents to the transaction can
establish that the advantage of the merger for the convenience and
needs of the community clearly outweighs the anticompetitive effects.
This creates a heavy burden for the proponents of a merger to support
that the benefits to the community outweigh identified anticompetitive
concerns. A favorable finding on the convenience and needs of the
community to be served factor may not support approval of the
application when anticompetitive effects are identified.
In addition to its own independent analysis, the BMA requires the
FDIC to request a competitive factors report from the Attorney General
for any merger between an IDI and a non-affiliated entity, unless the
FDIC finds that it must act immediately in order to prevent the
probable failure of an IDI involved in the transaction.\28\ The FDIC
may consult with the DOJ on mergers that may raise competitive
concerns. In cases where the FDIC considers proposed divestitures of
business lines, branches, or portions thereof to mitigate
anticompetitive effects, the FDIC will generally expect such
divestitures to be completed before allowing the merger to be
consummated. Additionally, to promote the ongoing competitiveness of
the divested business lines, branches, or portions thereof, the FDIC
will generally require that the selling institution will neither enter
into non-compete agreements with any employee of the divested entity
nor enforce any existing non-compete agreements with any of those
entities.
---------------------------------------------------------------------------

\28\ 12 U.S.C. 1828(c)(4).
---------------------------------------------------------------------------

The Proposed SOP does not include any bright lines or specific
metrics for which it is presumed that the transaction would be
considered anticompetitive. A few RFI commenters suggested that the
FDIC develop a benchmark asset size at or below which there is no
presumption of non-competitive effects. The Proposed SOP does not
include such metrics or benchmarks, as it is important to

[[Page 29228]]

maintain flexibility to appropriately evaluate the facts and
circumstances of each application filed.
The Proposed SOP reaffirms the FDIC's commitment to undertaking a
thorough review of the potential competitive effects of a proposed
merger transaction. As described in the Proposed SOP, the FDIC will
tailor its evaluation of competitive effects to consider all relevant
market participants (local, regional, and national). The Proposed SOP
establishes the relevant geographic markets as the areas where the
merging entities have a physical presence in the form of an office
(generally a main office or a branch). It also notes that the market
may include areas where the merging entities do not have a physical
presence, but may still provide products and services. The Proposed SOP
outlines the FDIC's approach to considering product markets. The FDIC
uses deposits as an initial proxy for commercial banking products and
services, but it will tailor the product market definition to
individual products as needed. In its analysis, the FDIC uses proxies
that reasonably reflect the competitive dynamics of the market,
including deposit and loan activity. However, the Proposed SOP notes
that the FDIC will, if appropriate, utilize additional analytical
methods, data sources, or geographic or product market definitions in
order to assess the competitive effects of a proposed merger when
practicable and relevant with consideration given to whether consumers
retain meaningful choices.
Consistent with the approach of the DOJ and the other Federal
banking agencies, the FDIC uses deposits as reported in the SOD data
submitted by IDIs (and compiled by the FDIC), as a general proxy for
the product market and then calculates the resulting market
concentration and change in market concentration in each relevant
geographic market using the HHI calculation. The FDIC initially focuses
on the respective shares of total deposits held by the merging IDIs and
the various other participants with offices in the relevant geographic
market(s) to measure market concentration. Multiple RFI commenters
suggested that the analysis of competition should include the influence
of thrifts, credit unions, fintech firms, Farm Credit System
institutions, and other online entities that offer products and
services in the relevant market. The Proposed SOP affirms that the FDIC
considers the influence of these entities when evaluating competitive
effects. Some RFI commenters suggested alternatives to the HHI
calculation such as the Hall-Tideman Index (HTI) \29\ or the
comprehensive industrial concentration index (CCI).\30\ The Proposed
SOP indicates that the FDIC will consider other products in its
competitive analysis, but does not incorporate any specific
alternatives to the HHI calculation.
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\29\ The HTI is used to measure the concentration (or unequal
distribution) of n market participants, who each have a market share
hi and a rank i (ordered according to decreasing market shares).
\30\ The CCI is the sum of the proportional share of the leading
IDI and the summation of the squares of the proportional sizes of
each IDI, weighted by a multiplier reflecting the proportional size
of the rest of the industry.
---------------------------------------------------------------------------

Several RFI commenters requested changes to how the FDIC compiles
SOD data, such as assigning online accounts to the account owner's
residence, rather than the main office of the entity receiving the
deposit. Additionally, RFI commenters requested that the FDIC amend
both the methods and reporting standards for SOD data, and provide more
guidance and instruction regarding how a reporting entity attributes
deposits to branches to enhance geographic specificity. The Proposed
SOP indicates that, as applicable, the FDIC will take into account any
additional data sources, appropriate analytical approaches, or
additional products beyond deposits to fully assess the competitive
effects of the transaction. Further, to the extent that amendments or
revisions to the SOD's reporting requirements, standards, and methods
are considered, they will be published in a separate request for
industry comment and feedback.
The relevant geographic markets are the areas where the merging
entities have overlapping branch footprints, and generally correspond
with the geographic markets defined by the FRB. The Proposed SOP notes
that on a case-by-case basis, the FDIC may consider alternative or
additional geographic and product markets. A few RFI commenters
suggested that the FDIC should conduct a separate analysis of the
competitive impact in rural areas, minority markets, or low- to
moderate-income communities when relevant. While the Proposed SOP does
not specifically address analytics of rural, minority, or low- to
moderate-income communities, it does affirm that the FDIC will use a
geographic market with a scope that is suited to the products or
services offered or planned.
RFI commenters were split on changes to the HHI; some RFI
commenters suggested that the overall threshold should be raised, while
others suggested that the overall level should be lowered. Similar
differences were also noted with respect to the change in the HHI
calculation; some RFI commenters suggested that the current change
threshold be increased, while others believed it should be lowered or
reflect any point change. Some RFI commenters suggested that the HHI
should be calculated for certain types of loans such as residential or
small business loans, rather than (or in addition to) deposits. The
Proposed SOP does not address the calculation of the HHI or the
attendant thresholds. The Proposed SOP notes that the FDIC will
consider additional methods of assessing the competitive nature of
markets for relevant products or services, as necessary or appropriate.
The FDIC plans to coordinate with other appropriate agencies regarding
any potential changes to the calculation of, or thresholds for, HHI
usage.
Questions:
6. To what extent is the FDIC's approach to analyzing the
competitive effects of a proposed merger transaction appropriate?
7. What changes to the current approach should the FDIC consider to
better reflect present-day competitive conditions?
8. Should the HHI be a definitive factor in making a determination?
In other words, should the FDIC find favorably regarding competitive
effects if the proposed merger does not exceed the defined banking-
specific HHI thresholds? If not, why not?
9. How should the Proposed SOP specifically address the ways to
calculate the competitive effects of mergers of IDIs with non-insured
entities, whether credit unions, financial services entities, bank
service corporations, or other entities?
10. What additional information should the FDIC provide about the
circumstances under which it will consider products other than deposits
and loans for transparency and so that filers may provide a more
complete initial submission?
11. Is the geographic market definition outdated? If so, why? How
should the definition be updated and why?
12. Would it be appropriate to define relevant geographic markets
by reference to markets in which the merging institutions have
delineated CRA assessment areas, including both facility-based
assessment areas and retail lending assessment areas?
13. Would it be appropriate to define relevant geographic markets
by reference to markets in which the merging institutions have
delineated CRA assessment areas?

[[Page 29229]]

14. Other than the HHI, what tools could be used to assess market
concentration and why would such tools be appropriate?
15. How should the Proposed SOP specifically address analytics for
rural, minority, or low- to moderate-income communities? What type of
analytical standards or criteria would be appropriate?
16. How can the FDIC's review address competitive effects beyond
geographic markets? For example, commenters are invited to provide
their views on any concerns that might typically be associated with
mergers that result in a large institution of a certain asset size, and
are further invited to identify what asset size thresholds (e.g., $50
billion, $100 billion, $250 billion, etc.) are most likely to present
such concerns. In addition, commenters are invited to provide detailed
views on the nature of competitive concerns that are associated with
mergers that involve a large institution absorbing a community bank.

Financial Resources and Managerial Resources and Future Prospects

The BMA requires the Federal banking agencies to take into account
the financial and managerial resources and future prospects of the
existing and proposed institutions involved in a merger transaction.

Financial Resources

The FDIC assesses the financial history, condition, and performance
of each entity involved in the merger transaction, as well as the
combined financial resources of the resulting IDI. The assessment of
financial resources includes an analysis of capital, asset quality,
earnings, liquidity, and sensitivity to market risk. The FDIC will
consider the liquidity risk of the resultant IDI, including the extent
of its projected reliance on uninsured deposits and its contingency
funding strategies. An IDI's overreliance on uninsured deposits or non-
core funding sources may not be consistent with a favorable finding on
this statutory factor.
Overall, the FDIC expects that the resulting IDI will reflect sound
financial performance and condition consistent with the IDI's size,
complexity, and risk profile. Generally, the FDIC will not find
favorably on this factor if the merger would result in a larger, weaker
IDI from an overall financial perspective.
RFI commenters were split on whether bright lines or formally
defined metrics should be developed and implemented for the evaluation
of this factor. Several RFI commenters desired to have defined ratings
and benchmarks formally articulated, and requested that merging
entities meeting these defined standards should have a streamlined
review or a presumption of approval. The Proposed SOP does not include
specific requirements for a favorable finding on this factor, as the
FDIC believes each transaction should be evaluated based on the facts
and circumstances presented in the application, and any determination
on the filing should be specific to that transaction. The incorporation
or adoption of formal metrics restricts the FDIC's ability to
effectively analyze the findings regarding the statutory factors and
make informed determinations and recommendations based on those
findings.
If the proposed merger involves an operating non-insured entity,
the FDIC will consider the entity's operational activities and
performance record when evaluating financial resources. The FDIC will
review audited financial statements (covering at least three years,
unless the entity's operating history is shorter) including details
regarding any deferred tax assets or liabilities, intangible assets,
contingent liabilities, and any recent or pending legal or regulatory
actions. The FDIC may also require an identification of, and accounting
for, low quality assets, including independent appraisals or valuations
to support the projected value of any businesses or assets expected to
transfer to the resultant IDI upon consummation of the merger.
The FDIC's evaluation of financial resources also will consider the
current and projected financial impact of any related entities on the
IDI, including the parent organization and any key affiliates. For each
relevant entity, the FDIC will consider, among other items, the size
and scope of operations, capital position, quality of assets, overall
financial performance and condition, compliance and regulatory history,
primary revenue and expense sources, and funding strategies.
Depending on the anticipated risk profile of the resulting IDI, the
FDIC may impose, as a non-standard condition, capital requirements that
are higher than applicable capital standards. Further, as appropriate,
the FDIC may impose a non-standard condition that requires the
resulting IDI and other applicable parties (such as certain affiliates
or investors) to enter into one or more written agreements that may
address, as applicable, capital maintenance requirements, liquidity or
funding support, affiliate transactions, and other relevant items.

Managerial Resources

The FDIC assesses the managerial resources of the existing entities
involved in a merger transaction, as well as the proposed management of
the resulting IDI. The FDIC expects that the proposed directors,
officers, and as appropriate, principal shareholders (collectively,
management) possess the capabilities to administer the resultant IDI's
affairs in a safe and sound manner. The background and experience of
each member of the proposed management team will be reviewed relative
to the size, complexity, and risk profile of the resulting IDI. The
capability of management to identify, measure, monitor, and control
risks and ensure an efficient operation in compliance with applicable
laws and regulations are important facets of the evaluation of
managerial resources.
A few RFI commenters requested that specific performance standards
(such as the management component rating) for small and mid-sized
institutions should be publicly stated, and entities in compliance with
these standards that meet certain other metrics (such as total asset
size) would have a presumption of approval or streamlined review
protocols. As previously stated, the Proposed SOP does not include
specific performance metrics or bright lines for any of the statutory
factors in order to maintain flexibility in the analysis and to ensure
each proposed transaction is evaluated on its merits, facts, and
circumstances.
The FDIC will review supervisory assessments of management made by
the relevant prudential regulators. This includes the current and
historical management ratings for any IDI involved in the proposed
merger, and the managerial performance and supervisory record of any
subsidiaries and affiliates. The FDIC will evaluate the extent and
effect of any organizational relationships on the IDI, while also
considering the operating history, risk management, and control
environment of the parent organization. Inherent in these
considerations are the condition, performance, risk profile, and
prospects of the organization as a whole, as well as the capacity of
management to successfully implement the resulting IDI's strategic (or
business) plan.
The evaluation of managerial resources includes an assessment of
each entity's record of compliance with respect to consumer protection,
fair lending, and other relevant consumer laws and regulations. The
FDIC will review supervisory assessments of management made by the
relevant regulators. In addition, the FDIC will

[[Page 29230]]

analyze the record of compliance with consumer laws and regulations,
the compliance management system for each of the IDIs, as well as the
compliance management rating system for the resulting IDI, to ensure
that there are appropriate controls to identify, monitor, and address
consumer compliance risks. Consideration is also given to the consumer
compliance rating pursuant to the Uniform Interagency Consumer
Compliance Rating System and the CRA.\31\
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\31\ Uniform Interagency Consumer Compliance Rating System, 81
FR 79473, (Nov. 14, 2016). Community Reinvestment Act ratings are
defined in 12 CFR part 345, Appendix A.
---------------------------------------------------------------------------

The FDIC expects management to develop and implement effective
plans and strategies, and the resulting IDI to have sufficient
managerial and operational capacity, to integrate the acquired entity.
Effective integration includes, but is not limited to, human capital;
products and services; operating systems, policies, and procedures;
internal controls and audit coverage; physical locations; information
technology; and risk management programs. In conjunction with the
integration, the FDIC expects a resulting IDI to have the managerial
and operational capacity, and to devote adequate resources, to ensure
full and timely compliance with any outstanding corrective programs or
supervisory recommendations.
Various other matters are also pertinent to the evaluation of
managerial resources. The FDIC will consider the breadth and depth of
management, including the adequacy of succession planning;
responsiveness to issues or supervisory recommendations raised by
regulators or auditors; existing or pending formal or informal
enforcement actions; management's performance with respect to
information technology, consumer protection, and other specialty or
functional areas; recent rapid growth and the record of management in
overseeing and controlling risks associated with such growth; and the
reasonableness of fees, expenses, and other payments made to insiders.

Future Prospects

The FDIC evaluates the future prospects of the existing and
proposed entities involved in a merger transaction. As part of this
evaluation, the FDIC will review the submitted business (or strategic)
plan, including pro-forma financial projections and related assumptions
to assess whether the resulting IDI will be able to operate in a safe
and sound manner on a sustained basis following consummation of the
merger. Any accompanying valuations (such as those related to the
target entity, goodwill, or other assets) will also be reviewed to
ensure that the applicant adequately supports that the resulting IDI
will maintain an acceptable risk profile.
The FDIC will consider the economic environment, the competitive
landscape, the acquiring IDI's history in integrating merger targets,
the anticipated scope of the resulting IDI's operations and the quality
of its supporting infrastructure, and any other relevant factors. Any
significant planned changes to the resulting IDI's strategies,
operations, products or services, activities, income or expense levels,
or other key elements of its business will be closely assessed.
Questions:
17. To what extent is the FDIC's evaluation of financial resources
appropriate, and what additional items, if any, should be considered?
18. To what extent is the FDIC's evaluation of managerial resources
appropriate, and what additional items, if any, should be considered?
19. To what extent is the FDIC's evaluation of future prospects
appropriate, and what additional items, if any, should be considered?

Convenience and Needs of the Community To Be Served

The BMA requires the Federal banking agencies to take into account
the convenience and needs of the community to be served when evaluating
a merger transaction.\32\ One of the items considered in connection
with this factor is each IDI's CRA performance evaluation record and
any comments submitted by the public on the application. The FDIC
provides the public the ability to search pending merger applications
submitted to the FDIC and allows comments on merger applications to be
submitted electronically during the comment period. A few RFI
commenters suggested that the FDIC update its website to facilitate the
public's ability to review and comment on applications; and that the
FDIC should post any regulatory questions or information requests to
the applicants, and any applicant responses to its website. The FDIC is
considering enhancing the current website to include information
regarding public comments received on applications.
---------------------------------------------------------------------------

\32\ 12 U.S.C. 1828(c)(5).
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Several RFI commenters requested that approval should be
conditioned upon the fulfillment of a strategy to address the
convenience and needs of the community, and that regulatory approval or
non-objection should be sought when the resultant IDI deviates from the
submitted plan. The Proposed SOP describes the analytical
considerations, but does not require a separate strategy to address the
convenience and needs of the community. However, the applicant is
expected to provide forward-looking information to the FDIC for the
purposes of evaluating the benefits of the merger on the community to
be served. As appropriate, claims and commitments made by the applicant
to the FDIC may be included in the Order and Basis for Approval, and
the FDIC's ongoing supervisory efforts will evaluate the IDI's
adherence to any such claims and commitments.
Multiple RFI commenters raised concerns with reliance on only the
most recent CRA evaluation. One RFI commenter noted that an Outstanding
CRA rating on two out of the most recent three CRA evaluations should
be a predicate to obtain regulatory approval for a merger; and another
RFI commenter requested a three-year average score for the CRA rating
as a benchmark. Some RFI commenters stated the CRA rating should be no
less than Outstanding, with a minimum of Satisfactory ratings on
component categories. A few RFI commenters requested that a presumptive
denial should be established if the CRA rating is not currently (or
over a recent, multi-year average period) at least Outstanding with
Satisfactory component ratings. The Proposed SOP does not establish
specific CRA rating benchmarks or bright lines in order to maintain
flexibility in the analysis and to ensure each proposed transaction is
evaluated on its merits, facts, and circumstances. However, a less than
Satisfactory rating or significant deterioration in CRA performance may
present significant concerns in resolving this factor. The FDIC's
review is not limited to the CRA record of the institutions and will
encompass a broad review of the institutions' existing products and
services and whether the products and services proposed by the
applicants will meet the convenience and needs of the community to be
served.
In addition, the FDIC will consider the record of each institution
in complying with consumer protection requirements and maintaining a
sound and effective compliance management system. This review will
include consideration of any existing orders, ongoing enforcement
actions, and pending reviews or investigations of

[[Page 29231]]

violations of consumer protection laws and regulations. A less than
Satisfactory consumer compliance rating may present significant
concerns in resolving this factor.
The FDIC will evaluate the community to be served broadly, which
will include the proposed assessment area(s), retail delivery systems,
populations in affected communities, and identified needs for banking
services. The FDIC expects that a merger between IDIs will enable the
resulting IDI to better meet the convenience and the needs of the
community to be served than would occur absent the merger. The FDIC
expects applicants to demonstrate how the transaction will benefit the
community such as through higher lending limits, greater access to
existing products and services, introduction of new or expanded
products or services, reduced prices and fees, increased convenience in
utilizing the credit and banking services and facilities of the
resulting IDI, or other means. Several RFI commenters suggested that a
higher burden should be placed on the applicant to demonstrate the
public benefits of the transaction. Multiple RFI commenters stated that
the FDIC should focus the analysis on the additive benefits of the
transaction for consumers, particularly those in low- to moderate-
income and minority communities. Numerous RFI commenters indicated that
a community benefit plan should be required, as should mandatory public
hearings to discuss the impact on the relevant communities. Further,
several RFI commenters stated that a cost/benefit analysis of the
proposed merger should be prepared and included in the publicly
available application materials. The Proposed SOP outlines the FDIC
Board's expectations with regard to the public benefits of the
transaction, but does not require public benefit statements or plans to
be established.
In addition to the CRA and consumer compliance ratings and
performance, the FDIC will also consider the resulting assessment
area(s) and branch locations, as well as the impact of branch closings
or consolidations, particularly on low- and moderate-income
neighborhoods or designated areas. The application form solicits
information regarding projected or anticipated branch expansions,
closings, or consolidations. Generally, the FDIC considers a
substantially complete merger application to include, among other
items, at least three years of information regarding projected branch
expansions, closings, or consolidations. Some RFI commenters suggested
that the projected impact of prospective branch closings should be
closely scrutinized, and that public meetings and community hearings
should be conducted to discuss the impact of the proposed closings. The
Proposed SOP states that any proposed or expected closures, including
the timing of each closure, the effect on the availability of products
and services, particularly to low- or moderate-income individuals or
designated areas, any job losses or lost job opportunities from
branching changes, and the broader effects on the convenience and needs
of the community to be served will be closely evaluated. Applications
that project material reductions in service to low- and moderate-income
communities or consumers will generally result in unfavorable findings.
A favorable finding on this factor may not necessarily be sufficient
for approval of the application when anticompetitive effects are noted.
Further, the Proposed SOP advises applicants to be prepared to make
commitments regarding future retail banking services in the community
to be served for at least three years following consummation of the
merger. The Proposed SOP places an affirmative expectation on
applicants to provide specific and forward-looking information to
enable the FDIC to evaluate the expected impact of the merger on
convenience and needs of the community to be served. In certain cases,
the FDIC may hold hearings or other proceedings in connection with
evaluating a merger application The Proposed SOP provides that the FDIC
will generally consider it is in the public interest to hold a hearing
for merger applications resulting in an IDI with greater than $50
billion in assets or for which a significant number of CRA protests are
received. The FDIC may also hold public or private meetings to receive
input on the transaction. The decision to hold such meetings depends on
issues raised during the comment period and the significance of the
merger transaction to the public interest, the banking industry, and
communities affected.
Questions:
20. How could the Proposed SOP more effectively describe the FDIC's
expectations with regard to its review of the convenience and needs
factor, and what notable considerations, if any, are overlooked?
21. What are the pros and cons of providing forward-looking
information? What are some specific challenges and difficulties that
applicants might experience when providing information concerning
projected or anticipated branch expansion, closings, or consolidations
for the first three years following consummation of the merger?
22. What are the pros and cons of holding a hearing for merger
applications resulting in an IDI with greater than $50 billion in
assets or for which a significant number of CRA protests are received?
For what other situations, in addition to those described, would it
generally be in the public interest to hold hearings?
23. How can the FDIC best consider comments and feedback from the
public in the context of evaluating the convenience and needs of the
community to be served, consistent with the BMA's public notice
requirements?
24. What are the benefits of imposing a non-standard condition that
captures the affirmative commitments an IDI has made to the FDIC to
serve the needs of its community?
25. In addition to the methods described, how should the FDIC
consider an institution's CRA performance in the context of an
application subject to the BMA?
26. What additional information should be included in the
application materials to enable a more comprehensive review of branch
closings or consolidations? What additional information should be
included in application materials related to retail delivery systems?
27. What additional benefits to the community could be specified in
the SOP beyond those already detailed?
28. What other elements should be considered in the evaluation of
the convenience and needs of the community with respect to mergers?
29. What types of merger transactions may present unique factors
that the FDIC should consider in its evaluation of the convenience and
needs of the community to be served? For example, are there special
considerations that should be considered in connection with
transactions in which a community bank is absorbed by a larger
institution?

Risk to the Stability of the United States Banking or Financial System

The Dodd-Frank Act amended the BMA to require the responsible
agency to consider the risk to the stability of the U.S. banking or
financial system when evaluating a proposed bank merger.\33\ The FDIC
expects that the resulting IDI will not materially increase the risk to
the stability of the U.S. banking or financial system. Multiple RFI
commenters noted the FDIC's Current SOP does not incorporate this
statutory factor. Additionally, while some RFI commenters asked for
more clarity and

[[Page 29232]]

transparency regarding the FDIC's financial stability analysis, others
objected to changing the existing regulatory framework. Finally, some
RFI commenters asserted that recent large mergers have increased
concentration within the banking sector and have created more systemic
risk, while others presented positions that attempt to refute this
assertion. The Proposed SOP largely builds upon the financial stability
criteria previously employed in practice by the FDIC, FRB, and OCC
since passage of the Dodd-Frank Act, and clarifies the FDIC's
perspective when conducting the analysis.\34\
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\33\ 12 U.S.C. 1828(c)(5).
\34\ See, e.g., Order and Basis for Corporation approval of
BB&T's application for consent to merger with SunTrust Bank. Refer
to FDIC Press Release PR-111-2019: <a href="https://www.fdic.gov/news/press-releases/2019/pr19111.html">https://www.fdic.gov/news/press-releases/2019/pr19111.html</a>.
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The Proposed SOP details the considerations that the FDIC uses to
determine whether a resulting IDI's systemic footprint would be such
that its financial distress or failure could compromise the stability
of the U.S. banking or financial system. While many RFI commenters
addressed entities other than a resulting IDI (e.g., bank holding
companies and broker-dealer subsidiaries), the Proposed SOP considers
financial stability influences primarily from the perspective of the
resulting IDI. Where appropriate, the FDIC's analysis will take into
account the facts and circumstances of parent companies and affiliates.
Proposed transactions that solely involve affiliates that were related
at the time a merger application is filed generally will not raise
concerns with regard to this factor. However, each such proposal will
be reviewed to ensure that the resulting IDI would not present any new
or unforeseen stability risks that may not have existed when the
merging entities operated on a standalone basis.
In evaluating the risk to the stability of the U.S. banking or
financial system, the Proposed SOP identifies the following: (i) the
size of the entities involved in the transaction; (ii) the availability
of substitute providers for any critical products and services to be
offered by the resulting IDI; (iii) the resulting IDI's degree of
interconnectedness with the U.S. banking or financial system; (iv) the
extent to which the resulting IDI contributes to the U.S. banking or
financial system's complexity; and (v) the extent of the resulting
IDI's cross-border activities. These items are addressed in more detail
below:
Size. The distress or failure of an IDI is more likely to adversely
impact the banking or financial system if the IDI's activities comprise
a relatively large share of system-wide activities. Upon financial
distress or failure, a larger IDI may present greater challenges to
replacing or substituting the services and products it provides, as
compared with smaller institutions, thereby potentially increasing the
possibility for the IDI's distress or failure to disrupt the broader
system. Additionally, the negative effects to the banking or financial
system caused by stress at a single large institution may be greater
than the impact of simultaneous stress at multiple smaller institutions
engaged in business lines similar to those of their larger peer. The
majority of comments regarding financial stability focused on the
resulting IDI's asset size with many concerned about not creating
institutions that are ``too big to fail.'' Numerous RFI commenters
suggested the imposition of asset limits, thresholds, or other
quantitative measures that would be applicable to IDIs of a certain
size, and suggested that any analysis start with certain presumptions.
Others stated that any limits or presumptions with respect to asset
size would be contrary to the plain language of the BMA, have
anticompetitive results, and could even serve to ``insulate'' the
largest banks. Some RFI commenters suggested the imposition of enhanced
capital requirements in lieu of size limitations.
With respect to these suggestions, the FDIC believes that the asset
size of a resulting IDI should not serve as the sole basis for
evaluating this statutory factor. Rather, size is only one of several
important considerations that needs to be evaluated in the context of
the other criteria. However, transactions that result in a large IDI
(e.g., in excess of $100 billion) are more likely to present potential
financial stability concerns with respect to substitute providers,
interconnectedness, complexity, and cross-border activities, and will
be subject to added scrutiny. The FDIC takes the view that the failure
of a larger IDI with a traditional community bank business model may
pose significantly different resolvability and stability risks than a
smaller IDI with one or more complex business lines, large derivative
exposures, or extensive cross-border operations.
Availability of substitute providers. The purpose of considering
the availability of substitute providers is to understand whether an
inability or unwillingness by a resulting IDI to continue providing
specific products or services could be disruptive to the U.S. banking
or financial system. The FDIC considers whether the resulting IDI
provides critical products or services that may be difficult to replace
or substitute, or conducts activities that comprise a relatively large
share of the relevant activity in the banking or financial system.
Concerns are heightened, and may preclude favorable resolution of this
factor, in situations where there are limited readily available
substitutes, as relied upon services may be disrupted or discontinued
if the resulting IDI encounters financial distress or fails. Several
RFI commenters recommended that specific risk factors be developed to
address the availability of substitute providers; however, the Proposed
SOP does not include specific targets or bright lines regarding the
consideration and assessment of this factor.
Interconnectedness. The purpose of considering interconnectedness
is to assess the degree to which the resulting IDI may be engaged in
transactions with other financial system participants and the risk that
exposures to the resulting IDI of creditors, counterparties, investors,
or other market participants could affect U.S. banking or financial
system stability. The purpose of considering the effects of asset
liquidation by the resulting IDI as a component of interconnectedness
is to assess whether, following the proposed merger, the resulting IDI
would hold assets that, if liquidated quickly, could significantly
disrupt the operation of key markets or cause significant losses or
funding problems for other firms with similar holdings. The analysis of
interconnectedness specifically contemplates intra-financial system
assets and liabilities; exposures to creditors and counterparties; the
potential volatility of the resulting IDI's funding structure; and the
potential results of rapid asset liquidation.
A resulting IDI may present greater risk from a stability
perspective if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other
financial system participants. For example, securities contracts,
commodity contracts, forward contracts, repurchase agreements, swap
agreements, inter-affiliate guarantees, and other similar contracts
which the FDI Act refers to collectively as ``qualified financial
contracts'' \35\ are all examples of interconnected exposures within
the U.S. banking or financial system. A high volume of such contracts
may equate to a higher degree of potential systemic spillover effects
if the resulting IDI, or its parent or affiliates, are unable to
perform.
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\35\ 12 U.S.C. 1821(e)(8)(d)(i).
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Increased Complexity. Under the Proposed SOP, evaluation of the

[[Page 29233]]

resulting IDI's contribution to the U.S banking or financial system's
complexity would consider the full scope of the resulting IDI's
operations. This includes the resulting IDI's business lines, products
and services, on- and off-balance sheet activities, delivery channels,
and any material affiliate or other third-party relationships. One RFI
commenter stated that many large regional banks do not have complex
operations and have recently reduced their level of complexity. The
FDIC considers an important part of the complexity analysis to be the
potential financial stability consequences of the resulting IDI failing
and being placed into a receivership under Section 11 of the FDI Act.
The FDIC is responsible for resolving the resulting IDI in a way least
costly to the DIF.
The FDIC has several options for carrying out the resolution of an
IDI. First, the FDIC can sell some or most of the assets of the failed
IDI to a healthy acquiring IDI, which would also generally assume all
of the deposits or only the insured deposits of the failed IDI along
with some or most of the remaining liabilities. This is generally
called a ``purchase and assumption transaction.'' Second, a special
type of purchase and assumption transaction used when additional time
is needed to market a failed IDI is referred to as a ``bridge bank.'' A
bridge bank is a bank chartered by the OCC and temporarily owned and
operated by the FDIC to bridge the time between the date of failure and
the date of sale to an acquiring IDI. Use of a bridge bank enhances the
FDIC's ability to pursue options that could involve the sale to
multiple acquirers, and/or spinning off some remaining streamlined
operations as a restructured entity with ongoing viability depending on
which strategy is most desirable. The final option is executing an
insured deposit payout. However, in deciding which option to pursue,
the FDIC must show how it would meet the least cost test set forth in
Section 13(c)(4) of the FDI Act. Additionally, regardless of the
strategy selected, the challenges associated with resolving a large
bank would be significant, both operationally and financially.
In addition to the resolution challenges presented based on size,
many regional IDIs present complexities such as large branch networks,
substantial information technology systems, millions of account
holders, and heavy reliance on uninsured deposits. Further, cross-
border operations or key dependencies on non-affiliated entities can
raise additional challenges to effecting an orderly and least costly
resolution.
The failure of a larger IDI with a traditional community bank
business model may present significantly different resolvability and
stability risks than a smaller IDI with a complex businesses model.
Staff from the FDIC's Division of Resolutions and Receiverships and (if
appropriate) the Division of Complex Institution Supervision and
Resolution will identify potential purchasers for the resulting IDI or
its component parts, and identify resolution impediments that could
impact the stability of the U.S. banking or financial system. Some
potential resolution impediments include the resulting IDI's
organizational structure and the necessity and difficulty of: (i)
continuing the IDI's operations and activities until they can be sold
or wound down, (ii) marketing and selling key business lines and asset
portfolios at the least cost to the DIF,\36\ and (iii) separating
business lines and other assets to enable their sale or other
disposition. While the FDIC would perform this analysis on the IDI, it
would also take into account possible alternative resolution strategies
and scenarios. This process could consider the presence of support
agreements from the resulting IDI's ultimate parent company,
strengthened risk governance procedures, and capital maintenance
requirements for the IDI. Several RFI commenters suggested formal
thresholds should be developed (such as total asset metrics) for when a
resolution plan should be required. Such thresholds have not been
incorporated into the Proposed SOP as each prospective resolution
presents unique facts and circumstances, and the FDIC does not believe
a one size fits all approach to the resolution process is appropriate.
---------------------------------------------------------------------------

\36\ Id.
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While the vast majority of IDIs that the FDIC has resolved have
been relatively small in size (assets under $10 billion), experience
has shown that the failure of a larger IDI can have a contagion effect.
Two recent examples that illustrate the systemic risk associated with
the failure of a large regional IDI are Silicon Valley Bank (SVB) and
Signature Bank.
SVB, with $209 billion in assets as of December 31, 2022, failed on
March 10, 2023. SVP's depositors were primarily commercial and private
banking clients, mostly linked to businesses financed through venture
capital. Total assets grew rapidly, coinciding with rapid growth in the
innovation economy and a significant increase in the valuation placed
on public and private companies. The resulting influx of deposits was
largely invested in medium- and long-term Treasury and Agency
securities.
On March 8, 2023, Silvergate Bank, with $11.3 billion in assets as
of December 31, 2022, and a business model focused almost exclusively
on providing services to digital asset firms, announced its self-
liquidation.\37\ On that same day, SVB announced that it had sold
substantially its entire available-for-sale securities portfolio at a
loss. Many of SVB's venture capital customers took to social media to
urge companies to move their deposit accounts out of SVB. The deposit
run, coupled with insufficient liquidity to meet the demands of
depositors and other creditors, resulted in its failure.
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\37\ Following the collapse of digital asset exchange FTX in
November 2022, Silvergate Bank experienced a rapid loss of deposits,
which necessitated the sale of debt securities to cover deposit
withdrawals. The securities sales resulted in substantial losses.
The troubles experienced by Silvergate Bank demonstrated the impact
of a lack of diversification, aggressive growth, maturity mismatches
in a rising interest rate environment, and inadequate management of
liquidity risk. Many of these same risks were also present at SVB.
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On March 12, 2023, just two days after the failure of SVB,
Signature Bank, with $110 billion in assets at year-end 2022, was
closed and the FDIC was appointed as receiver. Signature Bank
implemented an operating model that shared risk characteristics with
SVB. Like SVB, Signature Bank grew rapidly, held deposit accounts for
crypto-asset firms, and was heavily reliant on uninsured deposits for
funding. As word of SVB's problems began to spread, Signature Bank
began to experience contagion effects with deposit outflows. Signature
Bank failed as withdrawal requests mounted beyond its ability to pay.
Because of these failures, and the fact that other institutions
were experiencing stress, serious concerns arose about a broader
economic spillover. As such, the FDIC invoked the systemic risk
exception under Section 13 of the FDI Act in winding down SVB and
Signature Bank.\38\ These failures demonstrate the implications that
IDIs with assets over $100 billion can have on financial stability. As
of December 2023, the failures of SVB and Signature Bank have resulted
in an estimated cost

[[Page 29234]]

of $21.8 billion and $1.8 billion, respectively, to the DIF.\39\
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\38\ As a general rule, Section 13(c)(4) of the FDI Act requires
the FDIC to resolve failed IDIs at the least cost to the DIF, but
provides an exception for instances where the failure would have
serious adverse effects on economic conditions or financial
stability, and any action to be taken would avoid or mitigate such
adverse effects.
\39\ See 2023 FDIC Annual Report, at <a href="https://www.fdic.gov/about/financial-reports/reports/2023annualreport/2023-arfinal.pdf">https://www.fdic.gov/about/financial-reports/reports/2023annualreport/2023-arfinal.pdf</a>.
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Additional examples that highlight the impact of a larger IDI
failure on the DIF are the failures of Washington Mutual Bank and
IndyMac Bank in 2008. Washington Mutual Bank (Washington Mutual), with
over $300 billion in assets at the time of its failure in September
2008, was the largest thrift institution in the United States and the
sixth largest IDI. Its failure was the largest in the FDIC's history in
terms of the IDI's asset size. Several factors made it possible for
Washington Mutual to fail with no loss to the DIF and no loss imposed
on its $45 billion of uninsured deposits, which approximated 24 percent
of total deposits. First, there was an acquirer with the capacity to
assume all the assets and all the deposits through a traditional
purchase and assumption transaction. This acquirer could act quickly at
the time of failure because it had previously performed due diligence
on Washington Mutual for a potential open bank acquisition. Second,
Washington Mutual had a substantial volume of unsecured debt--$13.8
billion, or 4.5 percent of total assets--which was available to absorb
losses in resolution. This loss absorbing capacity was essential to
meeting the least cost test and for uninsured depositors to avoid
taking a loss. Absent these factors, the FDIC likely would have had to
establish a bridge bank and take over the operation of the failed
institution. The failure of Washington Mutual in that scenario would
have depleted the DIF, and uninsured depositors would likely have had
to take a loss in order to meet the least cost test. Imposing losses on
uninsured deposits could have had a significantly destabilizing effect,
especially given the stressed economic and financial environment in
September 2008. The only way to avoid that outcome would have been for
the FDIC to exercise the systemic risk exception.
When IndyMac Bank--a $30 billion thrift--failed in July 2008, it
had no unsecured debt and there was no viable acquirer. The FDIC
established a bridge bank and uninsured depositors realized losses.\40\
IndyMac Bank was the most costly failure in the FDIC's history up to
that point, resulting in a $12.4 billion loss to the DIF. If these
conditions were to repeat for an institution several times larger, the
effects could be significant for U.S. financial stability.
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\40\ Uninsured deposits totaled $2.6 billion, which was almost
14 percent of total deposits.
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Cross-Border Activities. The purpose of considering cross-border
activities is to assess the degree to which coordination of the
resulting IDI's supervision and resolution could be complicated by
different legal requirements, geopolitical events, and competing
national interests, leading to increased potential for spillover
effects. A high degree of cross-border activity by the resulting IDI
presents significant challenges to supervising and examining the
operations of IDIs and their subsidiaries. Historically, cross-border
operations present significant challenges to supervision and
examination, and cross-border proceedings can be slow, cumbersome, and
require significant amounts of coordination between different
resolution authorities with differing objectives and administrators.
Accordingly, the FDIC would determine if the resulting IDI's cross-
border activities represent a significant component of operations; and
if so, whether the activities present a high degree of cross-
jurisdictional claims, liabilities, and other impediments to effective
supervision and resolution. The Proposed SOP affirms that such
activities may present challenges from both supervisory and resolution
perspectives given the potential exposure to differing legal
requirements, geopolitical events, and competing national interests.

Other Financial Stability Considerations

RFI commenters suggested that the FDIC impose various requirements
upon large newly merged IDIs such as a requirement to submit resolution
plans, a single-point-of entry resolution strategy, enhanced capital
levels, total loss absorbing capacity standards, and other quantitative
measures. With respect to these comments, the Proposed SOP does not
include such requirements, in order to enable the FDIC to retain
flexibility to review and evaluate the facts and circumstances
appropriate to the application. For example, the FDIC may consider
previously filed resolution plans (if any) \41\ relevant to any IDI
that may be party to a bank merger application. Resolution plans
submitted are highly relevant and those submitted by large IDIs are
intended to enable the FDIC, as receiver, to provide customers prompt
access to their insured deposits and maximize the return from the sale
or disposition of the bank's assets. These resolution plans include
information pertaining to the bank's organizational structure, core
business lines, information technology, funding needs, and other data
to assist in the sale or disposition of the bank's deposit franchise,
business lines, and material assets.
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\41\ This would include resolution plans filed under 12 CFR part
381 (those filed under Section 165(d) of the Dodd-Frank Act), as
well as those filed under 12 CFR 360.10 (IDI Plans). Section 165(d)
resolution plans typically include details of the firm's structure,
assets, and obligations; information on how the depository
subsidiaries are protected from risks posed by its non-bank
affiliates; and information on the firm's cross-guarantees,
counterparties, and processes for determining to whom collateral has
been pledged. IDI Plans typically include information and analysis
on the IDI that better enable the FDIC to resolve the IDI under the
FDI Act.
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The FDIC will closely assess the degree to which the resulting
IDI's potential financial distress or failure could cause other IDIs
with similar activities or business profiles to experience a loss of
market confidence, falling asset values, or liquidity stress and
decreased funding options. Further, the FDIC may consider the resulting
IDI's regulatory framework post-merger; however, the resulting
framework cannot solely ameliorate other identified financial stability
concerns.
In addition to the items previously noted, the FDIC will evaluate
any additional elements that may affect the risk to the U.S. banking or
financial system stability. This may include the resulting IDI's
regulatory framework; however, the framework alone would not result in
a favorable finding on this factor when other financial stability
concerns exist. As appropriate, consideration may be given to the
merging IDIs' records with respect to cybersecurity as well as their
stress-testing results. For example, the FDIC evaluates the IDI's
record of preventing data breaches and responding to and preventing
cybersecurity threats.
Questions:
30. How could the FDIC enhance its approach to evaluating risk to
the stability of the U.S. banking or financial system?
31. Should the FDIC adopt size thresholds (other than the proposed
$100 billion threshold) related to financial stability? If so, why, and
what size thresholds would be appropriate to identify transactions that
present concerns for this statutory factor?
32. Should the FDIC consider a quantitative risk indicator for
overall financial stability? If so, how should this indicator be
calculated, and what historical data would support the validity of its
usage?
33. How should the FDIC measure the potential impact (e.g.,
financial, economic, or other) of a resulting IDI on the banking or
financial system?

[[Page 29235]]

34. When measuring the potential impact of a merger, what potential
scenarios or assumptions regarding financial and economic conditions
would be appropriate, regarding both the merger transaction parties and
the overall banking and financial systems?
35. What, if any, additional criteria should be included in the
evaluation of the financial stability risk factor?
36. How should the FDIC assess whether a change in the overall risk
to financial stability is problematic? Should the FDIC place more
emphasis on the creation of new risk to financial stability, an
increase to existing risk, or both? If so, what emphasis should be
placed and why?

Effectiveness in Combatting Money Laundering Activities

In every case, the BMA directs the responsible agency to consider
the effectiveness of any IDI involved in the proposed merger
transaction in combatting money laundering activities, including in
overseas branches.\42\ The FDIC expects that the resulting IDI will
operate under a satisfactory anti-money laundering (AML)/countering the
financing of terrorism (CFT) program commensurate with its risk profile
and business (or strategic) plan.\43\
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\42\ 12 U.S.C. 1828(c)(11).
\43\ The Anti-Money Laundering Act of 2020 (the AML Act),
amended subchapter II of chapter 53 of title 31 United States Code
(the legislative framework commonly referred to as the Bank Secrecy
Act or BSA). The AML Act requires the Financial Crimes Enforcement
Network (FinCEN), in consultation with Federal functional
regulators, to promulgate AML/CFT regulations. Due to the addition
of the CFT, and for consistency with FinCEN, the FDIC will use the
term AML/CFT (which includes BSA) when referring to, issuing, or
amending regulations to address the requirements of the AML Act of
2020.
---------------------------------------------------------------------------

As part of its evaluation of this factor, the FDIC will undertake a
comprehensive analysis of each entity's record with regard to AML/CFT.
Among other relevant items, the FDIC will consider each entity's
overseas branch operations; policies, procedures, and processes; risk
management programs; supervisory record, including compliance with the
Bank Secrecy Act (BSA) and its implementing regulations; and
remediation efforts pursuant to any outstanding corrective programs.
Significant unresolved AML/CFT deficiencies, or an outstanding or
proposed formal or informal enforcement action that includes provisions
related to AML/CFT, is generally inconsistent with a favorable
resolution of this factor. One RFI commenter suggested a bar on the
approval of any mergers where an IDI ``has been found guilty of AML
misconduct in the previous five years.'' No such bar has been included
in the Proposed SOP to retain flexibility in evaluating the merits of
each proposed transaction.
Questions:
37. What additional items should the FDIC evaluate as it relates to
the respective merger parties' AML/CFT programs?
38. If one party to the transaction has a less than satisfactory
AML/CFT compliance program, how much emphasis should be placed on the
resultant IDI's AML/CFT compliance program and its plan for integrating
the target entity?

Other Matters and Considerations

With regard to interstate mergers, the Proposed SOP states that the
FDIC will ensure that the additional requirements and restrictions of
Section 44 are satisfied.\44\
---------------------------------------------------------------------------

\44\ See 12 U.S.C.1831u.
---------------------------------------------------------------------------

The SOP highlights other matters and considerations, such as
filings from non-banks \45\ or banks that are not traditional community
bank \46\ applicants, as well as applications from operating non-
insured entities.
---------------------------------------------------------------------------

\45\ A ``non-bank'' refers to an IDI that is a ``bank'' for
purposes of the FDI Act, but not for purposes of the BHCA. Non-banks
may be owned by parent companies that are not subject to the BHCA
and therefore may not regulated or supervised by the FRB. Existing
insured non-banks include IDIs that are controlled by parent
organizations engaged in a variety of commercial activities. These
include industrial banks and industrial loan companies, trust and
credit card banks organized under the Competitive Equality Banking
Act, and other IDIs, such as municipal deposit banks.
\46\ In contrast to a traditional community bank, an IDI that is
not a traditional community bank generally: (1) focuses on products,
services, activities, market segments, funding, or delivery channels
other than local lending and deposit taking; (2) pursues a broad
geographic footprint (such as operating nationwide from a limited
number of offices); (3) pursues a monoline, limited, or specialty
business model; or (4) operates within an organizational structure
that involves significant affiliate or other third-party
relationships (other than common relationships such as audit, human
resources, or core information technology processing services). A
non-community bank may or may not operate under a non-bank charter.
Specialty (sometimes referred to as ``niche'') IDIs are less-
diversified and usually considered ``non-community'' in nature given
the concentrated business focus or emphasis on specialized
activities.
---------------------------------------------------------------------------

While the Proposed SOP is solely an FDIC issuance, the FDIC is
working collaboratively with the relevant Federal agencies to review
and evaluate existing merger--related regulations, guidance, and
instruction. Several RFI commenters requested that any amendments to
any new merger regulations, guidelines, and instructions should be
applied on an interagency basis, and any changes should be made
prospectively. Regarding the roles of the Federal banking agencies,
several RFI commenters requested that the Consumer Financial Protection
Bureau (CFPB) be consulted on all mergers, or at least all mergers for
which the CFPB has an examination interest. A similar number of RFI
commenters presented the opposite position and noted that the CFPB
should not be consulted in any capacity, as that is not their
congressional mandate. Several RFI commenters noted that state
regulatory and supervisory authorities should be consulted, such as
state financial regulators, state Attorney's General, and courts. The
Proposed SOP does not specifically address the CFPB by name, but as
previously stated, the FDIC works collaboratively with the other
Federal regulators, as well as the relevant state authorities when
processing merger applications.
Finally, RFI commenters requested that the FDIC review, to the
extent possible, the effects of past mergers to evaluate the
appropriateness of merger guidelines; and make the results of the
evaluation public and apply the results to future merger decisions. The
FDIC is considering this recommendation.
Question:
39. Are there other elements of the Proposed SOP that would benefit
from additional clarity? If so, please provide details and explain how
the elements may be clarified.

IV. Administrative Law Matters

In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA),\47\ the agencies may not conduct or sponsor, and the
respondent is not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(OMB) control number.
---------------------------------------------------------------------------

\47\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

The proposed SOP does not create any new or revise any existing
collections of information under the PRA. Therefore, no information
collection request will be submitted to the OMB for review. The FDIC is
separately requesting comment on proposed changes to the FDIC
Supplement to the interagency Bank Merger Act application form.

[[Page 29236]]

Appendix A--Merger Application Activity \48\
---------------------------------------------------------------------------

\48\ Source of data in Tables 1-7: FDIC.
\49\ Merger applications may be returned if they are not
substantially complete. At its discretion, the FDIC may offer an
applicant an opportunity to withdraw an application. Applicants may
withdraw an application at any time if they elect not to pursue the
transaction. In some cases, in anticipation of a denial
recommendation, applicants choose to withdraw their filing. The
number of mergers that occur in a given year may differ from the
number of mergers approved by the FDIC that same year, as a merger
may not be consummated in the same year it is approved.
A regular merger is generally a combination of the assets and
liabilities of two or more unaffiliated IDIs under one IDI's charter
with the extinguishment or cancellation of the charter(s) of the
other IDI(s). For purposes of these tables, ``Bank to Bank'' refers
to a merger when all of the parties involved are IDIs and the
resulting IDI is a state nonmember bank or state savings
association; ``Involving Credit Unions'' refers to a merger that
involves the combination of any IDI with a credit union; and
``Involving Uninsured Entities'' refers to a merger that involves
the combination of any IDI with an uninsured entity.

Table 1--Number and Disposition Regular Merger Applications \49\ (Bank-to-Bank)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Year Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
2004............................................ 145 2 2 149
2005............................................ 103 1 3 107
2006............................................ 137 3 7 147
2007............................................ 143 2 1 146
2008............................................ 99 .............. 10 109
2009............................................ 66 2 11 79
2010............................................ 86 5 5 96
2011............................................ 84 1 13 98
2012............................................ 135 6 11 152
2013............................................ 133 7 10 150
2014............................................ 136 .............. 11 147
2015............................................ 135 .............. 5 140
2016............................................ 108 .............. 4 112
2017............................................ 96 1 4 101
2018............................................ 118 2 5 125
2019............................................ 94 3 .............. 97
2020............................................ 58 1 6 65
2021............................................ 88 1 .............. 89
2022............................................ 44 .............. 7 51
2023............................................ 46 2 1 49
---------------------------------------------------------------
Totals...................................... 2,054 39 116 2,209
----------------------------------------------------------------------------------------------------------------

Table 2--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Bank-to-Bank)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Asset size of resultant IDI Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets.............................. 3 13 34 50
Assets >$0 and <=$10 Billion.................... 1,953 26 76 2,055
Assets >$10 Billion and <=$100 Billion.......... 91 .............. 6 97
Assets >$100 Billion............................ 7 .............. .............. 7
---------------------------------------------------------------
Totals...................................... 2,054 39 116 2,209
----------------------------------------------------------------------------------------------------------------

[[Page 29237]]

Table 3--Number and Disposition Regular Merger Applications (Involving Credit Unions)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Year Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
2004............................................ 1 .............. .............. 1
2005............................................ 2 .............. .............. 2
2006............................................ 2 .............. 1 3
2007............................................ 1 .............. .............. 1
2008............................................ .............. .............. .............. 0
2009............................................ .............. .............. .............. 0
2010............................................ 2 .............. .............. 2
2011............................................ 2 .............. .............. 2
2012............................................ 4 .............. .............. 4
2013............................................ 7 .............. .............. 7
2014............................................ 3 .............. 1 4
2015............................................ 2 .............. .............. 2
2016............................................ 7 .............. .............. 7
2017............................................ 5 .............. 1 6
2018............................................ 12 .............. 2 14
2019............................................ 17 .............. .............. 17
2020............................................ 13 .............. 4 17
2021............................................ 8 3 1 12
2022............................................ 19 .............. 2 21
2023............................................ 14 .............. .............. 14
---------------------------------------------------------------
Totals...................................... 121 3 12 136
----------------------------------------------------------------------------------------------------------------

Table 4--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Involving Credit
Unions)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Asset size of resultant institution Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets.............................. .............. .............. 2 2
Assets >$0 and <=$10 Billion.................... 115 3 10 126
Assets >$10 Billion and <=$100 Billion.......... 5 .............. .............. 5
Assets >$100 Billion............................ 1 .............. .............. 1
---------------------------------------------------------------
Totals...................................... 121 3 12 136
----------------------------------------------------------------------------------------------------------------

Table 5--Number and Disposition Regular Merger Applications (Involving Uninsured Entities)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Year Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
2004............................................ 6 2 1 9
2005............................................ 6 .............. .............. 6
2006............................................ 15 .............. 2 17
2007............................................ 2 .............. 1 3
2008............................................ 5 .............. 2 7
2009............................................ 2 2 1 5
2010............................................ 2 .............. 1 3
2011............................................ .............. .............. .............. 0
2012............................................ 4 .............. 4 8
2013............................................ 2 .............. 1 3
2014............................................ 5 .............. 1 6
2015............................................ 2 .............. 1 3
2016............................................ 10 3 1 14
2017............................................ 8 1 2 11
2018............................................ 11 .............. 1 12
2019............................................ 14 1 .............. 15
2020............................................ 6 .............. 2 8
2021............................................ 10 .............. 1 11
2022............................................ 5 .............. 3 8
2023............................................ 1 1 1 3
---------------------------------------------------------------
Totals...................................... 116 10 26 152
----------------------------------------------------------------------------------------------------------------

[[Page 29238]]

Table 6--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Involving Uninsured
Entities)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Asset size of resultant IDI Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets.............................. 1 7 8 16
Assets >$0 and <=$10 Billion.................... 92 2 15 109
Assets >$10 Billion and <=$100 Billion.......... 20 1 .............. 21
Assets >$100 Billion............................ 3 .............. 3 6
---------------------------------------------------------------
Totals...................................... 116 10 26 152
----------------------------------------------------------------------------------------------------------------

Table 7--Number of IDIs Acquired Purchase & Assumption Transactions \50\
[1/1/2004-12/31/2023]
------------------------------------------------------------------------
Year No.
------------------------------------------------------------------------
2004................................... 128
2005................................... 132
2006................................... 167
2007................................... 148
2008................................... 130
2009................................... 91
2010................................... 104
2011................................... 106
2012................................... 112
2013................................... 152
2014................................... 146
2015................................... 161
2016................................... 159
2017................................... 134
2018................................... 149
2019................................... 151
2020................................... 99
2021................................... 94
2022................................... 75
2023................................... 78
--------------------------------
Total.................................. 2,516
------------------------------------------------------------------------

V. Proposed Statement of Policy
---------------------------------------------------------------------------

\50\ Only includes transactions in which the resulting
institution was an FDIC-supervised state nonmember bank or state
savings association, or in which an IDI sold substantially all of
its assets to a credit union and ceased operation.
---------------------------------------------------------------------------

The text of the proposed Statement of Policy follows:

FDIC Statement of Policy on Bank Merger Transactions

I. Introduction

This Statement of Policy (SOP) communicates the FDIC Board of
Directors' expectations and views regarding applications filed pursuant
to Section 18(c) of the Federal Deposit Insurance Act (FDI Act), which
is referred to herein as the Bank Merger Act (BMA). The SOP reflects
the FDIC's interpretations of the BMA and its implementing regulations.
The structure of the SOP follows the BMA's core statutory provisions,
and its content highlights the principles that guide the FDIC's
evaluation of the statutory factors for a merger application.
The BMA prohibits an insured depository institution (IDI) from
engaging in a merger transaction without regulatory approval. It
identifies the types of undertakings that constitute ``merger
transactions'' and outlines which of the three Federal banking agencies
is the ``responsible agency'' for acting on a given merger
application.\1\ In addition, the BMA sets forth advance public notice
requirements \2\ and generally requires the responsible agency to
request a report on the competitive factors for a merger transaction
from the Attorney General.\3\
---------------------------------------------------------------------------

\1\ 12 U.S.C. 1828(c)(1) and (2).
\2\ 12 U.S.C. 1828(c)(3).
\3\ 12 U.S.C. 1828(c)(4).
---------------------------------------------------------------------------

The BMA generally prohibits the responsible agency from approving a
monopolistic or otherwise anticompetitive merger transaction.\4\ In
addition to competitive considerations, the BMA requires the relevant
agency to evaluate a merger transaction in light of the financial and
managerial resources and future prospects of the existing and proposed
institutions, the convenience and needs of the community to be served,
the risk to the stability of the United States (U.S.) banking or
financial system,\5\ and the effectiveness of the IDIs involved in the
merger transaction in combatting money laundering.\6\
---------------------------------------------------------------------------

\4\ 12 U.S.C. 1828(c)(5).
\5\ Ibid.
\6\ See Financial Stability Board 2022 list of GSIBs available
at <a href="https://www.fsb.org/wp-content/uploads/P211122.pdf">https://www.fsb.org/wp-content/uploads/P211122.pdf</a>.
---------------------------------------------------------------------------

II. Jurisdiction and Scope

The FDIC is one of three Federal banking agencies with
responsibility for evaluating transactions subject to the BMA. The FDIC
has jurisdiction to act on merger applications that involve an IDI and
any non-insured entity,\7\ and those that solely involve IDIs in which
the acquiring, assuming, or resulting

[[Page 29239]]

institution is an FDIC-supervised institution.\8\
---------------------------------------------------------------------------

\7\ 12 U.S.C. 1828(c)(1). A non-insured entity refers to any
entity that is not FDIC insured.
\8\ The Office of the Comptroller of the Currency has
jurisdiction for any merger transaction between IDIs in which the
acquiring, assuming, or resulting institution is a national bank or
a Federal savings association. The Board of Governors of the Federal
Reserve System (FRB) has jurisdiction for any merger transaction
between IDIs in which the acquiring, assuming, or resulting
institution is a state-chartered bank that is a member of the
Federal Reserve System. The FRB also has approval authority under
the Bank Holding Company Act for mergers involving bank holding
companies and the Home Owners' Loan Act for mergers involving
savings and loan holding companies. Merger transactions that are
subject to the FDIC's review may also be subject to the review of
state authorities.
---------------------------------------------------------------------------

The BMA requires regulatory approval for any merger transaction
involving an IDI.\9\ The applicability of the BMA will depend on the
facts and circumstances of the proposed transaction. In addition to
transactions that combine institutions into a single legal entity
through merger or consolidation, the scope of merger transactions
subject to approval under the BMA encompasses transactions that take
other forms, including purchase and assumption transactions or other
transactions that are mergers in substance, and assumptions of deposits
or other similar liabilities.\10\
---------------------------------------------------------------------------

\9\ 12 U.S.C. 1828(c).
\10\ A merger that includes the establishment or relocation of
branches is also subject to approval under 12 U.S.C. 1828(d).
---------------------------------------------------------------------------

The FDIC considers transactions to be mergers in substance when a
target would no longer compete in the market, regardless of whether the
target plans to liquidate immediately after consummating the
transaction. An example of a transaction that is a merger in substance,
and therefore subject to the BMA, is when an IDI absorbs all (or
substantially all) of a target entity's assets and the target entity
dissolves (or otherwise ceases to engage in the acquired lines of
business).
An FDIC-supervised IDI's assumption of a deposit from another IDI,
or any IDI's assumption of a deposit from a non-insured entity, is
likewise subject to FDIC approval even in the absence of an express
agreement for a direct assumption. Similarly, a transfer of deposits
from any IDI to a non-insured entity is subject to FDIC approval.\11\
The definition of ``deposit'' per Section 3(l) of the FDI Act is broad
and extends beyond traditional demand deposits to include trust funds
and escrow funds, among other items.
---------------------------------------------------------------------------

\11\ 12 U.S.C. 1828(c)(1)(C).
---------------------------------------------------------------------------

Merger and other corporate transactions may be conducted through a
single transaction or through a series of related transactions that
each require an application, such as transactions effected through
interim institutions. In all cases, the FDIC will evaluate the
substance of all of the facts and circumstances of the transaction and
any related transactions, identify which aspects of the transaction(s)
are subject to FDIC approval, and fully evaluate the statutory factors
applicable to each transaction.

Overview of the Application Process

The FDIC encourages prospective applicants to engage in a pre-
filing process to discuss regulatory expectations. It is particularly
important for the application to be substantially complete when
initially filed.\12\ The quality and comprehensiveness of a filing are
critical to the FDIC's evaluation of the application under the
statutory factors and other regulatory requirements.\13\ The FDIC
expects all submitted materials, including the financial projections
and any related analyses, to be well supported and sufficiently
detailed. The narrative describing the analysis and evaluation of the
transaction should be supported by studies, surveys, analyses and
reports, including those prepared by or for officers, directors, or
deal team leads. Incomplete filings or non-responsiveness to additional
information requests are substantial impediments to the FDIC's ability
to fully evaluate and resolve the statutory factors.
---------------------------------------------------------------------------

\12\ As noted in Section 1.1 of the Applications Procedures
Manual, a filing that is not substantially complete lacks the
substance necessary for the FDIC to evaluate the statutory factors.
\13\ Regulatory requirements for merger applications are
provided in 12 CFR part 303 (including Subparts A and D) and any
other Federal or state regulations, statutes, or laws applicable to
the filing.
---------------------------------------------------------------------------

Public feedback is an important component of the FDIC's review of a
merger application. Section 18(c)(3) of the FDI Act requires that
public notice of the proposed merger transaction be published in an
approved form and at appropriate intervals in a newspaper or newspapers
of general circulation. A list of pending merger applications subject
to the Community Reinvestment Act (CRA) is available on the FDIC's
website using the Applications in Process Subject to the CRA Report
Selection Options.\14\ In all cases, the FDIC will review and evaluate
any public comments received regarding the merger application, and will
provide the applicant an opportunity to respond to any comment that is
determined to be a CRA protest.\15\ The FDIC will also consider the
views of each relevant Federal and state agency. Generally, the FDIC
will not approve a merger application if adverse CRA comments have not
been resolved.\16\ In certain cases, the FDIC may hold hearings or
other proceedings in connection with evaluating a merger
application.\17\
---------------------------------------------------------------------------

\14\ Applications In Process Subject to the CRA Report Selection
Options, <a href="https://cra.fdic.gov/">https://cra.fdic.gov/</a>.
\15\ 12 CFR 303.2(l) defines the term ``CRA protest'' to mean
any adverse comment from the public related to a pending filing that
raises a negative issue relative to the CRA, whether or not it is
labeled a protest and whether or not a hearing is requested. An
``adverse comment'' is defined in 12 CFR 303.2(c), as any objection,
protest, or other adverse written statement submitted by an
interested party relating to a filing.
\16\ See 12 CFR 303.2(c) and 303.2(l).
\17\ See 12 CFR 303.10.
---------------------------------------------------------------------------

Section 18(c)(4) of the FDI Act requires the FDIC to request a
competitive factors report from the Attorney General of the United
States for any merger transaction between an IDI and a non-affiliated
entity, unless the FDIC finds that it must act immediately in order to
prevent the probable failure of an IDI involved in the transaction.\18\
As circumstances warrant, the Department of Justice (DOJ) and the FDIC
will coordinate the review when there are concerns or questions
regarding the competitive effects of the transaction. As described
below, the FDIC undertakes an independent review consistent with the
statutory factors of the BMA.
---------------------------------------------------------------------------

\18\ 12 U.S.C. 1828(c)(4). In addition to acting to prevent the
probable failure of an IDI, Section 18(c)(4)(C) of the FDI Act
includes exceptions for merger transactions involving solely an IDI
and one or more of its affiliates.
---------------------------------------------------------------------------

Merger Application Adjudication

\19\ Decisions on Bank Applications, <a href="https://www.fdic.gov/regulations/laws/bankdecisions/merger/">https://www.fdic.gov/regulations/laws/bankdecisions/merger/</a>.
---------------------------------------------------------------------------

The FDIC's publicly available Delegations of Authority set forth
criteria that must be satisfied in order for staff in the FDIC Regional
Offices or

[[Page 29240]]

Washington Office to approve a merger application.\20\ Notably, the
Board of Directors reserves the authority to deny any merger
application or act on certain types of proposed transactions, including
any transaction for which one or more statutory factors are unfavorably
resolved.
---------------------------------------------------------------------------

\20\ Refer to <a href="https://www.fdic.gov/regulations/laws/matrix/delegations-filings.pdf">https://www.fdic.gov/regulations/laws/matrix/delegations-filings.pdf</a>.
---------------------------------------------------------------------------

Generally, applications will present significant concerns and will
likely result in unfavorable findings with regard to one or more
statutory factors if they include the following circumstances:
<bullet> Non-compliance with applicable Federal or state statutes,
rules, or regulations (this includes, for example, transactions that
would exceed the 10 percent nationwide deposit limit, as well as both
issued and pending enforcement actions);
<bullet> Unsafe or unsound condition relating to the existing IDIs
or the resulting IDI;
<bullet> Less than Satisfactory examination ratings, including for
any specialty areas (i.e., information technology or trust
examinations);
<bullet> Significant concerns regarding financial performance or
condition, risk profile, or future prospects;
<bullet> Inadequate management, including significant turnover,
weak or poor corporate governance, or lax oversight and administration;
or
<bullet> Incomplete, unsustainable, unrealistic or unsupported
projections, analyses, and/or assumptions.
Additionally, the FDIC may not be able to find favorably on any
given statutory factor (and the application as a whole) if there are
unresolved deficiencies, issues, or concerns (including with respect to
any public comments). A lack of sustained performance under corrective
programs will also be inconsistent with a favorable finding on one or
more statutory factors, particularly when the transaction implicates
the areas that are the subject of the corrective program. Further, the
inability or unwillingness of the applicant to agree to proposed
conditions or execute written agreements, if deemed necessary, will
result in unfavorable findings and would require action by the Board of
Directors on the application.
If FDIC staff finds unfavorably on one or more statutory factors
based on the application review, staff generally will recommend denial
of the application. At the FDIC's discretion, applicants may be offered
the opportunity to withdraw the filing. If an applicant withdraws their
filing, the Board of Directors may release a statement regarding the
concerns with the transaction if such a statement is considered to be
in the public interest for purposes of creating transparency for the
public and future applicants.

III. Statutory Factors

Merger applications are evaluated under the framework of statutory
factors as described in the BMA. Generally, the BMA prohibits approval
of monopolistic or otherwise anticompetitive transactions; and requires
the responsible agency to consider specific statutory factors related
to financial and managerial resources and future prospects, convenience
and needs of the community to be served, combatting money laundering,
and financial stability. The BMA also prohibits interstate mergers in
which the resulting IDI would control more than 10 percent of the
deposits of IDIs in the United States.\21\ Evaluations of each
statutory factor consider the respective entities' supervisory record,
potential risks and compensating controls, and any other available
information deemed appropriate.
---------------------------------------------------------------------------

\21\ 12 U.S.C. 1828(c)(5), 1828(c)(11), and 1828(c)(13).
---------------------------------------------------------------------------

Monopolistic or Anticompetitive Effects

The FDIC strives to ensure that resulting institutions continue as
participants in a competitive environment. Section 18(c)(5) of the BMA
prohibits the FDIC from approving a merger transaction that would
result in a monopoly or would be in furtherance of an attempt to
monopolize the business of banking in any part of the U.S. The BMA also
prohibits the FDIC from approving a merger transaction that may
substantially lessen competition in any section of the country, unless
the anticompetitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the community to be
served.\22\ For example, such a circumstance may exist where a
transaction is necessary to prevent the probable failure of an IDI.
---------------------------------------------------------------------------

\22\ 12 U.S.C. 1828(c)(5).
---------------------------------------------------------------------------

The FDIC will evaluate the competitive effects of a proposed merger
in a manner that is most relevant to each transaction. Consistent with
the majority of merger transactions typically presented to the FDIC,
the FDIC generally employs a framework for evaluating competitive
effects involving a transaction between IDIs with traditional community
banking operations within their local geographic markets. However, the
FDIC will tailor its evaluation to consider the size and competitive
effects of the resulting IDI. Additionally, the FDIC will consider all
relevant market participants. For example, the FDIC may include any
other financial service providers that the FDIC views as competitive
with the merging entities, including providers located outside the
geographic market when it is evident that such providers materially
influence the market. Further, in cases involving merging entities with
specialty lines of business or non-traditional products, services, or
delivery methods, the FDIC will take into account any additional data
sources or appropriate analytical approaches to fully assess the
competitive effects of the transaction.
In assessing competitive effects, the FDIC considers concentrations
with respect to both geographic and product markets. The FDIC
identifies all relevant geographic markets (local, regional, and
national) based on the geographic areas in which the merging entities
operate and in which customers may practically turn to competitors for
alternative products and services.\23\ The FDIC uses deposits as an
initial proxy for commercial banking products and services. The FDIC
will initially measure the respective shares of total deposits held by
the merging entities and the various other participants with offices in
the geographic market. The FDIC evaluates the market concentration and
change in market concentration in each geographic and product
market.\24\
---------------------------------------------------------------------------

\23\ See United States v. Philadelphia National Bank, 374 U.S.
321 (1963).
\24\ Indicators of market concentration and change in
concentration include calculations using the Herfindahl-Hirschman
Index (HHI).
---------------------------------------------------------------------------

In addition, the FDIC will consider concentrations beyond those
based on deposits. As appropriate, the FDIC may consider concentrations
in any specific products or customer segments, such as, for example,
the volume of small business or residential loan originations or
activities requiring specialized expertise. Additionally, when
relevant, the analysis may incorporate other products offered by the
merging entities with consideration given to whether consumers retain
meaningful choices. In its analysis, the FDIC will evaluate a market
with a scope that is appropriate to the products or services offered or
planned. Moreover, the FDIC will consider the emergence of new
competitors for products or services in relevant markets; and the
expansion of products and services offered by the merging entities and
other market participants. Finally, as necessary or

[[Page 29241]]

appropriate, the FDIC will consider other products or services and
additional methods of assessing the competitive nature of markets. In
particular, the FDIC may consider information on the pricing of
products and services to assess the competitive effects of a proposed
merger when practicable and relevant.
The FDIC may require divestitures of business lines, branches, or
portions thereof as a means to mitigate competitive concerns before
allowing the merger to be consummated. In such cases, the FDIC will
generally require that the selling institution will not enter into non-
compete agreements with any employee of the divested entity nor enforce
any existing non-compete agreements with any of those entities.
Nationwide Deposit Cap
The BMA prohibits approval of an interstate merger that results in
an IDI (and its affiliates) controlling more than 10 percent of the
total deposits of IDIs in the U.S.\25\ This prohibition does not apply
to transactions that involve one or more IDIs in default or in danger
of default. Consistent with the competitive effects review, the FDIC
will use the most current Summary of Deposits data to confirm the
nationwide deposit share of the resulting IDI following the proposed
transaction.
---------------------------------------------------------------------------

\25\ 12 U.S.C. 1828(c)(13).
---------------------------------------------------------------------------

Financial Resources

The BMA requires the responsible agency to consider the financial
resources of the existing and proposed entities involved in a merger
transaction.\26\ The FDIC expects that the resulting IDI will reflect
sound financial performance and condition.\27\ Generally, the FDIC will
not find favorably on the financial resources factor if the merger
would result in a weaker IDI from an overall financial perspective.
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\26\ 12 U.S.C. 1828(c)(5).
\27\ This evaluation encompasses capital, asset quality,
earnings, liquidity, and sensitivity to market risk, as described in
the Uniform Financial Institution Rating System (UFIRS); see 61 FR
67021 (December 19, 1996).
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A critical component of the analysis of financial resources is the
resultant IDI's ability to meet applicable capital standards (including
maintenance of appropriate allowances for loan or credit losses).
Depending on the anticipated risk profile of the resulting IDI, the
FDIC may impose, as a non-standard condition, capital requirements that
are higher than applicable capital standards.\28\ Further, as
appropriate, the FDIC may impose a non-standard condition that requires
the resulting IDI and other relevant parties (such as certain
affiliates or investors) to enter into one or more written agreements
that address, as applicable, capital maintenance requirements,
liquidity or funding support, affiliate transactions, and other
relevant provisions. The FDIC also expects the resulting IDI to
maintain sufficient liquidity and appropriate funding strategies given
its size, complexity, and risk profile.
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\28\ Refer to the applicable capital regulations for the
relevant parties. The minimum capital ratios for FDIC-supervised
institutions are set forth at 12 CFR 324.10, and the capital
measures and capital category definitions for the purposes of Prompt
Corrective Action are set forth at 12 CFR 324.403 for FDIC-
supervised institutions.
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The FDIC will also consider the current and projected financial
impact of any related entities on the IDI, including the parent
organization and any key affiliates. For each relevant entity, the FDIC
will consider, among other items, the size and scope of operations,
capital position, quality of assets, overall financial performance and
condition, compliance and regulatory history, primary revenue and
expense sources, and funding strategies.

Managerial Resources

The BMA requires the responsible agency to consider the managerial
resources of the existing and proposed entities involved in a merger
transaction.\29\ The FDIC expects that the directors, officers, and as
appropriate, principal shareholders (collectively, management) possess
the capabilities to administer the resultant IDI's affairs in a safe
and sound manner, and effectively implement post-merger integration
plans and strategies.
---------------------------------------------------------------------------

\29\ 12 U.S.C. 1828(c)(5).
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The capability of management to identify, measure, monitor, and
control risks and ensure a safe and sound operation in compliance with
applicable laws and regulations is included in the evaluation of
managerial resources. The FDIC will consider the background and
experience of each member of management relative to the size,
complexity, and risk profile of the resulting IDI, including the
managerial performance and supervisory record of affiliates and
subsidiaries.
The FDIC will review supervisory assessments of management made by
the relevant regulatory authorities, as well as the nature and extent
of organizational relationships. The FDIC will also evaluate the effect
of such relationships on the IDI, as well as the operating history,
risk management, and control environment of the parent organization.
Inherent in these considerations are the condition, performance, risk
profile, and prospects of the organization as a whole, as well as the
consistency of the proposed merger with the resulting IDI's strategic
(or business) plan.
The FDIC will assess each IDI's record of compliance with respect
to consumer protection, fair lending, and other relevant consumer laws
and regulations. The FDIC will analyze the compliance management system
of each of the IDIs, as well as the compliance management system for
the resulting IDI to ensure that appropriate controls will be
implemented to identify, monitor, and address consumer compliance
risks. Consideration will also be given to the consumer compliance
rating pursuant to the Uniform Interagency Consumer Compliance Rating
System and the CRA rating.\30\
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\30\ 81 FR 79473, (Nov. 14, 2016).
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Additional managerial resource considerations include:
<bullet> The supervisory history of each entity involved in the
proposed merger, including the management rating \31\ for any IDI
involved in the transaction;
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\31\ The management rating is defined in the UFIRS.
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<bullet> The breadth and depth of management, and adequacy of
succession planning;
<bullet> Management's responsiveness to issues or supervisory
recommendations raised by regulators or auditors;
<bullet> Any existing or pending enforcement actions;
<bullet> Any issues or concerns with regard to specialty areas
including information technology, trust, consumer compliance, CRA, or
Anti-Money Laundering (AML)/countering the financing of terrorist
activities (CFT); \32\ and
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\32\ The Anti-Money Laundering Act of 2020 (the AML Act),
amended subchapter II of chapter 53 of title 31 United States Code
(the legislative framework commonly referred to as the Bank Secrecy
Act or BSA). The AML Act requires the Financial Crimes Enforcement
Network (FinCEN), in consultation with Federal functional
regulators, to promulgate AML/CFT regulations. Due to the addition
of the CFT, and for consistency with FinCEN, the FDIC will use the
term AML/CFT (which includes BSA) when referring to, issuing, or
amending regulations to address the requirements of the AML Act of
2020.
---------------------------------------------------------------------------

<bullet> The reasonableness of fees, expenses, and other payments
made to insiders.
<bullet> Recent rapid growth and the record of management in
overseeing and controlling risks associated with such growth.
The FDIC expects management to develop and implement effective
plans and strategies, and the resulting IDI to have the managerial and
operational capacity to integrate the acquired entity. Effective
integration includes, but is not limited to, human capital; products
and

[[Page 29242]]

services; operating systems, policies, and procedures; internal
controls and audit coverage; physical locations; information
technology; and risk management programs. In conjunction with the
integration, the FDIC expects a resulting IDI to have the managerial
and operational capacity, and to devote adequate resources, to ensure
full and timely compliance with any outstanding corrective programs or
supervisory recommendations.

Future Prospects

The BMA requires the responsible agency to consider the future
prospects of the existing and proposed entities involved in a merger
transaction.\33\ The FDIC expects that the resulting IDI will operate
in a safe and sound manner on a sustained basis following consummation
of the merger. Among other items, the FDIC will consider the economic
environment, the competitive landscape, the acquiring IDI's history in
integrating merger targets and managing growth, the anticipated scope
of the resulting IDI's operations, the quality of its supporting
infrastructure, and other pertinent factors. Any significant planned
changes to the resulting IDI's strategies, operations, products or
services, activities, income or expense levels, or other key elements
of its business will be closely assessed. The FDIC will review the pro
forma financial projections, the underlying assumptions, and any
accompanying valuations (such as those related to the target entity,
goodwill, or other assets) to ensure they demonstrate and support that
the resulting IDI will maintain an acceptable risk profile.
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\33\ 12 U.S.C. 1828(c)(5).
---------------------------------------------------------------------------

Convenience and Needs of the Community To Be Served

The BMA requires the responsible agency to consider the convenience
and needs of the community to be served when evaluating a merger
transaction.\34\ The FDIC expects that a merger between IDIs will
enable the resulting IDI to better meet the convenience and the needs
of the community to be served than would occur absent the merger.
Applicants are expected to demonstrate how the transaction will benefit
the public through higher lending limits, greater access to existing
products and services, introduction of new or expanded products or
services, reduced prices and fees, increased convenience in utilizing
the credit and banking services and facilities of the resulting IDI, or
other means.
---------------------------------------------------------------------------

\34\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
---------------------------------------------------------------------------

The FDIC expects applicants to provide specific and forward-looking
information to enable the FDIC to evaluate the expected benefits of the
merger on the convenience and needs of the community to be served. As
appropriate, claims and commitments made to the FDIC to support the
FDIC's evaluation of the expected benefits of the merger may be
included in the Order, and the FDIC's ongoing supervisory efforts will
evaluate the IDI's adherence with any such claims and commitments. The
FDIC will evaluate the community to be served broadly, which will
include the proposed assessment area(s), retail delivery systems,
populations in affected communities, and identified needs for banking
services.
As part of its evaluation, the FDIC will review the CRA record of
the institutions. The CRA requires the FDIC to take into account each
IDI's record of meeting the credit needs of its entire community,
including low- and moderate-income neighborhoods, consistent with the
safe and sound operation of such institution.\35\ As such, the FDIC
will consider each institution's CRA performance evaluation record of
helping to meet the credit needs of its assessment areas, including
low- and moderate-income neighborhoods, and record of community
development activity, as applicable. A less than Satisfactory
historical rating or significant deterioration in CRA performance will
generally result in unfavorable findings. The FDIC's review is not
limited to the CRA record of the institutions and will encompass a
broad review of the institutions' existing products and services and
whether the products and services proposed by the applicants will meet
the convenience and needs of the community to be served.
---------------------------------------------------------------------------

\35\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
---------------------------------------------------------------------------

In addition, the FDIC will consider the record of each institution
in complying with consumer protection requirements and maintaining a
sound and effective compliance management system. This review will
include consideration of any existing or pending orders, ongoing
enforcement actions, and pending reviews or investigations of
violations of consumer protection laws and regulations. A less than
Satisfactory consumer compliance rating \36\ may present significant
concerns in resolving this factor.
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\36\ Uniform Interagency Consumer Compliance Rating System, 81
FR 79473 (Nov. 14, 2016).
---------------------------------------------------------------------------

The CRA assessment area(s) and branch locations resulting from the
merger are evaluated as part of this factor. The assessment area(s)
should be delineated in accordance with 12 CFR part 345 (or other
appropriate regulations), and should not reflect illegal
discrimination. The FDIC will evaluate all projected or anticipated
branch expansion, closings, or consolidations for the first three years
following consummation of the merger.\37\ Branch closings are subject
to both Section 42 of the FDI Act and the Interagency Policy Statement
Concerning Branch Closing Notices and Policies.\38\ Information
regarding any proposed or expected closures, including the timing of
each closure, the effect on the availability of products and services,
particularly to low- or moderate-income individuals or designated
areas, any job losses or lost job opportunities from branching changes,
and the broader effects on the convenience and needs of the community
to be served will be closely evaluated. Applications that project
material reductions in service to low- and moderate-income communities
or consumers will generally result in unfavorable findings.
---------------------------------------------------------------------------

\37\ Generally, the FDIC considers a substantially complete
merger application to include, among other items, at least three
years of information regarding projected branch expansions,
closings, or consolidations. Short-distance consolidations that may
not be subject to Section 42 outside of a merger context should be
included in this information.
\38\ 64 FR 34845 (June 29, 1999).
---------------------------------------------------------------------------

The FDIC will consider all substantive public comments received in
accordance with 12 CFR 303.9, as well as the views of relevant state
and Federal regulators regarding the ability of the applicant to meet
the convenience and needs of the community to be served. Non-standard
conditions may be imposed, as appropriate, in response to CRA
weaknesses, relevant regulator input, bank commitments, or public
comments. The FDIC will consider whether it is in the public interest
to hold a hearing for merger applications, and generally expects to
hold a hearing for any application resulting in an IDI with greater
than $50 billion in assets or for which a significant number of CRA
protests are received. The FDIC may also hold public or private
meetings to receive input on the transaction. The decision to hold such
meetings depend on issues raised during the comment period and the
significance of the merger transaction to the public interest, to the
banking industry, and communities affected.
As noted above, the BMA prohibits the FDIC from approving a merger
transaction that may substantially lessen competition in any section of
the country, unless the anticompetitive

[[Page 29243]]

effects of the proposed transaction are clearly outweighed in the
public interest by the probable effect of the transaction in meeting
the convenience and needs of the community to be served.\39\ In
situations where anticompetitive effects are identified, the FDIC will
evaluate whether the applicant has established that the benefits to the
convenience and needs of the community will clearly outweigh the
anticompetitive effects. A favorable finding on the convenience and
needs of the community to be served factor may not support approval of
the application when anticompetitive effects are identified.
---------------------------------------------------------------------------

\39\ 12 U.S.C. 1828(c)(5).
---------------------------------------------------------------------------

Risk to the Stability of the United States Banking or Financial System

Section 604 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) amended the BMA to require the FDIC to
consider the risk posed by a merger transaction to the stability of the
U.S. banking or financial system. The FDIC expects that the resulting
IDI (or consolidated company) will not materially increase the risk to
the stability of the U.S. banking or financial system.\40\ Consistent
with the other Federal banking agencies,\41\ the FDIC evaluates this
factor with respect to the following:
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\40\ 12 U.S.C. 1828(c)(5).
\41\ The FDIC will consider data collected by the Federal
Reserve to monitor the systemic risk profile of the institutions,
which are subject to enhanced prudential standards under Section 165
of the Dodd-Frank Act.
---------------------------------------------------------------------------

<bullet> The size of the entities involved in the transaction;
<bullet> The availability of substitute providers for any critical
products or services to be offered by the resulting IDI;
<bullet> The resulting IDI's degree of interconnectedness with the
U.S. banking or financial system;
<bullet> The extent to which the resulting IDI contributes to the
U.S. banking or financial system's complexity; and
<bullet> The extent of the resulting IDI's cross-border activities.
Generally, the FDIC will not view the size of the entities involved
in a proposed merger transaction as a sole basis for determining the
risk to the U.S. banking or financial system's stability. However,
transactions that result in a large IDI (e.g., in excess of $100
billion) are more likely to present potential financial stability
concerns with respect to substitute providers, interconnectedness,
complexity, and cross border activities, and will be subject to added
scrutiny. The FDIC will consider the nature and scope of operations of
the target entity, the resulting IDI, and any other elements that may
also influence the risk to the U.S. banking or financial system's
stability.
With regard to substitute providers, the FDIC will consider whether
the resulting IDI provides critical products or services that may be
difficult to replace, or conducts activities (including specific
business lines) that comprise a relatively large share of system-wide
activities. Concerns are heightened, and may preclude favorable
resolution of this factor, in situations where there are limited
readily available substitutes, as relied upon services may be disrupted
or discontinued if the resulting IDI encounters financial distress or
fails.
In assessing the resulting IDI's interconnectedness, the FDIC will
consider the degree to which the merging entities are engaged in
transactions or relationships with IDIs, affiliates of banking
organizations, or other financial service providers. Consideration will
be given to whether any exposures with creditors, counterparties,
investors, or other market participants could affect the U.S. banking
or financial system. A resulting IDI may present financial stability
concerns if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other
financial system participants.
The FDIC's evaluation of the resulting IDI's contribution to the
U.S banking or financial system's complexity will consider the full
scope of the IDI's operations. This includes the IDI's business lines,
products and services, on- and off-balance sheet activities, branch
network and delivery channels, number of account holders (including the
volume of uninsured deposits), extent of information technology
systems, and any material affiliate or other third-party relationships.
As part of evaluating the resulting IDI's impact on complexity, the
FDIC will also consider its resolvability in a potential failure
situation. The FDIC may not be able to find favorably on this factor
when the resultant IDI's organizational and funding structure preclude
its ability to: (i) continue operations and activities until they can
be sold or wound down, (ii) sell key business lines or large asset
portfolios, and (iii) be marketed for sale in a manner that limits the
potential for losses to the Deposit Insurance Fund.\42\
---------------------------------------------------------------------------

\42\ In addition to considering the FDIC's potential role as
receiver of the resulting IDI under Section 11 of the FDI Act, it
will also take into account possible alternative resolution
scenarios.
---------------------------------------------------------------------------

The extent of a resulting IDI's cross-border activities may also
have implications with regard to a favorable finding on this factor.
The FDIC will consider whether cross-border activities comprise a
material component of the resulting IDI's operations and present a
significant degree of cross-jurisdictional claims or liabilities. Such
activities may present challenges from both supervisory and resolution
perspectives given the potential exposure to differing legal
requirements, geopolitical events, and competing national interests.
Other Stability Considerations
The above list of items is not exhaustive. The FDIC will evaluate
any additional elements that may affect the risk to the U.S. banking or
financial system's stability. This may include the resulting IDI's
regulatory framework; however, the framework alone would not result in
a favorable finding on this factor when other financial stability
concerns exist. As appropriate, consideration may be given to the
merging IDIs' records with respect to cybersecurity and stress-testing
results. The FDIC may also evaluate the degree to which the resultant
IDI's potential financial distress or rapid liquidation could cause
other market participants with similar activities or business profiles
to experience a loss of market confidence, falling asset values, or
decreased funding options.
Proposed transactions that solely involve affiliates that were
related at the time a merger application is filed generally will not
raise concerns with regard to this factor. However, each proposal will
be reviewed to ensure that the resulting IDI would not present any new
or unforeseen financial stability risks that may not have existed when
the merging entities operated as affiliates or on a standalone basis.

Effectiveness in Combatting Money Laundering Activities

The BMA requires the responsible agency to consider the
effectiveness of any IDI involved in a merger transaction in combatting
money-laundering activities, including in overseas branches.\43\ The
FDIC expects that approved merger transactions will result in
institutions with effective programs to combat money laundering (Anti-
Money Laundering or AML) and counter the financing of terrorism (CFT).
A favorable finding on this factor will be based on a comprehensive
evaluation of each entity's AML/CFT program that includes overseas
branches; policies, procedures, and processes; risk

[[Page 29244]]

management programs; the supervisory record of each participating
entity, the entity's compliance with Bank Secrecy Act (BSA) and its
implementing regulations; and remediation efforts pursuant to an
outstanding corrective program.\44\ In all cases, the FDIC will
consider whether the resulting IDI has developed an appropriate plan
for the integration of the combined operations into a single,
comprehensive, and effective program to combat money laundering and
terrorist financing. Additionally, the FDIC expects the applicant to
demonstrate how the resulting IDI will comply with the BSA and its
implementing regulations following consummation of the merger.
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\43\ 12 U.S.C. 1828(c)(11).
\44\ An IDI under an outstanding formal enforcement action
should make substantial progress to correct problem(s) addressed in
the action. Progress should be sufficient to determine that the AML/
CFT program is now adequate.
---------------------------------------------------------------------------

Significant unresolved AML/CFT concerns or uncorrected problems, or
an outstanding or proposed formal or informal enforcement action that
includes provisions related to AML/CFT, will generally result in
unfavorable findings on this factor. In limited cases, sufficient
mitigating factors may support a favorable finding, such as when an
acquirer with a strong AML/CFT program replaces a target entity's less
than satisfactory program and presents an appropriate plan to address
the target entity's deficiencies.

IV. Other Matters and Considerations

Interstate Merger Transactions

In cases where Section 44 of the FDI Act applies to an interstate
merger transaction, the FDIC will ensure that the additional
requirements and restrictions of Section 44 are satisfied.\45\
---------------------------------------------------------------------------

\45\ See 12 U.S.C.1831u.
---------------------------------------------------------------------------

Applications Involving Non-Banks or Banks That Are Not Traditional
Community Banks

Historically, most merger transactions considered by the FDIC have
involved traditional community banks. In general, traditional community
banks focus on providing the banking services, including loans and core
deposits, typically relied on by individuals and businesses in their
local communities. However, merger applications may also involve non-
banks \46\ or banks that are not traditional community banks, which may
involve more complexity than a traditional community bank in terms of
its business model, products, services, activities, market segments,
funding, delivery channels, geographic footprint, operations, or
intercompany or other third-party relationships. Merger applications
where the resulting IDI will be a non-bank or not a traditional
community bank are subject to the same statutory factors as any other
merger application. However, the FDIC will appropriately tailor its
review to the nature, complexity, and scale of the entities involved in
the transaction and the underlying business model. The FDIC's
Washington Office or Board of Directors reserve authority to act on
certain merger applications that do not involve traditional community
banks.
---------------------------------------------------------------------------

\46\ A ``non-bank'' refers to an IDI that is a bank for purposes
of the FDI Act, but that is not a bank for purposes of the Bank
Holding Company Act (BHCA). Non-banks may be owned by parent
companies that are not subject to the BHCA, and therefore may not
regulated or supervised by the FRB.
---------------------------------------------------------------------------

Applications Involving Operating Non-Insured Entities

Applications may involve an existing IDI merging with an operating
entity that is not FDIC-insured. Operating non-insured entities may
vary widely in the type of business and activities conducted (e.g.,
credit unions, which typically offer products and services consistent
with a traditional community bank, mortgage companies, financing
companies, payment services firms, or other types of entities whose
business model may have elements more consistent with that of a non-
community bank). Merger applications that involve an operating non-
insured entity are subject to the same statutory factors as any other
merger application. However, in reviewing such applications, the FDIC
will consider the nature and complexity of the non-insured entity, its
scale relative to the existing IDI, its current condition and
historical performance, and any other relevant information regarding
the entity's operations or risk profile.
The FDIC will review audited financial statements (covering at
least three years, unless the entity's operating history is shorter)
and assess any deferred tax assets or liabilities, intangible assets,
contingent liabilities, and any recent or pending legal or regulatory
actions. Further, independent appraisals or valuations may be necessary
to support the projected value of any business (or assets) expected to
be transferred from the operating non-insured entity to the resultant
IDI through the merger transaction.

V. Resources

FDIC Bank Application Resource page, https://www.fdic.gov/
regulations/applications/resources/
FDIC Regional Offices, <a href="https://www.fdic.gov/about/contact/directory/region.html">https://www.fdic.gov/about/contact/directory/region.html</a>
FDIC Law, Regulations, Related Acts, <a href="https://www.fdic.gov/regulations/laws/rules/">https://www.fdic.gov/regulations/laws/rules/</a>
Section 18(c) of the FDI Act, 12 U.S.C. 1828(c)
Section 42 of the FDI Act, 12 U.S.C. 1831r-1
Section 44 of the FDI Act, 12 U.S.C. 1831u
12 CFR part 303, subparts A and D
Interagency Policy Statement Concerning Branch Closing Notices and
Policies, 64 FR. 34845 (June 29, 1999)
Applications Procedures Manual (APM), <a href="https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/index.html">https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/index.html</a>
Section 1 of the FDIC APM, <a href="https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-01-01-overview.pdf">https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-01-01-overview.pdf</a>
Section 4 of the FDIC Application Procedures Manual, <a href="https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-04-mergers.pdf">https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-04-mergers.pdf</a>
FDIC Delegations of Authority--Filings, <a href="https://www.fdic.gov/regulations/laws/matrix/index.html">https://www.fdic.gov/regulations/laws/matrix/index.html</a>
Interagency Bank Merger Act Form, <a href="https://www.fdic.gov/formsdocuments/f6220-01.pdf">https://www.fdic.gov/formsdocuments/f6220-01.pdf</a>
Deposit Market Share Reports--Summary of Deposits, <a href="http://www.fdic.gov/sod">http://www.fdic.gov/sod</a>
Federal Reserve Bank of St. Louis, Competitive Analysis and
Structure Source Instrument for Depository Institutions, <a href="https://cassidi.stlouisfed.org/index">https://cassidi.stlouisfed.org/index</a>

Authority: 12 U.S.C. 1813, 1818, 1819, 1828, 1831u, 1831r-1,
1835a, 2901-2908, 5412.

Federal Deposit Insurance Corporation.

By order of the Board of Directors.

Dated at Washington, DC, March 21, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-08020 Filed 4-18-24; 8:45 am]
BILLING CODE 6714-01-P

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