10 Key Reforms to Improve Bank M&A Policy

Mergers and acquisitions enable banks to reach more customers, invest in technology and operate at scale. These benefits are conduits to economic growth, efficiency and customer convenience. But current policies governing M&A are riddled with problems — unpredictable processing of merger applications, unjustified roadblocks from bank examiners unrelated to a bank’s financial health, poor coordination among agencies leading to unclear rules of the road and rogue policy pronouncements that create subjective new requirements outside the standards enshrined in law.

While data show that banks are much less concentrated than other U.S. industries, bank mergers face unique scrutiny and a complex review process. Here are 10 key reforms that would help address these problems and promote responsible competition in the U.S.

Immediate Priorities:

1. Address real issues, not minor roadblocks. Too often, minor dings from examiners in overbroad “catch all” ratings categories stand in the way of a beneficial bank merger being approved. The Fed should eliminate the minor supervisory obstacles that preclude bank mergers, ensuring that only material problems affecting a bank’s finances would prevent deal approval.

2. Coordination is key. Bank mergers face inconsistent guidance on M&A from multiple federal agencies. This exacerbates uncertainty in merger review. The federal banking agencies should coordinate with the Department of Justice on bank merger reform.

3. Rescind bad policy. The FDIC and OCC under the last administration issued policy statements that make bad M&A policy worse by introducing new, subjective standards for merger approval. These agencies should each rescind their policy statements through a transparent notice-and-comment process. Congress should also invalidate them with a Congressional Review Act vote.

Further steps in the right direction, in the medium term:

4. Shed light on supervision: Each of the federal banking agencies should focus supervision on
material issues and make both the Large Financial Institution and CAMELS rating systems more
transparent and sensible.

5. Modernize guidelines: The DOJ and banking agencies should work together to update M&A guidelines for today’s banking landscape: widespread digital banking, proliferation of credit unions and competition from fintechs and other nonbanks.

6. Clearer timelines: The banking agencies should signal their commitment to expeditious timelines and clear expectations for merger review. They should issue a joint statement laying out a 120-day expectation for processing M&A applications.

In the longer term, policymakers should:

7. Establish predictable, durable timelines for review through statute. Beyond guidance, new laws should establish firm deadlines for processing bank M&A applications.

8. Eliminate duplicative reviews. Bank M&A review has become a kitchen with too many cooks in it, and the federal banking regulators are the federal government experts in bank transactions. A federal banking agency’s competition review of a proposed merger should preempt the application of any federal or state antitrust law to the same transaction (including the DOJ, state attorneys general, or any private plaintiff).

9. Make the CAMELS rating system more objective. This system should be revised to remove subjective elements and incorporate objective measures. This interagency rulemaking should, among other things, remove the Management component, as it is wholly subjective and gives examiners unrestrained leverage over banks, and establish objective measures to determine all remaining CAMELS components.

10. Refocus examiner authority. Examiners’ purview should be limited to assessing material financial risks and overall financial condition, based on objective measures of banks’ capital and liquidity position.

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Additional Resources

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