Rule2024-22189
Final Statement of Policy on Bank Merger Transactions
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 27, 2024
Issuing agencies
Federal Deposit Insurance Corporation
Abstract
The FDIC is issuing this final Statement of Policy on Bank Merger Transactions (Final Statement) to provide transparency on how the FDIC administers its responsibilities under the Bank Merger Act (BMA). The Final Statement takes into consideration comments received in response to the FDIC's request for comment on a proposed Statement of Policy on Bank Merger Transactions (Proposed Statement), and this Final Statement reflects certain changes made in response to comments received. The Final Statement focuses on the scope of transactions subject to FDIC approval, the FDIC's process for evaluating merger applications, and the principles that guide the FDIC's consideration of the applicable statutory factors as set forth in the BMA.
Full Text
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<title>Federal Register, Volume 89 Issue 188 (Friday, September 27, 2024)</title>
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[Federal Register Volume 89, Number 188 (Friday, September 27, 2024)]
[Rules and Regulations]
[Pages 79125-79140]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-22189]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR 303
RIN 3064-ZA31
Final Statement of Policy on Bank Merger Transactions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final statement of policy.
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SUMMARY: The FDIC is issuing this final Statement of Policy on Bank
Merger Transactions (Final Statement) to provide transparency on how
the FDIC administers its responsibilities under the Bank Merger Act
(BMA). The Final Statement takes into consideration comments received
in response to the FDIC's request for comment on a proposed Statement
of Policy on Bank Merger Transactions (Proposed Statement), and this
Final Statement reflects certain changes made in response to comments
received. The Final Statement focuses on the scope of transactions
subject to FDIC approval, the FDIC's process for evaluating merger
applications, and the principles that guide the FDIC's consideration of
the applicable statutory factors as set forth in the BMA.
DATES: The Final Statement supersedes the prior FDIC Statement of
Policy on Bank Merger Transactions on October 28, 2024.
FOR FURTHER INFORMATION CONTACT: George Small, Senior Examination
Specialist, (347) 267-2453, <a href="/cdn-cgi/l/email-protection#5c3b2f313d30301c3a38353f723b332a"><span class="__cf_email__" data-cfemail="3f584c525e53537f595b565c11585049">[email protected]</span></a>, Division of Risk
Management Supervision; Annmarie Boyd, Senior Counsel, (202) 898-3714,
<a href="/cdn-cgi/l/email-protection#177675786e735771737e7439707861"><span class="__cf_email__" data-cfemail="c6a7a4a9bfa286a0a2afa5e8a1a9b0">[email protected]</span></a>, Benjamin Klein, Supervisory Counsel, (202) 898-7027,
<a href="/cdn-cgi/l/email-protection#294b42454c4047694f4d404a074e465f"><span class="__cf_email__" data-cfemail="7e1c15121b17103e181a171d50191108">[email protected]</span></a>, Legal Division; Jessica Thurman, Chief, (202) 898-
3579, <a href="/cdn-cgi/l/email-protection#8de7f9e5f8ffe0ece3cdebe9e4eea3eae2fb"><span class="__cf_email__" data-cfemail="345e405c414659555a7452505d571a535b42">[email protected]</span></a>, Division of Depositor and Consumer Protection;
Mark Haley, Chief, (917) 320-2911, <a href="/cdn-cgi/l/email-protection#7d101c151c1118043d1b19141e531a120b"><span class="__cf_email__" data-cfemail="83eee2ebe2efe6fac3e5e7eae0ade4ecf5">[email protected]</span></a>, Division of
Complex Institution Supervision and Regulation; and Ryan Singer, Chief,
(202) 898-7532, <a href="/cdn-cgi/l/email-protection#a6d4d5cfc8c1c3d4e6c0c2cfc588c1c9d0"><span class="__cf_email__" data-cfemail="b2c0c1dbdcd5d7c0f2d4d6dbd19cd5ddc4">[email protected]</span></a>, Division of Insurance and Research.
SUPPLEMENTARY INFORMATION:
I. Background
The Final Statement supersedes the prior FDIC Statement of Policy
on Bank Merger Transactions (Superseded Statement), which was last
amended in 2008. Since the Superseded Statement was last revised, the
BMA has been amended and significant changes have occurred in the
banking industry and financial system, which has prompted the FDIC to
develop this Final Statement. Following the FDIC's 2022 request for
information and comment \1\ on rules, regulations, guidance, and
statements of policy regarding bank merger transactions, the FDIC
published a request for comment on its Proposed Statement in the
Federal Register on April 19, 2024.\2\
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\1\ 87 FR 18740 (March 31, 2022).
\2\ 89 FR 29222 (April 19, 2024).
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The FDIC received 23 letters from the public in response to the
Proposed Statement, including representatives of the financial services
industry, trade associations, consumer groups, university professors,
and members of Congress.\3\ After reviewing the public comments
received in response to the Proposed Statement, the FDIC has made
revisions to address certain of the comments and is adopting this Final
Statement. A summary and discussion of the comments and changes
incorporated in the Final Statement are described in section III of
this Supplementary Information.
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\3\ Request for Comment on Proposed Statement of Policy on Bank
Merger Transactions. See 89 FR 29222.
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II. Overview of the Final Statement
The Final Statement updates, strengthens, and clarifies the FDIC's
policies related to the evaluation of bank merger applications. As
compared to the Superseded Statement, the Final Statement includes new
content; is more principles-based; addresses jurisdiction and scope;
describes the FDIC's approach to each statutory factor separately; and
highlights other matters and considerations such as interstate mergers
and the unique aspects of applications from non-banks, operating non-
insured entities, and banks that are not traditional community banks.
The Final Statement highlights the FDIC's expectations relative to each
statutory factor and incorporates analytical considerations for these
areas.
Introduction
The introduction to the Final Statement retains the Proposed
Statement's content by providing a roadmap of the Final Statement's
structure, which follows the BMA's core statutory provisions, and
highlights the principles that guide the FDIC's evaluation of the
statutory factors for a merger application.
Jurisdiction and Scope
The Final Statement generally retains with minor modifications the
Proposed Statement's discussion regarding the FDIC's jurisdiction under
the BMA and the scope of transactions subject to regulatory approval.
Specifically, the Final Statement provides transparency and clarity on
the types of transactions that are subject to the BMA, including
mergers in substance and assumptions of deposits or other similar
liabilities. This section highlights the overarching principle that the
FDIC emphasizes a transaction's substance over its form when
determining whether it constitutes a merger transaction subject to FDIC
approval under the BMA.
Process and Adjudication
The Final Statement retains the Proposed Statement's discussion of
the FDIC's processing and adjudication of
[[Page 79126]]
merger applications. With respect to processing, the Final Statement
emphasizes the importance of pre-filing meetings, substantially
complete applications, and public feedback. With respect to
adjudication, the Final Statement retains the FDIC's longstanding tenet
of the FDIC's applications processing policy and procedures \4\ to not
use conditions as a means to favorably resolve statutory factors, but
adopts slightly modified language to more clearly articulate this
point. The Final Statement indicates imposition of conditions will be
taken into account as part of the FDIC's consideration of the merger
application, but will not necessarily lead to the favorable resolution
of any statutory factor where the facts and circumstances are otherwise
unfavorable. As with the Proposed Statement, this section of the Final
Statement emphasizes that the FDIC Board of Directors (FDIC Board)
reserves the authority to deny any merger transaction or to act on any
merger transaction for which one or more statutory factors are not
favorably resolved. In addition, the FDIC Board notably reserves
authority to act on any application for which the Attorney General has
not notified the FDIC in writing that the proposed transaction would
not have a significantly adverse effect on competition.
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\4\ Applications Procedures Manual, Applications Overview, 1.1,
<a href="https://www.fdic.gov/system/files/2024-07/section-01-01-overview.pdf">https://www.fdic.gov/system/files/2024-07/section-01-01-overview.pdf</a>, APM, Standard and Nonstandard Conditions, 1.11,
<a href="https://www.fdic.gov/system/files/2024-07/section-01-11-newconditions.pdf">https://www.fdic.gov/system/files/2024-07/section-01-11-newconditions.pdf</a>; and Deposit Insurance Applications Procedures
Manual Supplement--Applications from Non-Bank and Non-Community Bank
Applicants, <a href="https://www.fdic.gov/sites/default/files/2024-03/procmanual-supplement.pdf">https://www.fdic.gov/sites/default/files/2024-03/procmanual-supplement.pdf</a>.
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The Final Statement retains the Proposed Statement's non-exhaustive
list of circumstances that could lead to an unfavorable finding on one
or more statutory factors. Further, it asserts the FDIC Board's
prerogative to release a statement regarding withdrawn transactions if
such a statement is considered to be in the public interest for
creating transparency for the public and future applicants. The FDIC
emphasizes that such statements are not to be expected in every
instance, but only when warranted by the circumstances, and would be in
conformance with the FDIC's obligation to protect confidential
information.
Statutory Factors
Consistent with the Proposed Statement, the Final Statement is
organized around a discussion of the BMA's statutory factors. The BMA
prohibits approval of monopolistic merger transactions, restricts
otherwise anticompetitive transactions, and requires consideration of
statutory factors related to financial and managerial resources and
future prospects, convenience and needs of the community to be served,
combatting money laundering, and financial stability.
As emphasized in the Final Statement and throughout this
Supplementary Information, the FDIC Board reserves authority to act on
any merger application for which FDIC staff has not found favorably on
one or more statutory factors. Such action may be either an approval or
a denial. The Final Statement describes the FDIC's approach to
evaluating each statutory factor. The Final Statement is intended to
provide greater clarity regarding what features of merger transactions
may be consistent with a favorable finding on each respective statutory
factor. When a merger transaction includes these features, and the
facts and circumstances of such transaction clearly weigh in favor of
favorable resolution of the statutory factors, the FDIC expects such
applications to be approved expeditiously under delegated authority.
When the facts and circumstances do not so clearly weigh in favor of
favorable resolution of the statutory factors, it is appropriate that
the judgment of the FDIC Board be brought to bear on the application.
In addition, it is important to note that on June 18, 2024, the FDIC
Board adopted a resolution requiring full FDIC Board briefings on
merger, and certain other, applications that have been outstanding for
more than 270 days since the application's filing (Board Briefings
Resolution).\5\ The Board Briefings Resolution ensures that the FDIC
Board has the opportunity to be informed of, and provide direction on,
merger, and certain other, applications for which obstacles to
favorable resolution of the statutory factors may be materializing.
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\5\ FDIC Board Resolution Seal No. 088980 (June 20, 2024). This
resolution also applies to outstanding deposit insurance
applications.
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Certain aspects of the Final Statement, such as the expectation
that mergers resulting in IDIs with $50 billion or more in total assets
should be the subject of public meetings and the expectation that
mergers resulting in IDIs with $100 billion or more in total assets be
the subject of a heightened financial stability analysis are intended
to position the FDIC to conduct an informed evaluation of the statutory
factors for highly consequential merger proposals.
Monopolistic or Anticompetitive Effects
The Final Statement retains and builds upon the Proposed
Statement's discussion of how the FDIC evaluates the competitive
effects of a merger transaction. The Final Statement describes the
FDIC's approach to considering concentrations in relevant geographic
and product markets, which begins with measuring concentrations based
on local deposit shares, but as necessary will take into account any
appropriate data sources and analytical approaches relevant to fully
assessing the competitive effects of the transaction.
The Final Statement builds upon the Proposed Statement by
highlighting practices that may be particularly relevant to rural
institutions. Specifically, the Final Statement acknowledges that, as
circumstances warrant, the FDIC will take into account certain non-bank
competitors, expressly identifying credit unions, thrifts, and Farm
Credit System institutions. While the FDIC will consider such
competitors when relevant, the FDIC expects that the presence of such
competitors may be especially salient for mergers involving rural
markets. In addition, the Final Statement recognizes that mergers in
rural areas involving local community banks may result in concentrated
markets and emphasizes that the FDIC will carefully balance the
competitive effects of such a merger with the public interest served by
the capacity of the resulting IDI to meet the convenience and needs of
the community. Finally, a footnote was added to clarify that
competitors in the market include, but are not limited to, credit
unions, thrifts, and Farm Credit System institutions.
The FDIC continues to recognize the July 9, 2021, Executive order
(E.O.) addressing competition in the American economy.\6\ The FDIC
continues to coordinate with the Department of Justice (DOJ) and the
other Federal banking agencies in modernizing bank merger oversight,
and the Final Statement emphasizes that the analytical methods the FDIC
employs in conducting its independent analysis will continue to be
informed by the DOJ's approach to evaluating competitive effects. As
previously stated, the FDIC Board reserves authority to act on any
application in which the merging institutions operate in the same
relevant geographic markets(s) and for which the Attorney General has
not notified the FDIC that the proposed transaction would not have a
significantly adverse effect on
[[Page 79127]]
competition, or for which the Attorney General has notified the FDIC
that the application would have a significantly adverse effect on
competition. In such cases, applicants would need to demonstrate that
the anticompetitive effects of the merger transaction would be
outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the community to be
served.
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\6\ E.O. 14036 ``Promoting Competition in the American Economy''
(July 9, 2021).
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The Final Statement discusses divestitures as a means to mitigate
competitive concerns before allowing the merger to be consummated. To
promote the effectiveness of the divestiture(s) in mitigating
anticompetitive concerns, the FDIC generally expects that the selling
IDI will neither enter into non-compete agreements with any employee of
the divested entity nor enforce any existing non-compete agreements
with any of those entities. In addition, the Final Statement
communicates the FDIC's expectation that in situations where an IDI is
divesting or otherwise closing a branch in connection with the
transaction, the FDIC also expects the IDI to waive any terms or
conditions (e.g., exclusive use clauses) that preclude the ability of
other IDIs to lease or purchase the property.
Financial Resources
The Final Statement generally retains the Proposed Statement's
emphasis on the resulting IDI reflecting sound financial performance
and condition and meeting applicable capital standards. However, the
Final Statement does not incorporate the Proposed Statement's assertion
that the FDIC will not find favorably on the financial resources factor
if the merger would result in a weaker IDI from a financial
perspective. This statement was removed to avoid the suggestion that an
IDI that reflects a very strong financial condition would be precluded
from absorbing a weaker target. It was replaced with language affirming
that a favorable finding on the financial resources factor would only
be appropriate in cases where the merger results in a combined IDI that
presents less financial risk than the financial risk posed by the
institutions on a standalone basis. The revised comment affirms that
the FDIC's analysis balances the impact of the proposed merger on
financial resources particularly when the resulting IDI may initially
be weaker immediately following consummation.
This language is consistent with the FDIC's historical approach to
the analysis of this factor. While a resultant IDI may be weaker post-
acquisition, the FDIC broadly considers the long-term financial impacts
over the near-term implications of a merger. For example, when a
proposed merger transaction involves an IDI in less than satisfactory
condition (or experiencing potentially significant financial or
managerial concerns), emphasis is placed on the capacity of the
acquiring IDI to absorb the weaker IDI and address the problems or
concerns identified. Furthermore, purchase accounting rules generally
require an acquiring IDI to recognize the target's assets and
liabilities at fair value, which often causes the resulting IDI to look
weaker financially on day one, post-merger.
Managerial Resources
The Final Statement retains without change the Proposed Statement's
discussion of the managerial resources factor. This discussion reflects
and elaborates on the FDIC's expectation that the management of the
resulting IDI possess the capabilities to administer the resulting
IDI's affairs in a safe and sound manner, and to effectively implement
post-merger integration plans and strategies.
Future Prospects
The Final Statement retains without change the Proposed Statement's
discussion of the future prospects statutory factor. The discussion
reflects and elaborates upon the FDIC's expectation that the resulting
IDI will operate in a safe and sound manner on a sustained basis
following consummation of the merger.
Convenience and Needs of the Community To Be Served
The Final Statement retains with slight modifications the Proposed
Statement's discussion of the statutory factor related to the
convenience and needs of the community to be served. Notably, the Final
Statement communicates and elaborates upon the FDIC's expectation that
a merger between IDIs \7\ will enable the resulting IDI to better meet
the convenience and needs of the community to be served than would
occur absent the merger in order for FDIC staff to find favorably on
this factor. As noted above, the FDIC Board retains authority to
evaluate any merger transaction for which one or more of the statutory
factors are not favorably resolved. Further, the FDIC Board expects a
favorable resolution of the convenience and needs factor to be clearly
supported by a demonstration of how the merger transaction would
position the resulting IDI to better meet the needs of the communities
it serves. A favorable finding on the convenience and needs of the
community to be served factor may not be sufficient to support approval
of the application when anticompetitive effects are identified. In
situations where anticompetitive effects are identified, the FDIC will
evaluate whether the applicant has demonstrated that the benefits to
the convenience and needs of the community will clearly outweigh the
anticompetitive effects.
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\7\ The Final Statement emphasizes the importance of a merger
enabling a resulting IDI to better meet the convenience and needs of
the community in the context of mergers involving two IDIs. The FDIC
has jurisdiction to act on any merger transaction involving an IDI
and a noninsured institution. For transactions that have a
negligible impact on consumers, such as where an IDI merges with a
non-customer facing subsidiary, the FDIC will consider the IDI's
record in meeting the convenience and needs of the community to be
served as the primary means for resolving this factor.
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Absent such a demonstration, the FDIC Board reserves the authority
to evaluate and act upon the merger by taking into account all of the
facts and circumstances of the transaction in the context of the
statutory factors.
In addition, the Final Statement communicates the FDIC's
expectation to hold public hearings for mergers resulting in IDIs that
have $50 billion or more in total consolidated assets. Public input is
an essential part of the FDIC's consideration of every merger
transaction. The primary means of receiving public input is through the
statutorily mandated public comment process, but the Final Statement
reflects the FDIC's policy that an additional forum for public input
for the most consequential merger transactions would be appropriate.
Risk to the Stability of the United States Banking or Financial System
The Final Statement retains without change the Proposed Statement's
discussion of the financial stability factor. The discussion explains
that the FDIC evaluates the financial stability factor with respect to
the size of the entities involved in the transaction, the availability
of substitute providers for any critical products or services to be
offered by the resulting IDI, the resulting IDI's degree of
interconnectedness with the U.S. banking or financial system, the
extent to which the resulting IDI contributes to the U.S. banking or
financial system's complexity, and the extent of the resulting IDI's
cross-border activities.
The Final Statement emphasizes that size alone is not dispositive
for determining the risk to the U.S. banking or financial system's
stability, but nonetheless recognizes that transactions that result in
a large IDI are more likely
[[Page 79128]]
to present potential stability concerns. The Final Statement
communicates the FDIC's expectation that additional scrutiny will be
applied to the evaluation of such mergers. For the purposes of
clarifying expectations, the Final Statement reflects that this
additional scrutiny will apply to transactions resulting in IDIs with
$100 billion or more in total consolidated assets. The FDIC further
emphasizes that such bank merger applications are typically accompanied
by companion applications at the holding company level, which are
subject to approval by the Board of Governors of the Federal Reserve
System (Federal Reserve Board). The expectation related to a resulting
IDI with total assets over $100 billion as identified in the Final
Statement aligns with the Federal Reserve Board's delegations of
authority.\8\
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\8\ 12 CFR 265.20(c)(12)(vii).
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Effectiveness in Combatting Money Laundering Activities
The Final Statement retains without change the Proposed Statement's
discussion regarding the statutory factor related to the effectiveness
in combatting money laundering. The Final Statement communicates and
elaborates upon the FDIC's expectation that approved merger
transactions will result in IDIs with effective programs to combat
money laundering and counter the financing of terrorism.
Other Matters and Consideration
The Final Statement retains the Proposed Statement's discussion of
other matters and considerations, which alerts the public to the added
requirements that apply to interstate transactions, as well as the
FDIC's approach to applications involving non-banks or banks that are
not traditional community banks, and applications involving operating
non-insured entities.
III. Summary and Discussion of Comments
Many commenters recommended some type of revision or alteration
with respect to the discussion of how the FDIC analyzes the statutory
factors, with particular emphasis on competitive effects, convenience
and needs of the community, and risk to the stability of the U.S.
banking or financial system. Additionally, many commenters provided
feedback or recommendations for process changes that are outside the
scope of what was initially proposed. For example, multiple commenters
discussed a need to increase the scrutiny applied to acquisitions of
banks by nonbanks such as credit unions. Other items suggested include:
<bullet> adopting a separate review framework for mergers involving
community banks and nonbank acquirers;
<bullet> ending expedited reviews/processing of bank merger
applications;
<bullet> adopting metrics and benchmarks for a streamlined
application and an expedited review for transactions between small IDIs
that do not raise significant supervisory or financial stability
concerns and where no adverse public comments have been filed;
<bullet> disallowing banks with over 10 percent of U.S. deposits
from buying failing banks unless there are no other buyers;
<bullet> developing an interagency statement of policy; and
<bullet> consulting the Consumer Financial Protection Bureau on all
merger applications.
Some commenters that were largely supportive of aspects of the
Proposed Statement recommended further refinements or additional
elements for consideration. For example, one such commenter suggested
that a merger must enhance the resulting IDI's ability to serve the
public for it to warrant approval. However, the same commenter also
suggested including a statement that the FDIC would add a condition to
approval orders restricting the ability of IDIs to close branches
beyond those identified for closing in the application. Some commenters
were broadly opposed to certain aspects of the Proposed Statement.
These commenters argued that the FDIC's current framework for reviewing
proposed merger transactions was sound and warned of negative
consequences from the proposed revisions.
Jurisdiction and Scope
Some commenters suggested that the Proposed Statement's
jurisdiction and scope section exceeds the FDIC's statutory authority,
contending that statements regarding the FDIC's jurisdiction are overly
broad as they suggest that applications are necessary for various types
of transactions that are not true mergers. The BMA expressly subjects a
wide range of transactions to regulatory approval, and the Final
Statement generally retains the Proposed Statement's approach to
jurisdiction and scope, which reflects statutory requirements and the
FDIC's longstanding practice. With respect to asset acquisitions that
do not involve deposits or similar liabilities, the Final Statement
maintains that the FDIC considers transactions to be mergers in
substance when a target would no longer compete in the market,
regardless of whether the target plans to liquidate immediately after
consummating the transaction. Similar to the Proposed Statement, the
Final Statement offers as an example of a substantive merger a
transaction in which ``an IDI absorbs all (or substantially all) of a
target entity's assets and the target entity dissolves (or otherwise
ceases to engage in the acquired lines of business such that the target
is no longer a viable competitor).'' \9\ The Final Statement adopts the
language related to the target no longer being a viable competitor in
order to reflect the BMA's emphasis on competitive considerations.
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\9\ This is generally consistent with interpretations of the OCC
regarding section 18(c)(2) of the Bank Merger Act. See Office of the
Comptroller of the Currency, Comptroller's Licensing Manual:
Business Combinations (``The OCC interprets `acquire the assets' for
BMA filing purposes to include the acquisition of assets such that
the target is no longer a viable competitor, regardless of whether
the target plans to liquidate immediately after consummating the
transaction.'').
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In response to the Proposed Statement, it was suggested that the
FDIC should assert that asset acquisitions that would not qualify as de
facto mergers under State common law would not be subject to a filing
requirement under the BMA. The Final Statement makes no such reference
to State common law, as the scope of transactions subject to the BMA
for the purposes embodied by its statutory factors is not perfectly
coextensive with the scope of transactions that qualify as de facto
mergers under divergent State law doctrines for the purpose of
establishing successor liability. In addition, the Final Statement
retains the Proposed Statement's explanation that an IDI's assumption
of any deposit or other similar liabilities is subject to the BMA, and
the FDIC emphasizes that any transaction that consists of an assumption
of deposits or other similar liabilities is subject to the BMA
regardless of whether the transaction as a whole represents a
substantive merger.
Although the scope of transactions subject to the BMA is broad and
there is no de minimis exception to the BMA, the Final Statement
acknowledges that the FDIC will evaluate the applicable statutory
factors in a manner that is appropriate to each transaction.\10\
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\10\ For example, the BMA would apply to a transaction in which
an IDI merges with a non-customer-facing operating subsidiary. Even
in cases where the IDI is over $50 billion in assets, it may not be
necessary for the evaluation of the convenience and needs factor to
hold public hearings given the nature of the transaction.
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[[Page 79129]]
Process and Adjudication
Multiple commenters requested the adoption of specific approval
metrics and benchmarks and the removal of general terms. One commenter
requested that the Final Statement include benchmarks for a streamlined
application and expedited review for transactions between small IDIs
that do not raise significant supervisory concerns and where no adverse
public comments have been filed. Several commenters requested a de
minimis exception for a merger in which the resulting IDI would have
less than $10 billion in total assets. Some commenters requested that
the FDIC terminate expedited processing of applications. However, other
commenters stated an opposing view.
No specific bright lines or performance thresholds were included in
the Final Statement to retain flexibility to evaluate the facts and
circumstances of each individual application, and no de minimis
thresholds were adopted. Section 303.64 of the FDIC Rules and
Regulations codifies the requirements for expedited processing of
merger applications. The regulation has not been changed. Applications
that qualify will receive expedited processing when appropriate, unless
the applicant is notified in writing to the contrary and provided with
the basis for that decision. The FDIC may remove an application from
expedited processing for any of the reasons set forth in Sec.
303.11(c)(2) of the FDIC Rules and Regulations. It is important to note
that if the FDIC does not act within the expedited processing period,
it does not constitute an automatic or default approval.
Multiple commenters noted that the Final Statement should expressly
authorize conditions to be used to find favorably on a statutory
factor. The Final Statement does not state that conditions can be used
to find favorably on a statutory factor that otherwise presents
material concerns. However, the FDIC may impose targeted conditions to
mitigate specific risks. Conditions are not a substitute for the
resolution of, and do not in and of themselves favorably resolve, an
applicable statutory factor. As noted in the Final Statement, the
imposition of conditions will be taken into account as part of the
FDIC's consideration of the merger application, but will not
necessarily lead to the favorable resolution of any statutory factor
where the facts and circumstances are otherwise unfavorable. This is
consistent with the FDIC's long-standing applications processing
policy.\11\
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\11\ FDIC Applications Procedures Manual, section 1.11, Standard
and Nonstandard Conditions.
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Commenters suggested that the process for the FDIC Board to post a
statement about a withdrawn application be eliminated. Further,
commenters indicated that the FDIC should confirm that detailed
nonpublic information provided in merger applications would remain
confidential. The Final Statement retains the FDIC Board's discretion
to release a statement regarding the concerns with a withdrawn
application if such a statement is considered to be in the public
interest for purposes of creating transparency for the public and
future applicants. Publishing such a statement provides the industry
with insights and understanding of what features of a proposal may be
inconsistent with approval. If such a statement is not published, the
industry and consumers would not understand the rationale for the
withdrawal and the issues/concerns identified during the review
process. The publication of such a statement is not expected for most
transactions and the FDIC intends that any such statement would be
fully consistent with the confidentiality requirements of applicable
laws and regulations and would not disclose confidential business
information of applicants.
Statutory Factors
Monopolistic or Anticompetitive Effects
Commenters stated that pre-consummation divestitures would add
significant delay and complexity to an already lengthy and costly
merger process. The Final Statement retains the language as presented.
Any potential divestitures would follow regulatory approval.
Divestitures, when required, may be included as a condition that must
be addressed prior to consummation of the merger. Such actions would
not delay the merger application submission, review, and approval
processes; as such, the length of time for regulatory review and
adjudication is not expected to change.
Multiple commenters suggested revisions to the competitive effects
analysis. Several commenters raised concerns with credit union
acquisitions of IDIs and requested a special analysis of the
competitive impacts of such transactions. It was also suggested that
credit union competition should be given a multiplier when used as part
of the competitive analysis. No changes were made to the Final
Statement to address the competitive effects analysis of credit union
acquisitions of IDIs; as such, transactions are subject to the same
statutory factors. When assessing the competitive effects, the FDIC
considers all relevant market participants; however, no multiplier is
used to increase the credit union impact on the Herfindahl-Hirschman
Index (HHI),\12\ which could inaccurately reflect the influence of
credit unions in the relevant geographic market. This is consistent
with historical practice and remains unchanged in the Final Statement.
---------------------------------------------------------------------------
\12\ The HHI is calculated by squaring the market share of each
firm competing in the market and then summing the resulting numbers.
For example, for a market consisting of four firms with shares of
30, 30, 20, and 20 percent, the HHI is 2,600 (30\2\ + 30\2\ + 20\2\
+ 20\2\ = 2,600). The HHI calculation can also be applied to other
relevant Consolidated Reports of Condition categories or other
appropriate sources of data, aside from deposits. For example, the
HHI analysis may also include data relative to commercial and
industrial loans.
---------------------------------------------------------------------------
Other commenters noted that the Final Statement should include
specific metrics for transactions to be considered anti-competitive,
including specific HHI thresholds that would be consistent with
approval. Other commenters requested to preserve the current thresholds
since it provides a level of certainty by which mergers are presumed
not to raise competitive concerns. Commenters also suggested that the
Final Statement should use a higher HHI threshold in rural markets and
that use of the Federal Reserve Board's banking markets should be
revisited. The Final Statement does not include specific HHI metrics or
benchmarks at this time. With respect to the Federal Reserve Board's
banking markets, the FDIC will employ a geographic market definition
that is appropriate to the facts and circumstances of the application.
The evaluative considerations for competitive effects analysis are
described in the Final Statement, and HHI calculations are described in
the Applications Procedures Manual, section 4, Mergers. Section 4 is
currently being revised to reflect the Final Statement.
With respect to the evaluation of competition in rural markets, the
Final Statement emphasizes the FDIC's statutory obligation to weigh any
potential anticompetitive effects of a merger against the convenience
and needs of the community to be served, and that it is possible for
consideration of convenience and needs to outweigh a concern with
potential anticompetitive effects. The FDIC recognizes that in rural
communities, typical concentration measures such as HHI based purely on
IDI deposit concentrations might be incomplete,
[[Page 79130]]
particularly to the extent that residents receive banking services from
credit unions, Farm Credit System institutions, or other nonbanks or
banks that are not traditional community banks. While the FDIC does not
introduce a tailored approach to the evaluation of competitive effects
in rural markets, in cases where the relevant geographic market is
rural, the FDIC considers all relevant measures of concentration,
including the potential public interest benefits of a merger of two
local entities in the local market.
A few commenters indicated that the competitive effects analysis
should be conducted on a county-level and capture county-level
demographics such as median income levels or percentage of people of
color or low-to-moderate income people. These comments suggested that
such analysis should consider additional divestitures or mandate
commitments to increase lending and banking services. It was also
suggested that concentrations should be measured nationally. As stated
in the Final Statement, the FDIC generally employs a framework for
evaluating competitive effects involving a transaction between IDIs
with traditional community banking operations within their local
geographic markets. However, the FDIC will tailor its evaluation to
consider the size and competitive effects of the resulting IDI.
Further, the Final Statement notes that the FDIC identifies all
relevant geographic markets (local, regional, and national) based on
the geographic areas in which the merging entities operate and in which
customers may practically turn to competitors for alternative products
and services. If the relevant geographic market is shown to be at the
county level, the county will be the focus of the analysis; if the
relevant market is wider, the assessment will reflect that area. With
respect to divestitures and commitments to increase services, such
determinations are made depending on the facts and circumstances of the
application.
A couple of commenters urged the FDIC to de-emphasize local deposit
concentration as a key criterion for deciding mergers. Other commenters
disagreed saying evaluating the competitive effects of mergers based on
product or consumer sector concentrations introduces unpredictability
with unclear benefits. It was suggested that evidence from traffic
patterns could also be evaluated as a means to assess customer use of
services in wider areas. As noted in the Final Statement, deposit
concentration is an initial proxy for commercial banking products and
services. The FDIC will consider concentrations beyond those based on
deposits. As appropriate, the FDIC may consider concentrations in any
specific products or customer segments, such as, for example, the
volume of small business or residential loan originations or activities
requiring specialized expertise. Additionally, the Final Statement
confirms that, when relevant, the analysis may incorporate other
products offered by the merging entities with consideration given to
whether consumers retain meaningful choices.
Some commenters indicated that the FDIC should not disfavor non-
compete agreements, and others indicated that non-compete clauses for
workers should be eliminated in all mergers. Consistent with current
practice, the Final Statement retains the language as proposed, which
states that the FDIC will generally not view favorably situations where
the selling institution enters into non-compete agreements with any
employee of the divested entity or seeks to enforce any existing non-
compete agreements with any of those entities.
Two commenters noted that a de minimis exception is warranted for
transactions involving highly concentrated rural markets. As previously
stated, no specific metrics or thresholds are included as predicates to
an evaluation of the competitive effects factor.
Financial and Managerial Resources and Future Prospects
Many commenters requested that the following statement in the
proposed Statement be removed: ``[t]he FDIC will not find favorably on
the financial resources factor if the merger would result in a weaker
IDI from an overall financial perspective.'' Commenters contended that
the statement appears to preclude the acquisition of weaker
institutions during periods of economic distress. Commenters noted that
the FDIC should clarify or revise its position regarding how it will
evaluate a merger resulting in a weaker IDI from an overall financial
perspective. It was also suggested that the FDIC could dispel concerns
regarding how it will evaluate such mergers by noting it will balance
the risks posed by the resulting IDI in light of the risks of denying a
merger.
The statement that ``[t]he FDIC will not find favorably on the
financial resources factor if the merger would result in a weaker IDI
from an overall financial perspective'' has been removed from the Final
Statement. Inclusion of such language created confusion regarding the
acquisition of a weaker target by a stronger acquirer with adequate
resources to absorb and integrate the target. On balance, the FDIC
determined that retention of the statement could be viewed as an
indication that certain transactions would be precluded from receiving
approval. The language was replaced with a statement that a favorable
finding on the financial resources factor would be appropriate only in
cases where the merger results in a combined IDI that presents less
financial risk than the financial risk posed by the institutions on a
standalone basis.
With respect to the evaluation of the financial and managerial
resources, commenters noted that outstanding or pending matters that
can be resolved in the normal supervisory course should not bar an
institution from pursuing merger transactions. The Final Statement
affirms that the assessment of managerial resources includes the
responsiveness to issues or supervisory recommendations raised by
regulators or auditors as well as any existing or pending enforcement
actions. Additionally, the Final Statement discusses the FDIC's
expectation that a resulting IDI will have the managerial and
operational capacity, and devote adequate resources, to ensure full and
timely compliance with any outstanding corrective programs or
supervisory recommendations. The FDIC does not view the existence of
outstanding or pending enforcement actions as a bar to the pursuit of a
merger.
Some commenters noted that the Final Statement should ensure that
IDIs have more equity capital funding as a prerequisite for mergers (a
10 percent tier 1 leverage ratio was suggested). The Final Statement
does not identify a specific capital threshold that would facilitate
merger approvals; however, it does state that a critical component of
the analysis of financial resources is the resultant IDI's ability to
meet applicable capital standards (including maintenance of appropriate
allowances for loan or credit losses). The Final Statement affirms
that, depending on the anticipated risk profile of the resulting IDI,
the FDIC may impose, as a non-standard condition, capital requirements
that are higher than applicable capital standards. However, no specific
threshold is included to retain flexibility to assess the facts and
circumstances of a particular transaction.
Commenters noted that management should demonstrate the
prioritization of diversity, equity, and inclusion in their practices,
products, and services. They recommended that the FDIC take into
consideration data from Equal Employment Opportunity reports and
[[Page 79131]]
evaluate the applicant's efforts to promote gender, racial, and ethnic
diversity in their boards, senior management, and branch personnel. The
Final Statement was not amended to address these items.
A commenter suggested that IDIs with poor records of compliance
with climate-related goals should not be allowed to merge. Discussion
of climate-related goals has not been added to the Final Statement.
However, if the management, compliance rating, and/or risk profile of
the merging parties were adversely impacted by climate change
challenges, the ability of the resulting IDI's management team to
ameliorate and address the climate-related risks may be considered in
the context of the applicable statutory factors.
Convenience and Needs of the Community To Be Served
Multiple commenters recommended revisions to the discussion of the
FDIC's analysis of the convenience and needs of the community to be
served. Multiple commenters asserted that there is no statutory
requirement that the resulting IDI should better meet the convenience
and needs of the community. These commenters stated that such an
expectation is unnecessary and leaves the matter of determining whether
it does so primarily at the discretion of the FDIC. Other commenters
expressed support for this expectation, indicating that increased
public benefit is of paramount importance. The Final Statement
generally retains the approach as proposed, consistent with
congressional intent \13\ and the FDIC's longstanding policy. Since
October 1998, the FDIC's existing Statement of Policy has indicated the
FDIC would consider the extent to which the proposed merger would
likely benefit the general public and referenced examples of better
banking services as factors for consideration of the convenience and
needs of the community to be served.\14\
---------------------------------------------------------------------------
\13\ See, e.g., Statement by Senator A. Willis Robertson,
Chairman of the Senate Committee on Banking and Currency, 112 Cong.
Rec. 2542 (1966) (``The banking agency may approve the merger if it
thinks the merger will be beneficial from these points of view . .
.'') [emphasis added].
\14\ See FDIC Statement of Policy on Bank Merger Transactions,
63 FR 44761, 44764 (Aug. 20, 1998) (``In assessing the convenience
and needs of the community to be served, the FDIC will consider such
elements as the extent to which the proposed merger transaction is
likely to benefit the general public [. . .]''); see also, FDIC
Statement of Policy on Bank Merger Transactions, 54 FR 39042, 39047
(Sep. 22, 1989) (``The FDIC will also consider the extent to which
the proposed merger is likely to improve service to the general
public [. . .]'').
---------------------------------------------------------------------------
The Final Statement includes examples as to how the FDIC
anticipates the resulting IDI could meet this expectation. For example,
an applicant may demonstrate how the transaction will benefit the
public through higher lending limits, greater access to existing
products and services, introduction of new or expanded products or
services, reduced prices and fees, increased convenience in utilizing
the credit and banking services and facilities of the resulting IDI, or
other means. While not explicitly stated, the evaluation also considers
the implications if the transaction was not approved and how that
decision affects the convenience and needs of the community. The
expectation for a favorable finding on this factor is for the community
to gain from the transaction post-consummation. Applications that
project reduced or diminished banking services will generally result in
unfavorable findings on this factor. This approach is consistent with
current policy and is intended to clarify the FDIC's approach to the
evaluation of this statutory factor.
Commenters requested that the Final Statement clarify that only
public comments that meet a level of significance would lead to
additional FDIC review. One commenter suggested that the FDIC should
implement a vetting procedure and criteria for submitting a comment and
not automatically consider all comments as warranting the same
consideration. Commenters also stated that Community Reinvestment Act
(CRA) protests that are unsubstantiated from factual or legal
perspectives (including, for example, form protests) should not be
considered in determining whether a public hearing will be held.
As noted in Sec. 303.2 of the FDIC Rules and Regulations, adverse
comment(s) shall not include any other comment that is determined to be
frivolous (for example, a non-substantive comment submitted primarily
as a means of delaying action on the filing). While the Final Statement
affirms that the FDIC will review and evaluate any public comments
received in accordance with Sec. 303.9 of the FDIC Rules and
Regulations, consideration is not given to frivolous letters or
statements. The FDIC will consider substantive public comments received
regarding the ability of the applicant to meet the convenience and
needs of the community to be served and will provide the applicant an
opportunity to respond to any comment that is determined to be a CRA
protest.
Commenters were mixed on the need for hearings. Some commenters
agreed that hearings should be conducted when there are a significant
number of CRA protests or the resulting IDI has over $50 billion in
total assets; others disagreed with using $50 billion in total assets
as a level for which hearings will be conducted. One letter suggested
that any merger protest should trigger a public hearing or meeting.
Finally, clarification was sought regarding the process for requesting
a public hearing, the appropriate channels, and specific contacts in
the process.
The Final Statement retains the expectation that mergers resulting
in an IDI with over $50 billion in total assets will be the subject of
hearings; however, the FDIC historically has, and will continue to,
conduct hearings for transactions under this level when deemed
appropriate. Such a determination will depend on the facts and
circumstances of the proposed merger. In making such a determination,
the FDIC would consider the risk profile of the resultant IDI, the
volume and nature of protest letters, and the likely prospective impact
to the convenience and needs of the community to be served. With regard
to the process for conducting public hearings, such guidelines are
enumerated in Sec. 303.10 of the FDIC Rules and Regulations. When the
application is filed, the publication document indicates the
appropriate channel to provide comments by listing the address of the
appropriate FDIC office where comments may be sent. Such information
provides the public with initial contacts to discuss concerns with the
filing that may precipitate public hearings.
A few commenters stated that the FDIC should clarify what is meant
by a ``significant number'' of CRA protests. The Final Statement does
not state a specific number of CRA protests to be considered
``significant''; rather, the FDIC considers all adverse comments from
the public related to a pending filing when determining if the comment
is deemed to rise to the level of a protest. Frivolous letters are not
included. Additionally, the receipt of only one or two CRA protest
letters may not be considered significant enough to lead to a public
hearing; however, the FDIC retains the ability to hold a hearing in
these instances. The decision to hold such hearings depends on issues
raised during the comment period and the significance of the merger
transaction to the public interest, banking industry, and communities
affected.
One commenter stated that the FDIC should use the most recent CRA
exam, with the qualification that if the applicant has had a less than
Satisfactory rating in any of the last three exams, the merger should
not be approved until remediation plans are in
[[Page 79132]]
place. No changes were made to the Final Statement to adopt such a
practice; however, as stated in the Final Statement, a less than
Satisfactory historical rating or significant deterioration in CRA
performance will generally result in unfavorable findings. The FDIC's
consideration of the convenience and needs statutory factor is not
limited solely to the CRA record of the IDIs. The consideration will
encompass a broad review, which includes, but is not limited to,
existing products and services, record of consumer compliance, and
whether the products and services proposed by the applicants will meet
the convenience and needs of the community to be served.
A commenter requested that the FDIC extend comment periods for
community members to participate in the process from 30 days to 60 days
and stated that clarity is needed around comment letter deadlines,
particularly if comment letters received after the deadline are used to
inform bank merger decisions. The comment period and deadlines for
submitting comment letters are codified in Sec. 303.65 of the FDIC
Rules and Regulations and have not been changed.
Some commenters requested that clear points of contact should be
listed on regulatory and applicant websites, along with email addresses
and phone numbers, to facilitate requests for the public file and/or to
engage bank applicants and the regulator. The FDIC's current website
includes detailed instructions for the public to both file a Freedom of
Information Act (FOIA) request, as well as to request the public
portion of applications subject to the CRA.\15\
---------------------------------------------------------------------------
\15\ Information on public applications can be located here:
<a href="https://cra.fdic.gov/">https://cra.fdic.gov/</a>. Information on FOIA requests can be located
here: <a href="https://www.fdic.gov/foia/">https://www.fdic.gov/foia/</a>.
---------------------------------------------------------------------------
A couple of commenters stated that approval orders should address
comments submitted by the public, the FDIC should summarize
communications with the applicant for the public record, and there
should be an administrative appeals process for community groups to
challenge approvals that are inconsistent with an agency's own
procedures. The regulations governing the processes for filing comment
letters and conducting public hearings have not changed and the Final
Statement affirms the FDIC's approach to these matters.
One commenter suggested that the FDIC should require public
statements, public plans, or community benefit agreements (CBAs), and
regulators should examine for compliance with commitments during future
examinations. Other commenters disagreed with requiring and enforcing
CBAs, stating that if the FDIC required CBAs, then the FDIC must
enforce the requirements of the agreements, which is inconsistent with
current practice. Further, there is no statutory basis for requiring
and enforcing CBAs. The Final Statement does not address CBAs, which
are private agreements between merger parties and community groups. The
FDIC does not require CBAs or enforce their requirements. The Final
Statement retains language that claims and commitments made to the FDIC
may be included in the order and enforced post-merger through its
ongoing supervision.
Commenters were mixed on having applicants provide a three-year
plan regarding branch actions. Commenters who concurred with this
approach noted that applicants should be required to describe the
impact branch closures will have on the job, credit, and reinvestment
needs of local communities. Commenters who disagreed with this approach
indicated that the FDIC should not force IDIs to hardwire plans with
respect to branch actions, thus limiting their flexibility to address
changing circumstances. Another commenter requested that closings
should be prohibited during the ensuing three years. One commenter
noted that a focus on proposed branch closures fails to consider the
numerous innovations in customer service channels in recent decades.
The Final Statement affirms the expectation for applicants to
provide three years of information regarding projected branch actions
consistent with current practice. Retaining this guidance clarifies the
expectations for branch retention, expansion, closing, or consolidation
and provides transparency on the timeframes that the FDIC will
evaluate, consistent with its current practices. It also provides
transparency to the industry on how the FDIC considers proposed changes
to the physical locations of branches.
Other commenters indicated that the evaluation of convenience and
needs of the community should not consider job losses. The FDIC agrees
with commenters that the provision about the impact of future branch
closings on the loss of job employment opportunities in the local
market area may depend on factors not readily predictable at the time
of a merger transaction. However, the impact of any proposed merger on
employment opportunities is relevant to understanding how the
transaction will serve the convenience and needs of the community.
Accordingly, the Final Statement will request that applicants quantify
or provide information regarding job losses to the extent those are
known or knowable.
Risk to the Stability of the United States Banking or Financial System
Commenters provided differing views with respect to language
indicating that a transaction that would result in an IDI with $100
billion or more in assets would be subject to additional scrutiny in
connection with evaluating its impact on U.S. financial stability. One
commenter indicated this level is too low, as a merger resulting in an
IDI having $100 billion of assets, would involve only 0.4 percent of
industry assets, and its effects on industry concentration would be
minor. This commenter pointed out that identifying $100 billion in
total assets as the basis for additional scrutiny protects the very
largest institutions from regional banks gaining scale and competing
with them more directly. Conversely, another commenter stated the $100
billion benchmark for potential financial stability concerns is
appropriate and should be retained; however, the commenter argued that
the focus should be on domestic financial stability and not whether the
resulting IDI would be a globally systemically important bank. Yet
another commenter indicated that an asset size below $100 billion
should be identified as the benchmark above which additional scrutiny
should be applied to transactions. Commenters also requested that the
FDIC clarify that mergers resulting in an IDI over $100 billion in
total assets will not result in a presumptive denial, as well as what
kind of ``additional scrutiny'' the FDIC may apply to a transaction
that would result in an IDI with $100 billion or more in total assets.
One commenter suggested that the FDIC should consult with the DOJ when
a transaction results in an IDI with more than $100 billion in assets
to determine whether the benefits of the merger outweigh the risk that
the IDI will pose systemic risk or be ``too big to fail.''
Additionally, it was suggested that concerns about mergers creating
larger banks that might fail should be counterbalanced by the
recognition that larger banks can better diversify across regions than
smaller banks. Finally, it was noted that the financial stability
considerations relate primarily to how a merger may increase risk to
financial stability. It was recommended that the Final Statement
address ways in which a merger could decrease risk to financial
stability by fostering competition with the largest banks or improving
the financial condition of a weaker bank.
[[Page 79133]]
The Final Statement retains the expectation that transactions
resulting in an IDI with $100 billion in total assets or more would be
subject to additional scrutiny. This is not a threshold for a
presumptive denial. Identifying thresholds for transactions that do not
present concern is inconsistent with the FDIC's practice of evaluating
all filings based on their specific facts and circumstances.
The term ``additional scrutiny'' signals to the industry and
consumers that a proposed transaction that results in an IDI with over
$100 billion in assets will likely engender additional information
requests, more frequent discussions and correspondence with application
parties, and supplementary meetings and discussions with regulators and
community groups. Such heightened analysis also provides the FDIC with
additional information/data to evaluate. While the filing is still
subject to the same statutory factors as all merger applications, and
there are no additional elements to achieve regulatory approval, the
timeline for a review of these filings may be extended compared to
other types of filings.
Commenters were mixed on the consideration of the prudential
regulatory framework when assessing financial stability. One commenter
stated the framework is inadequate to prevent financial instability, as
evidenced by the IDI failures that occurred in 2023. Another commenter
suggested that the FDIC should leverage the quarterly systemic risk
data that firms with greater than $100 billion in assets file on Form
FR Y-15 to analyze the resulting firm's operations. One commenter
suggested that the FDIC articulate how the existing framework does not
address financial stability concerns. Another commenter advised that it
is not appropriate to impose resolution-planning requirements via the
Final Statement, which should be subject to notice and comment
rulemaking. A commenter stated that the FDIC must assess and consider
the resolvability of the resulting IDI when reviewing a merger
transaction. This commenter also noted that the Final Statement should
make it clear that the FDIC will consider the resulting the regulatory
framework when assessing financial stability risk.
The Final Statement states that the FDIC will evaluate any
additional elements that may affect the risk to the U.S. banking or
financial system's stability. This may include the resulting IDI's
regulatory framework; however, the framework alone would not result in
a favorable finding on this factor when other financial stability
concerns exist. The framework is merely one aspect in the evaluation of
this statutory factor, and the FDIC recognizes the limitations in
relying exclusively on the regulatory framework as a mechanism to limit
financial stability risks.
Some commenters requested the inclusion of specific metrics to
identify what transactions would not present financial stability
concerns. Commenters also suggested that the Final Statement include a
presumption that de minimis acquisitions (i.e., $10 billion or less) do
not raise new financial stability risks or affect the acquirer's
financial stability profile. No specific metrics or thresholds have
been included in the Final Statement to identify transactions that do
not present financial stability risks. The Final Statement has been
revised to clarify that the evaluation considers the implications for
the industry if the transaction is not approved or does not consummate.
Effectiveness in Combatting Money Laundering Activities
Only one comment letter addressed the effectiveness of each IDI
involved in the proposed merger transaction in combating money-
laundering activities. This commenter stated that the Financial Crimes
Enforcement Network (FinCEN) should be consulted regarding the
effectiveness of efforts to combat money laundering, terrorist
financing, and other illicit activity. Further, the commenter suggested
that FDIC should require banks to submit a pro-forma anti-money
laundering risk assessment with the merger application and require
institutions to conduct a comprehensive risk assessment within a
reasonable time after a merger is completed. No changes were made to
the Final Statement with respect to these items. The FDIC works
collaboratively with FinCEN, but has sufficient information available
to independently assess the effectiveness of efforts to combat money
laundering and counter terrorist financing. For applicants that have
less than satisfactory anti-money laundering programs, the FDIC may
request a risk assessment to be conducted after consummation as a non-
standard condition.
Other Matters and Considerations
Commenters also provided suggestions and recommendations outside of
the Final Statement. Several commenters requested that the FDIC review,
to the extent possible, the effects of past mergers to evaluate the
appropriateness of any revised merger guidelines. Another commenter
requested that the FDIC clarify that it is unlikely to approve a merger
when the applicant has (1) recently switched its charter in
anticipation of filing a merger application, or (2) has restructured
the transaction after it (or its merger partner) previously submitted a
merger application to a different banking agency. A commenter suggested
that the FDIC should not approve mergers by IDIs that switched
regulators in the last five years before the merger.
A couple of commenters requested that the FDIC increase the
scrutiny applied to acquisitions of IDIs by nonbanks such as credit
unions. Such transactions may have a negative impact on State and local
government budgets and communities, which could necessitate an increase
in taxes. One commenter stated that it is entirely inappropriate for
Federal bank regulators, in absence of a specific statutory grant of
authority, to arrogate legislative power to consider, let alone approve
such transactions. The Final Statement does not address the evaluation
of credit union acquisitions of IDIs specifically; however, it does
indicate that a credit union may need to provide additional information
to enable the FDIC to evaluate the convenience and needs statutory
factor, as credit unions are not subject to the CRA.
One commenter stated that the FDIC should adopt a separate review
framework for mergers involving community banks and nonbank acquirers
to ensure the maintenance of existing community development lending and
investments. One commenter stated that it would be illustrative for the
FDIC to publish information regarding the number of rounds of staff
review of an application, the dynamic between regional and Washington
office staffs, the number of subsequent questions, or any estimated
time under which action is taken on an application. The letter urges
the FDIC to provide more detailed and accurate timing guidance in the
FDIC's Applications Procedures Manual. Finally, one commenter requested
that the FDIC explain the weight given to each statutory factor;
however, the FDIC does not assign specific weights to the statutory
factors.
Section 4 of the FDIC's Applications Procedures Manual will be
revised and issued subsequent to the publication of the Final
Statement. The revised section 4 addresses the review process and the
dynamic between regional and Washington office staffs, and the
prospective timeframes for processing.
[[Page 79134]]
IV. Administrative Law Matters
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA),\16\ the agencies may not conduct or sponsor, and the
respondent is not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(OMB) control number.
---------------------------------------------------------------------------
\16\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------
The Final Statement does not create any new or revise any existing
collections of information under the PRA. Therefore, no information
collection request will be submitted to the OMB for review.
V. Final Statement of Policy
The text of the Final Statement follows:
FDIC Statement of Policy on Bank Merger Transactions
I. Introduction
This statement of policy (SOP) communicates the Federal Deposit
Insurance Corporation's (FDIC) expectations and views regarding
applications filed pursuant to section 18(c) of the Federal Deposit
Insurance Act (FDI Act), which is referred to herein as the Bank Merger
Act (BMA). The SOP reflects the FDIC's interpretations of the BMA and
its implementing regulations. The structure of the SOP follows the
BMA's core statutory provisions, and its content highlights the
principles that guide the FDIC's evaluation of the statutory factors
for a merger application.
The BMA prohibits an insured depository institution (IDI) from
engaging in a merger transaction without regulatory approval. It
identifies the types of undertakings that constitute ``merger
transactions'' and outlines which of the three Federal banking agencies
is the ``responsible agency'' for acting on a given merger
application.\17\ In addition, the BMA sets forth advance public notice
requirements \18\ and generally requires the responsible agency to
request a report on the competitive factors for a merger transaction
from the Attorney General.\19\
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\17\ 12 U.S.C. 1828(c)(1) and (2).
\18\ 12 U.S.C. 1828(c)(3).
\19\ 12 U.S.C. 1828(c)(4).
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The BMA generally prohibits the responsible agency from approving a
monopolistic or otherwise anticompetitive merger transaction.\20\ In
addition to competitive considerations, the BMA requires the relevant
agency to evaluate a merger transaction in light of the financial and
managerial resources and future prospects of the existing and proposed
institutions, the convenience and needs of the community to be served,
the risk to the stability of the United States (U.S.) banking or
financial system,\21\ and the effectiveness of the IDIs involved in the
merger transaction in combatting money laundering.\22\
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\20\ 12 U.S.C. 1828(c)(5).
\21\ Ibid.
\22\ 12 U.S.C. 1828(c)(11).
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II. Jurisdiction and Scope
The FDIC is one of three Federal banking agencies with
responsibility for evaluating transactions subject to the BMA. The FDIC
has jurisdiction to act on merger applications that involve an IDI and
any non-insured entity,\23\ and those that solely involve IDIs in which
the acquiring, assuming, or resulting institution is an FDIC-supervised
IDI.\24\ The BMA requires regulatory approval for any merger
transaction involving an IDI.\25\ The applicability of the BMA will
depend on the facts and circumstances of the proposed transaction. In
addition to transactions that combine institutions into a single legal
entity through merger or consolidation, the scope of merger
transactions subject to approval under the BMA encompasses transactions
that take other forms, including purchase and assumption transactions
or other transactions that are mergers in substance, and assumptions of
deposits or other similar liabilities.\26\
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\23\ 12 U.S.C. 1828(c)(1). A non-insured entity refers to any
entity that is not FDIC-insured.
\24\ The Office of the Comptroller of the Currency has
jurisdiction for any merger transaction between IDIs in which the
acquiring, assuming, or resulting institution is a national bank or
a Federal savings association. The Board of Governors of the Federal
Reserve System (FRB) has jurisdiction for any merger transaction
between IDIs in which the acquiring, assuming, or resulting
institution is a State-chartered bank that is a member of the
Federal Reserve System. The FRB also has approval authority under
the Bank Holding Company Act for mergers involving bank holding
companies and the Home Owners' Loan Act for mergers involving
savings and loan holding companies. Merger transactions that are
subject to the FDIC's review may also be subject to the review of
State authorities.
\25\ 12 U.S.C. 1828(c).
\26\ A merger that includes the establishment or relocation of
branches is also subject to approval under 12 U.S.C. 1828(d).
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For BMA purposes, the FDIC considers transactions to be mergers in
substance when a target would no longer compete in the market,
regardless of whether the target plans to liquidate immediately after
consummating the transaction. An example of a transaction that is a
merger in substance, and therefore subject to the BMA, is when an IDI
absorbs all (or substantially all) of a target entity's assets and the
target entity dissolves (or otherwise ceases to engage in the acquired
lines of business such that the target is no longer a viable
competitor).
An FDIC-supervised IDI's assumption of a deposit from another IDI,
or any IDI's assumption of a deposit from a non-insured entity, is
likewise subject to FDIC approval even in the absence of an express
agreement for a direct assumption. Similarly, a transfer of deposits
from any IDI to a non-insured entity is subject to FDIC approval.\27\
The definition of ``deposit'' per section 3(l) of the FDI Act extends
beyond traditional demand deposits to include trust funds and escrow
funds, among other items.
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\27\ 12 U.S.C. 1828(c)(1)(C).
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Merger and other corporate transactions may be conducted through a
single transaction or through a series of related transactions that
each require an application, such as transactions effected through
interim institutions. In all cases, the FDIC will evaluate the
substance of all of the facts and circumstances of the transaction and
any related transactions, identify which aspects of the transaction(s)
are subject to FDIC approval, and fully evaluate the applicable
statutory factors in a manner that is appropriate to each transaction.
III. Application Process and Adjudication
Overview of the Application Process
The FDIC encourages prospective applicants to engage in a pre-
filing process to discuss regulatory expectations. It is particularly
important for the application to be substantially complete when
initially filed.\28\ The quality and comprehensiveness of a filing are
critical to the FDIC's evaluation of the application under the
statutory factors and other regulatory requirements.\29\ The FDIC
expects all submitted materials, including the financial projections
and any related analyses, to be well supported and sufficiently
detailed. The narrative describing the analysis and evaluation of the
transaction should be supported by studies, surveys, analyses and
reports, including those prepared by or for officers, directors, or
deal team leads. Incomplete filings or non-responsiveness to additional
information requests impede the FDIC's
[[Page 79135]]
ability to fully evaluate and resolve the statutory factors.
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\28\ As noted in section 1.1 of the Applications Procedures
Manual, a filing that is not substantially complete lacks the
substance necessary for the FDIC to evaluate the statutory factors.
\29\ Regulatory requirements for merger applications are
provided in 12 CFR part 303 of the FDIC Rules and Regulations
(including subparts A and D) and any other Federal or State
regulations, statutes, or laws applicable to the filing.
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Public feedback is an important component of the FDIC's review of a
merger application. Section 18(c)(3) of the FDI Act requires that
public notice of the proposed merger transaction be published in an
approved form and at appropriate intervals in a newspaper or newspapers
of general circulation. A list of pending merger applications subject
to the Community Reinvestment Act (CRA) is available on the FDIC's
website using the Applications in Process Subject to the CRA Report
Selection Options.\30\ In all cases, the FDIC will review and evaluate
any public comments received regarding the merger application, and will
provide the applicant an opportunity to respond to any comment that is
determined to be a CRA protest.\31\ The FDIC will also consider the
views of each relevant Federal and State agency. Generally, the FDIC
will not approve a merger application if adverse CRA comments have not
been resolved.\32\ In certain cases, the FDIC may hold hearings or
other proceedings in connection with evaluating a merger
application.\33\
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\30\ Applications In Process Subject to the CRA Report Selection
Options, <a href="https://cra.fdic.gov/">https://cra.fdic.gov/</a>.
\31\ 12 CFR 303.2(l) defines the term ``CRA protest'' to mean
any adverse comment from the public related to a pending filing that
raises a negative issue relative to the CRA, whether or not it is
labeled a protest and whether or not a hearing is requested. An
``adverse comment'' is defined under Sec. 303.2(c) of the FDIC
Rules and Regulations, as any objection, protest, or other adverse
written statement submitted by an interested party relating to a
filing.
\32\ See 12 CFR 303.2(c) and (l).
\33\ See 12 CFR 303.10.
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Section 18(c)(4) of the FDI Act requires the FDIC to request a
competitive factors report from the Attorney General of the United
States for any merger transaction between an IDI and a non-affiliated
entity, unless the FDIC finds that it must act immediately in order to
prevent the probable failure of an IDI involved in the transaction.\34\
As circumstances warrant, the Department of Justice (DOJ) and the FDIC
will coordinate the review when there are concerns or questions
regarding the competitive effects of the transaction. As described
below, the FDIC undertakes an independent review consistent with the
statutory factors of the BMA.
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\34\ 12 U.S.C. 1828(c)(4). In addition to acting to prevent the
probable failure of an IDI, section 18(c)(4)(C) of the FDI Act
includes exceptions for merger transactions involving solely an IDI
and one or more of its affiliates.
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Merger Application Adjudication
Generally, if all statutory factors are favorably resolved, and all
other regulatory requirements are satisfied, the FDIC will approve the
merger application. Approvals will be subject to the standard
conditions detailed in Sec. 303.2(bb) of the FDIC Rules and
Regulations and any non-standard conditions deemed appropriate by the
FDIC. Generally, the imposition of conditions will be taken into
account as part of the FDIC's consideration of the merger application,
but will not necessarily lead to the favorable resolution of any
statutory factor where the facts and circumstances are otherwise
unfavorable. The Order and Basis (Order) will be posted to the FDIC's
public web page. The Order will address all statutory factors, as well
as summarize information regarding any CRA protests. The FDIC will
summarize the related analysis and conclusions, and in the cases of
approval, will include any conditions imposed in conjunction with the
approval.
The FDIC's publicly available Delegations of Authority set forth
criteria that must be satisfied in order for staff in the FDIC Regional
Offices or Washington Office to approve a merger application.\35\
Notably, the FDIC Board of Directors (FDIC Board) reserves the
authority to deny any merger application or act on certain types of
proposed transactions, including any transaction for which one or more
statutory factors are not favorably resolved.\36\ Therefore,
applications that do not warrant a favorable finding on one or more
statutory factors are required to be elevated to the FDIC Board for
additional review and final disposition. In addition, the FDIC Board
notably reserves authority to act on any application in which the
merging institutions operate in the same relevant geographic market(s)
and for which the Attorney General has not notified the FDIC in writing
that the proposed transaction would not have a significantly adverse
effect on competition or for which the Attorney General has notified
the FDIC that the merger transaction would have a significantly adverse
effect on competition.
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\35\ FDIC Delegations of Authority for Supervisory Filings,
Enforcement Matters, Capital Determinations, and Information Sharing
Agreements, Seal No. 086825 (October 20, 2020); available at <a href="https://www.fdic.gov/bank-examinations/delegations-authority">https://www.fdic.gov/bank-examinations/delegations-authority</a>.
\36\ Id. at (K)(4)(i)(ii) (Reserving to the FDIC Board the
authority to approve merger applications where ``[o]ne or more of
the statutory factors enumerated in section 18(c)(5) and (11) of the
FDI Act (12 U.S.C. 1828(c)(5) and (11)) is not favorably
resolved'').
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Generally, applications which include one or more of the following
circumstances will present significant concerns and will likely result
in unfavorable findings with regard to one or more statutory factors:
<bullet> Non-compliance with applicable Federal or State statutes,
rules, or regulations (this includes, for example, transactions that
would exceed the 10 percent nationwide deposit limit, as well as both
issued and pending enforcement actions);
<bullet> Unsafe or unsound condition relating to the existing
merger parties or the resulting IDI;
<bullet> Less than satisfactory examination ratings, including for
any specialty areas (i.e., information technology or trust
examinations);
<bullet> Significant concerns regarding financial performance or
condition, risk profile, or future prospects;
<bullet> Inadequate management, including significant turnover,
weak or poor corporate governance, or lax oversight and administration;
or
<bullet> Incomplete, unsustainable, unrealistic or unsupported
projections, analyses, and/or assumptions.
Additionally, the FDIC may not be able to find favorably on any
given statutory factor (and the application as a whole) if there are
unresolved deficiencies, issues, or concerns (including with respect to
any public comments). A lack of sustained performance under corrective
programs would also be inconsistent with a favorable finding on one or
more statutory factors, particularly when the transaction implicates
the areas that are the subject of the corrective program. Further, the
inability or unwillingness of the applicant to agree to proposed
conditions or execute written agreements, if deemed necessary, would
result in unfavorable findings and would require action by the FDIC
Board on the application.
If FDIC staff finds unfavorably on one or more statutory factors
based on the application review, staff generally will recommend denial
of the application. At the FDIC's discretion, applicants may be offered
the opportunity to withdraw the filing. If an applicant withdraws their
filing, the FDIC Board may release a statement regarding the concerns
with the transaction if such a statement is considered to be in the
public interest for purposes of creating transparency for the public
and future applicants.
IV. Statutory Factors
Merger applications are evaluated under the framework of statutory
factors as described in the BMA. Generally, the BMA prohibits approval
of monopolistic or otherwise anticompetitive transactions; and requires
the responsible agency to consider specific statutory factors related
to financial and
[[Page 79136]]
managerial resources and future prospects, convenience and needs of the
community to be served, combatting money laundering, and financial
stability. The BMA also prohibits interstate mergers in which the
resulting IDI would control more than 10 percent of the deposits of
IDIs in the United States.\37\ Evaluations of each statutory factor
consider the respective entities' supervisory records, potential risks
and compensating controls, and any other available information deemed
appropriate.
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\37\ 12 U.S.C. 1828(c)(5), 1828(c)(11), and 1828(c)(13).
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Monopolistic or Anticompetitive Effects
The FDIC strives to ensure that resulting IDIs continue as
participants in a competitive environment. Section 18(c)(5) of the BMA
prohibits the FDIC from approving a merger transaction that would
result in a monopoly or would be in furtherance of an attempt to
monopolize the business of banking in any part of the U.S. The BMA also
prohibits the FDIC from approving a merger transaction that may
substantially lessen competition in any section of the country, unless
the anticompetitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the community to be
served.\38\ For example, such a circumstance may exist where a
transaction is necessary to prevent the probable failure of an IDI. In
addition, the FDIC recognizes that mergers in rural markets involving
local community IDIs may result in concentrated markets, and the FDIC
will carefully balance the competitive effects of such a merger with
the public interest served by the ability of the resulting IDI to serve
the convenience and needs of the community.
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\38\ 12 U.S.C. 1828(c)(5).
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The FDIC will evaluate the competitive effects of a proposed merger
in a manner that is most relevant to each transaction. Consistent with
the majority of merger transactions typically presented to the FDIC,
the FDIC generally employs a framework for evaluating competitive
effects involving a transaction between IDIs with traditional community
banking operations within their local geographic markets. However, the
FDIC will tailor its evaluation to consider the size and competitive
effects of the resulting IDI. Additionally, the FDIC will consider all
relevant market participants. For example, the FDIC may include any
other financial service providers that the FDIC views as competitive
with the merging entities, including providers located outside the
geographic market when it is evident that such providers materially
influence the market.\39\ Further, in cases involving merging entities
with specialty lines of business or non-traditional products, services,
or delivery methods, the FDIC will take into account any additional
data sources or appropriate analytical approaches to fully assess the
competitive effects of the transaction.
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\39\ Such competitors may include, but are not limited to,
credit unions, thrifts, and Farm Credit System institutions.
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In assessing competitive effects, the FDIC considers concentrations
with respect to both geographic and product markets. The FDIC
identifies all relevant geographic markets (local, regional, and
national) based on the areas in which the merging entities operate and
in which customers may practically turn to competitors for alternative
products and services.\40\ The FDIC uses deposits as an initial proxy
for commercial banking products and services. The FDIC will initially
measure the respective shares of total deposits held by the merging
entities and the various other participants with offices in the
geographic market. The FDIC evaluates the market concentration and
change in market concentration in each geographic and product
market.\41\
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\40\ See United States v. Philadelphia National Bank, 374 U.S.
321 (1963).
\41\ Indicators of market concentration and change in
concentration include calculations using the Herfindahl-Hirschman
Index (HHI).
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In addition, the FDIC will consider concentrations beyond those
based on deposits. As appropriate, the FDIC may consider concentrations
in any specific products or customer segments, such as, for example,
the volume of small business or residential loan originations or
activities requiring specialized expertise. Additionally, when
relevant, the analysis may incorporate other products offered by the
merging entities, and will consider whether consumers retain meaningful
choices. In its analysis, the FDIC will evaluate a market with a scope
that is appropriate to the products or services offered or planned.
Moreover, the FDIC will consider the emergence of new competitors for
products or services in relevant markets; and the expansion of products
and services offered by the merging entities and other market
participants. Finally, as necessary or appropriate, the FDIC will
consider other products or services and additional methods of assessing
the competitive nature of markets. In particular, the FDIC may consider
information on the pricing of products and services to assess the
competitive effects of a proposed merger when practicable and relevant.
The FDIC will continue to undertake an independent analysis of the
competitive factors associated with a given merger transaction. The
FDIC's analysis is guided by the principles outlined above, but is also
informed by the Department of Justice's approach to evaluating
competitive effects. As noted above, the FDIC Board reserves authority
to act on any application for which the Attorney General has not
notified the FDIC that the proposed transaction would not have a
significantly adverse effect on competition. In such cases, applicants
would need to demonstrate that the anticompetitive effects of the
merger transaction would be outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs
of the community to be served.
The FDIC may require divestitures of business lines, branches, or
portions thereof as a means to mitigate competitive concerns before
allowing the merger to be consummated. In such cases, the FDIC
generally expects that the selling IDI will neither enter into non-
compete agreements with any employee of the divested entity nor enforce
any existing non-compete agreements with any of those entities.
Additionally, the FDIC may request an IDI divesting or otherwise
closing a branch in connection with the transaction to waive any terms
or conditions that preclude the ability of other IDIs to lease or
purchase the property.
Nationwide Deposit Cap
The BMA prohibits approval of an interstate merger that results in
an IDI (and its affiliates) controlling more than 10 percent of the
total deposits of IDIs in the U.S.\42\ This prohibition does not apply
to transactions that involve one or more IDIs in default or in danger
of default.\43\ Consistent with the competitive effects review, the
FDIC will use the most current Summary of Deposits data to confirm the
nationwide deposit share of the resulting IDI following the proposed
transaction.
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\42\ 12 U.S.C. 1828(c)(13).
\43\ 12 U.S.C. 1828(c)(13)(B).
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Financial Resources
The BMA requires the responsible agency to consider the financial
resources of the existing and proposed entities involved in a merger
[[Page 79137]]
transaction.\44\ The FDIC expects that the resulting IDI will reflect
sound financial performance and condition.\45\ Generally, a favorable
finding on the financial resources factor would be appropriate only in
cases where the merger results in a combined IDI that presents less
financial risk than the financial risk posed by the institutions on a
standalone basis.\46\
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\44\ 12 U.S.C. 1828(c)(5).
\45\ This evaluation encompasses capital, asset quality,
earnings, liquidity, and sensitivity to market risk, as described in
the Uniform Financial Institution Rating System (UFIRS); see 61 FR
67021 (December 19, 1996).
\46\ See generally note 41.
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A critical component of the analysis of financial resources is the
resultant IDI's ability to meet applicable capital standards (including
maintenance of appropriate allowances for loan or credit losses).
Depending on the anticipated risk profile of the resulting IDI, the
FDIC may impose, as a non-standard condition, capital requirements that
are higher than applicable capital standards.\47\ Further, as
appropriate, the FDIC may impose a non-standard condition that requires
the resulting IDI and other relevant parties (such as certain
affiliates or investors) to enter into one or more written agreements
that address, as applicable, capital maintenance requirements,
liquidity or funding support, affiliate transactions, and other
relevant provisions. The FDIC also expects the resulting IDI to
maintain sufficient liquidity and appropriate funding strategies given
its size, complexity, and risk profile.
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\47\ Refer to the applicable capital regulations for the
relevant parties. The minimum capital ratios for FDIC-supervised
IDIs are set forth at 12 CFR 324.10, and the capital measures and
capital category definitions for the purposes of Prompt Corrective
Action are set forth at 12 CFR 324.403 for FDIC-supervised IDIs.
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The FDIC will also consider the current and projected financial
impact of any related entities on the IDI, including the parent
organization and any key affiliates. For each relevant entity, the FDIC
will consider, among other items, the size and scope of operations,
capital position, quality of assets, overall financial performance and
condition, compliance and regulatory history, primary revenue and
expense sources, and funding strategies.
Managerial Resources
The BMA requires the responsible agency to consider the managerial
resources of the existing and proposed entities involved in a merger
transaction.\48\ The FDIC expects that the directors, officers, and as
appropriate, principal shareholders (collectively, management) possess
the capabilities to administer the resultant IDI's affairs in a safe
and sound manner, and effectively implement post-merger integration
plans and strategies.
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\48\ 12 U.S.C. 1828(c)(5).
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The capability of management to identify, measure, monitor, and
control risks and ensure a safe and sound operation in compliance with
applicable laws and regulations is included in the evaluation of
managerial resources. The FDIC will consider the background and
experience of each member of management relative to the size,
complexity, and risk profile of the resulting IDI, including the
managerial performance and supervisory record of affiliates and
subsidiaries.
The FDIC will review supervisory assessments of management made by
the relevant regulatory authorities, as well as the nature and extent
of organizational relationships. The FDIC will also evaluate the effect
of such relationships on the IDI, as well as the operating history,
risk management, and control environment of the parent organization.
Inherent in these considerations are the condition, performance, risk
profile, and prospects of the organization as a whole, as well as the
consistency of the proposed merger with the resulting IDI's strategic
(or business) plan.
The FDIC will assess each IDI's record of compliance with respect
to consumer protection, fair lending, and other relevant consumer laws
and regulations. The FDIC will analyze the compliance management system
of each of the IDIs, as well as the compliance management system for
the resulting IDI to ensure that appropriate controls will be
implemented to identify, monitor, and address consumer compliance
risks. Consideration will also be given to the consumer compliance
rating pursuant to the Uniform Interagency Consumer Compliance Rating
System and the CRA rating.\49\
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\49\ 81 FR 79473 (Nov. 14, 2016).
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Additional managerial resource considerations include:
<bullet> The supervisory history of each entity involved in the
proposed merger, including the management rating \50\ for any IDI
involved in the transaction;
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\50\ The management rating is defined in the UFIRS. See footnote
28.
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<bullet> The breadth and depth of management, and adequacy of
succession planning;
<bullet> Management's responsiveness to issues or supervisory
recommendations raised by regulators or auditors;
<bullet> Any existing or pending enforcement actions;
<bullet> Any issues or concerns with regard to specialty areas
including information technology, trust, consumer compliance, CRA, or
Anti-Money Laundering (AML)/countering the financing of terrorist
activities (CFT); \51\
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\51\ The Anti-Money Laundering Act of 2020 (the AML Act) amended
subchapter II of chapter 53 of title 31 United States Code (the
legislative framework commonly referred to as the Bank Secrecy Act
or BSA). The AML Act requires the Financial Crimes Enforcement
Network (FinCEN), in consultation with Federal functional
regulators, to promulgate AML/CFT regulations. Due to the addition
of the CFT, and for consistency with FinCEN, the FDIC will use the
term AML/CFT (which includes BSA) when referring to, issuing, or
amending regulations to address the requirements of the AML Act of
2020.
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<bullet> The reasonableness of fees, expenses, and other payments
made to insiders; and
<bullet> Recent rapid growth and the record of management in
overseeing and controlling risks associated with such growth.
The FDIC expects management to develop and implement effective
plans and strategies, and the resulting IDI to have the managerial and
operational capacity to integrate the acquired entity. Effective
integration includes, but is not limited to, human capital; products
and services; operating systems, policies, and procedures; internal
controls and audit coverage; physical locations; information
technology; and risk management programs. In conjunction with the
integration, the FDIC expects a resulting IDI to have the managerial
and operational capacity, and to devote adequate resources, to ensure
full and timely compliance with any outstanding corrective programs or
supervisory recommendations.
Future Prospects
The BMA requires the responsible agency to consider the future
prospects of the existing and proposed entities involved in a merger
transaction.\52\ The FDIC expects that the resulting IDI will operate
in a safe and sound manner on a sustained basis following consummation
of the merger. Among other items, the FDIC will consider the economic
environment, the competitive landscape, the acquiring IDI's history in
integrating merger targets and managing growth, the anticipated scope
of the resulting IDI's operations, the quality of its supporting
infrastructure, and other pertinent factors. Any significant planned
changes to the resulting IDI's strategies, operations, products or
services, activities, income or expense levels, or other key elements
of its business will be closely assessed. The FDIC will review the pro
forma financial
[[Page 79138]]
projections, the underlying assumptions, and any accompanying
valuations (such as those related to the target entity, goodwill, or
other assets) for both the existing and proposed entities to ensure
they demonstrate and support that the resulting IDI will maintain an
acceptable risk profile.
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\52\ 12 U.S.C. 1828(c)(5).
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Convenience and Needs of the Community To Be Served
The BMA requires the responsible agency to consider the convenience
and needs of the community to be served when evaluating a merger
transaction.\53\ The FDIC expects that a merger between IDIs will
enable the resulting IDI to better meet the convenience and the needs
of the community to be served than would occur absent the merger in
order to find favorably on this factor.\54\ Applicants are expected to
demonstrate how the transaction will benefit the public through higher
lending limits, greater access to existing products and services,
introduction of new or expanded products or services, reduced prices
and fees, increased convenience in utilizing the credit and banking
services and facilities of the resulting IDI, or other means.
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\53\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
\54\ See generally note 41.
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The FDIC expects applicants to provide specific and forward-looking
information to enable the FDIC to evaluate the expected benefits of the
merger on the convenience and needs of the community to be served. As
appropriate, claims and commitments made to the FDIC to support the
evaluation of the expected benefits of the merger may be included in
the Order, and through ongoing supervisory efforts, the FDIC will
evaluate the IDI's adherence with any such claims and commitments. The
FDIC will evaluate the community to be served broadly, which will
include the proposed assessment area(s), retail delivery systems,
populations in affected communities, and identified needs for banking
services.
As part of its evaluation, the FDIC will review the CRA record of
the IDIs. The CRA requires the FDIC to take into account each IDI's
record of meeting the credit needs of its entire community, including
low- and moderate-income neighborhoods, consistent with the safe and
sound operation of such institution.\55\ As such, the FDIC will
consider each IDI's CRA performance evaluation record of helping to
meet the credit needs of its assessment areas, including low- and
moderate-income neighborhoods, and record of community development
activity, as applicable.\56\ A less than Satisfactory historical rating
or significant deterioration in CRA performance will generally result
in unfavorable findings.\57\ The FDIC's review is not limited to the
CRA record of the IDIs and will encompass a broad review of the
institutions' existing products and services and whether the products
and services proposed by the applicants will meet the convenience and
needs of the community to be served.
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\55\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
\56\ Transactions involving a credit union may require
additional information to evaluate the convenience and needs
statutory factor, as credit unions are not subject to CRA.
\57\ See generally note 41.
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In addition, the FDIC will consider the record of each IDI in
complying with consumer protection requirements and maintaining a sound
and effective compliance management system. This review will include
consideration of any existing or pending orders, ongoing enforcement
actions, and pending reviews or investigations of violations of
consumer protection laws and regulations. A less than Satisfactory
consumer compliance rating \58\ may present significant concerns in
resolving this factor.
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\58\ Uniform Interagency Consumer Compliance Rating System, 81
FR 79473 (Nov. 14, 2016).
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The CRA assessment area(s) and branch locations resulting from the
merger are evaluated as part of this factor. The assessment area(s)
should be delineated in accordance with 12 CFR part 345 of the FDIC
Rules and Regulations (or other appropriate regulations), and should
not reflect illegal discrimination. The FDIC will evaluate all
projected or anticipated branch expansion, closings, or consolidations
for the first three years following consummation of the merger.\59\
Branch closings are subject to both section 42 of the FDI Act and the
Interagency Policy Statement Concerning Branch Closing Notices and
Policies.\60\ Information regarding any proposed or expected closures,
including the timing of each closure, the effect on the availability of
products and services, particularly to low- or moderate-income
individuals or designated areas, any job losses or lost job
opportunities from branching changes, and the broader effects on the
convenience and needs of the community to be served will be closely
evaluated. Applications that project material reductions in service,
especially to low- and moderate-income communities or consumers, will
generally result in unfavorable findings.\61\
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\59\ Generally, the FDIC considers a substantially complete
merger application to include, among other items, at least three
years of information regarding projected branch expansions,
closings, or consolidations. Short-distance consolidations that may
not be subject to section 42 outside of a merger context should be
included in this information. In certain cases, the FDIC may impose
non-standard conditions requiring prior approval or additional
notice in connection with branch closings or consolidations.
\60\ 64 FR 34845 (June 29, 1999).
\61\ See generally note 41.
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The FDIC will consider all substantive public comments received in
accordance with Sec. 303.9 of the FDIC Rules and Regulations,\62\ as
well as the views of relevant State and Federal regulators regarding
the ability of the applicant to meet the convenience and needs of the
community to be served. Non-standard conditions may be imposed, as
appropriate, in response to CRA weaknesses, relevant regulator input,
bank commitments, or public comments. The FDIC will consider whether it
is in the public interest to hold a hearing for merger applications,
and generally expects to hold a hearing for any application resulting
in an IDI with greater than $50 billion in assets or for which
significant CRA protests are received. The FDIC may also hold public or
private meetings to receive input on the transaction. The decision to
hold such meetings depend on issues raised during the comment period
and the significance of the merger transaction to the public interest,
to the banking industry, and communities affected.
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\62\ 12 CFR 303.9.
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As noted above, the BMA prohibits the FDIC from approving a merger
transaction that may substantially lessen competition in any section of
the country, unless the anticompetitive 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.\63\ A favorable finding on the
convenience and needs of the community to be served factor may not be
sufficient to support approval of the application when anticompetitive
effects are identified. In situations where anticompetitive effects are
identified, and as described above, the FDIC will evaluate whether the
applicant has demonstrated that the benefits to the convenience and
needs of the community will clearly outweigh the anticompetitive
effects.
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\63\ 12 U.S.C. 1828(c)(5).
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Risk to the Stability of the United States Banking or Financial System
Section 604 of the Dodd-Frank Wall Street Reform and Consumer
Protection
[[Page 79139]]
Act (Dodd-Frank Act) amended the BMA to require the FDIC to consider
the risk posed by a merger transaction to the stability of the U.S.
banking or financial system. The FDIC expects that the resulting IDI
(or consolidated company) will not materially increase the risk to the
stability of the U.S. banking or financial system.\64\ Consistent with
the other Federal banking agencies,\65\ the FDIC evaluates this factor
with respect to the following:
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\64\ 12 U.S.C. 1828(c)(5).
\65\ The FDIC will consider data collected by the Federal
Reserve System to monitor the systemic risk profile of the IDIs,
which are subject to enhanced prudential standards under section 165
of the Dodd-Frank Act.
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<bullet> The size of the entities involved in the transaction;
<bullet> The availability of substitute providers for any critical
products or services to be offered by the resulting IDI;
<bullet> The resulting IDI's degree of interconnectedness with the
U.S. banking or financial system;
<bullet> The extent to which the resulting IDI contributes to the
U.S. banking or financial system's complexity; and
<bullet> The extent of the resulting IDI's cross-border activities.
Generally, the FDIC will not view the size of the entities involved
in a proposed merger transaction as a sole basis for determining the
risk to the U.S. banking or financial system's stability. However,
transactions that result in a large IDI (e.g., in excess of $100
billion) are more likely to present potential financial stability
concerns with respect to substitute providers, interconnectedness,
complexity, and cross border activities, and will be subject to added
scrutiny. The FDIC will consider the nature and scope of operations of
the target entity, the resulting IDI, and any other elements that may
also influence the risk to the U.S. banking or financial system's
stability.
With regard to substitute providers, the FDIC will consider whether
the resulting IDI provides critical products or services that may be
difficult to replace, or conducts activities (including specific
business lines) that comprise a relatively large share of system-wide
activities. Concerns are heightened, and may preclude favorable
resolution of this factor, in situations where there are limited
readily available substitutes; as such, services may be disrupted or
discontinued if the resulting IDI encounters financial distress or
fails.\66\
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\66\ See generally note 41.
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In assessing the resulting IDI's interconnectedness, the FDIC will
consider the degree to which the merging entities are engaged in
transactions or relationships with IDIs, affiliates of banking
organizations, or other financial service providers. Consideration will
be given to whether any exposures with creditors, counterparties,
investors, or other market participants could affect the U.S. banking
or financial system. A resulting IDI may present financial stability
concerns if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other
financial system participants.
The FDIC's evaluation of the resulting IDI's contribution to the
U.S banking or financial system's complexity will consider the full
scope of the IDI's operations. This includes the IDI's business lines,
products and services, on- and off-balance sheet activities, branch
network and delivery channels, number of account holders (including the
volume of uninsured deposits), extent of information technology
systems, and any material affiliate or other third-party relationships.
As part of evaluating the resulting IDI's impact on complexity, the
FDIC will also consider its resolvability in a potential failure
situation. The FDIC may not be able to find favorably on this factor
\67\ when the resultant IDI's organizational and funding structure
preclude its ability to (1) continue operations and activities until
they can be sold or wound down, (2) sell key business lines or large
asset portfolios, and (3) be marketed for sale in a manner that limits
the potential for losses to the Deposit Insurance Fund.\68\
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\67\ See generally note 41.
\68\ In addition to considering the FDIC's potential role as
receiver of the resulting IDI under section 11 of the FDI Act, it
will also take into account possible alternative resolution
scenarios.
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The extent of a resulting IDI's cross-border activities may also
have implications with regard to a favorable finding on this
factor.\69\ The FDIC will consider whether cross-border activities
comprise a material component of the resulting IDI's operations and
present a significant degree of cross-jurisdictional claims or
liabilities. Such activities may present challenges from both
supervisory and resolution perspectives given the potential exposure to
differing legal requirements, geopolitical events, and competing
national interests.
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\69\ See generally note 41.
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Other Stability Considerations
The above list of items is not exhaustive. The FDIC will evaluate
any additional elements that may affect the risk to the U.S. banking or
financial system's stability. This may include the resulting IDI's
regulatory framework; however, the framework alone would not result in
a favorable finding on this factor when other financial stability
concerns exist.\70\ As appropriate, consideration may be given to the
merging IDIs' records with respect to cybersecurity and stress-testing
results. The FDIC may also evaluate the degree to which the resultant
IDI's potential financial distress or rapid liquidation could cause
other market participants with similar activities or business profiles
to experience a loss of market confidence, falling asset values, or
decreased funding options.
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\70\ See generally note 41.
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Proposed transactions that solely involve affiliates that were
related at the time a merger application is filed generally will not
raise concerns with regard to this factor. However, each proposal will
be reviewed to ensure that the resulting IDI would not present any new
or unforeseen financial stability risks that may not have existed when
the merging entities operated as affiliates or on a standalone basis.
Effectiveness in Combatting Money Laundering Activities
The BMA requires the responsible agency to consider the
effectiveness of any IDI involved in a merger transaction in combatting
money-laundering activities, including in overseas branches.\71\ The
FDIC expects that approved merger transactions will result in IDIs with
effective programs to combat AML/CFT. A favorable finding on this
factor \72\ will be based on a comprehensive evaluation of each
entity's AML/CFT program that includes overseas branches; policies,
procedures, and processes; risk management programs; the supervisory
record of each participating entity, the entity's compliance with the
BSA and its implementing regulations; and remediation efforts pursuant
to an outstanding corrective program.\73\ In all cases, the FDIC will
consider whether the resulting IDI has developed an appropriate plan
for the integration of the combined operations into a single,
comprehensive, and effective program to combat money laundering and
terrorist financing. Additionally, the FDIC expects the applicant to
demonstrate how the resulting IDI will comply with the BSA and its
[[Page 79140]]
implementing regulations following consummation of the merger.
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\71\ 12 U.S.C. 1828(c)(11).
\72\ See generally note 41.
\73\ An IDI under an outstanding formal enforcement action
should make substantial progress to correct problem(s) addressed in
the action. Progress should be sufficient to determine that the AML/
CFT program is now adequate.
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Significant unresolved AML/CFT concerns or uncorrected problems, or
an outstanding or proposed formal or informal enforcement action that
includes provisions related to AML/CFT, will generally result in
unfavorable findings on this factor.\74\ In limited cases, sufficient
mitigating factors may support a favorable finding, such as when an
acquirer with a strong AML/CFT program replaces a target entity's less
than satisfactory program and presents an appropriate plan to address
the target entity's deficiencies.
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\74\ See generally note 41.
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V. Other Matters and Considerations
Interstate Merger Transactions
In cases where section 44 of the FDI Act applies to an interstate
merger transaction, the FDIC will ensure that the additional
requirements and restrictions of section 44 are satisfied.\75\
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\75\ See 12 U.S.C. 1831u.
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Applications Involving Non-Banks or Banks That Are Not Traditional
Community Banks
Historically, most merger transactions considered by the FDIC have
involved traditional community banks. In general, traditional community
banks focus on providing the banking services, including loans and core
deposits, typically relied on by individuals and businesses in their
local communities. However, merger applications may also involve non-
banks \76\ or banks that are not traditional community banks, which may
involve more complexity than a traditional community bank in terms of
its business model, products, services, activities, market segments,
funding, delivery channels, geographic footprint, operations, or
intercompany or other third-party relationships. Merger applications
where the resulting IDI will be a non-bank or not a traditional
community bank are subject to the same statutory factors as any other
merger application. However, the FDIC will appropriately tailor its
review to the nature, complexity, and scale of the entities involved in
the transaction and the underlying business model. The FDIC's
Washington Office or FDIC Board reserve authority to act on certain
merger applications that do not involve traditional community banks.
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\76\ A ``non-bank'' refers to an IDI that is a bank for purposes
of the FDI Act, but that is not a bank for purposes of the Bank
Holding Company Act (BHCA). Non-banks may be owned by parent
companies that are not subject to the BHCA, and therefore may not
regulated or supervised by the FRB.
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Applications Involving Operating Non-Insured Entities
Applications may involve an existing IDI merging with an operating
entity that is not FDIC-insured. Operating non-insured entities may
vary widely in the type of business and activities conducted (e.g.,
credit unions, which typically offer products and services consistent
with a traditional community bank, mortgage companies, financing
companies, payment services firms, or other types of entities whose
business model may have elements more consistent with that of a non-
community bank). Merger applications that involve an operating non-
insured entity are subject to the same statutory factors as any other
merger application. However, in reviewing such applications, the FDIC
will also consider the nature and complexity of the non-insured entity,
its scale relative to the existing IDI, its current condition and
historical performance, and any other relevant information regarding
the entity's operations or risk profile.
The FDIC will review audited financial statements (covering at
least three years, unless the entity's operating history is shorter)
and assess any deferred tax assets or liabilities, intangible assets,
contingent liabilities, and any recent or pending legal or regulatory
actions. Further, independent appraisals or valuations may be necessary
to support the projected value of any business (or assets) expected to
be transferred from the operating non-insured entity to the resultant
IDI through the merger transaction.
VI. Resources
FDIC Bank Application Resource page, <a href="https://www.fdic.gov/regulations/applications/resources/">https://www.fdic.gov/regulations/applications/resources/</a>
FDIC Regional Offices, <a href="https://www.fdic.gov/about/contact/directory/region.html">https://www.fdic.gov/about/contact/directory/region.html</a>
FDIC Law, Regulations, Related Acts, <a href="https://www.fdic.gov/regulations/laws/rules/">https://www.fdic.gov/regulations/laws/rules/</a>
Section 18(c) of the FDI Act, 12 U.S.C. 1828(c)
Section 42 of the FDI Act, 12 U.S.C. 1831r-1
Section 44 of the FDI Act, 12 U.S.C. 1831u
12 CFR part 303, subparts A and D
Interagency Policy Statement Concerning Branch Closing Notices and
Policies, 64 FR 34845 (June 29, 1999)
Applications Procedures Manual (APM), <a href="https://www.fdic.gov/bank-examinations/applications-procedures-manual">https://www.fdic.gov/bank-examinations/applications-procedures-manual</a>
Section 1 of the FDIC APM, <a href="https://www.fdic.gov/system/files/2024-07/section-01-01-overview.pdf">https://www.fdic.gov/system/files/2024-07/section-01-01-overview.pdf</a>
Section 4 of the FDIC Application Procedures Manual, <a href="https://www.fdic.gov/system/files/2024-07/section-04-mergers.pdf">https://www.fdic.gov/system/files/2024-07/section-04-mergers.pdf</a>
FDIC Delegations of Authority--Filings, <a href="https://www.fdic.gov/regulations/laws/matrix/index.html">https://www.fdic.gov/regulations/laws/matrix/index.html</a>
Interagency Bank Merger Act Form, <a href="https://www.fdic.gov/formsdocuments/f6220-01.pdf">https://www.fdic.gov/formsdocuments/f6220-01.pdf</a>
Deposit Market Share Reports--Summary of Deposits, <a href="https://www2.fdic.gov/sod">https://www2.fdic.gov/sod</a>
Federal Reserve Bank of St. Louis, Competitive Analysis and
Structure Source Instrument for Depository Institutions, <a href="https://cassidi.stlouisfed.org/index">https://cassidi.stlouisfed.org/index</a>
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on September 17, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-22189 Filed 9-26-24; 8:45 am]
BILLING CODE 6714-01-P
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</html>Indexed from Federal Register on September 27, 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.