FDIC Proposes to Expand Criteria for Bank Merger Evaluations

Posted: Mar 27 2024

The FDIC board has voted 3-2 to pursue potential changes to how the agency will evaluate bank merger applications, including broadening the number of competitive factors it will take into consideration when deciding whether to approve or deny applications, and requiring a “thorough accounting” of the potential effects on communities, including possible branch closures or relocations.

The FDIC last updated its policy statement on bank mergers in 2008. Under the proposal the FDIC would clarify that its assessment of a proposed merger’s competitive effects would consider concentrations on products and services beyond those based on deposits, such as the volume of small business or residential loan originations, FDIC Chairman Martin Gruenberg said. In cases where divestiture may be necessary, the statement would clarify that divestitures are expected to be completed before consummation of a merger transaction. It also would establish a policy against entering into or enforcing noncompete agreements with any employee of the divested entity.

The policy would state that the FDIC expects the resulting depository institution to reflect sound financial performance and condition, Gruenberg said. It would articulate the considerations used to assess the merged entity’s effectiveness in combating money laundering. It would also clarify and emphasize the FDIC’s expectations for the merged entity to meet the needs of the community, such as through higher lending limits or greater access to products, services and facilities. As a result, applicants would be required to list expected branch expansions, closures, consolidations and relocations for the first three years of the merger, he said.

The policy also would spell out the FDIC’s general expectation to hold public hearings for transactions when the resulting institution would exceed $50 billion in assets, or when a significant number of Community Reinvestment Act protests are received, Gruenberg said. It also puts into writing a Dodd-Frank Act requirement that bank mergers be evaluated for potential risk to the U.S. financial system, which has been agency practice since passage of the law.

To view the proposal, visit: https://www.fdic.gov/news/board-matters/2024/2024-03-21-notice-dis-b-fr.pdf