Rule2024-21560
Business Combinations Under the Bank Merger Act
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 25, 2024
Effective
January 1, 2025
Issuing agencies
Treasury DepartmentComptroller of the Currency
Abstract
The OCC is adopting a final rule to amend its procedures for reviewing applications under the Bank Merger Act and adding, as an appendix, a policy statement that summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the Bank Merger Act.
Full Text
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<title>Federal Register, Volume 89 Issue 186 (Wednesday, September 25, 2024)</title>
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[Federal Register Volume 89, Number 186 (Wednesday, September 25, 2024)]
[Rules and Regulations]
[Pages 78207-78221]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21560]
[[Page 78207]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 5
[Docket ID OCC-2023-0017]
RIN 1557-AF24
Business Combinations Under the Bank Merger Act
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Final rule.
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SUMMARY: The OCC is adopting a final rule to amend its procedures for
reviewing applications under the Bank Merger Act and adding, as an
appendix, a policy statement that summarizes the principles the OCC
uses when it reviews proposed bank merger transactions under the Bank
Merger Act.
DATES: The final rule is effective on January 1, 2025.
FOR FURTHER INFORMATION CONTACT: Valerie Song, Assistant Director,
Christopher Crawford, Special Counsel, Elizabeth Small, Counsel, Chief
Counsel's Office, 202-649-5490; or Yoo Jin Na, Director for Licensing
Activities, 202-649-6260, Office of the Comptroller of the Currency,
400 7th Street SW, Washington, DC 20219. If you are deaf, hard of
hearing or have a speech disability, please dial 7-1-1 to access
telecommunications relay services.
SUPPLEMENTARY INFORMATION:
I. Background
The Bank Merger Act (BMA), section 18(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1828(c)), and the OCC's implementing
regulation, 12 CFR 5.33, govern the OCC's review of business
combinations of national banks and Federal savings associations with
other insured depository institutions (institutions) that result in a
national bank or Federal savings association.\1\ Under the BMA, the OCC
must consider the following factors: competition, 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 banking or financial
system, and the effectiveness of any insured depository institution
involved in combatting money laundering activities, including in
overseas branches.\2\ The BMA generally requires public notice of the
transaction to be published for 30 days.\3\ OCC regulations require the
public notice include essential details about the transaction and
instructions for public comment. The regulations incorporate the
statutory 30-day public notice period and provide a 30-day public
comment period, which the OCC may extend.\4\ The OCC may also hold a
public hearing, public meeting, or private meeting on an
application.\5\
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\1\ A business combination for these purposes includes an
assumption of deposits in addition to a merger or consolidation.
\2\ 12 U.S.C. 1828(c)(5), (11).
\3\ 12 U.S.C. 1828(c)(4).
\4\ 12 CFR 5.8(b), 5.10(b)(1).
\5\ 12 CFR 5.11.
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The OCC has issued several publications that provide additional
information about the procedures that the OCC follows in reviewing and
acting on proposed business combinations. For example, the ``Business
Combinations'' booklet of the Comptroller's Licensing Manual details
the OCC's review of applications under the BMA. The ``Public Notice and
Comments'' booklet of the Comptroller's Licensing Manual sets forth
policies related to the public notice and comment process, including
hearings and meetings. The Comptroller's Licensing Manual provides OCC
staff, institutions, and the public with information about the
procedures applicable to corporate applications filed with the OCC.
After reviewing these materials, the OCC determined that additional
transparency about the standards and procedures that the agency applies
when reviewing bank business combinations may be helpful to
institutions and the public.
To better reflect the OCC's view that a business combination is a
significant corporate transaction, the OCC proposed amendments to 12
CFR 5.33 to remove provisions related to expedited review and the use
of streamlined applications.\6\ The OCC also proposed adding a policy
statement at appendix A to 12 CFR part 5, subpart C, that would discuss
both the general principles the agency uses to review applications
under the BMA and how it considers financial stability, financial and
managerial resources and future prospects, and convenience and needs
factors. Proposed appendix A also described the criteria informing the
OCC's decision on whether to hold a public meeting on an application
subject to the BMA.
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\6\ 89 FR 10010 (February 13, 2024).
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The OCC received 34 substantive written comments on this proposal
from banks, trade groups, academics, and members of the public. Most
commenters agreed that the OCC should update its merger regulations and
guidelines, but expressed varying views on the proposed changes. The
comments are addressed below with the relevant discussion of 12 CFR
5.33 and appendix A. After careful consideration of these comments, the
OCC is adopting its proposed amendments to 12 CFR 5.33 in final form
and making minor, clarifying modifications to proposed appendix A.
II. Description of the Final Policy Statement and Regulatory Amendments
Regulatory Amendments
The OCC proposed two substantive changes to its business
combination regulation at 12 CFR 5.33. First, the OCC proposed removing
the expedited review procedures in Sec. 5.33(i). Paragraph (i)
currently provides that a filing that qualifies either as a business
reorganization as defined in Sec. 5.33(d)(3) or for a streamlined
application under Sec. 5.33(j) is deemed approved as of the 15th day
after the close of the comment period, unless the OCC notifies the
applicant that the filing is not eligible for expedited review or the
expedited review process is extended under Sec. 5.13(a)(2).\7\
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\7\ Under the proposal, the provisions in 12 CFR 5.13(a)(2)
regarding adverse comments would no longer apply to business
combination applications because they only apply to filings that
qualify for expedited review.
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Some commenters opposed eliminating the expedited review
procedures. These commenters argued that eliminating the expedited
review procedures would unnecessarily increase the complexity and cost
of the application process for categories of transactions that are
unlikely to present issues under the BMA, such as reorganizations.
Further, many commenters expressed concern that removing Sec. 5.33(i)
would increase the burden on smaller institutions, including community
banks. Some of these commenters suggested that the OCC continue to
allow expedited processing for banks under a certain size. Other
commenters supported eliminating expedited review, stating that
eliminating the possibility that an application will be deemed approved
solely due to the passage of time is necessary to address the systemic
risks posed by large banks and the harms of consolidation. Further,
some commenters that supported eliminating expedited review noted that
the current expedited review process fails to adequately prevent anti-
competitive mergers and the proposed changes to the review process
would allow for a
[[Page 78208]]
more comprehensive evaluation of merger application. Nevertheless, some
supportive commenters noted that the proposed changes, including the
removal of expedited review, do not go far enough to effectively
address the issues raised by large bank consolidations.
The OCC reviews business combination applications to determine
whether applicable procedural \8\ and substantive \9\ requirements are
met. The only benefit conferred by the expedited review provisions in
Sec. 5.33(i) is that these applications are deemed approved as of the
15th day after the close of the comment period \10\ unless the OCC
takes action to remove the application from expedited review or extends
the expedited review process. As described in the OCC's Annual Report,
Licensing Activity section, the OCC's current target time frame for
licensing decisions on merger applications is 45 days for expedited
review and 60 days for standard review.\11\ However, as noted in Sec.
5.33(i), the OCC can remove an application from expedited review.
Additionally, as noted in the OCC's Annual Report, the OCC may extend
the standard review target time frame if it needs additional
information to reach a decision, process a group of related filings as
a single transaction, or extend the public comment period. The OCC's
practice has been to approve or deny an application on expedited review
within 15 days after the close of the comment period or remove the
application from expedited review. The OCC is not aware of any
application for a business combination having been deemed approved
solely due to the passage of time. Accordingly, the OCC does not expect
that removing this provision will result in a significant change to the
time in which the OCC processes merger applications. Instead, this
change will more closely align the regulatory framework with the OCC's
current practices and promote transparency. Further, it is consistent
with the OCC's view that any business combination subject to a filing
under Sec. 5.33 is a significant corporate transaction requiring
active OCC consideration and decisioning of the application. The
principles underlying the expedited process in Sec. 5.33(i) (i.e.,
transactions with certain indicators are likely to satisfy the
statutory factors, do not otherwise raise supervisory or regulatory
concerns, and therefore can be processed more expeditiously) are
reflected in section II of the final appendix A.
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\8\ See, e.g., 12 U.S.C. 215a (procedures for mergers resulting
in a national bank).
\9\ See, e.g., 12 U.S.C. 1828(c) (BMA).
\10\ The public comment period is typically 30 days. See 12 CFR
5.10(b)(1).
\11\ See, e.g., Office of the Comptroller of the Currency, 2023
Annual Report, at 36.
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Second, the OCC proposed removing Sec. 5.33(j), which specifies
four situations in which an applicant may use the OCC's streamlined
business combination application, rather than the Interagency Bank
Merger Act Application.\12\ The streamlined application requests
information about topics similar to those addressed in Interagency Bank
Merger Act Application, but the former only requires an applicant to
provide detailed information if the applicant answers in the
affirmative to any one of a series of yes or no questions.
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\12\ 12 CFR 5.33(j) authorizes the use of a streamlined
application if: (i) At least one party to the transaction is an
eligible bank or eligible savings association, and all other parties
to the transaction are eligible banks, eligible savings
associations, or eligible depository institutions, the resulting
national bank or resulting Federal savings association will be well
capitalized immediately following consummation of the transaction,
and the total assets of the target institution are no more than 50
percent of the total assets of the acquiring bank or Federal savings
association, as reported in each institution's Consolidated Report
of Condition and Income filed for the quarter immediately preceding
the filing of the application; (ii) The acquiring bank or Federal
savings association is an eligible bank or eligible savings
association, the target bank or savings association is not an
eligible bank, eligible savings association, or an eligible
depository institution, the resulting national bank or resulting
Federal savings association will be well capitalized immediately
following consummation of the transaction, and the filers in a
prefiling communication request and obtain approval from the
appropriate OCC licensing office to use the streamlined application;
(iii) The acquiring bank or Federal savings association is an
eligible bank or eligible savings association, the target bank or
savings association is not an eligible bank, eligible savings
association, or an eligible depository institution, the resulting
bank or resulting Federal savings association will be well
capitalized immediately following consummation of the transaction,
and the total assets acquired do not exceed 10 percent of the total
assets of the acquiring national bank or acquiring Federal savings
association, as reported in each institution's Consolidated Report
of Condition and Income filed for the quarter immediately preceding
the filing of the application; or (iv) In the case of a transaction
under 12 CFR 5.33(g)(4), the acquiring bank is an eligible bank, the
resulting national bank will be well capitalized immediately
following consummation of the transaction, the filers in a prefiling
communication request and obtain approval from the appropriate OCC
licensing office to use the streamlined application, and the total
assets acquired do not exceed 10 percent of the total assets of the
acquiring national bank, as reported in the bank's Consolidated
Report of Condition and Income filed for the quarter immediately
preceding the filing of the application.
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Many commenters opposed eliminating the streamlined application.
Commenters stated that it is easy to complete and generally more
efficient. Commenters stated that its removal would lead to longer
processing times and higher costs for applicants. Several commenters
emphasized that eliminating the streamlined application would
disproportionately affect smaller banks, which often have limited
resources to devote to a more complex, administratively burdensome, and
detailed application process. Commenters critical of eliminating the
streamlined application focused on the increased burden of associated
with the Interagency Bank Merger Act Application. On the other hand,
some commenters supported removing the streamlined application, with
one also supporting the adoption of a more robust interagency merger
application that would include a question on community benefit
agreements or commitments.
The OCC believes that the more complete record created with the
Interagency Bank Merger Act Application provides the appropriate basis
for the OCC to consider a business combination application. Further,
the removal of the streamlined business combination form should not
significantly increase the burden on applicants. Although the
Interagency Bank Merger Act Application requires the submission of
additional information with the initial application, in practice, the
OCC often requests additional information from many applicants,
including those that file a streamlined application. Eliminating the
streamlined application may decrease the likelihood the OCC requests
additional information from applicants, which slows down the agency's
processing an application and increases the burden on applicants.
Further, the OCC may tailor the information applicants must submit in
the Interagency Bank Merger Act Application as appropriate to reduce
the information that the applicant needs to provide.\13\ For example,
there may be situations where a discussion of all items in the
Interagency Bank Merger Act Application may not be appropriate, such as
in a purchase and assumption transaction from an insured depository
institution in Federal Deposit Insurance Corporation receivership.
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\13\ Under 12 CFR 5.2(b), the OCC may adopt materially different
procedures for a particular filing or class of filings as it deems
necessary (e.g., in exceptional circumstances or for unusual
transactions) after providing notice of the change to the filer and
any other party that the OCC determines appropriate. For example,
the OCC may use this authority, if appropriate, to reduce the
information it requires in a transaction involving a failing bank,
given the limited time available to prepare the application.
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Additionally, the U.S. Small Business Administration's (SBA's)
Office of Advocacy and one other commenter stated that the OCC's
Regulatory
[[Page 78209]]
Flexibility Act (RFA) certification in the proposal lacked a factual
basis. The SBA's Office of Advocacy and others recommended that the OCC
continue to allow small entities to have access to expedited review and
use the streamlined application form. Specifically with respect to the
RFA certification, the commenters stated it lacked sufficient
information about (1) the number of small entities that would be
impacted (because the OCC only estimated the number of entities that
apply for business combinations in a given year and did not explain how
many of those entities were small entities) and (2) the basis for its
conclusion that the impact on affected institutions would be de
minimis.
In response to these comments, the OCC has revised the number of
small entities that will be impacted by this rulemaking. (This change
is reflected in its discussion of the RFA below.) Further, as discussed
above, the OCC's process for reviewing business combination
applications allows the agency to vary the information that applicants
must submit on a case-by-case basis and to request additional
information not required on the initial application, if necessary. The
OCC also may remove an application from expedited review if it needs
additional review time. Accordingly, the OCC expects these changes will
have a de minimis impact on small entities.
For the reasons discussed above, the final rule removes Sec.
5.33(i) and (j) as proposed. Further, because the term ``business
reorganization,'' as defined in Sec. 5.33(d)(3), is only used to
define a class of applications eligible for expedited review under
Sec. 5.33(i), the final rule also removes Sec. 5.33(d)(3).
Policy Statement
As discussed in Section I, Introduction, of proposed appendix A,
the policy statement would have provided institutions and the public
with a better understanding of how the OCC reviews applications subject
to the BMA and thus provided greater transparency, facilitate
interagency coordination, and enhance public engagement. Specifically,
proposed appendix A would have outlined the general principles the OCC
applies when reviewing applications and provided information about how
the OCC considers the BMA statutory factors of financial stability,
financial and managerial resources, and convenience and needs of the
community.\14\ Proposed appendix A would have provided transparency
regarding the public comment period and the factors the OCC considers
in determining whether to hold public meetings.
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\14\ Proposed appendix A would not have addressed the BMA
statutory factors of competition and the effectiveness of any
insured depository institution involved in combatting money
laundering activities, including in overseas branches. 12 U.S.C.
1828(c)(5), (11).
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Commenters generally supported the OCC's goals of increasing
transparency; however, some commenters stated that by merely codifying
current practices, the proposed appendix A did not go far enough in
fulfilling the OCC's statutory obligations in reviewing bank mergers or
preventing anti-competitive mergers in the banking industry. Several
commenters also urged the OCC to coordinate closely with other
regulators, such as the Federal Deposit Insurance Corporation, in
finalizing the proposed policy statement and in updating the 1995
interagency document, Bank Merger Competitive Review--Introduction and
Overview.
Other commenters suggested that appendix A should address the
uncertainty surrounding the processing considerations and timelines of
the OCC's review of BMA applications, noting that uncertainty in the
timelines for regulatory approval could deter beneficial merger
transactions. Several commenters offered additional ways to increase
transparency, including by releasing some of the confidential
supervisory information (e.g., ratings) that the OCC uses in evaluating
the statutory factors, televising live coverage of internal OCC
deliberations, making all agency requests for additional information
and bank responses public, and responding to all comments raised by the
public in merger approval orders.
Several commenters suggested topics that the OCC should add to
proposed appendix A. For example, several commenters suggested appendix
A should provide details of the OCC's analysis of the BMA statutory
factor of competition, generally and particularly with regard to how
improvements in convenience and needs can outweigh anticompetitive
effects. These commenters provided several suggested approaches. Other
commenters urged the OCC to be more transparent when an applicant
withdraws an application. One commenter also suggested the OCC take
steps to reduce ``charter shopping.'' Another commenter urged the OCC
to avoid the use of non-standard conditions to approve problematic
mergers. Some commenters expressed concerns with the OCC's practice of
holding prefiling meetings described in the Explanatory Calls or
Meetings section of the ``Business Combinations'' booklet of the
Comptroller's Licensing Manual and were concerned that such
communications could unduly influence the agency. Suggestions to
resolve this issue included automatically making transcripts or
summaries of the calls or meetings public or ending the practice of
holding the meetings.
The OCC is finalizing appendix A generally as proposed, with minor
grammatical changes, except as noted below. The OCC intends for
appendix A to provide substantive information on how it evaluates many
of the BMA's statutory factors. Given complexities of the competition
factor review and the involvement of the Department of Justice, the OCC
does not believe that appendix A is the appropriate vehicle for
discussing its current approach to competition issues.\15\ The OCC's
existing regulations govern the standards for impositions of
conditions.\16\ Similarly, the OCC does not intend appendix A to
address OCC processing issues such as the disclosure of confidential
supervisory information, the reasons for withdrawal of applications,
its internal decision-making process, or its practice of holding pre-
filing meetings. Accordingly, the OCC is finalizing Section I,
Introduction, as proposed, with minor grammatical changes.
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\15\ The OCC notes that the convenience and needs analysis is
relevant to the competition analysis in some instances. Under 12
U.S.C. 1828(c)(5)(B), the OCC may approve a merger whose effect in
any section of the country may be substantially to lessen
competition or to tend to create a monopoly, or which in any other
manner would be in restraint of trade if it finds that 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.
\16\ 12 CFR 5.13(a)(1) governs the OCC's imposition of
conditions to address a significant supervisory, Community
Reinvestment Act (CRA), or compliance concern if the OCC determines
that the conditions are necessary or appropriate to ensure that
approval is consistent with relevant statutory and regulatory
standards, including those designed to ensure the fair treatment of
consumers and fair access to financial services, and OCC policies
thereunder and safe and sound banking practices. The OCC imposes
conditions on a case-by-case basis and makes a determination of
appropriate conditions based on a merger's facts and circumstances.
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Section II, General Principles of OCC Review, of proposed appendix
A would have discussed the OCC's review of and action on an
application. Although, the OCC aims to act promptly on all
applications, proposed appendix A identified certain indicators that,
in the OCC's experience, generally feature in applications that are
consistent with approval. These indicators included: (i) attributes
regarding the acquirer's
[[Page 78210]]
financial condition; size; Uniform Financial Institution Ratings System
(UFIRS) \17\ or risk management, operational controls, compliance, and
asset quality (ROCA) \18\ ratings; Uniform Interagency Consumer
Compliance Rating System (CC Rating System) rating; Community
Reinvestment Act (CRA) rating; the effectiveness of its Bank Secrecy
Act/anti-money laundering program; and the absence of fair lending
concerns; (ii) attributes regarding the target's size and status as a
eligible depository institution, as defined in Sec. 5.3; (iii) the
transaction clearly not having a significant adverse effect on
competition; and (iv) the absence of significant CRA or consumer
compliance concerns, as indicated in any comments or supervisory
information.
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\17\ UFIRS is also known as the CAMELS rating system. The CAMELS
component factors address capital, asset quality, management,
earnings, liquidity, and sensitivity to market risk.
\18\ The ROCA System is the interagency uniform supervisory
rating system for U.S. branches and agencies of foreign banking
organizations.
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The General Principles of OCC Review section of proposed appendix A
would have also recognized that there are indicators that raise
supervisory or regulatory concerns. Based on the OCC's experience, if
any of these indicators are present, the OCC is unlikely to find the
statutory factors under the BMA to be consistent with approval unless
and until the applicant has adequately addressed or remediated the
concern. Proposed appendix A would have stated that these indicators
include: (i) the acquirer has a CRA rating of Needs to Improve or
Substantial Noncompliance; (ii) the acquirer has a UFIRS or ROCA
composite or management rating of 3 or worse; (iii) the acquirer has a
consumer compliance rating of 3 or worse; (iv) the acquirer is a global
systemically important banking organization (G-SIB), or subsidiary
thereof; \19\ (v) the acquirer has an open or pending Bank Secrecy Act/
Anti-Money Laundering enforcement or fair lending action, including
referrals or notification to other agencies; \20\ (v) failure by the
acquirer to adopt, implement, and adhere to all the corrective actions
required by a formal enforcement action in a timely manner; and (vi)
multiple enforcement actions against the acquirer executed or
outstanding during a three-year period.
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\19\ The Basel Committee on Bank Supervision annually identifies
certain banking organizations as global systemically important.
\20\ For example, the OCC is required to institute an
enforcement action or make a referral if it makes certain
supervisory findings with respect to the Bank Secrecy Act or fair
lending laws. See, e.g., 12 U.S.C. 1818(s)(3); 15 U.S.C. 1691e(g).
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Commenters expressed confusion about how these indicators apply and
how the OCC's reviews applications that meet some, but not all, of the
indicators that generally feature in applications consistent with
approval. For example, numerous commenters interpreted the proposed
policy statement as indicating that the OCC would not approve an
application if one of the first set of indicators was absent.
Commenters also requested clarification about how an absence or
resolution of any or most of the listed indicators of supervisory or
regulatory concerns would expedite a positive decision on an
application.
The OCC understands the confusion of some commenters with respect
to appendix A as proposed. In addition to the two categories of
transactions recognized in proposed section II, there is a middle
category of transactions that do not feature all of the indicators in
the first category but also have none of the indicators that raise
supervisory or regulatory concerns. The OCC believes that most
transactions will be in this middle category and that many of these
transactions are likely consistent with approval.
The OCC is revising proposed appendix A to eliminate this confusion
and clarify the significance of the two types of indicators. The final
appendix A includes prefatory text that notes that applications that
feature all of the first set of indicators tend to be more likely to
withstand scrutiny and to be approved expeditiously. In the OCC's
experience, these indicators reflect a national bank or Federal savings
association's condition or other features that the OCC is likely to
quickly find consistent with approval. However, these indicators are
not required for a transaction to be approved. For example, the OCC has
approved many transactions where the target is not an eligible
depository institution and the acquirer brings the appropriate
financial and managerial resources to bear to mitigate deficiencies at
the target.
With respect to the individual indicators, some commenters objected
to $50 billion in total assets serving as a ceiling for transactions
consistent with approval. One commenter requested that the OCC raise
indicator to $100 billion or more in total assets. Another commenter
noted that having $50 billion dollars as a threshold could prevent or
make it more difficult for regional and midsized institutions to
combine and compete with the largest banks. As clarified in final
appendix A, the $50 billion indicator merely reflects the likelihood of
an expeditious approval. The OCC recognizes that national banks and
Federal savings associations with $50 billion or more in total assets
tend to be more complex than smaller banks. For example, insured
national banks and Federal savings associations with at least $50
billion in total assets are subject to the OCC Guidelines Establishing
Heightened Standards for Certain Large Insured National Banks, Insured
Federal Savings Associations, and Insured Federal Branches. In light of
the increased complexity of these institutions, the OCC may require
additional time for review of the application. The OCC believes that
many transactions where the resulting institution will have total
assets of more than $50 billion are consistent with approval.
Accordingly, the OCC is finalizing the indicator as proposed at $50
billion or more in total assets, as clarified by a modification to the
prefatory text to the indicators.
Two commenters expressed concern with the indicator focusing on
transactions where the target's total assets are less than or equal to
50 percent of acquirer's total assets. The indicator is not intended to
discourage mergers of equals. It was included because, in the OCC's
supervisory experience, mergers between institutions of similar sizes
are likely to require more review than transactions where the target is
much smaller than the acquirer. In transactions with significant size
disparities, the acquirer is more likely to use its existing policies,
procedures, and control framework, with which the OCC is already
familiar. Integration of two similarly sized institutions is more
likely to result in more changes to resulting institution, which the
OCC will need to review for consistency with the applicable BMA
factors. The inclusion of this indicator simply highlights that
applications for mergers between institutions that are similar in size
may require additional time to assess but does not indicate that those
applications will not be approved. The OCC is, however, deleting the
word ``combined'' referring to the target's total assets in this
indicator for clarity. The OCC is thus finalizing this indicator as
proposed, as clarified by a modification of the prefatory text to the
indicators which emphasizes that the first set of indicators are
intended to identify applications that are more likely to withstand
scrutiny and to be approved expeditiously.
Commenters also asserted that the proposed indicators regarding
lack of enforcement actions, lack of fair lending concerns, clear
absence of a ``significant
[[Page 78211]]
adverse effect'' on competition, and no adverse public comments are
inconsistent with the applicable standards under the BMA. Other
commenters supported these indicators but had additional suggestions
including urging the OCC to include language about coordinating with
the Consumer Financial Protection Bureau regarding fair lending and
consumer protection matters; barring applicants with records of
noncompliance with fair lending, CRA, and other consumer protection
laws from being acquired; and requiring merging parties to undergo new
fair lending and CRA reviews under heightened scrutiny. The OCC does
not require that all of these indicators are present for a transaction
to be consistent with the BMA's statutory factors. Rather, the OCC can
more quickly find that applications with all of these indicators are
consistent with the BMA factors and approve the transactions. For
example, a merger between two institutions without an overlapping
footprint and few products in common will require less analysis with
respect to competition compared to a merger between institutions with
significant overlap. Similarly, the OCC approves mergers on which the
public has commented after reviewing all comments. The OCC recognizes
that while comments play an important role in the review process, some
comments may fail to raise a significant supervisory, CRA, or
compliance concern.\21\ The OCC does not expect such comments, on their
own, to warrant less expeditious processing of the application.
Therefore, OCC is finalizing these indicators as proposed, as clarified
by a modification of the prefatory language to the indicators.
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\21\ See 12 CFR 5.13(a)(2)(ii) (describing comments that do not
warrant removing a filing from expedited review).
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With respect to the indicators of supervisory or regulatory
concern, commenters expressed concern with any indication in the
proposed appendix A that the acquirer is a G-SIB or subsidiary thereof
would be unlikely to be consistent with approval. Some commenters noted
that the indicator could restrict internal reorganizations by a G-SIB
and its subsidiaries. Additionally, two commenters noted that Congress
has already addressed large-bank concentration by prohibiting bank
acquisitions based on deposit concentrations and that the OCC's use of
the G-SIB designation was inconsistent with Congressional intent. Other
commenters expressed concern that the indicator could be interpreted to
include proposed business combinations involving U.S.-based bank
subsidiaries of non-U.S. G-SIBs. These commenters assert that
applications for combinations involving such entities could bring
diversity to the U.S. banking system. On the other hand, another
commenter supported increased scrutiny of transactions involving G-SIBs
but asserted that transactions undertaken by large, non-G-SIBs should
also trigger enhanced scrutiny.
The indicators of regulatory or supervisory concern do not preclude
OCC approval of a BMA application by an institution that exhibits one
or more of the indicators. For example, internal corporate
reorganizations are frequently consistent with the BMA, notwithstanding
many regulatory or supervisory concerns, particularly where the
transaction enhances the resolvability of the institution. The OCC
views these factors regarding size as independent from limits that
Congress established in the BMA and the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (Riegle-Neal).\22\ For certain
interstate transactions, the BMA contains a national deposit cap, and
Riegle-Neal has national and State deposit caps.\23\ Similarly, there
is a liability cap imposed by the Dodd-Frank Wall Street Reform and
Consumer Protection Act \24\ that applies to both holding companies and
banks.\25\ These are all limits that a bank may not exceed absent a
specific statutory exception. In contrast, the G-SIB indicator in the
proposal reflects the OCC's supervisory experience with organizations
of that size and the impact of size and complexity on the review of a
business combination.
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\22\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
\23\ 12 U.S.C. 1828(c)(13), 1831u(b)(2).
\24\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
\25\ See 12 U.S.C. 1852.
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Similarly, even though the U.S. operations of a foreign-based G-SIB
may be smaller than those of domestic G-SIBs, the potential for
supervisory issues remains high, particularly if the foreign G-SIB's
U.S. operations are material. G-SIBs are among the most complex
financial institutions and, in the OCC's supervisory experience, they
often present supervisory issues such that inclusion of this indicator
is warranted. The OCC recognizes, however, that G-SIB status is
unlikely to be remediated. While the OCC continues to believe that the
G-SIB indicator is appropriate, it will evaluate all applications from
foreign and domestic G-SIBs on their individual merits and undertake a
fulsome analysis under the BMA and other applicable law.
Another commenter noted that a less than ``Satisfactory'' CRA
rating should not preclude an internal reorganization that would
simplify the banking organization and make it safer and sounder.
Congress has mandated that the OCC consider an institution's CRA rating
when acting on any BMA application.\26\ The OCC recognizes that
internal reorganizations present facts and analysis distinguishable
from many other BMA applications, and while the inclusion of this
indicator does not indicate those applications will not be approved,
additional scrutiny may be warranted. In some instances, the benefits
of a reorganization may overcome the less than ``Satisfactory'' CRA
rating. Nevertheless, the OCC regards a less than ``Satisfactory'' CRA
rating as raising significant regulatory or supervisory concerns and
warranting inclusion on the list of indicators. One commenter also
praised the inclusion of instances where an acquirer has experienced
rapid growth as an indicator of supervisory or regulatory concern.
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\26\ 12 U.S.C. 2903(a)(2).
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The OCC is making one change to the indicator regarding open
enforcement actions. Proposed appendix A was specific to Bank Secrecy
Act/Anti-money Laundering or fair lending actions, including referrals
or notifications to other agencies. The OCC is including all types of
consumer compliance enforcement actions in final appendix A to reflect
the seriousness of these types of enforcement actions. Accordingly, the
OCC is generally finalizing these indicators as proposed, as clarified
by a modification to the prefatory language to the indicators and the
addition of consumer compliance enforcement actions.
Section III, Financial Stability, of proposed appendix A would have
provided additional information about how the OCC considers ``the risk
to the stability of the United States banking or financial system'' as
required by the BMA, including (i) the factors the OCC considers (which
are currently described in the ``Business Combinations'' booklet of the
Comptroller's Licensing Manual); (ii) the balancing test that the OCC
applies; and (iii) the OCC's ability to consider imposing conditions on
the approval of any such transaction. The OCC's approach to considering
the risk to the stability of the financial system set forth in proposed
appendix A is consistent with longstanding OCC practice and
[[Page 78212]]
principles.\27\ Specifically, the OCC considers (i) whether the size of
the combined institutions would result in material increases in risk to
financial stability; (ii) any potential reduction in the availability
of substitute providers for the services offered by the combining
institutions; (iii) whether the resulting institution would engage in
any business activities or participate in markets in a manner that, in
the event of financial distress of the resulting institution, would
cause significant risks to other institutions; (iv) the extent to which
the combining institutions contribute to the complexity of the
financial system; (v) the extent of cross-border activities of the
combining institutions; (vi) whether the proposed transaction would
increase the relative degree of difficulty of resolving or winding up
the resulting institution's business in the event of failure or
insolvency; and (vii) any other factors that could indicate that the
transaction poses a risk to the U.S. banking or financial system.
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\27\ See, e.g., OCC Conditional Approval #1298 (November 2022);
OCC Corporate Decision #2012-05 (April 2012).
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Section III, Financial Stability, of proposed appendix A would have
clarified that the OCC applies a balancing test when considering the
financial stability factor and weighs the financial stability risk of
approving the proposed transaction against the financial stability risk
of denying it, particularly if the proposed transaction involves a
troubled target. Specifically, the OCC considers each factor
individually and in combination. Even if only a single factor indicates
a risk to the stability of the U.S. banking or financial system, the
OCC may determine that the proposal would have an adverse effect on the
stability of the U.S. banking or financial system.\28\ The OCC also
considers whether the proposed transaction would provide any stability
benefits and the enhanced prudential standards that would be applicable
as a result of the proposed transaction would offset any potential
risks.\29\
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\28\ See, e.g., FRB Order No. 2012-2 (February 14, 2012) at 30.
\29\ See, e.g., FRB Order No. 2021-04 (May 14, 2021) at 24.
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Section III also would have noted that, consistent with current OCC
practice,\30\ the OCC's review of the financial stability factors may
result in a decision to approve a proposed transaction, subject to
conditions that are enforceable under 12 U.S.C. 1818. These conditions
may include asset divestitures or higher minimum capital requirements
and are intended to address and mitigate financial stability risk
concerns.
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\30\ See, e.g., OCC Conditional Approval #1298 (November 2022).
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Further, the OCC's review of the financial stability factors
considers the impact of the proposed transaction in the context of any
heightened standards applicable to the resulting institution pursuant
to 12 CFR part 30, appendix D, ``OCC Guidelines Establishing Heightened
Standards for Certain Large Insured National Banks, Insured Federal
Savings Associations, and Insured Federal Branches'' and the recovery
planning standards applicable to the resulting institution pursuant to
12 CFR part 30, appendix E, ``OCC Guidelines Establishing Standards for
Recovery Planning by Certain Large Insured National Banks, Insured
Federal Savings Associations, and Insured Federal Branches.'' Section
III also would have stated that the OCC may consider the facts,
circumstances, and representations of concurrent applications for
related transactions, including the impact of the related transactions
on the proposed transaction.\31\
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\31\ For example, many business combinations under the BMA are
part of a larger transaction that requires a filing with the Board
under the Bank Holding Company Act.
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Commenters generally supported the OCC's goal of providing
additional transparency about how the OCC considers the effect of a
transaction on financial stability. However, some commenters criticized
the OCC's balancing test approach to evaluating financial stability as
too lenient to protect financial institutions and the broader economy,
especially for G-SIBs. These commenters noted that the OCC should not
rely on enhanced prudential standards to offset risks. One commenter
also objected to the OCC's consideration of the financial stability
risk associated with denying an application in the balancing test and
noted that the OCC should use the supervisory process and not business
combinations to address concerns about troubled institutions. Some
commenters suggested options including other, scored risk factors like
the list of systemic risk factors used to calculate the G-SIB surcharge
in 12 CFR part 217, subpart H. Additionally, commenters expressed
concern that the OCC's review would consider the representations made
in other pending applications and noted that applicants may not have
detailed knowledge of pending or future applications. Another commenter
suggested that the OCC revise proposed appendix A to promote more
actively the acquisition of a troubled institution before it fails. One
commenter suggested automatically categorizing transactions involving
institutions below $10 billion in assets as low risk to financial
stability unless specific factors suggest otherwise. Other commenters
suggested that considerations of financial stability risks under the
BMA must include an evaluation of climate-related financial risks and
the impact of a resulting institution's activities on financial
stability in that regard.
The proposed appendix A described the OCC's long-standing approach
to considering the risk to the stability of the financial system and
would have provided additional clarity on the factors considered, the
balancing test applied, and the possibility that the OCC may impose
conditions in certain situations. Although the OCC's considerations are
not scored, the OCC considers each factor individually and in
combination to develop a holistic view of the potential transaction's
effect on financial stability. The OCC believes this balancing test
allows it to consider all factors relevant to financial stability and
results in determinations that fully incorporate the effect of the
transaction on financial stability. Additionally, the OCC's review
would have only considered the representations of other concurrent
applications for related transactions, not unrelated applications that
have no nexus to the application under consideration.
The OCC is removing the word ``requirements'' from the discussion
of the OCC's consideration of the impact of the proposed transaction in
light of the standards applicable to the resulting institution's
recovery planning in Section III, Financial Stability, to more
accurately describe the standards in 12 CFR part 30, appendix E, ``OCC
Guidelines Establishing Standards for Recovery Planning by Certain
Large Insured National Banks, Insured Federal Savings Associations, and
Insured Federal Branches''. The OCC is otherwise generally finalizing
Section III, Financial Stability, as proposed.
Section IV, Financial and Managerial Resources and Future
Prospects, of proposed appendix A would have discussed the BMA's
requirement that the OCC consider the managerial resources, financial
resources, and future prospects of any proposed transaction. Under the
BMA, the OCC must consider each of these factors independently for both
the combining and resulting institutions.\32\ However, because these
factors are directly related
[[Page 78213]]
to one another, the OCC also considers these factors holistically. This
section of proposed appendix A would have described the overarching
considerations of the OCC's review of these factors and provide
additional details about what the OCC considers while reviewing these
factors. The overarching considerations of this proposed section would
have noted that the OCC would consider the size, complexity, and risk
profile of the combining and resulting institutions.
---------------------------------------------------------------------------
\32\ 12 U.S.C. 1828(c)(5).
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Further, proposed appendix A would have expanded the discussion in
the Comptroller's Licensing Manual about the types of transactions the
OCC would normally not approve to provide additional details about
acquirer characteristics with respect to financial and managerial
resources and future prospects that are less likely to result in an
approval. Specifically, the OCC is less likely to approve an
application when the acquirer (i) has a less than satisfactory
supervisory record, including its financial and managerial resources;
(ii) has experienced rapid growth; (iii) has engaged in multiple
acquisitions with overlapping integration periods; (iv) has failed to
comply with conditions imposed in prior OCC licensing decisions; or (v)
is functionally the target in the transaction.\33\ The OCC also
normally does not approve a combination that would result in a
depository institution with less than adequate capital, less than
satisfactory management, or poor earnings prospects.
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\33\ For example, in a reverse triangular merger, a holding
company may acquire an institution and merge its existing subsidiary
into the newly acquired institution, which survives as a subsidiary
of the holding company. See Comptroller's Licensing Manual,
``Business Combinations'' at 23 (January 2021).
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Finally, this subsection would have confirmed the OCC's practice of
considering all comments on proposed transactions, including those on
financial and managerial resources and future prospects. To the extent
public comments address issues involving confidential supervisory
information, however, the OCC generally would not discuss or otherwise
disclose confidential supervisory information in public decision
letters.
Section IV of proposed appendix A would have next discussed the
OCC's consideration of the financial resources, managerial resources,
and future prospects factors. With respect to financial resources,
proposed appendix A would have discussed the OCC's review of pro forma
capital levels. Additionally, the OCC is generally prohibited by
statute from approving business combination applications filed by an
institution that is undercapitalized as defined in 12 CFR 6.4.\34\
Proposed appendix A also would have specified that the OCC closely
scrutinizes transactions that increase the risk to the bank's financial
condition and resilience, including risk to the bank's capital,
liquidity, and earnings that can arise from any of the eight categories
of risk included in the OCC's Risk Assessment System.\35\ Further, with
respect to the financial resources factor, the OCC considers the
ability of management to address increased risks that would result from
the transaction. Finally, proposed appendix A would have clarified that
a transaction involving an acquirer with a strong supervisory record is
more likely to satisfy the review factors. By contrast, a transaction
involving an acquirer with a recent less than satisfactory supervisory
record is less likely to satisfy this factor.
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\34\ 12 U.S.C. 1831o(e)(4). The OCC may only approve a
combination application by an undercapitalized institution if the
agency has accepted the institution's capital restoration plan and
determines that the proposed combination is consistent with and will
further the achievement of the plan or if the Board of Directors of
the Federal Deposit Insurance Corporation determines that the
proposed combination will further the purposes of 12 U.S.C.1831o. 12
U.S.C. 1831o(e)(4)(A)-(B).
\35\ These are credit, interest rate, liquidity, price,
operational, compliance, strategic, and reputation risks. See
Comptroller's Handbook, ``Bank Supervision Process'' at 26-28
(Version 1.1, September 2019).
---------------------------------------------------------------------------
Section IV of proposed appendix A would have also discussed the
OCC's approach to the managerial resources standard. The OCC considers
the supervisory record and current condition of both the acquirer and
target to determine if the resulting institutions will have sufficient
managerial resources. For example, a significant number of matters
requiring attention (MRA), or lack thereof, may impact the
determination as to whether there are sufficient managerial resources.
The OCC also reviews (i) both institutions' management ratings under
the UFIRS or ROCA system, as well as their component ratings under the
CC Rating System, Uniform Rating System for Information Technology, and
Uniform Interagency Trust Rating System, as applicable; and (ii)
relevant Risk Assessment System (RAS) conclusions for the applicant as
well as the RAS conclusions for an OCC-supervised target. The OCC also
considers the context in which the rating or RAS element was assigned
and any additional information resulting from ongoing supervision.
Finally, proposed appendix A would have noted that less than
satisfactory ratings at the target do not preclude the approval of a
transaction, provided that the acquirer can employ sufficiently robust
risk management and financial resources to correct the weaknesses.
Proposed appendix A would have stated that the OCC considers
whether the acquirer has conducted sufficient due diligence of the
target depository institution to understand its business model, systems
compatibility, and weaknesses. This consideration includes the
acquirer's plans and ability to address its own previously identified
weaknesses, remediate the target's weaknesses, and exercise appropriate
risk management for the size, complexity, and risk profile of the
resulting institution. Similarly, the OCC considers the acquirer's
plans for and history of integrating combining institutions'
operations, including systems and information security processes,
products, services, employees, and cultures.
Proposed appendix A next would have discussed the OCC's
consideration of the acquirer's plans to identify and manage systems
compatibility and integration issues, such as information technology
compatibility and implications for business continuity and resilience.
A critical component of these plans includes identifying overreliance
on manual controls, strategies for automating critical processes, and
capacity and modernization of aging and legacy information technology
systems. The OCC may conduct additional reviews where there are
concerns with systems integration and, in some cases, the OCC may
impose conditions that are enforceable pursuant to 12 U.S.C. 1818 to
address those concerns. The OCC may deny an application if the
integration or other issues present significant supervisory concerns,
and the issues cannot be resolved through appropriate conditions or
otherwise.\36\
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\36\ See 12 CFR 5.13(b).
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Finally, with regard to managerial resources, proposed appendix A
would have described the OCC's consideration of the proposed governance
structure of the resulting institution. This includes consideration of
(i) governance in decision-making processes, the board management
oversight structure, and the risk management system, including change
management; and (ii) the expansion of existing activities, introduction
of new or more complex products or lines of business, and implications
for managing existing and acquired subsidiaries and equity investments.
When applicable, the resulting institution's governance is also
[[Page 78214]]
considered in the context of the institution's relationship with its
holding company and the scope of the holding company's activities.
Section IV of proposed appendix A also would have discussed how the
OCC considers the future prospects factor. The OCC considers this
factor in light of its assessment of the institutions' financial and
managerial resources. The OCC also considers the proposed operations of
the resulting institutions and the acquirer's record of integrating
acquisitions. Specifically, the OCC considers whether the integrated
institution will be able to function effectively as a single entity.
The OCC also considers the resulting institution's business plan or
strategy and management's ability to implement it in a safe and sound
manner. Finally, the OCC considers the combination's potential impacts
on the resulting institution's continuity planning and operational
resilience.
One commenter highlighted the importance of assessing managerial
resources and firm culture when considering an application under the
BMA. This commenter urged the OCC to make it clear that, when
considering the managerial resources factor, the OCC would take into
consideration whether the acquirer and target have implemented
governance solutions that generate outcomes that meet or exceed the
OCC's expectations and suggested using artificial intelligence and
machine learning tools to do so. Other commenters suggested that an
assessment of financial and managerial resources and future prospects
should include climate-related financial risk expertise. Several other
commenters suggested the OCC include a requirement that banks describe
their efforts to promote gender, racial, and ethnic diversity in their
boards, senior management, and branch personnel, with some commenters
suggesting that such information be considered under the managerial
resources factor. One commenter also suggested that applicants submit
an integration plan as part of their application. Given the varied
nature of institutions' operations and proposed mergers, the OCC is
declining to require these items as part of its review of all
applications under the BMA. To the extent that it is relevant to any
particular transaction, the OCC may, based on its supervisory
expertise, request information on these or other items that are
relevant to the financial and managerial and future prospects factors.
The OCC is thus generally finalizing section IV as proposed with
one addition to make explicit a consideration that was implicit in the
proposal. The OCC is adding a new overarching consideration in section
IV of appendix A. Specifically, section IV will state that the OCC
considers the financial and managerial resources and future prospects
factors within the context of the prevailing economic and operating
environment. The OCC recognizes that the financial resources and future
prospects of institutions, and those of community institutions in
particular, are likely to be highly dependent on the economic and other
environments within which they operate. As such, a combined
institution's financial resources and future prospects may in some
cases be significantly greater than those of the individual
institutions if no merger were to occur.
Section V of proposed appendix A would have expanded on the
discussion in the Comptroller's Licensing Handbook of the OCC's
consideration of the probable effects of the proposed business
combination on the community to be served. Specifically, this section
would have clarified that the OCC's consideration of the impacts of any
proposed combination on the convenience and needs of the community is
prospective and considers the likely impact on the community of the
resulting institution after the transaction is consummated.\37\ For
this factor, the OCC considers, among other things (i) the proposed
changes to branch locations, branching services, banking services or
products, or credit availability offered by the target and acquirer,
including in low- or moderate-income (LMI) communities; (ii) any job
losses or lost job opportunities from branching changes; and (iii) any
community investment or development initiatives, including particularly
those that support affordable housing and small businesses. With
respect to (i) above, the OCC also sought comment on whether to specify
communities in addition to LMI communities as part of these
considerations.
---------------------------------------------------------------------------
\37\ As the OCC's review of this factor is with respect to the
resulting institution, it necessarily includes review of the record,
products, and services of both the acquirer and target.
---------------------------------------------------------------------------
Finally, section V of proposed appendix A would have clarified that
the OCC's forward-looking consideration of the convenience and needs
factor under the BMA is separate and distinct from its consideration of
an applicant's CRA record of performance in helping to meet the credit
needs of the relevant community, including LMI neighborhoods.
Commenters expressed varying viewpoints on Section V, Convenience
and Needs, of proposed appendix A. Some commenters criticized the OCC's
inclusion of job losses or reduced job opportunities, and one commenter
stated that such consideration lacked a statutory basis and diverged
from longstanding regulatory precedent. Other commenters encouraged the
OCC to place greater emphasis on factors such as potential job losses;
projected branch losses in LMI and majority-minority census tracts;
impacts to communities of color and underserved census tracts,
including small businesses in those communities; reduced reinvestment;
increased fees; and other factors that could affect access to banking
services when evaluating the community and needs factor. One commenter
suggested the OCC consider past bank branch closures. Another commenter
recommended that the OCC require applicants to submit a list of branch
closures planned for the three years following the consummation of a
merger and a discussion of the impact on local communities and stated
that applicants should be prohibited from closing other branches for
three years. Some commenters suggested that a merger should not be
approved unless applicants can demonstrate that the transaction will
better meet the convenience and needs of the community, with several
commenters specifically noting that the OCC should only approve
transactions that better serve vulnerable communities, including low-
income communities and communities of color. Several commenters
suggested that the OCC's review of the convenience and needs factor
should include broad consideration of the climate-related impact of the
transaction, including financial risk, impacts resulting from bank
activities that may impact climate change, and the climate related
transition plans. One commenter suggested that the OCC should provide
additional clarity on how it weighs the various impacts it considers.
Other commenters noted that the OCC should specifically consider how
the impacts of the expansion of digital banking affects underserved
communities in the context of merger reviews.
Several commenters emphasized the importance of community benefit
agreements and plans and collaboration with community groups and urged
the OCC to use its policy statement to elevate the importance of these
agreements, plans, and collaborations. Suggestions included signaling
that the OCC would enforce community benefit
[[Page 78215]]
commitments made during merger applications or imposing a condition of
approval on the acquirer requiring it to adhere to the elements of such
commitments. Another commenter requested additional transparency with
respect to conditional approvals for convenience and needs, CRA, or
fair lending concerns.\38\
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\38\ Additionally, one commenter recommended increased scrutiny
of convenience and needs in transactions where credit unions acquire
national banks because credit unions are not subject to CRA. The
Federal Deposit Insurance Corporation, not the OCC, is the
responsible agency for BMA transactions where national bank or
Federal savings association assets and deposit liabilities are
transferred to an institution that is not covered by the Deposit
Insurance Fund, such as a credit union. See 12 U.S.C. 1828(c)(1)(C).
To the extent an application with the OCC is required, such as a
substantial asset change under 12 CFR 5.33, the OCC will examine the
proposed transaction under all applicable standards.
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The OCC considers the convenience and needs factor in light of the
specific facts of each transaction. The factors listed in proposed
section V are indicators of whether the proposed transaction will
enable the resulting institution to better meet the convenience and
needs of its community. A net positive impact on its ability to meet
the convenience and needs of community is, in the OCC's experience,
generally consistent with approval with respect to this factor.
Applicants need not make a showing with respect to any or all of these
items for the application to be consistent with approval. The OCC
agrees with commenters that the BMA does not require consideration of
particular facts such as job losses with respect to the convenience and
needs of the community. Consistent with the BMA, the OCC will evaluate
the facts of each application and determine whether particular items
are relevant to its consideration of convenience and needs of the
specific community to be served. For example, job losses or reduced job
opportunities may have an impact on the local community as a whole in
certain circumstances. Additionally, the OCC will consider any plans
regarding the availability or cost of banking services or products to
the community in the context of the communities affected, including LMI
communities. Based on its supervisory experience, including its review
of business combination applications, the OCC believes that the
existing information requirements in the Interagency Bank Merger Act
Application provide the appropriate initial level of information. The
OCC may request additional information regarding branch closures or
other facts impacting the convenience and needs of the community to be
served. Further, the OCC believes that the items listed in proposed
section V are appropriately tailored to cover the full range of BMA
applications it receives.
Another commenter suggested that unless material changes are
expected post-consummation, the OCC should use the acquirer's and
target's CRA ratings as the primary method of assessing a merger's
impact on the convenience and needs of the community. Other commenters
asserted that CRA alone is not sufficient for determining a merger's
impact on the convenience and needs of the community. As discussed in
the Business Combinations booklet of the Comptroller's Licensing
Manual, a CRA rating is based on past performance, while the
convenience and needs factor is prospective.\39\ Accordingly, analysis
of past CRA performance is not sufficient to analyze the prospective
convenience and needs of the community. The OCC believes that section V
correctly articulated this standard as proposed.
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\39\ See Comptroller's Licensing Manual, ``Business
Combinations'' (Jan. 2021) at 7.
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The OCC is making clarifying edits to section V of appendix A. The
OCC is changing the order of the discussion of an institution's plans
to close, consolidate, limit, or expand branches to have the activities
in a more logical sequence. Likewise, with respect to credit
availability, the OCC is specifying that it considers an institution's
plans to maintain, reduce, or improvement credit availability,
including access to specific types of loans. Accordingly, the OCC is
finalizing section V generally as proposed.
Section VI, Public Comments and Meetings, of proposed appendix A
would have provided additional details about the process and procedures
relating to the OCC's receipt of public comments and considerations
related to public meetings and clarified the information contained
within 12 CFR part 5 and the ``Public Notice and Comments'' booklet of
the Comptroller's Licensing Manual.\40\ Specifically, the public
comments subsection would have articulated the circumstances under
which the OCC may extend the usual 30-day comment period \41\ pursuant
to Sec. 5.10(b)(2).\42\ It also would have provided additional clarity
by noting that the OCC may find that additional time is necessary to
develop factual information, and thus warrant extending the comment
period. This could happen, for example, if a filer's response to a
comment does not fully address the matters raised in the comment and
the commenter requests an opportunity to respond. This subsection also
would have provided examples of extenuating circumstances when the OCC
may determine that an extension is needed, including if a public
meeting is held, the transaction is novel or complex, or a natural
disaster has occurred that affects the public's ability to timely
submit comments.
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\40\ While the BMA does not require the OCC to hold meetings or
hearings, 12 CFR 5.11 describes the consideration and procedures for
public hearings and notes the availability of several other types of
meetings. The OCC considers three options for seeking oral input:
(1) public hearing, (2) public meeting, and (3) private meeting.
\41\ See 12 CFR 5.10(b)(1).
\42\ Specifically, part 5 notes that the OCC may extend the
comment period when: (1) a filer fails to file all required
publicly-available information on a timely basis or makes a request
for confidential treatment not granted by the OCC; (2) a person
requesting an extension demonstrates to the OCC that additional time
is necessary to develop factual information the OCC determines is
necessary to consider the filing; and (3) the OCC determines that
other extenuating circumstances exist.
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With respect to the discussion of public comments, some commenters
supported the proposal's discussion of how a comment period can be
extended when a filer does not adequately respond to a commenter.
However, other commenters expressed concern that the OCC's ability to
extend the comment period based on the completeness of a filer's
response to a comment may create a risk of commenters repeatedly filing
comments in bad faith, which will result in delay. Two commenters
suggested that the OCC consider extending the comment period in some
instances, with one commenter suggesting that the OCC use an initial
60-day comment period for larger transactions. Other commenters also
encouraged the OCC to minimize the negative impacts of prolonged review
periods on affected communities and stakeholders. One commenter also
requested that the OCC develop policies to address the abuse of the
public comment process, including via the use of artificial
intelligence.
The OCC did not propose any changes to its regulations regarding
its acceptance and review of public comments, which are broadly
applicable to transactions covered by 12 CFR part 5 and not only
business combinations. The OCC periodically considers which of its
regulations would benefit from proposed changes and will consider
whether to propose changes to the public comment regulations at an
appropriate time.\43\ The OCC is mindful
[[Page 78216]]
of the effects of the length of review periods on all relevant parties.
The OCC uses the standard 30-day notice period prescribed by the BMA
\44\ and will extend the comment period pursuant to the factors
discussed in section VI as appropriate. The OCC intends to act on
applications in a timely fashion, consistent with a fulsome review of
applications and safety and soundness. To clarify that the purpose of
section VI is to address considerations regarding the public comment
period and not the OCC's acceptance and review of public comments, the
OCC is revising the headings in section VI to specifically reference
the public comment period.
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\43\ For example, the OCC decennially reviews its regulations as
required by the Economic Growth and Regulatory Paperwork Reduction
Act. 12 U.S.C. 3311. See, e.g., Regulatory Publication and Review
Under the Economic Growth and Regulatory Paperwork Reduction Act of
1996, 89 FR 8084 (February 6, 2024).
\44\ See 12 U.S.C. 1828(c)(3).
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The proposed public meetings subsection of section VI would have
stated that when determining whether to hold a public meeting, the OCC
balances the public's interest in the transaction with the value or
harm of a public meeting to the decision-making process. Proposed
appendix A would also have clarified the criteria that inform the OCC's
decision on whether to hold a public meeting. The criteria include (i)
the public's interest in the transaction; (ii) the appropriateness of a
public meeting to document or clarify issues raised during the public
comment process; (iii) the significance of the transaction to the
banking industry; (iv) the significance of the transaction to the
communities affected; (v) the potential value of any information that
could be gathered and documented during a public meeting; and (vi) the
acquirer's and target's CRA, consumer compliance, fair lending, or
other pertinent supervisory records, as applicable. Several commenters
proposed additional triggers for holding public meetings, including
when there is a significant overlap in branch networks, when CRA
ratings are lower in affected geographies, when the resulting entity
will exceed a certain asset size, or when there is a merger protest.
These commenters also suggested several ways that the OCC could improve
outreach to underserved communities and dialogue about the impact of
potential mergers. These included adopting a public registry for CRA
examinations and mergers, improving the format of public meetings, and
providing clearer information on regulatory websites on how to engage
with regulators on particular mergers. One commenter objected to what
it characterized as the OCC's implication that input from the public
could be harmful to the OCC's decision-making process. This commenter
suggested a public meeting should be held when requested.
As discussed in proposed section VI, the OCC considers the
significance of the transaction to the communities affected, as well as
applicable CRA ratings. The OCC believes that these considerations are
sufficiently broad to cover issues such as a significant overlap in
branch networks. Further, the OCC believes that a decision to hold a
public meeting should be based on the individual facts and
circumstances of each proposed merger. For example, the considerations
for whether to hold a public meeting on an internal corporate
reorganization likely differ from those in a transaction between
unaffiliated institutions. Additionally, the OCC believes that the fact
that a comment is filed with respect to a proposed merger is
insufficient alone to warrant a meeting. For example, through requests
for additional information, the OCC can often obtain the information it
needs to fully consider the comment without organizing a meeting.
Consistent with applicable law, the OCC makes public all CRA
performance evaluations on its website \45\ and all applications under
the BMA in its Freedom of Information Act Reading Room.\46\ While the
OCC may consider additional methods to provide information to the
public it believes that this issue is outside the scope of appendix A.
Similarly, 12 CFR 5.11(i) provides the OCC with broad discretion in the
conduct of public meetings. The OCC may tailor the format and structure
of public meetings as needed based on the specific circumstance. The
OCC believes that the information contained in proposed section VI is
appropriate for general consideration of public meetings. Accordingly,
besides the revision to the headings in section VI to specifically
reference the public comment period, the OCC is generally finalizing
section VI as proposed.
---------------------------------------------------------------------------
\45\ OCC, CRA Performance Evaluations, <a href="https://occ.gov/publications-and-resources/tools/index-cra-search.html">https://occ.gov/publications-and-resources/tools/index-cra-search.html</a>.
\46\ OCC, Freedom of Information Act, <a href="https://foia-pal.occ.gov/">https://foia-pal.occ.gov/</a>.
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IV. Regulatory Analysis
A. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\47\ the OCC may
not conduct or sponsor, and a respondent is not required to respond to,
an information collection unless it displays a currently valid Office
of Management and Budget (OMB) control number. The information
collection requirements in this rule have been submitted to OMB under
OMB control number 1557-0014 (Licensing Manual).
---------------------------------------------------------------------------
\47\ 44 U.S.C. 3501-3521.
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The final rule amends 12 CFR 5.33 by removing the expedited review
procedures in Sec. 5.33(i), which currently allow an application to be
deemed approved by the OCC as of the 15th day after the close of the
comment period, unless the OCC notifies the filer that the filing is
not eligible for expedited review or the expedited review process is
extended. The final rule also removes the streamlined application in
Sec. 5.33(j), which removes the ability of eligible institutions to
file for certain types of business combinations using a streamlined
application form.
Title: Licensing Manual.
OMB Control Number: 1557-0014.
Frequency of Response: Occasional.
Affected Public: National banks and Federal savings associations.
The changes to the burden of the Licensing Manual are de minis and
continue to be:
Estimated Number of Respondents: 3,694.
Estimated Total Annual Burden: 12,481.15.
Comments continue to be invited on:
a. Whether the collections of information are necessary for the
proper performance of the agency functions, including whether the
information has practical utility;
b. The accuracy of the agency estimates of the burden of the
information collections, including the validity of the methodology and
assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Written
comments and recommendations for the information collection should be
sent within 30 days of publication of this notice. Comments on the
collection of information should be sent to Chief Counsel's Office,
Attention: Comment Processing, Office of the Comptroller of the
Currency, Attention: 1557-0014, 400 7th Street SW, Suite 3E-218,
Washington, DC 20219. Comments may also be sent to
<a href="/cdn-cgi/l/email-protection#88f8fae9e1e6eee7c8e7ebeba6fcfaede9fba6efe7fe"><span class="__cf_email__" data-cfemail="daaaa8bbb3b4bcb59ab5b9b9f4aea8bfbba9f4bdb5ac">[email protected]</span></a> or <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a>. Find this
information collection by selecting ``Currently under 30-day
[[Page 78217]]
Review--Open for Public Comments'' or using the search function.
B. Regulatory Flexibility Act
The RFA \48\ requires an agency, in connection with a proposal and
final rule, to prepare and make available to the public a Regulatory
Flexibility Analysis that describes the impact of the rule on small
entities (defined by the SBA for purposes of the RFA to include
commercial banks and savings institutions with total assets of $850
million or less and trust companies with total assets of $47 million or
less). However, under section 605(b) of the RFA, this analysis is not
required if an agency certifies that the rule would not have a
significant economic impact on a substantial number of small entities
and publishes its certification and a short explanatory statement in
the Federal Register along with its rule. The OCC included an RFA
certification in the Federal Register along with its proposal.
---------------------------------------------------------------------------
\48\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------
As discussed above, the SBA's Office of Advocacy and one other
commenter stated that the proposal's RFA certification lacked a factual
basis. The SBA's Office of Advocacy, along with other commenters,
recommended that the OCC continue to allow expedited review for
applications from small entities and allow those entities to continue
to use the streamlined application form. Specifically, with respect to
the proposal's RFA certification, the SBA's Office of Advocacy's
comment and the other comment addressing the RFA stated that it lacked
sufficient information about (1) the number of small entities that
would be impacted because it only estimated the number of entities that
would apply for business combinations in a given year and did not
explain how many of those entities were small entities and (2) the
basis for its conclusion that the impact on affected institutions would
be de minimis.
The OCC currently supervises 1,040 institutions (commercial banks,
trust companies, Federal savings associations, and branches or agencies
of foreign banks),\49\ of which approximately 636 are small
entities.\50\ As the SBA's Office of Advocacy noted, all of the 636
small entities may have been impacted by the proposed rule to the
extent that they elected to submit applications to the OCC for approval
of business combination activities. However, in practice and based on
the number of merger applications that the OCC has received annually
over the past five years, the agency expects the annual impact of the
final rulemaking could be 78 OCC-supervised small institutions in a
given year, assuming that all merger applications are submitted by
small banks.
---------------------------------------------------------------------------
\49\ Based on data accessed using FINDRS on August 18, 2024.
\50\ The estimate of the number of small entities is based on
the SBA's size thresholds for commercial banks and savings
institutions, and trust companies, which are $850 million and $47
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR 121.103(a), the OCC counts the assets of
affiliated financial institutions when determining if it should
classify an OCC-supervised institution as a small entity. The OCC
uses December 31, 2023, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the SBA's Table of Size Standards.
---------------------------------------------------------------------------
In terms of the potential economic impact of the final rule on
affected institutions, the OCC does not expect that the changes will
result in (1) a different outcome for merger applications or (2)
additional burden on affected institutions. First, the final appendix A
aims to provide transparency with respect to the OCC's BMA review
process, including consideration of certain statutory factors under the
BMA. This should provide regulated institutions with additional clarity
and transparency about the OCC's decision-making process. Second, the
removal of the expedited review process will likely not result in any
change to the timing of the OCC's processing of licensing applications.
The only benefit conferred by the expedited review provisions in Sec.
5.33(i) is that applications are deemed approved as of the 15th day
after the close of the comment period unless the OCC takes action to
remove the application from expedited review or extends the process.
However, the OCC is not aware of an application for a business
combination being deemed approved due to the passage of time under
Sec. 5.33(i). Third, the OCC expects that the removal of the
streamlined application form will not result in a substantive impact on
affected institutions or on the information collected. Although the
Interagency Bank Merger Act Application requires the submission of
additional documentation and information with the initial application,
that documentation and information is largely related to the same
categories of information. Further, in practice, the OCC may request
additional information from applicants to enable it to conclude on the
applicable statutory factors. Eliminating the streamlined application
may decrease the likelihood the OCC needs to request additional
information from applicants, which could otherwise slow down the
processing of an application. The agency also does not expect that the
removal of the streamlined application will result in a material change
to the time it takes to OCC to respond to submitting banks and,
therefore, does not expect any subsequent impact on bank operations
that could otherwise result from a delayed response from the OCC.
Accordingly, the OCC expects these changes to have a de minimis impact
on small entities.
In general, the OCC classifies the economic impact on an individual
small entity as significant if the total estimated impact in one year
is greater than 5 percent of the small entity's total annual salaries
and benefits or greater than 2.5 percent of the small entity's total
non-interest expense. Furthermore, the OCC considers 5 percent or more
of OCC-supervised small entities to be a substantial number. At
present, 32 OCC-supervised small entities constitute a substantial
number. Therefore, the final rule will potentially affect a substantial
number of OCC-supervised small entities in any given year.
However, based on the thresholds for a significant economic impact,
the OCC expects that, if implemented, the final rule will not have a
significant economic impact on any small entities. For these reasons,
the OCC certifies that the final rule would not have a significant
economic impact on a substantial number of small entities.
C. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act) \51\ requires that the OCC prepare a budgetary impact
statement before promulgating a rule that includes any Federal mandate
that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more (adjusted annually for inflation, currently $183
million) in any one year. If a budgetary impact statement is required,
section 205 of the Unfunded Mandates Act \52\ also requires the OCC to
identify and consider a reasonable number of regulatory alternatives
before promulgating a rule.
---------------------------------------------------------------------------
\51\ 2 U.S.C. 1532.
\52\ 2 U.S.C. 1535.
---------------------------------------------------------------------------
The OCC estimates that the annual aggregate cost of the final rule
once fully phased in will be de minimis. Furthermore, the rule's
changes are not new substantive or information requirements for OCC-
supervised institutions but rather describe
[[Page 78218]]
considerations and principles that guide the OCC's review of
applications under the BMA. Therefore, the OCC concludes that the final
rule will not result in an expenditure of $183 million or more annually
by State, local, and Tribal governments or by the private sector.
D. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA) of 1994 \53\ in determining the
effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, the OCC must consider,
consistent with principles of safety and soundness and the public
interest (1) any administrative burdens that the final rule would place
on depository institutions, including small depository institutions and
customers of depository institutions, and (2) the benefits of the final
rule. In addition, section 302(b) of RCDRIA requires new regulations
and amendments to regulations that impose additional reporting,
disclosures, or other new requirements on insured depository
institutions generally to take effect on the first day of a calendar
quarter that begins on or after the date on which the regulations are
published in final form.\54\ The OCC considered the changes made by
this final rule and believes that the effective date of January 1,
2025, will provide OCC-regulated institutions with adequate time to
comply with the rule. The final rule will not impose any new
administrative compliance requirements, and the administrative burdens
from the removal of the Streamlined Application are de minimis.
---------------------------------------------------------------------------
\53\ 12 U.S.C. 4802(a).
\54\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
E. Congressional Review Act
For purposes of the Congressional Review Act, the Office of
Management and Budget (OMB) makes a determination as to whether a final
rule constitutes a ``major rule.'' \55\ If a rule is deemed a ``major
rule'' by OMB, the Congressional Review Act generally provides that the
rule may not take effect until at least 60 days following its
publication.\56\
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\55\ 5 U.S.C. 801 et seq.
\56\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------
The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in: (1)
an annual effect on the economy of $100,000,000 or more; (2) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies, or geographic regions; or
(3) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\57\
---------------------------------------------------------------------------
\57\ 5 U.S.C. 804(2).
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As required by the Congressional Review Act, the OCC will submit
the final rule and other appropriate reports to Congress and the
Government Accountability Office for review.
List of Subjects in 12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Savings associations, Securities.
For the reasons set forth in the preamble, OCC amends 12 CFR part 5
as follows:
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
0
1. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a, 214a, 215, 215a,
215a-1, 215a-2, 215a-3, 215c, 371d, 481, 1462a, 1463, 1464, 1817(j),
1831i, 1831u, 2901 et seq., 3101 et seq., 3907, and 5412(b)(2)(B).
Sec. 5.33 [Amended]
0
2. Section 5.33 is amended by removing and reserving paragraphs (d)(3),
(i), and (j).
0
3. Add appendix A to subpart C to read as follows:
Appendix A to Subpart C of Part 5--Policy Statement Regarding Statutory
Factors Under the Bank Merger Act
I. Introduction
The purpose of this policy statement is to provide insured
depository institutions (institutions) and the public with a better
understanding of how the Office of the Comptroller of the Currency
(OCC) considers certain statutory factors under the Bank Merger Act
(BMA), 12 U.S.C. 1828(c). The matters discussed in this statement
are intended to provide greater transparency, facilitate interagency
coordination, and enhance public engagement.
II. General Principles of OCC Review
The OCC aims to act promptly on all applications. The agency's
range of potential actions on applications includes approval,
denial, and requesting that an applicant withdraw the application
because any shortcomings are unlikely to be resolved in a timely
manner. Applications that tend to withstand scrutiny more easily and
are more likely to be approved expeditiously generally feature all
of the following indicators:
1. The acquirer is well capitalized under Sec. 5.3, and the
resulting institution will be well capitalized;
2. The resulting institution will have total assets less than
$50 billion;
3. The acquirer has a Community Reinvestment Act (CRA) rating of
Outstanding or Satisfactory;
4. The acquirer has composite and management ratings of 1 or 2
under the Uniform Financial Institution Ratings System (UFIRS) or
ROCA rating system;
5. The acquirer has a consumer compliance rating of 1 or 2 under
the Uniform Interagency Consumer Compliance Rating System (CC Rating
System), if applicable;
6. The acquirer has no open formal or informal enforcement
actions;
7. The acquirer has no open or pending fair lending actions,
including referrals or notifications to other agencies;
8. The acquirer is effective in combatting money laundering
activities;
9. The target's total assets are less than or equal to 50% of
acquirer's total assets;
10. The target is an eligible depository institution as defined
in Sec. 5.3;
11. The proposed transaction clearly would not have a
significant adverse effect on competition;
12. The OCC has not identified a significant legal or policy
issue; and
13. No adverse comment has raised a significant CRA or consumer
compliance concern.
If certain indicators that raise supervisory or regulatory
concerns are present, the OCC is unlikely to find that the statutory
factors under the BMA are consistent with approval unless and until
the applicant has adequately addressed or remediated the concern.
The following are examples of indicators that raise supervisory or
regulatory concerns:
1. The acquirer has a CRA rating of Needs to Improve or
Substantial Noncompliance.
2. The acquirer has a consumer compliance rating of 3 or worse.
3. The acquirer has UFIRS or ROCA composite or management
ratings of 3 or worse or the most recent report of examination
otherwise indicates that the acquirer is not financially sound or
well managed.
4. The acquirer is a global systemically important banking
organization or subsidiary thereof.
5. The acquirer has open or pending Bank Secrecy Act/Anti-money
Laundering, fair lending, or consumer compliance actions, including
enforcement actions, referrals, or notifications to other agencies.
6. The acquirer has failed to adopt, implement, and adhere to
all the corrective actions required by a formal enforcement action
in a timely manner, or there have been multiple enforcement actions
against the acquirer executed or outstanding during a three-year
period.
[[Page 78219]]
III. Financial Stability
A. Factors Considered
The BMA requires the OCC to consider ``the risk to the stability
of the United States banking or financial system'' when reviewing
transactions subject to the Act. In reviewing a BMA application
under this factor, the OCC considers the following factors:
1. Whether the proposed transaction would result in a material
increase in risks to financial system stability due to an increase
in size of the combining institutions.
2. Whether the proposed transaction would result in a reduction
in the availability of substitute providers for the services offered
by the combining institutions.
3. Whether the resulting institution would engage in any
business activities or participate in markets in a manner that, in
the event of financial distress of the resulting institution, would
cause significant risks to other institutions.
4. Whether the proposed transaction would materially increase
the extent to which the combining institutions contribute to the
complexity of the financial system.
5. Whether the proposed transaction would materially increase
the extent of cross-border activities of the combining institutions.
6. Whether the proposed transaction would increase the relative
degree of difficulty of resolving or winding up the resulting
institution's business in the event of failure or insolvency.
7. Any other factors that could indicate that the transaction
poses a risk to the U.S. banking or financial system.
B. Balancing Test
1. In general: The OCC applies a balancing test when considering
the factors in section III.A. of this appendix in light of all the
facts and circumstances available regarding the proposed
transaction, including weighing the financial stability risk posed
by the proposed transaction against the financial stability risk
posed by denial of the proposed transaction, particularly if the
proposed transaction involves a troubled target. The OCC considers
each factor both individually and in combination with others. Even
if only a single factor indicates that the proposed transaction
would pose a risk to the stability of the U.S. banking or financial
system, the OCC may determine that there would be an adverse effect
of the proposal on the stability of the U.S. banking or financial
system. Finally, the OCC also considers whether the proposed
transaction would provide any stability benefits and whether
enhanced prudential standards applicable as a result of the proposed
transaction would offset any potential risks.
2. Conditions: The OCC's review of the financial stability
factors will include, as appropriate, whether to impose conditions
on approval of the transaction. The OCC may impose conditions,
enforceable under 12 U.S.C. 1818, to address and mitigate financial
stability risk concerns, such as requiring asset divestitures by the
resulting institution, imposing higher minimum capital requirements,
or imposing other financial stability-related conditions.
3. Recovery planning and heightened standards: The OCC's review
of the financial stability factors will consider the impact of the
proposed transaction in light of:
b. Standards applicable to the resulting institution pursuant to
12 CFR part 30, appendix D, ``OCC Guidelines Establishing Heightened
Standards for Certain Large Insured National Banks, Insured Federal
Savings Associations, and Insured Federal Branches''; and
c. Standards applicable to the resulting institution's recovery
planning pursuant to 12 CFR part 30, appendix E, ``OCC Guidelines
Establishing Standards for Recovery Planning by Certain Large
Insured National Banks, Insured Federal Savings Associations, and
Insured Federal Branches''.
4. Concurrent filings: the OCC's review of the financial
stability factors may consider the facts, circumstances, and
representations of concurrent filings for related transactions,
including the impact of the related transactions to the proposed
transaction under review by the OCC.
IV. Financial and Managerial Resources and Future Prospects
The OCC is required by the BMA to consider the managerial
resources, financial resources, and future prospects of the
combining and the resulting institutions. The OCC considers each of
these factors independently for both the combining and resulting
institutions. However, because these factors are directly related to
one another, the OCC also considers these factors holistically.
A. Overarching Considerations
1. The OCC tailors its consideration of the financial and
managerial resources and future prospects of the combining and
resulting institutions to their size, complexity, and risk profile.
2. The OCC considers these factors within the context of the
prevailing economic and operating environment.
3. The OCC is more likely to approve combinations where the
acquirer has sufficient financial and managerial resources to ensure
safe and sound operations of the resulting institution than when:
a. The acquirer has a less than satisfactory supervisory record,
including its financial and managerial resources;
b. The acquirer has experienced rapid growth;
c. The acquirer has engaged in multiple acquisitions with
overlapping integration periods;
d. The acquirer has failed to comply with conditions imposed in
prior OCC licensing decisions; or
e. The acquirer is functionally the target in the transaction.
4. The OCC normally does not approve a combination that would
result in a depository institution with less than adequate capital
or liquidity, less than satisfactory management, or poor earnings
prospects.
5. The OCC considers all comments received on proposed business
combinations. However, the OCC's consideration of an institution's
financial and managerial resources and future prospects are
necessarily based on confidential supervisory information. While the
OCC will provide an appropriate discussion of comments pertaining to
the financial resources, managerial resources, and future prospects
factors, it will generally not discuss or otherwise disclose
confidential supervisory information in public decision letters.
B. Individual Factors
1. Financial Resources:
a. The OCC reviews the existing and proposed institutions'
current and pro forma capital levels.
i. The OCC reviews for compliance with the applicable capital
ratios required by 12 CFR part 3 and the Prompt Corrective Action
capital categories established by 12 CFR 6.4.
ii. The OCC may not approve a combination application filed by
an insured depository institution that is undercapitalized as
defined in 12 CFR 6.4 unless it has approved the institution's
capital restoration plan or the Board of Directors of the Federal
Deposit Insurance Corporation has determined that the transaction
would fulfill the purposes of 12 U.S.C. 1831o.
b. The OCC closely scrutinizes transactions that increase the
risk to the bank's financial condition and resilience, including
bank capital, liquidity, and earnings, that can arise from any of
the eight categories of risk included in the OCC's Risk Assessment
System: credit, interest rate, liquidity, price, operational,
compliance, strategic, and reputation.
c. In relation to the financial resources factor, the OCC
considers management's ability to address increased risks that would
result from the transaction.
d. A transaction involving an acquirer with a strong supervisory
record relative to capital, liquidity, and earnings is more likely
to satisfy the review factors. By contrast, a transaction involving
an acquirer with a recent less than satisfactory financial or
supervisory record is less likely to satisfy this factor.
2. Managerial Resources: The OCC considers several factors when
considering the managerial resources of the institutions.
a. The OCC considers the supervisory record and current
condition of both the acquirer and target to determine if the
resulting institutions will have sufficient managerial resources to
manage the resulting institution.
i. A significant number of MRAs suggests there may be
insufficient managerial resources. Additionally, the OCC considers
both institutions' management ratings under the UFIRS or ROCA system
and component ratings under the CC Rating System, Uniform Rating
System for Information Technology, and Uniform Interagency Trust
Rating System, as applicable.
ii. When applicable, the OCC also considers the relevant Risk
Assessment System (RAS) conclusions for the combining institutions.
iii. The OCC considers the context in which a rating or RAS
element was assigned and any additional information resulting from
ongoing supervision.
iv. Less than satisfactory ratings at the target do not preclude
the approval of a
[[Page 78220]]
transaction provided that the acquirer can employ sufficiently
robust risk management and financial resources to correct the
weaknesses at the target.
b. The OCC considers whether the acquirer has conducted
sufficient due diligence of the target depository institution to
understand the business model, systems compatibility, and weaknesses
of the target. To facilitate the OCC's review, the acquirer's
management team should demonstrate its plans and ability to address
the acquirer's previously identified weaknesses, remediate the
target's weaknesses, and exercise appropriate risk management for
the size, complexity, and risk profile of the resulting institution.
c. The OCC also considers the acquirer's analysis and plans to
integrate the combining institutions' operations, including systems
and information security processes, products, services, employees,
and cultures. The OCC's consideration and degree of scrutiny
reflects the applicant's track record with information technology
governance, business continuity resilience, and, as applicable,
integrating acquisitions.
d. The OCC considers the acquirer's plans to identify and manage
systems compatibility and integration issues, such as information
technology compatibility and the implications for business
continuity resilience. Any combination in which the OCC identifies
systems integration concerns may lead to additional review.
i. A critical component of these plans includes the acquirer's
identification and assessment of overreliance on manual controls,
strategies for automating critical processes, and the strategies and
capacity for modernization of aging and legacy information
technology systems.
ii. The OCC may impose conditions, enforceable pursuant to 12
U.S.C. 1818, if it determines that information technology systems
compatibility and integration represent a supervisory significant
concern. These conditions may include requirements and time frames
for specific remedial actions and specific measures for assessing
and evaluating the depository institution's systems integration
progress.
iii. The OCC may deny the application if the integration issues
or other issues present significant supervisory concerns, and the
issues cannot be resolved through appropriate conditions or
otherwise.
e. The OCC also considers the proposed governance structure of
the resulting institution. This includes governance in decision-
making processes, the board management oversight structure, and the
risk management system, including change management. This also
includes expansion of existing activities, introduction of new or
more complex products or lines of business, and implications for
managing existing and acquired subsidiaries and equity investments.
When applicable, the resulting institution's governance is also
considered in the context of the institution's relationship with its
holding company and the scope of the holding company's activities.
3. Future Prospects:
a. The OCC considers the resulting institution's future
prospects in light of its assessment of the institutions' financial
and managerial resources.
b. The OCC also considers the proposed operations of the
resulting institution. The OCC's consideration and degree of
scrutiny reflects the acquirer's record of integrating acquisitions.
i. The OCC considers whether the integration of the combining
institutions would allow it to function effectively as a single
unit.
ii. The OCC considers the resulting institution's business plan
or strategy and management's ability to implement it in a safe and
sound manner.
iii. The OCC also considers the combination's potential impact
on the resulting institution's continuity planning and operational
resilience.
V. Convenience and Needs
A. The OCC considers the probable effects of the proposed
business combination on the community to be served. Review of the
convenience and needs factor is prospective and considers the likely
impact on the community of the resulting institution after the
transaction is consummated, including but not limited to:
1. Any plans to close, consolidate, limit, or expand branches or
branching services, including in low- or moderate-income (LMI)
areas;
2. Any plans to reduce the availability or increase the cost of
banking services or products, or plans to provide expanded or less
costly banking services or products to the community;
3. Any plans to maintain, reduce, or improve credit availability
throughout the community, including, for example, access to home
mortgage, consumer, small business, and small farm loans;
4. Job losses or reduced job opportunities from branch staffing
changes, including branch closures or consolidations;
5. Community investment or development initiatives, including,
for example, community reinvestment, community development
investment, and community outreach and engagement strategies; and
6. Efforts to support affordable housing initiatives and small
businesses.
B. The OCC considers comments received during the comment period
and information provided during any public hearing or meeting
related to the proposed business combination. To the extent public
comments or discussions address issues involving confidential
supervisory information, however, the OCC generally will not discuss
or otherwise disclose that confidential supervisory information in
public decision letters and forums.
C. The OCC considers the CRA record of performance of an
applicant in evaluating a business combination application. The
OCC's forward-looking evaluation of the convenience and needs factor
under the BMA is separate and distinct from its consideration of the
CRA record of performance of an applicant in helping to meet the
credit needs of the relevant community, including LMI neighborhoods.
VI. Public Comment Period and Public Meetings
A. Public Comment Period
1. Unless an exception applies, a combination under the BMA is
subject to a 30-day comment period following publication of the
notice of the proposed combination. The OCC may extend the comment
period in certain instances:
a. When a filer fails to file all required publicly available
information on a timely basis or makes a request for confidential
treatment not granted by the OCC;
b. When requested and the OCC determines that additional time is
necessary to develop factual information necessary to consider the
filing; and
c. When the OCC determines that other extenuating circumstances
exist.
2. The OCC may find that additional time is necessary to develop
factual information if a filer's response to a comment does not
fully address the matters raised in the comment, and the commenter
requests an opportunity to respond.
3. Examples of extenuating circumstances necessitating an
extension include:
a. Transactions in which public meetings are held to allow for
public comment after the meeting;
b. Unusual transactions (e.g., novel or complex transactions);
and
c. Natural or other disasters occurring in geographic regions
affecting the public's ability to timely submit comments.
B. Public Meetings
1. While the BMA does not require the OCC to hold meetings or
hearings, the OCC has three methods for seeking oral input: (1)
public hearing, (2) public meeting, and (3) private meeting. Public
meetings are the most-employed public option.
2. The OCC will balance the public's interest in the transaction
with the value or harm of a public meeting to the decision-making
process (e.g., although there may be increased public interest in a
transaction, a public meeting will not be held if it would not
inform the OCC's decision on an application or would otherwise harm
the decision-making process).
3. Criteria informing the OCC's decision on whether to hold
public meetings include:
a. The extent of public interest in the proposed transaction.
b. Whether a public meeting is appropriate in order to document
or clarify issues presented by a particular transaction based on
issues the public raises during the public comment process.
c. Whether a public meeting would provide useful information
that the OCC would not otherwise be able to obtain in writing.
d. The significance of the transaction to the banking industry.
Relevant considerations may include the asset sizes of the
institutions involved (e.g., resulting institution will have $50
billion or more in total assets) and concentration of the resulting
institution in one or more markets.
e. The significance of the transaction to the communities
affected. Relevant considerations may include the effects of the
transaction on the convenience and needs of
[[Page 78221]]
the community to be served, including a consideration of a bank's
CRA strategy and the extent to which the acquirer and target are
currently serving the convenience and needs of their communities.
f. The acquirer's and target's CRA, consumer compliance, fair
lending, and other pertinent supervisory records, as applicable.
Michael J. Hsu,
Acting Comptroller of the Currency.
[FR Doc. 2024-21560 Filed 9-24-24; 8:45 am]
BILLING CODE 4810-33-P
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</html>Indexed from Federal Register on September 25, 2024.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.