FDIC, OCC M&A Proposals Reject a Transparent Merger Process and the Law

Washington, D.C. — Recent proposals by the FDIC and OCC would effectively block healthy and legally authorized bank consolidation by adding to ongoing uncertainty a series of newly created and extra-legal presumptions against approval, BPI said in two separate comment letters. Rather than increasing clarity, the two agencies’ proposed changes to the merger guidelines would intensify uncertainty by rejecting longstanding legal standards. Both proposals should be withdrawn. 

Context: The FDIC proposal starts with a presumption of disapproval for many mergers, effectively precluding many banks from pursuing healthy deals. Similarly, the OCC proposal would set an unjustifiably high bar for merger approval – its list of “positive indicators” and “negative indicators” suggests a prescriptive, rigid approach. These presumptions against approval would drive banks to avoid deals: mergers and acquisitions entail a high-cost, high-risk process that would not be worthwhile if the outcome is likely to fail. Entirely missing from either proposal is any clear timeline for merger review sufficient to provide firms comfort that they will not be left in purgatory as unexplained delays in processing degrade the value of both the acquiring and target firms.

Instead of following the law and evaluating each merger on its merits before reaching a conclusion, the agencies under these proposals would start with ‘no’ and work backwards. These proposals contradict sound policy and statute. Neither acquiring banks nor targets would begin the complicated process of announcing a deal and applying for regulatory approval if their regulator has indicated they will likely disapprove. Furthermore, even for the unusual deal that jumps through all these newly created, extra-legal hoops, there is no assurance of a prompt review. The costs of technology, cyber defense, marketing and compliance have made economies of scale vital in banking; this proposal ignores that fact completely. The FDIC and OCC should withdraw these harmful proposals.” – Greg Baer, BPI President and CEO

The problems: The FDIC and OCC should withdraw their proposals for several reasons.

  1. They deviate from the statute and from sound M&A policy and would discourage or even preclude beneficial, legally permissible mergers. Sound merger policy promotes a diverse, competitive banking system that allows banks of all sizes to flourish, rather than assuming all growth through M&A over an arbitrary size threshold is inherently bad. Regulators should let the market, not government overseers, determine how banking assets are allocated across the system. A robust M&A market with clear regulatory standards also prevents chaotic wind-downs of failing banks in a crisis.
  2. The measures effectively function as final rules in substance rather than initial steps. Banks will be reluctant to pursue deals if the relevant regulator signals they will deny approval, and that’s exactly what these proposals do for certain kinds of deals (e.g., the FDIC proposal gives such indications about those resulting in a bank with more than $100 billion in assets).
  3. The proposals introduce new demands departing from the statutory requirements for bank mergers.

Any reproposal should address these concerns, and align with the law and the other banking agencies’ merger guidance. Merger policy should ensure that applications are processed on a timely and predictable basis consistent with standards established by statute.

BPI’s recommendations: The FDIC and OCC should withdraw these fundamentally flawed proposals. If they do move forward with a reproposal, they should:

  • Substantially revise the proposals to be consistent with statutory standards and sound bank merger policy, including by avoiding artificial constraints in the process.
  • Provide details on addressing the current delays in merger application processing times. Murky timeframes for merger approval have real costs in the form of departing employees, fleeing customers and diminished stock value.
  • Retain the option for expedited review and streamlined applications in the OCC’s current rules.


About Bank Policy Institute.

The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

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