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Speeches, Statements & Testimonies
Statement by Martin J. Gruenberg, Chairman, FDIC, on Proposed Statement of Policy on Bank Merger Transactions
March 21, 2024

Introduction

Today the FDIC Board is considering a Proposed Statement of Policy on Bank Merger Transactions. This Proposal would update, strengthen, and clarify the FDIC's approach to evaluating transactions subject to its approval under the Bank Merger Act. Given the rapid pace of change and consolidation in the banking industry today, it is vital that the FDIC provide guidance on how it would apply the critical statutory factors under the Bank Merger Act relating to competition, financial resources, the convenience and needs of communities, financial stability, and money laundering.

Statutory Framework

The FDIC's role in evaluating bank mergers dates back to 1935, two years after the creation of the FDIC, when Congress prohibited any insured bank from merging with any noninsured bank without FDIC approval.1 Following significant consolidation among insured banks in the 1950s, Congress passed the Bank Merger Act of 1960,2 to ensure that all mergers between insured depository institutions are subject to the approval of the primary federal regulator of the resulting institution.

This framework, codified in the Federal Deposit Insurance Act, remains in place today.3 As originally enacted, it contained three statutory factors that require consideration of the following:

  • Monopolistic or Anti-Competitive Effects;
  • The financial and managerial resources and future prospects of the existing and proposed institutions; and
  • The convenience and needs of the community to be served.4
  • Congress added two additional statutory factors as part of the USA PATRIOT Act in 20015 and the Dodd-Frank Act in 20106:
  • The effectiveness of any insured depository institution involved in the proposed merger transaction in combatting money laundering activities;7 and
  • The risk to the stability of the United States banking or financial system.8

Finally, following the liberalization of interstate merger transactions in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,9 the Dodd-Frank Act amended the Bank Merger Act to conform with Riegle-Neal's general prohibition on approval of an interstate merger that results in an insured depository institution (IDI) (and its affiliates) controlling more than 10 percent of the total deposits of IDIs in the United States.10

This is the statutory framework within which the FDIC carries out its responsibilities under the Bank Merger Act today.

Overview of the Proposed Statement of Policy

The current FDIC Statement of Policy on Bank Merger Transactions was last published for comment in 1997, and was subsequently revised in 2002 and 2008. These changes addressed, respectively, the anti-money-laundering statutory factor and amendments to the Bank Merger Act resulting from the Financial Services Regulatory Relief Act of 2006. Today, we are considering a new Proposed Statement of Policy that would reflect regulatory, legislative, and industry changes that have occurred over the past 27 years, including the Dodd-Frank Act's adoption of the financial stability factor.

The Proposed Statement of Policy includes new content to make it more principles based, communicates the FDIC Board's expectations regarding the evaluation of merger applications filed pursuant to the Bank Merger Act, and describes the types of applications subject to FDIC approval. While historical performance provides insight into the evaluation of these factors, the Statement of Policy affirms that the evaluations are forward looking.

I'll now discuss briefly the key considerations for each statutory factor under the Statement of Policy.

Monopolistic or Anti-Competitive Effects

First, the Bank Merger Act 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. For example, such a circumstance may exist where a transaction is necessary to prevent the probable failure of an insured depository institution.

The Proposed Statement of Policy approaches the evaluation of competitive effects with the expectation that a resulting institution operate in a competitive environment in which consumers would retain meaningful choices. The evaluation would include all relevant financial services providers that compete in the identified geographic and product markets.

The proposed Statement of Policy would clarify that the FDIC's assessment of competitive effects considers concentrations beyond those based on deposits. The FDIC may consider concentration in any specific products or customer segments, such as the volume of small business or residential loan originations.

In cases where divestiture may be necessary, the Proposed Statement of Policy clarifies that divestitures are expected to be completed before consummation of a merger transaction. Further, the Proposal would establish a policy against entering into or enforcing non-compete agreements with any employee of the divested entity.

The FDIC expects to continue working with the Department of Justice and our fellow banking regulators in carrying out our responsibilities regarding this factor.

Financial Resources, Managerial Resources, and Future Prospects

Second, the Proposed Statement of Policy expects that the resulting insured depository institution will reflect sound financial performance and condition. Generally, the FDIC will not find favorably on the financial resources factor if the merger would result in a weaker IDI from an overall financial perspective.

The evaluation of managerial resources assesses management's capabilities to administer the resultant IDI's affairs in a safe and sound manner, and its ability to effectively implement integration plans and strategies for absorbing the acquired entity.

Managerial resource considerations include the supervisory history, adequacy of succession planning, responsiveness to supervisory recommendations, existing or pending enforcement actions, and recent rapid growth and management's record in controlling risks associated with such growth.

The evaluation of future prospects assesses whether the resulting insured depository institution will be able to operate in a safe and sound manner and maintain an acceptable risk profile on a sustained basis following consummation of the merger.

Effectiveness in Combatting Money Laundering Activities

Third, the Proposed Statement of Policy articulates the evaluative considerations used to assess the effectiveness in combatting money laundering.

Convenience and Needs of the Community to be Served

Fourth, the proposed Statement of Policy would clarify and emphasize the FDIC's expectation that a merger subject to its approval will result in an institution that is positioned to better meet the convenience and needs of the community to be served than would occur absent the merger. The Proposed Statement of Policy explains that this may be demonstrated through higher lending limits; greater access to products, services, and facilities; introduction of new or expanded products or services; reduced prices and fees; or other means.

The evaluation of this factor includes the proposed assessment area considerations; expectations for meeting the needs of the entire community, including low- and moderate-income neighborhoods; and a thorough accounting of expected branch expansions, closures, consolidations, and relocations for the first three years following the merger.

The FDIC's review is broad in nature and not limited to the Community Reinvestment Act (CRA) record of the institution. The FDIC will consider the record of each institution in complying with consumer protection requirements and maintaining a sound and effective compliance management system.

In addition, the evaluation will also consider public input. To that end, the Proposed Statement of Policy communicates the FDIC's general expectation to hold hearings for transactions with a resulting institution exceeding $50 billion in assets, or for which a significant number of CRA protests are received. The FDIC may also hold public or private meetings to receive input on the transaction. These mechanisms for gathering additional public input complement the Bank Merger Act's statutory public notice requirements.

Risk to the Stability of the U.S. Banking or Financial System

Finally, after the 2008 financial crisis, the Dodd-Frank Act amended the Bank Merger Act to include a statutory factor related to the risk to the stability of the United States banking or financial system. The Proposed Statement of Policy addresses the evaluation of this factor, which generally reflects the FDIC's approach since the enactment of the Dodd-Frank Act. The FDIC's assessment of the financial stability factor focuses on:

  • 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.

Although size alone may not be dispositive, the Proposed Statement of Policy indicates that a resulting institution with $100 billion or more in assets is more likely to present potential financial stability concerns, and thus will be subject to added scrutiny. The bank failures of 2023 underscore the risks that banks with assets over $100 billion can have for financial stability.

Conclusion

In conclusion, this Proposed Statement of Policy would update, strengthen, and clarify the FDIC's approach to evaluating mergers under the Bank Merger Act.

It follows the FDIC's 2022 request for information on the framework applicable to bank mergers. The comments received in response to the 2022 request for information have helped inform the content of this Proposed Statement of Policy, and publishing this Proposal for public comment gives the FDIC an additional opportunity to benefit from public input.

Effective administration of the Bank Merger Act depends on relevant, quality information obtained in the applications process. In light of this, concurrent with this Proposed Statement of Policy, the FDIC is seeking comment on proposed revisions to its supplemental section to the interagency Bank Merger Act application form.

Finally, continued engagement with our fellow regulators is vitally important, especially as it relates to evaluating the competitive effects of mergers. The federal banking agencies coordinate with the Department of Justice when evaluating a bank merger's effect on competition, and the FDIC looks forward to continuing to collaborate with our fellow agencies as we consider the appropriate framework for reviewing bank merger transactions.

For the reasons outlined in this statement, I strongly support publication of this Proposed Statement of Policy for public comment. We look forward to receiving thoughtful public comment on the proposal.

Let me conclude with a word of thanks to the FDIC staff who worked thoughtfully and diligently on this proposed Statement of Policy and put us in a position to come forward with this proposal today.

  • 1

    Banking Act of 1935, Pub. L. No. 74-305, § 101 (amending section 12B(v)(4) of the Federal Reserve Act).

  • 2

    Bank Merger Act of 1960, Pub. L. No. 86-463 (May 13, 1960).

  • 3

    12 U.S.C. § 1828(c).

  • 4

    12 U.S.C. § 1828(c)(5).

  • 5

    USA PATRIOT Act, Pub. L. No. 107-56, § 327(b) (Oct. 26, 2001).

  • 6

    Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 604(f) (July 21, 2010).

  • 7

    12 U.S.C. § 1828(c)(11).

  • 8

    12 U.S.C. § 1828(c)(5).

  • 9

    Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Pub. L. No. 103–328 (September 29, 1994).

  • 10

    Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 623(a) (July 21, 2010).

Last Updated: March 21, 2024