Business Combinations Under the Bank Merger Act, 10010-10018 [2024-02663]
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10010
Proposed Rules
Federal Register
Vol. 89, No. 30
Tuesday, February 13, 2024
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 5
[Docket ID OCC–2023–0017]
RIN 1557–AF24
Business Combinations Under the
Bank Merger Act
Office of the Comptroller of the
Currency (OCC), Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
The OCC is inviting comment
on a proposed rule to increase the
transparency of the standards that apply
to the agency’s review of business
combinations involving national banks
and Federal savings associations. In
particular, the proposed rule would
amend the procedures and would add,
as an appendix, a policy statement that
summarizes the principles the OCC uses
when it reviews proposed bank merger
transactions under the Bank Merger Act.
DATES: Comments must be received by
April 15, 2024.
ADDRESSES: Commenters are encouraged
to submit comments through the Federal
eRulemaking Portal. Please use the title
‘‘Business Combinations under the Bank
Merger Act’’ to facilitate the
organization and distribution of the
comments. You may submit comments
by any of the following methods:
• Federal eRulemaking Portal—
‘‘Regulations.gov’’:
Go to https://regulations.gov/. Enter
‘‘Docket ID OCC–2023–0017’’ in the
Search Box and click ‘‘Search.’’ Public
comments can be submitted via the
‘‘Comment’’ box below the displayed
document information or by clicking on
the document title and then clicking the
‘‘Comment’’ box on the top-left side of
the screen. For help with submitting
effective comments, please click on
‘‘Commenter’s Checklist.’’ For
assistance with the Regulations.gov site,
please call 1–866–498–2945 (toll free)
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SUMMARY:
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Monday–Friday, 9 a.m.–5 p.m. ET, or
email regulationshelpdesk@gsa.gov.
• Mail: Chief Counsel’s Office,
Attention: Comment Processing, Office
of the Comptroller of the Currency, 400
7th Street SW, Suite 3E–218,
Washington, DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, Suite 3E–218, Washington,
DC 20219.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2023–0017’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish the comments on the
Regulations.gov website without
change, including any business or
personal information provided such as
name and address information, email
addresses, or phone numbers.
Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
include any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
action by any of the following methods:
• Viewing Comments Electronically—
Regulations.gov:
Go to https://regulations.gov/. Enter
‘‘Docket ID OCC–2023–0017’’ in the
Search box and click ‘‘Search’’. Click on
the ‘‘Dockets’’ tab and then the
document’s title. After clicking the
document’s title, click the ‘‘Browse All
Comments’’ tab. Comments can be
viewed and filtered by clicking on the
‘‘Sort By’’ drop-down on the right side
of the screen or the ‘‘Refine Comments
Results’’ options on the left side of the
screen. Supporting materials can be
viewed by clicking on the ‘‘Browse
Documents’’ tab. Click on the ‘‘Sort By’’
drop-down on the right side of the
screen or the ‘‘Refine Results’’ options
on the left side of the screen checking
the ‘‘Supporting & Related Material’’
checkbox. For assistance with the
Regulations.gov site, please call 1–866–
498–2945 (toll free) Monday–Friday, 9
a.m.–5 p.m. ET, or email
regulationshelpdesk@gsa.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
FOR FURTHER INFORMATION CONTACT:
Valerie Song, Assistant Director,
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Christopher Crawford, Special Counsel,
Elizabeth Small, Counsel, Chief
Counsel’s Office 202–649–5490; or Yoo
Jin Na, Director for Licensing Activities
202–649–6260, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219. If
you are deaf, hard of hearing, or have a
speech disability, please dial 7–1–1 to
access telecommunications relay
services.
SUPPLEMENTARY INFORMATION:
I. Background
The Bank Merger Act (BMA), section
18(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1828(c)), and the OCC’s
implementing regulation, 12 CFR 5.33,
govern the OCC’s review of business
combinations of national banks and
Federal savings associations with other
insured depository institutions
(institutions) that result in a national
bank or Federal savings association.1
Under the BMA, the OCC must consider
the following factors: competition, 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 banking or financial
system, and the effectiveness of any
insured depository institution involved
in combatting money laundering
activities, including in overseas
branches.2 The BMA generally requires
public notice of the transaction to be
published for 30 days.3 OCC regulations
require the public notice include
essential details about the transaction
and instructions for public comment.
The regulations incorporate the
statutory 30-day public notice period
and provide a 30-day public comment
period, which the OCC may extend.4
The OCC may also hold a public
hearing, public meeting, or private
meeting on an application.5
The OCC has issued several
publications that provide additional
information about the procedures that
the OCC follows in reviewing and acting
on proposed business combinations. For
example, the ‘‘Business Combinations’’
1 A business combination for these purposes
includes assumption of deposits in addition to
mergers or consolidations.
2 12 U.S.C. 1828(c)(5), (11).
3 12 U.S.C. 1828(c)(4).
4 12 CFR 5.8(b), 5.10(b)(1).
5 12 CFR 5.11.
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booklet of the Comptroller’s Licensing
Manual details the OCC’s review of
applications under the BMA. The
‘‘Public Notice and Comments’’ booklet
of the Comptroller’s Licensing Manual
sets forth policies and requirements
related to the public notice and
comment process, including hearings
and meetings. The Comptroller’s
Licensing Manual provides OCC staff,
institutions, and the public with
information about the procedures
applicable to corporate applications
filed with the OCC.
After completing a review of these
materials, the OCC has determined that
additional transparency regarding the
standards and procedures that the
agency applies to its review of bank
business combinations may be helpful
to institutions and to the public. For
example, the Comptroller’s Licensing
Manual does not describe all of the
OCC’s considerations regarding the
BMA statutory factors and its related
processes such as the considerations for
holding public meetings.
To better reflect the OCC’s view that
a business combination is a significant
corporate transaction, the OCC is
proposing amendments to 12 CFR 5.33
to remove provisions related to
expedited review and the use of
streamlined applications. Additionally,
to provide additional clarity and
guidance to national banks, Federal
savings associations, other institutions,
and the public, the OCC is proposing to
add a policy statement as appendix A to
12 CFR part 5, subpart C, that would
discuss general principles the OCC uses
in its review of applications under the
BMA and discuss the OCC’s
consideration of the financial stability,
financial and managerial resources and
future prospects, and convenience and
needs factors. Proposed appendix A
would also discuss the criteria
informing the OCC’s decision on
whether to hold a public meeting on an
application subject to the BMA.
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II. Description of the Proposed Policy
Statement and Regulatory Amendments
Regulatory Amendments
The OCC is proposing two substantive
changes to its business combination
regulation, 12 CFR 5.33. First, the OCC
proposes to remove the expedited
review procedures in § 5.33(i).
Paragraph (i) currently provides that a
filing that qualifies as a business
reorganization as defined in paragraph
(d)(3) or that qualifies as a streamlined
application under paragraph (j) is
deemed approved as of the 15th day
after the close of the comment period,
unless the OCC notifies the applicant
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that the filing is not eligible for
expedited review, or the expedited
review process is extended, under
§ 5.13(a)(2).6
The OCC reviews business
combination applications to determine
whether applicable procedural 7 and
substantive 8 requirements are met. The
OCC believes that any business
combination subject to a filing under
§ 5.33 is a significant corporate
transaction requiring OCC decisioning,
which should not be deemed approved
solely due to the passage of time. The
principles currently articulated by
§ 5.33(i), such as certain transactions
possessing indicators that are likely to
satisfy statutory factors and do not
otherwise raise supervisory or
regulatory concerns, are contained
within section II of proposed appendix
A and will continue to guide OCC
processing of business combination
applications. As the term ‘‘business
reorganization’’ as defined in
§ 5.33(d)(3) is only used to define a class
of applications eligible for expedited
review under paragraph (i), the OCC
also proposes to remove paragraph
(d)(3).
Second, the OCC proposes to remove
§ 5.33(j). Paragraph (j) currently
specifies four situations in which an
applicant may use the OCC’s
streamlined business combination
application rather than the full
Interagency Bank Merger Act
Application.9 The streamlined
6 The provisions in 12 CFR 5.13(a)(2) regarding
adverse comments would no longer apply to
business combination applications as these
provisions are applicable only to filings qualifying
for expedited review.
7 See, e.g., 12 U.S.C. 215a (procedures for mergers
resulting in a national bank).
8 See, e.g., 12 U.S.C. 1828(c) (BMA).
9 Paragraph (j) authorizes use of a streamlined
application if: (i) At least one party to the
transaction is an eligible bank or eligible savings
association, and all other parties to the transaction
are eligible banks, eligible savings associations, or
eligible depository institutions, the resulting
national bank or resulting Federal savings
association will be well capitalized immediately
following consummation of the transaction, and the
total assets of the target institution are no more than
50 percent of the total assets of the acquiring bank
or Federal savings association, as reported in each
institution’s Consolidated Report of Condition and
Income filed for the quarter immediately preceding
the filing of the application; (ii) The acquiring bank
or Federal savings association is an eligible bank or
eligible savings association, the target bank or
savings association is not an eligible bank, eligible
savings association, or an eligible depository
institution, the resulting national bank or resulting
Federal savings association will be well capitalized
immediately following consummation of the
transaction, and the filers in a prefiling
communication request and obtain approval from
the appropriate OCC licensing office to use the
streamlined application; (iii) The acquiring bank or
Federal savings association is an eligible bank or
eligible savings association, the target bank or
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application requests information about
similar topics as the Interagency Bank
Merger Act Application, but it only
requires an applicant to provide
detailed information if the applicant
answers yes to one of a series of yes or
no questions. A transaction eligible for
a streamlined application also currently
qualifies for expedited review, which
the OCC proposes to remove. Given the
nature of review of business
combinations, the factors for which are
discussed in proposed appendix A, it
appears that the fuller record provided
through the Interagency Bank Merger
Act Application provides the
appropriate basis for the OCC to review
a business combination application.
Further, the removal of the streamlined
business combination form should not
significantly increase the burden on
applicants because information
requested in the Interagency Bank
Merger Act Application may be tailored
as appropriate. For example, there may
be situations where discussion of all
items in the Interagency Bank Merger
Act Application may not be appropriate,
such as purchase and assumption
transactions from an insured depository
institution in Federal Deposit Insurance
Corporation receivership. In these
circumstances, the OCC can use its
discretion to reduce the information that
the applicant needs to provide to the
OCC.10 As the entirety of paragraph (j)
concerns the streamlined application,
the OCC also proposes removing
paragraph (j).
savings association is not an eligible bank, eligible
savings association, or an eligible depository
institution, the resulting bank or resulting Federal
savings association will be well capitalized
immediately following consummation of the
transaction, and the total assets acquired do not
exceed 10 percent of the total assets of the acquiring
national bank or acquiring Federal savings
association, as reported in each institution’s
Consolidated Report of Condition and Income filed
for the quarter immediately preceding the filing of
the application; or (iv) In the case of a transaction
under § 5.33(g)(4) of this section, the acquiring bank
is an eligible bank, the resulting national bank will
be well capitalized immediately following
consummation of the transaction, the filers in a
prefiling communication request and obtain
approval from the appropriate OCC licensing office
to use the streamlined application, and the total
assets acquired do not exceed 10 percent of the total
assets of the acquiring national bank, as reported in
the bank’s Consolidated Report of Condition and
Income filed for the quarter immediately preceding
the filing of the application.
10 Under 12 CFR 5.2(b), the OCC may adopt
materially different procedures for a particular
filing, or class of filings as it deems necessary, for
example, in exceptional circumstances or for
unusual transactions, after providing notice of the
change to the filer and to any other party that the
OCC determines should receive notice. The OCC
may use this authority, if appropriate, to reduce
informational requirements in transactions
involving a failing bank due to the short time for
preparation of applications.
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Policy Statement
As discussed in Section I,
Introduction, of proposed appendix A,
the proposed policy statement would
provide institutions and the public with
a better understanding of how the OCC
reviews applications subject to the BMA
and thus provide greater transparency,
facilitate interagency coordination, and
enhance public engagement. To this
end, proposed appendix A would
expand upon the information currently
included in the Comptroller’s Licensing
Manual. Specifically, proposed
appendix A would outline general
principles the OCC applies when
reviewing applications and provide
information about how the OCC
considers the BMA statutory factors of
financial stability, financial and
managerial resources, and convenience
and needs of the community.11
Additionally, proposed appendix A
would provide transparency regarding
the public comment period and the
factors the OCC considers in
determining whether to hold public
meetings.
Section II, General Principles of OCC
Review, of proposed appendix A would
discuss the OCC’s review of an action
on applications. Overall, the OCC aims
to act promptly on all applications. This
section of proposed appendix A would
indicate that potential actions by the
OCC include approval, denial, or
requesting that an applicant withdraw
the application because any
shortcomings are unlikely to be resolved
in a timely manner. Proposed appendix
A identifies certain indicators that, in
the OCC’s experience, applications that
are consistent with approval generally
feature. These indicators include: (i)
attributes regarding the acquirer’s
financial condition, size, Uniform
Financial Institution Ratings System
(UFIRS) 12 or risk management,
operational controls, compliance, and
asset quality (ROCA) 13 ratings, Uniform
11 Proposed appendix A would not address the
BMA statutory factors of competition and the
effectiveness of any insured depository institution
involved in combatting money laundering
activities, including in overseas branches. 12 U.S.C.
1828(c)(5), (11). The OCC’s review of the
competition factor is guided by the process
described in the interagency document, Bank
Merger Competitive Review—Introduction and
Overview (1995), Department of Justice, Antitrust
Division. See https://www.justice.gov/sites/default/
files/atr/legacy/2007/08/14/6472.pdf. The Federal
Financial Institution Examination Council’s Bank
Secrecy Act/Anti-Money Laundering Examination
Manual details the OCC’s examination of
institutions’ anti-money laundering activities. See
https://bsaaml.ffiec.gov/manual.
12 UFIRS is also known as the CAMELS system.
13 The ROCA System is the interagency uniform
supervisory rating system for U.S. branches and
agencies of foreign banking organizations.
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Interagency Consumer Compliance
Rating System (CC Rating System)
rating, Community Reinvestment Act
(CRA) rating, the effectiveness of the
Bank Secrecy Act/anti-money
laundering program, and the absence of
fair lending concerns; (ii) the attributes
regarding target’s size and status as a
eligible depository institution, as
defined in § 5.3; (iii) the transaction
clearly not having a significant adverse
effect on competition; and (iv) the
absence of significant CRA or consumer
compliance concerns, as indicated in
any comments or supervisory
information.
The General Principles of OCC Review
section of proposed appendix A would
also recognize that there are indicators
that raise supervisory or regulatory
concerns. Based on the OCC’s
experience, if any of these indicators are
present, the OCC is unlikely to find the
statutory factors under the BMA to be
consistent with approval unless and
until the applicant has adequately
addressed or remediated the concern.
Proposed appendix A would state that
these indicators include: (i) the acquirer
has a CRA rating of Needs to Improve
or Substantial Noncompliance; (ii) the
acquirer has a UFIRS or ROCA
composite or management rating of 3
worse; (iii) a consumer compliance
rating of 3 or worse; (iv) the acquirer is
a global systemically important banking
organization, or subsidiary thereof; 14 (v)
the acquirer has an open or pending
Bank Secrecy Act/Anti-money
Laundering enforcement or fair lending
action, including referrals or
notification to other agencies; 15 (v)
failure by the acquirer to adopt,
implement, and adhere to all the
corrective actions required by a formal
enforcement action in a timely manner;
or (vi) multiple enforcement actions
against the acquirer executed or
outstanding during a three-year period.
Section III, Financial Stability, of
proposed appendix A would provide
additional information about how the
OCC considers ‘‘the risk to the stability
of the United States banking or financial
system’’ as required by the BMA,
including (i) the factors the OCC
considers, which are currently
described in the ‘‘Business
Combinations’’ booklet of the
Comptroller’s Licensing Manual; (ii) the
balancing test the OCC applies; and (iii)
the OCC’s ability to consider imposing
conditions on the approval of any such
transaction. The OCC’s approach to
considering the risk to the stability of
the financial system that would be set
forth in proposed appendix A is
consistent with longstanding OCC
practice and principles.16 Specifically,
the OCC considers (i) whether the size
of the combined institutions would
result in material increases in risk to
financial stability; (ii) any potential
reduction in the availability of
substitute providers for the services
offered by the combining institutions;
(iii) whether the resulting institution
would engage in any business activities
or participate in markets in a manner
that, in the event of financial distress of
the resulting institution, would cause
significant risks to other institutions;
(iv) the extent to which the combining
institutions contribute to the complexity
of the financial system; (v) the extent of
cross-border activities of the combining
institutions; (vi) whether the proposed
transaction would increase the relative
degree of difficulty of resolving or
winding up the resulting institution’s
business in the event of failure or
insolvency; and (vii) any other factors
that could indicate that the transaction
poses a risk to the U.S. banking or
financial system.
Section III, Financial Stability, of
proposed appendix A would clarify that
the OCC applies a balancing test when
considering the financial stability factor
and weighs the financial stability risk of
approving the proposed transaction
against the financial stability risk of
denying the proposed transaction,
particularly if the proposed transaction
involves a troubled target. Specifically,
the OCC would consider each factor
individually and in combination. Even
if only a single factor indicates a risk to
the stability of the U.S. banking or
financial system, the OCC may
determine that the proposal would have
an adverse effect on the stability of the
U.S. banking or financial system.17 The
OCC would also consider whether the
proposed transaction would provide any
stability benefits and whether enhanced
prudential standards applicable as a
result of the proposed transaction would
offset any potential risks.18
Section III also would note that,
consistent with current OCC practice,19
the OCC’s review of the financial
14 The Basel Committee on Bank Supervision
annually identifies banking organizations as global
systemically important.
15 For example, the OCC is required to institute
an enforcement action or make a referral if it makes
certain supervisory findings with respect to the
Bank Secrecy Act or fair lending laws. See, e.g., 12
U.S.C. 1818(s)(3); 15 U.S.C. 1691e(g).
16 See, e.g., OCC Conditional Approval #1298
(November 2022); OCC Corporate Decision #2012–
05 (April 2012).
17 See, e.g., FRB Order No. 2012–2 at 30
18 See, e.g., FRB Order No. 2021–04 (May 14,
2021) at 24.
19 See, e.g., OCC Conditional Approval #1298
(November 2022).
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stability factors may result in a decision
to approve a proposed transaction,
subject to conditions that are
enforceable under 12 U.S.C. 1818. These
conditions, which may include asset
divestitures or higher minimum capital
requirements, are intended to address
and mitigate financial stability risk
concerns.
Further, the OCC’s review of the
financial stability factors considers the
impact of the proposed transaction in
the context of the recovery planning
standards applicable to the resulting
institution pursuant to 12 CFR 30,
appendix D, ‘‘OCC Guidelines
Establishing Heightened Standards for
Certain Large Insured National Banks,
Insured Federal Savings Associations,
and Insured Federal Branches’’ and any
heightened standards requirements
applicable to the resulting institution
pursuant to 12 CFR 30, appendix E,
‘‘OCC Guidelines Establishing
Standards for Recovery Planning by
Certain Large Insured National Banks,
Insured Federal Savings Associations,
and Insured Federal Branches.’’ Section
III also would state that the OCC may
consider the facts, circumstances, and
representations of concurrent
applications for related transactions,
including considering the impact of the
related transactions to the proposed
transaction under review by the OCC.20
Section IV, Financial and Managerial
Resources and Future Prospects of
proposed appendix A would discuss the
BMA’s requirement that the OCC
consider the managerial resources,
financial resources, and future prospects
of any proposed transaction. Under the
BMA, the OCC must consider each of
these factors independently for both the
combining and resulting institutions.21
However, because these factors are
directly related to one another, the OCC
also considers these factors holistically.
This section of proposed appendix A
would describe the overarching
considerations of the OCC’s review of
these factors and provide additional
details about what the OCC considers
while reviewing these factors. The
overarching considerations of this
proposed section would note that the
OCC will consider the size, complexity,
and risk profile of the combining and
resulting institutions.
Further, proposed appendix A
expands on the discussion in the
Comptroller’s Licensing Manual about
the types of transactions the OCC would
20 For example, many business combinations
under the BMA are part of a larger transaction
requiring a filing with the Board under the Bank
Holding Company Act.
21 12 U.S.C. 1828(c)(5).
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normally not approve by providing
additional details about acquirer
characteristics with respect to financial
and managerial resources and future
prospects that are less likely to result in
an approval. Specifically, the OCC is
less likely to approve an application
when the acquirer (i) has a less than
satisfactory supervisory record,
including its financial and managerial
resources; (ii) has experienced rapid
growth; (iii) has engaged in multiple
acquisitions with overlapping
integration periods; (iv) has failed to
comply with conditions imposed in
prior OCC licensing decisions; or (v) is
functionally the target in the
transaction.22 The OCC also normally
does not approve a combination that
would result in a depository institution
with less than adequate capital, less
than satisfactory management, or poor
earnings prospects.
Finally, this subsection would
confirm the OCC’s practice of
considering all comments on proposed
transactions, including those on
financial and managerial resources and
future prospects. To the extent public
comments address issues involving
confidential supervisory information,
however, the OCC generally would not
discuss or otherwise disclose
confidential supervisory information in
public decision letters.
Section IV of proposed appendix A
would next discuss the OCC’s
consideration of the individual financial
resources, managerial resources, and
future prospects factors. With respect to
financial resources, proposed appendix
A would discuss the OCC’s review of
pro forma capital levels. Additionally,
the OCC is generally prohibited by
statute from approving business
combination applications filed by an
institution that is undercapitalized as
defined in 12 CFR 6.4.23 Proposed
Appendix A also would specify that the
OCC closely scrutinizes transactions
that increase the risk to the bank’s
financial condition and resilience,
including risk to bank capital, liquidity,
and earnings that can arise from any of
22 For example, in a reverse triangular merger, a
holding company may acquire an institution and
merge its existing subsidiary into the newly
acquired institution, which survives as a subsidiary
of the holding company. See Comptroller’s
Licensing Manual, ‘‘Business Combinations’’ at 23
(January 2021).
23 12 U.S.C. 1831o(e)(4). The OCC may only
approve a combination application by an
undercapitalized institution if the agency has
accepted the institution’s capital restoration plan
and determines that the proposed combination is
consistent with and will further the achievement of
the plan or if the Board of Directors of the Federal
Deposit Insurance Corporation determines that the
proposed combination will further the purposes of
12 U.S.C.1831o. 12 U.S.C. 1831o(e)(4)(A)–(B).
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the eight categories of risk included in
the OCC’s Risk Assessment System.24
Further, with respect to the financial
resources factor, the OCC considers the
ability of management to address
increased risks that would result from
the transaction. Finally, proposed
appendix A would clarify that a
transaction involving an acquirer with a
strong supervisory record is more likely
to satisfy the review factors. By contrast,
a transaction involving an acquirer with
a recent less than satisfactory
supervisory record is less likely to
satisfy this factor.
Section IV of proposed appendix A
would discuss the OCC’s approach to
considering the managerial resources
standard. The OCC would consider the
supervisory record and current
condition of both the acquirer and target
to determine if the resulting institutions
will have sufficient managerial
resources. For example, a significant
number of matters requiring attention
(MRA), or lack thereof, may impact the
determination as to whether there are
sufficient managerial resources. The
OCC also reviews (i) both institutions’
management ratings under the UFIRS or
ROCA system, and component ratings
under the CC Rating System, Uniform
Rating System for Information
Technology, and Uniform Interagency
Trust Rating System, as applicable; and
(ii) relevant the Risk Assessment System
(RAS) conclusions for the applicant as
well as the RAS conclusions for an
OCC-supervised target. The OCC would
consider the context in which the rating
or RAS element was assigned and any
additional information resulting from
ongoing supervision. Finally, proposed
appendix A would note that less than
satisfactory ratings at the target do not
preclude the approval of a transaction,
provided that the acquirer can employ
sufficiently robust risk management and
financial resources to correct the
weaknesses.
Proposed appendix A would state that
the OCC considers whether the acquirer
has conducted sufficient due diligence
of the target depository institution to
understand the business model, systems
compatibility, and weaknesses of the
target. This includes the acquirer’s plans
and ability to address its previously
identified weaknesses, remediate the
target’s weaknesses, and exercise
appropriate risk management for the
size, complexity, and risk profile of the
resulting institution. Similarly, the OCC
considers the acquirer’s plans for and
24 These are credit, interest rate, liquidity, price,
operational, compliance, strategic, and reputation
risks. See Comptroller’s Handbook, ‘‘Bank
Supervision Process’’ at 26–28 (Version 1.1,
September 2019).
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history of integrating combining
institutions’ operations, including
systems and information security
processes, products, services,
employees, and cultures.
Proposed appendix A next would
discuss the OCC’s consideration of the
acquirer’s plans to identify and manage
systems compatibility and integration
issues, such as information technology
compatibility and implications for
business continuity resilience. A critical
component of these plans includes the
identification of overreliance on manual
controls, strategies for automating
critical processes, and capacity and
modernization of aging and legacy
information technology systems.
Additional OCC review may be required
where there are concerns with systems
integration, and, in some cases, the OCC
may impose conditions, enforceable
pursuant to 12 U.S.C. 1818, to address
those concerns. The OCC may deny an
application if the integration issues or
other issues present significant
supervisory concerns, and the issues
cannot be resolved through appropriate
conditions or otherwise.25
Finally, with regard to managerial
resources, proposed appendix A would
describe the OCC’s consideration of the
proposed governance structure of the
resulting institution. This includes
consideration of (i) governance in
decision-making processes, the board
management oversight structure, and
the risk management system, including
change management; and (ii) the
expansion of existing activities,
introduction of new or more complex
products or lines of business, and
implications for managing existing and
acquired subsidiaries and equity
investments. When applicable, the
resulting institution’s governance is also
considered in the context of the
institution’s relationship with its
holding company and the scope of the
holding company’s activities.
Section IV of proposed appendix A
also would discuss how the OCC
considers the future prospects factor.
The OCC would consider this factor in
light of its assessment of the
institutions’ financial and managerial
resources. The OCC also would consider
the proposed operations of the resulting
institutions and the acquirer’s record of
integrating acquisitions. Specifically,
the OCC would consider whether the
integrated institution will be able to
function effectively as a single entity.
The OCC also would consider the
resulting institution’s business plan or
strategy and management’s ability to
implement it in a safe and sound
25 See
12 CFR 5.13(b).
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manner. Finally, the OCC would
consider the combination’s potential
impacts on the resulting institution’s
continuity planning and operational
resilience.
Section V, Convenience and Needs of
proposed appendix A would expand on
the discussion in the Comptroller’s
Licensing Handbook of the OCC’s
consideration of the probable effects of
the proposed business combination on
the community to be served.
Specifically, this section would clarify
that the OCC’s consideration of the
impacts of any proposed combination
on the convenience and needs of the
community is prospective and considers
the likely impact on the community of
the resulting institution after the
transaction is consummated.26 For this
factor, the OCC considers, among other
things (i) the proposed changes to
branch locations, branching services,
banking services or products, or credit
availability offered by the target and
acquirer, including in low- or moderateincome (LMI) communities, (ii) any job
losses or lost job opportunities from
branching changes, and (iii) any
community investment or development
initiatives, including particularly those
that support affordable housing and
small businesses. With respect to (i)
above, the OCC is also considering, and
welcomes comment on, whether to
specify communities in addition to LMI
communities as part of these
considerations.
Finally, Section V of proposed
appendix A would clarify that the
OCC’s forward-looking consideration of
the convenience and needs factor under
the BMA is separate and distinct from
its consideration of the CRA record of
performance of an applicant in helping
to meet the credit needs of the relevant
community, including LMI
neighborhoods.
Section VI, Public Comments and
Meetings, of proposed appendix A
would provide additional details about
the process and procedures relating to
the OCC’s receipt of public comments
and the OCC’s considerations related to
public meetings and clarifies the
information contained within 12 CFR
part 5 and the ‘‘Public Notice and
Comments’’ booklet of the Comptroller’s
Licensing Manual.27 Specifically, the
public comments subsection would
articulate the circumstances under
which the OCC may extend the
comment period from the usual 30-day
comment period 28 pursuant to
§ 5.10(b)(2).29 It also would provide
additional clarity by noting that the
OCC may find that additional time is
necessary to develop factual
information, and thus warrant extending
the comment period, if a filer’s response
to a comment does not fully address the
matters raised in the comment, and the
commenter requests an opportunity to
respond. This subsection also would
provide examples of extenuating
circumstances when the OCC may
determine that an extension is needed,
including, for example, if a public
meeting is held, the transaction is novel
or complex, or a natural disaster has
occurred affecting the public’s ability to
timely submit comment.
The public meetings subsection of
Section VI would state that when
determining whether to hold a public
meeting, the OCC balances the public’s
interest in the transaction with the value
or harm of a public meeting to the
decision-making process. Proposed
appendix A would also clarify criteria
informing the OCC’s decision on
whether to hold a public meeting. The
criteria include (i) the public’s interest
in the transaction; (ii) the
appropriateness of a public meeting to
document or clarify issues raised during
the public comment process; (iii) the
significance of the transaction to the
banking industry; (iv) the significance of
the transaction to the communities
affected; (v) the potential value of any
information that could be gathered and
documented during a public meeting;
and (vi) the acquirer’s and target’s CRA,
consumer compliance, and fair lending,
or other pertinent supervisory records,
as applicable.
III. Request for Comments
The OCC encourages comment on any
aspect of this proposal and especially on
the specific issues discussed in this
SUPPLEMENTARY INFORMATION section.
28 See
26 As
the OCC’s review of this factor is with
respect to the resulting institution, it necessarily
includes review of the record, products, and
services of both the acquirer and target.
27 While the BMA does not require the OCC to
hold meetings or hearings, 12 CFR 5.11 describes
the consideration and procedures for public
hearings and notes the availability of several other
types of meetings. The OCC considers three options
for seeking oral input: (1) public hearing, (2) public
meeting, and (3) private meeting.
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12 CFR 5.10(b)(1).
part 5 notes that the OCC may
extend the comment period when: (1) a filer fails
to file all required publicly available information on
a timely basis or makes a request for confidential
treatment not granted by the OCC; (2) a person
requesting an extension demonstrates to the OCC
that additional time is necessary to develop factual
information the OCC determines is necessary to
consider the filing; and (3) the OCC determines that
other extenuating circumstances exist.
29 Specifically,
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IV. Regulatory Analysis
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A. Paperwork Reduction Act
Under the Paperwork Reduction Act
of 1995 (PRA),30 the OCC may not
conduct or sponsor, and a respondent is
not required to respond to, an
information collection unless it displays
a currently valid Office of Management
and Budget (OMB) control number. The
information collection requirements in
this proposed rule have been submitted
to OMB under OMB control number
1557–0014 (Licensing Manual).
The proposal would amend 12 CFR
5.33, by removing the expedited review
procedures in section 5.33(i), which
currently allow an application to be
deemed approved by the OCC as of the
15th day after the close of the comment
period, unless the OCC notifies the filer
that the filing is not eligible for
expedited review, or the expedited
review process is extended. The
proposal also removes the streamlined
application in section 5.33(j), which
would remove the ability of eligible
institutions to file for certain types of
business combinations using a
streamlined application form.
Title: Licensing Manual.
OMB control number: 1557–0014.
Frequency of Response: Occasional.
Affected Public: National banks and
Federal savings associations.
The changes to the burden of the
Licensing Manual are de minis and
continue to be:
Estimated Number of Respondents:
3,694.
Estimated Total Annual Burden:
12,481.15.
Comments are invited on:
(a) Whether the collections of
information are necessary for the proper
performance of the agency functions,
including whether the information has
practical utility;
(b) The accuracy of the agency
estimates of the burden of the
information collections, including the
validity of the methodology and
assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the information collections on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
30 44
U.S.C. 3501–3521.
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B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et seq., requires an agency,
in connection with a proposed rule, to
prepare an Initial Regulatory Flexibility
Analysis describing the impact of the
rule on small entities (defined by the
Small Business Administration (SBA)
for purposes of the RFA to include
commercial banks and savings
institutions with total assets of $850
million or less and trust companies with
total assets of $47 million or less) or to
certify that the proposed rule would not
have a significant economic impact on
a substantial number of small entities.
However, under section 605(b) of the
RFA, this analysis is not required if an
agency certifies that the rule would not
have a significant economic impact on
a substantial number of small entities
and publishes its certification and a
short explanatory statement in the
Federal Register along with its rule.
The OCC currently supervises 1,057
institutions (commercial banks, trust
companies, federal savings associations,
and branches or agencies of foreign
banks) of which approximately 661 are
small entities.31 The OCC estimates that
on average, 38 OCC-supervised
institutions could be impacted by the
rule in a given year. This is based on a
five-year average of the number of
business combination applications
submitted to the OCC from 2019
through 2023.32
In terms of the potential impact of the
proposed changes on affected
institutions, the OCC does not expect
that the changes would: (1) result in a
different decision outcome for the
31 The OCC’s estimate of the number of small
entities is based on the Small Business
Administration’s size thresholds for commercial
banks and savings institutions, and trust
companies, which are $850 million and $47
million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), the OCC
counts the assets of affiliated financial institutions
when determining if we should classify an OCCsupervised institution as a small entity. The OCC
used December 31, 2022, to determine size because
a ‘‘financial institution’s assets are determined by
averaging the assets reported on its four quarterly
financial statements for the preceding year.’’ See
footnote 8 of the U.S. Small Business
Administration’s Table of Size Standards.
32 The OCC received 51 merger applications in
2019, 36 in 2020, 46 in 2021, 36 in 2022, and 18
in 2023. For further details, see https://
www.occ.gov/publications-and-resources/
publications/annual-report/files/2023-annualreport.pdf, https://www.occ.gov/publications-andresources/publications/annual-report/files/2022annual-report.pdf, https://www.occ.gov/
publications-and-resources/publications/annualreport/files/2021-annual-report.pdf, https://
www.occ.gov/publications-and-resources/
publications/annual-report/files/2020-annualreport.pdf, and https://www.occ.gov/publicationsand-resources/publications/annual-report/files/
2019-annual-report.pdf.
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10015
merger application by the OCC or (2)
result in a burden on affected
institutions. First, proposed appendix A
would seek to provide transparency
with respect to the OCC’s BMA review
process including the OCC’s
consideration of certain statutory factors
under the BMA, which should provide
regulated institutions with additional
clarity and transparency about the
OCC’s decision-making process. Second,
the removal of the expedited review
process would potentially affect OCC
staff, but not affect banks, as the scope
of information to be submitted by banks
would not change. And third, the OCC
expects that the removal of the
streamlined application process would
not result in a substantive impact on
affected institutions or on the
information collected, as the
streamlined application and the
interagency BMA application requests
substantively the same information.33
Therefore, the OCC expects the impact
to affected OCC-supervised institutions
would likely be de minimis. For these
reasons, the OCC certifies that the
proposed rule would not have a
significant economic impact on a
substantial number of small entities.34
C. Unfunded Mandates Reform Act of
1995
Section 202 of the Unfunded
Mandates Reform Act of 1995
(Unfunded Mandates Act) (2 U.S.C.
1532) requires that the OCC prepare a
budgetary impact statement before
promulgating a rule that includes any
Federal mandate that may result in the
expenditure by state, local, and Tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
(adjusted annually for inflation,
currently $182 million) in any one year.
If a budgetary impact statement is
required, section 205 of the Unfunded
Mandates Act (2 U.S.C. 1535) also
requires the OCC to identify and
consider a reasonable number of
regulatory alternatives before
promulgating a rule.
The OCC estimates that the annual
aggregate cost of the proposal once fully
phased in would de minimis.
Furthermore, the proposed changes are
33 The same information is collected through both
the streamlined and regular merger application
review processes. The streamlined application
generally asks yes or no questions about the same
type of information requested on the interagency
application, and if an applicant answers yes, then
the applicant needs to provide additional detail.
34 In general, the OCC classifies the economic
impact on an individual small entity as significant
if the total estimated impact in one year is greater
than 5 percent of the small entity’s total annual
salaries and benefits or greater than 2.5 percent of
the small entity’s total non-interest expense.
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not new requirements for OCCsupervised institutions, but rather
describe considerations and principles
that guide the OCC’s review of
applications under the BMA. Therefore,
the OCC concludes that the proposed
rule would not result in an expenditure
of $182 million or more annually by
state, local, and tribal governments, or
by the private sector.
D. Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994
(RCDRIA),35 in determining the effective
date and administrative compliance
requirements for new regulations that
impose additional reporting, disclosure,
or other requirements on insured
depository institutions, the OCC must
consider, consistent with the principle
of safety and soundness and the public
interest, any administrative burdens that
such regulations would place on
depository institutions, including small
depository institutions, and customers
of depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA, requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
requirements on insured depository
institutions generally to take effect on
the first day of a calendar quarter that
begins on or after the date on which the
regulations are published in final form,
with certain exceptions, including for
good cause.36
The OCC requests comment on any
administrative burdens that the
proposed rule would place on
depository institutions, including small
depository institutions, and their
customers, and the benefits of the
proposed rule that the OCC should
consider in determining the effective
date and administrative compliance
requirements for a final rule.
List of Subjects in 12 CFR Part 5
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Administrative practice and
procedure, National banks, Reporting
and recordkeeping requirements,
Savings associations, Securities.
For the reasons set forth in the
preamble, OCC proposes to amend
chapter I of title 12 of the Code of
Federal Regulations as follows:
35 12
36 12
U.S.C. 4802(a).
U.S.C. 4802(b).
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PART 5—RULES, POLICIES, AND
PROCEDURES FOR CORPORATE
ACTIVITIES
1. The authority citation for part 5
continues to read as follows:
■
Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a,
214a, 215, 215a, 215a–1, 215a–2, 215a–3,
215c, 371d, 481, 1462a, 1463, 1464, 1817(j),
1831i, 1831u, 2901 et seq., 3101 et seq., 3907,
and 5412(b)(2)(B).
§ 5.33
[Amended]
2. Section 5.33 is amended by
removing and reserving paragraphs
(d)(3), (i), and (j).
■ 3. Add appendix A to part 5, subpart
C to read as follows:
■
Appendix A: Policy Statement
Regarding Statutory Factors Under the
Bank Merger Act
I. Introduction
The purpose of this policy statement is to
provide insured depository institutions
(institutions) and the public with a better
understanding of the Office of the
Comptroller of the Currency’s (OCC’s)
consideration of certain statutory factors
under the Bank Merger Act (BMA), 12 U.S.C.
1828(c). The matters discussed in this
statement are intended to provide greater
transparency, facilitate interagency
coordination, and enhance public
engagement.
II. General Principles of OCC Review
The OCC aims to act promptly on all
applications. The agency’s range of potential
actions on applications include approval,
denial, and requesting that an applicant
withdraw the application because any
shortcomings are unlikely to be resolved in
a timely manner. Applications that are
consistent with approval generally feature all
of the following indicators:
1. The acquirer is well capitalized under
§ 5.3 of this part and the resulting institution
will be well capitalized;
2. The resulting institution will have total
assets less than $50 billion;
3. The acquirer has a Community
Reinvestment Act (CRA) rating of
Outstanding or Satisfactory;
4. The acquirer has composite and
management ratings of 1 or 2 under the
Uniform Financial Institution Ratings System
(UFIRS) or ROCA rating system;
5. The acquirer has a consumer compliance
rating of 1 or 2 under the Uniform
Interagency Consumer Compliance Rating
System (CC Rating System), if applicable;
6. The acquirer has no open formal or
informal enforcement actions;
7. The acquirer has no open or pending fair
lending actions, including referrals or
notifications to other agencies;
8. The acquirer is effective in combatting
money laundering activities;
9. The target’s combined total assets are
less than or equal to 50% of acquirer’s total
assets;
10. The target is an eligible depository
institution as defined in § 5.3 of this part;
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11. The proposed transaction clearly would
not have a significant adverse effect on
competition;
12. The OCC has not identified a
significant legal or policy issue; and
13. No adverse comment has raised a
significant CRA or consumer compliance
concern.
If certain indicators that raise supervisory
or regulatory concerns are present, the OCC
is unlikely to find that the statutory factors
under the BMA are consistent with approval
unless and until the applicant has adequately
addressed or remediated the concern. The
following are examples of indicators that
raise supervisory or regulatory concerns:
1. The acquirer has a CRA rating of Needs
to Improve or Substantial Noncompliance.
2. The acquirer has a consumer compliance
rating of 3 or worse.
3. The acquirer has UFIRS or ROCA
composite or management ratings of 3 or
worse or the most recent report of
examination otherwise indicates that the
acquirer is not financially sound or well
managed.
4. The acquirer is a global systemically
important banking organization, or
subsidiary thereof.
5. The acquirer has open or pending Bank
Secrecy Act/Anti-money Laundering
enforcement or fair lending actions,
including referrals or notifications to other
agencies.
6. Failure by the acquirer to adopt,
implement, and adhere to all the corrective
actions required by a formal enforcement
action in a timely manner; or multiple
enforcement actions against the acquirer
executed or outstanding during a three-year
period.
III. Financial Stability
A. Factors Considered
The BMA requires the OCC to consider
‘‘the risk to the stability of the United States
banking or financial system’’ when reviewing
transactions subject to the Act. In reviewing
a BMA application under this factor, the OCC
considers the following factors:
1. Whether the proposed transaction would
result in a material increase in risks to
financial system stability due to an increase
in size of the combining institutions.
2. Whether the proposed transaction would
result in a reduction in the availability of
substitute providers for the services offered
by the combining institutions.
3. Whether the resulting institution would
engage in any business activities or
participate in markets in a manner that, in
the event of financial distress of the resulting
institution, would cause significant risks to
other institutions.
4. Whether the proposed transaction would
materially increase the extent to which the
combining institutions contribute to the
complexity of the financial system.
5. Whether the proposed transaction would
materially increase the extent of cross-border
activities of the combining institutions.
6. Whether the proposed transaction would
increase the relative degree of difficulty of
resolving or winding up the resulting
institution’s business in the event of failure
or insolvency.
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7. Any other factors that could indicate
that the transaction poses a risk to the U.S.
banking or financial system.
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B. Balancing Test
1. In general: The OCC applies a balancing
test when considering the factors in section
III(A) of this appendix in light of all the facts
and circumstances available regarding the
proposed transaction, including weighing the
financial stability risk posed by the proposed
transaction against the financial stability risk
posed by denial of the proposed transaction,
particularly if the proposed transaction
involves a troubled target. The OCC
considers each factor both individually and
in combination with others. Even if only a
single factor indicates that the proposed
transaction would pose a risk to the stability
of the U.S. banking or financial system, the
OCC may determine that there would be an
adverse effect of the proposal on the stability
of the U.S. banking or financial system.
Finally, the OCC also considers whether the
proposed transaction would provide any
stability benefits and whether enhanced
prudential standards applicable as a result of
the proposed transaction would offset any
potential risks.
2. Conditions: The OCC’s review of the
financial stability factors will include, as
appropriate, whether to impose conditions
on approval of the transaction. The OCC may
impose conditions, enforceable under 12
U.S.C. 1818, to address and mitigate financial
stability risk concerns, such as requiring
asset divestitures by the resulting institution,
imposing higher minimum capital
requirements, or imposing other financial
stability related conditions.
3. Recovery planning and heightened
standards: The OCC’s review of the financial
stability factors will consider the impact of
the proposed transaction in light of:
b. Standards applicable to the resulting
institution pursuant to 12 CFR 30, appendix
D, ‘‘OCC Guidelines Establishing Heightened
Standards for Certain Large Insured National
Banks, Insured Federal Savings Associations,
and Insured Federal Branches’’; and
c. Standards requirements applicable to the
resulting institution’s recovery planning
pursuant to 12 CFR 30, appendix E, ‘‘OCC
Guidelines Establishing Standards for
Recovery Planning by Certain Large Insured
National Banks, Insured Federal Savings
Associations, and Insured Federal Branches’’.
4. Concurrent filings: the OCC’s review of
the financial stability factors may consider
the facts, circumstances, and representations
of concurrent filings for related transactions,
including the impact of the related
transactions to the proposed transaction
under review by the OCC.
IV. Financial and Managerial Resources and
Future Prospects
The OCC is required by the BMA to
consider the managerial resources, financial
resources, and future prospects of the
combining and the resulting institutions. The
OCC considers each of these factors
independently for both the combining and
resulting institutions. However, because
these factors are directly related to one
another, the OCC also considers these factors
holistically.
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A. Overarching Considerations
1. The OCC tailors its consideration of the
financial and managerial resources and
future prospects of the combining and
resulting institutions, to their size,
complexity, and risk profile.
2. The OCC is more likely to approve
combinations where the acquirer has
sufficient financial and managerial resources
to ensure safe and sound operations of the
resulting institution than when:
a. The acquirer has a less than satisfactory
supervisory record, including its financial
and managerial resources;
b. The acquirer has experienced rapid
growth;
c. The acquirer has engaged in multiple
acquisitions with overlapping integration
periods;
d. The acquirer has failed to comply with
conditions imposed in prior OCC licensing
decisions; or
e. The acquirer is functionally the target in
the transaction.
3. The OCC normally does not approve a
combination that would result in a
depository institution with less than
adequate capital or liquidity, less than
satisfactory management, or poor earnings
prospects.
4. The OCC considers all comments
received on proposed business combinations.
However, the OCC’s consideration of an
institution’s financial and managerial
resources and future prospects are
necessarily based on confidential supervisory
information. While the OCC will provide an
appropriate discussion of comments
pertaining to the financial resources,
managerial resources, and future prospects
factors, it will generally not discuss or
otherwise disclose confidential supervisory
information in public decision letters.
B. Individual Factors
1. Financial Resources:
a. The OCC reviews the existing and
proposed institutions’ current and pro forma
capital levels.
i. The OCC reviews for compliance with
the applicable capital ratios required by 12
CFR part 3 and the Prompt Corrective Action
capital categories established by 12 CFR 6.4.
ii. The OCC may not approve a
combination application filed by an insured
depository institution that is
undercapitalized as defined in 12 CFR 6.4
unless it has approved the institution’s
capital restoration plan or the Board of
Directors of the Federal Deposit Insurance
Corporation has determined that the
transaction would fulfill the purposes of 12
U.S.C. 1831o.
b. The OCC closely scrutinizes transactions
that increase the risk to the bank’s financial
condition and resilience, including bank
capital, liquidity, and earnings that can arise
from any of the eight categories of risk
included in the OCC’s Risk Assessment
System: credit, interest rate, liquidity, price,
operational, compliance, strategic, and
reputation.
c. In relation to the financial resources
factor, the OCC considers management’s
ability to address increased risks that would
result from the transaction.
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Fmt 4702
Sfmt 4702
10017
d. A transaction involving an acquirer with
a strong supervisory record relative to
capital, liquidity, and earnings is more likely
to satisfy the review factors. By contrast, a
transaction involving an acquirer with a
recent less than satisfactory financial or
supervisory record is less likely to satisfy this
factor.
2. Managerial Resources: The OCC
considers several factors when considering
the managerial resources of the institutions.
a. The OCC considers the supervisory
record and current condition of both the
acquirer and target to determine if the
resulting institutions will have sufficient
managerial resources to manage the resulting
institution.
i. A significant number of MRAs suggests
there may be insufficient managerial
resources. Additionally, the OCC considers
both institutions’ management ratings under
the UFIRS or ROCA system and component
ratings under the CC Rating System, Uniform
Rating System for Information Technology,
and Uniform Interagency Trust Rating
System, as applicable.
ii. When applicable, the OCC also
considers the relevant Risk Assessment
System (RAS) conclusions for the combining
institutions.
iii. The OCC considers the context in
which a rating or RAS element was assigned
and any additional information resulting
from ongoing supervision.
iv. Less than satisfactory ratings at the
target do not preclude the approval of a
transaction, provided that the acquirer can
employ sufficiently robust risk management
and financial resources to correct the
weaknesses at the target.
b. The OCC considers whether the acquirer
has conducted sufficient due diligence of the
target depository institution to understand
the business model, systems compatibility,
and weaknesses of the target. To facilitate the
OCC’s review, the acquirer’s management
team should demonstrate its plans and ability
to address the acquirer’s previously
identified weaknesses, remediate the target’s
weaknesses, and exercise appropriate risk
management for the size, complexity, and
risk profile of the resulting institution.
c. The OCC also considers the acquirer’s
analysis and plans to integrate the combining
institutions’ operations, including systems
and information security processes, products,
services, employees, and cultures. The OCC’s
consideration and degree of scrutiny reflects
the applicant’s track record with information
technology governance, business continuity
resilience, and, as applicable, integrating
acquisitions.
d. The OCC considers the acquirer’s plans
to identify and manage systems compatibility
and integration issues, such as information
technology compatibility and the
implications for business continuity
resilience. Any combination in which the
OCC identifies systems integration concerns
may lead to additional review.
i. A critical component of these plans
includes the acquirer’s identification and
assessment of overreliance on manual
controls, strategies for automating critical
processes, and the strategies and capacity for
modernization of aging and legacy
information technology systems.
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ii. The OCC may impose conditions,
enforceable pursuant to 12 U.S.C. 1818, if it
determines that information technology
systems compatibility and integration
represent a supervisory significant concern.
These conditions may include requirements
and time frames for specific remedial actions
and specific measures for assessing and
evaluating the depository institution’s
systems integration progress.
iii. The OCC may deny the application if
the integration issues or other issues present
significant supervisory concerns, and the
issues cannot be resolved through
appropriate conditions or otherwise.
e. The OCC also considers the proposed
governance structure of the resulting
institution. This includes governance in
decision-making processes, the board
management oversight structure, and the risk
management system, including change
management. This also includes expansion of
existing activities, introduction of new or
more complex products or lines of business,
and implications for managing existing and
acquired subsidiaries and equity
investments. When applicable, the resulting
institution’s governance is also considered in
the context of the institution’s relationship
with its holding company and the scope of
the holding company’s activities.
3. Future Prospects:
a. The OCC considers the resulting
institution’s future prospects in light of its
assessment of the institutions’ financial and
managerial resources.
b. The OCC also considers the proposed
operations of the resulting institution. The
OCC’s consideration and degree of scrutiny
reflects the acquirer’s record of integrating
acquisitions.
i. The OCC considers whether the
integration of the combining institutions
would allow it to function effectively as a
single unit.
ii. The OCC considers the resulting
institution’s business plan or strategy and
management’s ability to implement it in a
safe and sound manner.
iii. The OCC also considers the
combination’s potential impact on the
resulting institution’s continuity planning
and operational resilience.
V. Convenience and Needs
A. The OCC considers the probable effects
of the proposed business combination on the
community to be served. Review of the
convenience and needs factor is prospective
and considers the likely impact on the
community of the resulting institution after
the transaction is consummated, including
but not limited to:
1. any plans to close, expand, consolidate,
or limit branches or branching services,
including in low- or moderate-income (LMI)
areas;
2. any plans to reduce the availability or
increase the cost of banking services or
products, or plans to provide expanded or
less costly banking services or products to
the community;
3. credit availability throughout the
community, including, for example, home
mortgage, consumer, small business, and
small farm loans;
VerDate Sep<11>2014
16:08 Feb 12, 2024
Jkt 262001
4. job losses or reduced job opportunities
from branch staffing changes, including
branch closures or consolidations;
5. community investment or development
initiatives, including, for example,
community reinvestment, community
development investment, and community
outreach and engagement strategies; and
6. efforts to support affordable housing
initiatives and small businesses.
B. The OCC considers comments received
during the comment period and information
provided during any public hearing or
meeting for proposed business combinations.
To the extent public comments or
discussions address issues involving
confidential supervisory information,
however, the OCC generally will not discuss
or otherwise disclose that confidential
supervisory information in public decision
letters and forums.
C. The OCC considers the CRA record of
performance of an applicant in evaluating a
business combination application. The OCC’s
forward-looking evaluation of the
convenience and needs factor under the BMA
is separate and distinct from its consideration
of the CRA record of performance of an
applicant in helping to meet the credit needs
of the relevant community, including LMI
neighborhoods.
VI. Public Comments and Meetings
A. Public Comments
1. Unless an exception applies, a
combination under the BMA is subject to a
30-day comment period following
publication of the notice of the proposed
combination. The OCC may extend the
comment period in certain instances:
a. when a filer fails to file all required
publicly available information on a timely
basis or makes a request for confidential
treatment not granted by the OCC;
b. when requested and the OCC determines
that additional time is necessary to develop
factual information necessary to consider the
filing; and
c. when the OCC determines that other
extenuating circumstances exist.
2. The OCC may find that additional time
is necessary to develop factual information if
a filer’s response to a comment does not fully
address the matters raised in the comment,
and the commenter requests an opportunity
to respond.
3. Examples of extenuating circumstances
necessitating an extension include:
a. transactions in which public meetings
are held to allow for public comment after
the meeting;
b. unusual transactions (e.g., novel or
complex transactions); and
c. natural or other disasters occurring in
geographic regions affecting the public’s
ability to timely submit comments.
B. Public Meetings
1. While the BMA does not require the
OCC to hold meetings or hearings, the OCC
has three methods for seeking oral input: (1)
public hearing, (2) public meeting, and (3)
private meeting. Public meetings are the
most-employed public option.
2. The OCC will balance the public’s
interest in the transaction with the value or
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Fmt 4702
Sfmt 4702
harm of a public meeting to the decisionmaking process (e.g., although there may be
increased public interest in a transaction, a
public meeting will not be held if it would
not inform the OCC’s decision on an
application or would otherwise harm the
decision-making process).
3. Criteria informing the OCC’s decision on
whether to hold public meetings include:
a. the extent of public interest in the
proposed transaction.
b. whether a public meeting is appropriate
in order to document or clarify issues
presented by a particular transaction based
on issues the public raises during the public
comment process.
c. whether a public meeting would provide
useful information that the OCC would not
otherwise be able to obtain in writing.
d. the significance of the transaction to the
banking industry. Relevant considerations
may include the asset sizes of the institutions
involved (e.g., resulting institution will have
$50 billion or more in total assets), and
concentration of the resulting institution in
one or more markets.
e. the significance of the transaction to the
communities affected. Relevant
considerations may include the effects of the
transaction on the convenience and needs of
the community to be served, including a
consideration of a bank’s CRA strategy and
the extent to which the acquirer and target
are currently serving the convenience and
needs of their communities.
f. the acquirer’s and target’s CRA,
consumer compliance, fair lending, and other
pertinent supervisory records, as applicable.
Michael J. Hsu,
Acting Comptroller of the Currency.
[FR Doc. 2024–02663 Filed 2–12–24; 8:45 am]
BILLING CODE 4810–33–P
DEPARTMENT OF TRANSPORTATION
Federal Highway Administration
23 CFR Part 490
[FHWA Docket No. FHWA–2023–0014]
RIN 2125–AG06
National Performance Management
Measures; Extenuating Circumstances,
Highway Performance Monitoring
System Data Field Names, Safety
Performance Measure, Pavement
Condition Measure, and Freight
Performance Measure
Federal Highway
Administration (FHWA), U.S.
Department of Transportation (DOT).
ACTION: Proposed rule; extension of
comment period.
AGENCY:
The FHWA is extending the
comment period for a notice of
proposed rulemaking (NPRM) and
request for comments, which was
published on January 25, 2024. The
SUMMARY:
E:\FR\FM\13FEP1.SGM
13FEP1
Agencies
[Federal Register Volume 89, Number 30 (Tuesday, February 13, 2024)]
[Proposed Rules]
[Pages 10010-10018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02663]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 89, No. 30 / Tuesday, February 13, 2024 /
Proposed Rules
[[Page 10010]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 5
[Docket ID OCC-2023-0017]
RIN 1557-AF24
Business Combinations Under the Bank Merger Act
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The OCC is inviting comment on a proposed rule to increase the
transparency of the standards that apply to the agency's review of
business combinations involving national banks and Federal savings
associations. In particular, the proposed rule would amend the
procedures and would add, as an appendix, a policy statement that
summarizes the principles the OCC uses when it reviews proposed bank
merger transactions under the Bank Merger Act.
DATES: Comments must be received by April 15, 2024.
ADDRESSES: Commenters are encouraged to submit comments through the
Federal eRulemaking Portal. Please use the title ``Business
Combinations under the Bank Merger Act'' to facilitate the organization
and distribution of the comments. You may submit comments by any of the
following methods:
Federal eRulemaking Portal--``Regulations.gov'':
Go to https://regulations.gov/. Enter ``Docket ID OCC-2023-0017''
in the Search Box and click ``Search.'' Public comments can be
submitted via the ``Comment'' box below the displayed document
information or by clicking on the document title and then clicking the
``Comment'' box on the top-left side of the screen. For help with
submitting effective comments, please click on ``Commenter's
Checklist.'' For assistance with the Regulations.gov site, please call
1-866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. ET, or email
[email protected].
Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2023-0017'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this action by any of the following methods:
Viewing Comments Electronically--Regulations.gov:
Go to https://regulations.gov/. Enter ``Docket ID OCC-2023-0017''
in the Search box and click ``Search''. Click on the ``Dockets'' tab
and then the document's title. After clicking the document's title,
click the ``Browse All Comments'' tab. Comments can be viewed and
filtered by clicking on the ``Sort By'' drop-down on the right side of
the screen or the ``Refine Comments Results'' options on the left side
of the screen. Supporting materials can be viewed by clicking on the
``Browse Documents'' tab. Click on the ``Sort By'' drop-down on the
right side of the screen or the ``Refine Results'' options on the left
side of the screen checking the ``Supporting & Related Material''
checkbox. For assistance with the Regulations.gov site, please call 1-
866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. ET, or email
[email protected].
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.
FOR FURTHER INFORMATION CONTACT: Valerie Song, Assistant Director,
Christopher Crawford, Special Counsel, Elizabeth Small, Counsel, Chief
Counsel's Office 202-649-5490; or Yoo Jin Na, Director for Licensing
Activities 202-649-6260, Office of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing,
or have a speech disability, please dial 7-1-1 to access
telecommunications relay services.
SUPPLEMENTARY INFORMATION:
I. Background
The Bank Merger Act (BMA), section 18(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1828(c)), and the OCC's implementing
regulation, 12 CFR 5.33, govern the OCC's review of business
combinations of national banks and Federal savings associations with
other insured depository institutions (institutions) that result in a
national bank or Federal savings association.\1\ Under the BMA, the OCC
must consider the following factors: competition, 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 banking or financial
system, and the effectiveness of any insured depository institution
involved in combatting money laundering activities, including in
overseas branches.\2\ The BMA generally requires public notice of the
transaction to be published for 30 days.\3\ OCC regulations require the
public notice include essential details about the transaction and
instructions for public comment. The regulations incorporate the
statutory 30-day public notice period and provide a 30-day public
comment period, which the OCC may extend.\4\ The OCC may also hold a
public hearing, public meeting, or private meeting on an
application.\5\
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\1\ A business combination for these purposes includes
assumption of deposits in addition to mergers or consolidations.
\2\ 12 U.S.C. 1828(c)(5), (11).
\3\ 12 U.S.C. 1828(c)(4).
\4\ 12 CFR 5.8(b), 5.10(b)(1).
\5\ 12 CFR 5.11.
---------------------------------------------------------------------------
The OCC has issued several publications that provide additional
information about the procedures that the OCC follows in reviewing and
acting on proposed business combinations. For example, the ``Business
Combinations''
[[Page 10011]]
booklet of the Comptroller's Licensing Manual details the OCC's review
of applications under the BMA. The ``Public Notice and Comments''
booklet of the Comptroller's Licensing Manual sets forth policies and
requirements related to the public notice and comment process,
including hearings and meetings. The Comptroller's Licensing Manual
provides OCC staff, institutions, and the public with information about
the procedures applicable to corporate applications filed with the OCC.
After completing a review of these materials, the OCC has
determined that additional transparency regarding the standards and
procedures that the agency applies to its review of bank business
combinations may be helpful to institutions and to the public. For
example, the Comptroller's Licensing Manual does not describe all of
the OCC's considerations regarding the BMA statutory factors and its
related processes such as the considerations for holding public
meetings.
To better reflect the OCC's view that a business combination is a
significant corporate transaction, the OCC is proposing amendments to
12 CFR 5.33 to remove provisions related to expedited review and the
use of streamlined applications. Additionally, to provide additional
clarity and guidance to national banks, Federal savings associations,
other institutions, and the public, the OCC is proposing to add a
policy statement as appendix A to 12 CFR part 5, subpart C, that would
discuss general principles the OCC uses in its review of applications
under the BMA and discuss the OCC's consideration of the financial
stability, financial and managerial resources and future prospects, and
convenience and needs factors. Proposed appendix A would also discuss
the criteria informing the OCC's decision on whether to hold a public
meeting on an application subject to the BMA.
II. Description of the Proposed Policy Statement and Regulatory
Amendments
Regulatory Amendments
The OCC is proposing two substantive changes to its business
combination regulation, 12 CFR 5.33. First, the OCC proposes to remove
the expedited review procedures in Sec. 5.33(i). Paragraph (i)
currently provides that a filing that qualifies as a business
reorganization as defined in paragraph (d)(3) or that qualifies as a
streamlined application under paragraph (j) is deemed approved as of
the 15th day after the close of the comment period, unless the OCC
notifies the applicant that the filing is not eligible for expedited
review, or the expedited review process is extended, under Sec.
5.13(a)(2).\6\
---------------------------------------------------------------------------
\6\ The provisions in 12 CFR 5.13(a)(2) regarding adverse
comments would no longer apply to business combination applications
as these provisions are applicable only to filings qualifying for
expedited review.
---------------------------------------------------------------------------
The OCC reviews business combination applications to determine
whether applicable procedural \7\ and substantive \8\ requirements are
met. The OCC believes that any business combination subject to a filing
under Sec. 5.33 is a significant corporate transaction requiring OCC
decisioning, which should not be deemed approved solely due to the
passage of time. The principles currently articulated by Sec. 5.33(i),
such as certain transactions possessing indicators that are likely to
satisfy statutory factors and do not otherwise raise supervisory or
regulatory concerns, are contained within section II of proposed
appendix A and will continue to guide OCC processing of business
combination applications. As the term ``business reorganization'' as
defined in Sec. 5.33(d)(3) is only used to define a class of
applications eligible for expedited review under paragraph (i), the OCC
also proposes to remove paragraph (d)(3).
---------------------------------------------------------------------------
\7\ See, e.g., 12 U.S.C. 215a (procedures for mergers resulting
in a national bank).
\8\ See, e.g., 12 U.S.C. 1828(c) (BMA).
---------------------------------------------------------------------------
Second, the OCC proposes to remove Sec. 5.33(j). Paragraph (j)
currently specifies four situations in which an applicant may use the
OCC's streamlined business combination application rather than the full
Interagency Bank Merger Act Application.\9\ The streamlined application
requests information about similar topics as the Interagency Bank
Merger Act Application, but it only requires an applicant to provide
detailed information if the applicant answers yes to one of a series of
yes or no questions. A transaction eligible for a streamlined
application also currently qualifies for expedited review, which the
OCC proposes to remove. Given the nature of review of business
combinations, the factors for which are discussed in proposed appendix
A, it appears that the fuller record provided through the Interagency
Bank Merger Act Application provides the appropriate basis for the OCC
to review a business combination application. Further, the removal of
the streamlined business combination form should not significantly
increase the burden on applicants because information requested in the
Interagency Bank Merger Act Application may be tailored as appropriate.
For example, there may be situations where discussion of all items in
the Interagency Bank Merger Act Application may not be appropriate,
such as purchase and assumption transactions from an insured depository
institution in Federal Deposit Insurance Corporation receivership. In
these circumstances, the OCC can use its discretion to reduce the
information that the applicant needs to provide to the OCC.\10\ As the
entirety of paragraph (j) concerns the streamlined application, the OCC
also proposes removing paragraph (j).
---------------------------------------------------------------------------
\9\ Paragraph (j) authorizes use of a streamlined application
if: (i) At least one party to the transaction is an eligible bank or
eligible savings association, and all other parties to the
transaction are eligible banks, eligible savings associations, or
eligible depository institutions, the resulting national bank or
resulting Federal savings association will be well capitalized
immediately following consummation of the transaction, and the total
assets of the target institution are no more than 50 percent of the
total assets of the acquiring bank or Federal savings association,
as reported in each institution's Consolidated Report of Condition
and Income filed for the quarter immediately preceding the filing of
the application; (ii) The acquiring bank or Federal savings
association is an eligible bank or eligible savings association, the
target bank or savings association is not an eligible bank, eligible
savings association, or an eligible depository institution, the
resulting national bank or resulting Federal savings association
will be well capitalized immediately following consummation of the
transaction, and the filers in a prefiling communication request and
obtain approval from the appropriate OCC licensing office to use the
streamlined application; (iii) The acquiring bank or Federal savings
association is an eligible bank or eligible savings association, the
target bank or savings association is not an eligible bank, eligible
savings association, or an eligible depository institution, the
resulting bank or resulting Federal savings association will be well
capitalized immediately following consummation of the transaction,
and the total assets acquired do not exceed 10 percent of the total
assets of the acquiring national bank or acquiring Federal savings
association, as reported in each institution's Consolidated Report
of Condition and Income filed for the quarter immediately preceding
the filing of the application; or (iv) In the case of a transaction
under Sec. 5.33(g)(4) of this section, the acquiring bank is an
eligible bank, the resulting national bank will be well capitalized
immediately following consummation of the transaction, the filers in
a prefiling communication request and obtain approval from the
appropriate OCC licensing office to use the streamlined application,
and the total assets acquired do not exceed 10 percent of the total
assets of the acquiring national bank, as reported in the bank's
Consolidated Report of Condition and Income filed for the quarter
immediately preceding the filing of the application.
\10\ Under 12 CFR 5.2(b), the OCC may adopt materially different
procedures for a particular filing, or class of filings as it deems
necessary, for example, in exceptional circumstances or for unusual
transactions, after providing notice of the change to the filer and
to any other party that the OCC determines should receive notice.
The OCC may use this authority, if appropriate, to reduce
informational requirements in transactions involving a failing bank
due to the short time for preparation of applications.
---------------------------------------------------------------------------
[[Page 10012]]
Policy Statement
As discussed in Section I, Introduction, of proposed appendix A,
the proposed policy statement would provide institutions and the public
with a better understanding of how the OCC reviews applications subject
to the BMA and thus provide greater transparency, facilitate
interagency coordination, and enhance public engagement. To this end,
proposed appendix A would expand upon the information currently
included in the Comptroller's Licensing Manual. Specifically, proposed
appendix A would outline general principles the OCC applies when
reviewing applications and provide information about how the OCC
considers the BMA statutory factors of financial stability, financial
and managerial resources, and convenience and needs of the
community.\11\ Additionally, proposed appendix A would provide
transparency regarding the public comment period and the factors the
OCC considers in determining whether to hold public meetings.
---------------------------------------------------------------------------
\11\ Proposed appendix A would not address the BMA statutory
factors of competition and the effectiveness of any insured
depository institution involved in combatting money laundering
activities, including in overseas branches. 12 U.S.C. 1828(c)(5),
(11). The OCC's review of the competition factor is guided by the
process described in the interagency document, Bank Merger
Competitive Review--Introduction and Overview (1995), Department of
Justice, Antitrust Division. See https://www.justice.gov/sites/default/files/atr/legacy/2007/08/14/6472.pdf. The Federal Financial
Institution Examination Council's Bank Secrecy Act/Anti-Money
Laundering Examination Manual details the OCC's examination of
institutions' anti-money laundering activities. See https://bsaaml.ffiec.gov/manual.
---------------------------------------------------------------------------
Section II, General Principles of OCC Review, of proposed appendix
A would discuss the OCC's review of an action on applications. Overall,
the OCC aims to act promptly on all applications. This section of
proposed appendix A would indicate that potential actions by the OCC
include approval, denial, or requesting that an applicant withdraw the
application because any shortcomings are unlikely to be resolved in a
timely manner. Proposed appendix A identifies certain indicators that,
in the OCC's experience, applications that are consistent with approval
generally feature. These indicators include: (i) attributes regarding
the acquirer's financial condition, size, Uniform Financial Institution
Ratings System (UFIRS) \12\ or risk management, operational controls,
compliance, and asset quality (ROCA) \13\ ratings, Uniform Interagency
Consumer Compliance Rating System (CC Rating System) rating, Community
Reinvestment Act (CRA) rating, the effectiveness of the Bank Secrecy
Act/anti-money laundering program, and the absence of fair lending
concerns; (ii) the attributes regarding target's size and status as a
eligible depository institution, as defined in Sec. 5.3; (iii) the
transaction clearly not having a significant adverse effect on
competition; and (iv) the absence of significant CRA or consumer
compliance concerns, as indicated in any comments or supervisory
information.
---------------------------------------------------------------------------
\12\ UFIRS is also known as the CAMELS system.
\13\ The ROCA System is the interagency uniform supervisory
rating system for U.S. branches and agencies of foreign banking
organizations.
---------------------------------------------------------------------------
The General Principles of OCC Review section of proposed appendix A
would also recognize that there are indicators that raise supervisory
or regulatory concerns. Based on the OCC's experience, if any of these
indicators are present, the OCC is unlikely to find the statutory
factors under the BMA to be consistent with approval unless and until
the applicant has adequately addressed or remediated the concern.
Proposed appendix A would state that these indicators include: (i) the
acquirer has a CRA rating of Needs to Improve or Substantial
Noncompliance; (ii) the acquirer has a UFIRS or ROCA composite or
management rating of 3 worse; (iii) a consumer compliance rating of 3
or worse; (iv) the acquirer is a global systemically important banking
organization, or subsidiary thereof; \14\ (v) the acquirer has an open
or pending Bank Secrecy Act/Anti-money Laundering enforcement or fair
lending action, including referrals or notification to other agencies;
\15\ (v) failure by the acquirer to adopt, implement, and adhere to all
the corrective actions required by a formal enforcement action in a
timely manner; or (vi) multiple enforcement actions against the
acquirer executed or outstanding during a three-year period.
---------------------------------------------------------------------------
\14\ The Basel Committee on Bank Supervision annually identifies
banking organizations as global systemically important.
\15\ For example, the OCC is required to institute an
enforcement action or make a referral if it makes certain
supervisory findings with respect to the Bank Secrecy Act or fair
lending laws. See, e.g., 12 U.S.C. 1818(s)(3); 15 U.S.C. 1691e(g).
---------------------------------------------------------------------------
Section III, Financial Stability, of proposed appendix A would
provide additional information about how the OCC considers ``the risk
to the stability of the United States banking or financial system'' as
required by the BMA, including (i) the factors the OCC considers, which
are currently described in the ``Business Combinations'' booklet of the
Comptroller's Licensing Manual; (ii) the balancing test the OCC
applies; and (iii) the OCC's ability to consider imposing conditions on
the approval of any such transaction. The OCC's approach to considering
the risk to the stability of the financial system that would be set
forth in proposed appendix A is consistent with longstanding OCC
practice and principles.\16\ Specifically, the OCC considers (i)
whether the size of the combined institutions would result in material
increases in risk to financial stability; (ii) any potential reduction
in the availability of substitute providers for the services offered by
the combining institutions; (iii) whether the resulting institution
would engage in any business activities or participate in markets in a
manner that, in the event of financial distress of the resulting
institution, would cause significant risks to other institutions; (iv)
the extent to which the combining institutions contribute to the
complexity of the financial system; (v) the extent of cross-border
activities of the combining institutions; (vi) whether the proposed
transaction would increase the relative degree of difficulty of
resolving or winding up the resulting institution's business in the
event of failure or insolvency; and (vii) any other factors that could
indicate that the transaction poses a risk to the U.S. banking or
financial system.
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\16\ See, e.g., OCC Conditional Approval #1298 (November 2022);
OCC Corporate Decision #2012-05 (April 2012).
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Section III, Financial Stability, of proposed appendix A would
clarify that the OCC applies a balancing test when considering the
financial stability factor and weighs the financial stability risk of
approving the proposed transaction against the financial stability risk
of denying the proposed transaction, particularly if the proposed
transaction involves a troubled target. Specifically, the OCC would
consider each factor individually and in combination. Even if only a
single factor indicates a risk to the stability of the U.S. banking or
financial system, the OCC may determine that the proposal would have an
adverse effect on the stability of the U.S. banking or financial
system.\17\ The OCC would also consider whether the proposed
transaction would provide any stability benefits and whether enhanced
prudential standards applicable as a result of the proposed transaction
would offset any potential risks.\18\
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\17\ See, e.g., FRB Order No. 2012-2 at 30
\18\ See, e.g., FRB Order No. 2021-04 (May 14, 2021) at 24.
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Section III also would note that, consistent with current OCC
practice,\19\ the OCC's review of the financial
[[Page 10013]]
stability factors may result in a decision to approve a proposed
transaction, subject to conditions that are enforceable under 12 U.S.C.
1818. These conditions, which may include asset divestitures or higher
minimum capital requirements, are intended to address and mitigate
financial stability risk concerns.
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\19\ See, e.g., OCC Conditional Approval #1298 (November 2022).
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Further, the OCC's review of the financial stability factors
considers the impact of the proposed transaction in the context of the
recovery planning standards applicable to the resulting institution
pursuant to 12 CFR 30, appendix D, ``OCC Guidelines Establishing
Heightened Standards for Certain Large Insured National Banks, Insured
Federal Savings Associations, and Insured Federal Branches'' and any
heightened standards requirements applicable to the resulting
institution pursuant to 12 CFR 30, appendix E, ``OCC Guidelines
Establishing Standards for Recovery Planning by Certain Large Insured
National Banks, Insured Federal Savings Associations, and Insured
Federal Branches.'' Section III also would state that the OCC may
consider the facts, circumstances, and representations of concurrent
applications for related transactions, including considering the impact
of the related transactions to the proposed transaction under review by
the OCC.\20\
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\20\ For example, many business combinations under the BMA are
part of a larger transaction requiring a filing with the Board under
the Bank Holding Company Act.
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Section IV, Financial and Managerial Resources and Future Prospects
of proposed appendix A would discuss the BMA's requirement that the OCC
consider the managerial resources, financial resources, and future
prospects of any proposed transaction. Under the BMA, the OCC must
consider each of these factors independently for both the combining and
resulting institutions.\21\ However, because these factors are directly
related to one another, the OCC also considers these factors
holistically. This section of proposed appendix A would describe the
overarching considerations of the OCC's review of these factors and
provide additional details about what the OCC considers while reviewing
these factors. The overarching considerations of this proposed section
would note that the OCC will consider the size, complexity, and risk
profile of the combining and resulting institutions.
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\21\ 12 U.S.C. 1828(c)(5).
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Further, proposed appendix A expands on the discussion in the
Comptroller's Licensing Manual about the types of transactions the OCC
would normally not approve by providing additional details about
acquirer characteristics with respect to financial and managerial
resources and future prospects that are less likely to result in an
approval. Specifically, the OCC is less likely to approve an
application when the acquirer (i) has a less than satisfactory
supervisory record, including its financial and managerial resources;
(ii) has experienced rapid growth; (iii) has engaged in multiple
acquisitions with overlapping integration periods; (iv) has failed to
comply with conditions imposed in prior OCC licensing decisions; or (v)
is functionally the target in the transaction.\22\ The OCC also
normally does not approve a combination that would result in a
depository institution with less than adequate capital, less than
satisfactory management, or poor earnings prospects.
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\22\ For example, in a reverse triangular merger, a holding
company may acquire an institution and merge its existing subsidiary
into the newly acquired institution, which survives as a subsidiary
of the holding company. See Comptroller's Licensing Manual,
``Business Combinations'' at 23 (January 2021).
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Finally, this subsection would confirm the OCC's practice of
considering all comments on proposed transactions, including those on
financial and managerial resources and future prospects. To the extent
public comments address issues involving confidential supervisory
information, however, the OCC generally would not discuss or otherwise
disclose confidential supervisory information in public decision
letters.
Section IV of proposed appendix A would next discuss the OCC's
consideration of the individual financial resources, managerial
resources, and future prospects factors. With respect to financial
resources, proposed appendix A would discuss the OCC's review of pro
forma capital levels. Additionally, the OCC is generally prohibited by
statute from approving business combination applications filed by an
institution that is undercapitalized as defined in 12 CFR 6.4.\23\
Proposed Appendix A also would specify that the OCC closely scrutinizes
transactions that increase the risk to the bank's financial condition
and resilience, including risk to bank capital, liquidity, and earnings
that can arise from any of the eight categories of risk included in the
OCC's Risk Assessment System.\24\ Further, with respect to the
financial resources factor, the OCC considers the ability of management
to address increased risks that would result from the transaction.
Finally, proposed appendix A would clarify that a transaction involving
an acquirer with a strong supervisory record is more likely to satisfy
the review factors. By contrast, a transaction involving an acquirer
with a recent less than satisfactory supervisory record is less likely
to satisfy this factor.
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\23\ 12 U.S.C. 1831o(e)(4). The OCC may only approve a
combination application by an undercapitalized institution if the
agency has accepted the institution's capital restoration plan and
determines that the proposed combination is consistent with and will
further the achievement of the plan or if the Board of Directors of
the Federal Deposit Insurance Corporation determines that the
proposed combination will further the purposes of 12 U.S.C.1831o. 12
U.S.C. 1831o(e)(4)(A)-(B).
\24\ These are credit, interest rate, liquidity, price,
operational, compliance, strategic, and reputation risks. See
Comptroller's Handbook, ``Bank Supervision Process'' at 26-28
(Version 1.1, September 2019).
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Section IV of proposed appendix A would discuss the OCC's approach
to considering the managerial resources standard. The OCC would
consider the supervisory record and current condition of both the
acquirer and target to determine if the resulting institutions will
have sufficient managerial resources. For example, a significant number
of matters requiring attention (MRA), or lack thereof, may impact the
determination as to whether there are sufficient managerial resources.
The OCC also reviews (i) both institutions' management ratings under
the UFIRS or ROCA system, and component ratings under the CC Rating
System, Uniform Rating System for Information Technology, and Uniform
Interagency Trust Rating System, as applicable; and (ii) relevant the
Risk Assessment System (RAS) conclusions for the applicant as well as
the RAS conclusions for an OCC-supervised target. The OCC would
consider the context in which the rating or RAS element was assigned
and any additional information resulting from ongoing supervision.
Finally, proposed appendix A would note that less than satisfactory
ratings at the target do not preclude the approval of a transaction,
provided that the acquirer can employ sufficiently robust risk
management and financial resources to correct the weaknesses.
Proposed appendix A would state that the OCC considers whether the
acquirer has conducted sufficient due diligence of the target
depository institution to understand the business model, systems
compatibility, and weaknesses of the target. This includes the
acquirer's plans and ability to address its previously identified
weaknesses, remediate the target's weaknesses, and exercise appropriate
risk management for the size, complexity, and risk profile of the
resulting institution. Similarly, the OCC considers the acquirer's
plans for and
[[Page 10014]]
history of integrating combining institutions' operations, including
systems and information security processes, products, services,
employees, and cultures.
Proposed appendix A next would discuss the OCC's consideration of
the acquirer's plans to identify and manage systems compatibility and
integration issues, such as information technology compatibility and
implications for business continuity resilience. A critical component
of these plans includes the identification of overreliance on manual
controls, strategies for automating critical processes, and capacity
and modernization of aging and legacy information technology systems.
Additional OCC review may be required where there are concerns with
systems integration, and, in some cases, the OCC may impose conditions,
enforceable pursuant to 12 U.S.C. 1818, to address those concerns. The
OCC may deny an application if the integration issues or other issues
present significant supervisory concerns, and the issues cannot be
resolved through appropriate conditions or otherwise.\25\
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\25\ See 12 CFR 5.13(b).
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Finally, with regard to managerial resources, proposed appendix A
would describe the OCC's consideration of the proposed governance
structure of the resulting institution. This includes consideration of
(i) governance in decision-making processes, the board management
oversight structure, and the risk management system, including change
management; and (ii) the expansion of existing activities, introduction
of new or more complex products or lines of business, and implications
for managing existing and acquired subsidiaries and equity investments.
When applicable, the resulting institution's governance is also
considered in the context of the institution's relationship with its
holding company and the scope of the holding company's activities.
Section IV of proposed appendix A also would discuss how the OCC
considers the future prospects factor. The OCC would consider this
factor in light of its assessment of the institutions' financial and
managerial resources. The OCC also would consider the proposed
operations of the resulting institutions and the acquirer's record of
integrating acquisitions. Specifically, the OCC would consider whether
the integrated institution will be able to function effectively as a
single entity. The OCC also would consider the resulting institution's
business plan or strategy and management's ability to implement it in a
safe and sound manner. Finally, the OCC would consider the
combination's potential impacts on the resulting institution's
continuity planning and operational resilience.
Section V, Convenience and Needs of proposed appendix A would
expand on the discussion in the Comptroller's Licensing Handbook of the
OCC's consideration of the probable effects of the proposed business
combination on the community to be served. Specifically, this section
would clarify that the OCC's consideration of the impacts of any
proposed combination on the convenience and needs of the community is
prospective and considers the likely impact on the community of the
resulting institution after the transaction is consummated.\26\ For
this factor, the OCC considers, among other things (i) the proposed
changes to branch locations, branching services, banking services or
products, or credit availability offered by the target and acquirer,
including in low- or moderate-income (LMI) communities, (ii) any job
losses or lost job opportunities from branching changes, and (iii) any
community investment or development initiatives, including particularly
those that support affordable housing and small businesses. With
respect to (i) above, the OCC is also considering, and welcomes comment
on, whether to specify communities in addition to LMI communities as
part of these considerations.
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\26\ As the OCC's review of this factor is with respect to the
resulting institution, it necessarily includes review of the record,
products, and services of both the acquirer and target.
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Finally, Section V of proposed appendix A would clarify that the
OCC's forward-looking consideration of the convenience and needs factor
under the BMA is separate and distinct from its consideration of the
CRA record of performance of an applicant in helping to meet the credit
needs of the relevant community, including LMI neighborhoods.
Section VI, Public Comments and Meetings, of proposed appendix A
would provide additional details about the process and procedures
relating to the OCC's receipt of public comments and the OCC's
considerations related to public meetings and clarifies the information
contained within 12 CFR part 5 and the ``Public Notice and Comments''
booklet of the Comptroller's Licensing Manual.\27\ Specifically, the
public comments subsection would articulate the circumstances under
which the OCC may extend the comment period from the usual 30-day
comment period \28\ pursuant to Sec. 5.10(b)(2).\29\ It also would
provide additional clarity by noting that the OCC may find that
additional time is necessary to develop factual information, and thus
warrant extending the comment period, if a filer's response to a
comment does not fully address the matters raised in the comment, and
the commenter requests an opportunity to respond. This subsection also
would provide examples of extenuating circumstances when the OCC may
determine that an extension is needed, including, for example, if a
public meeting is held, the transaction is novel or complex, or a
natural disaster has occurred affecting the public's ability to timely
submit comment.
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\27\ While the BMA does not require the OCC to hold meetings or
hearings, 12 CFR 5.11 describes the consideration and procedures for
public hearings and notes the availability of several other types of
meetings. The OCC considers three options for seeking oral input:
(1) public hearing, (2) public meeting, and (3) private meeting.
\28\ See 12 CFR 5.10(b)(1).
\29\ Specifically, part 5 notes that the OCC may extend the
comment period when: (1) a filer fails to file all required publicly
available information on a timely basis or makes a request for
confidential treatment not granted by the OCC; (2) a person
requesting an extension demonstrates to the OCC that additional time
is necessary to develop factual information the OCC determines is
necessary to consider the filing; and (3) the OCC determines that
other extenuating circumstances exist.
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The public meetings subsection of Section VI would state that when
determining whether to hold a public meeting, the OCC balances the
public's interest in the transaction with the value or harm of a public
meeting to the decision-making process. Proposed appendix A would also
clarify criteria informing the OCC's decision on whether to hold a
public meeting. The criteria include (i) the public's interest in the
transaction; (ii) the appropriateness of a public meeting to document
or clarify issues raised during the public comment process; (iii) the
significance of the transaction to the banking industry; (iv) the
significance of the transaction to the communities affected; (v) the
potential value of any information that could be gathered and
documented during a public meeting; and (vi) the acquirer's and
target's CRA, consumer compliance, and fair lending, or other pertinent
supervisory records, as applicable.
III. Request for Comments
The OCC encourages comment on any aspect of this proposal and
especially on the specific issues discussed in this Supplementary
Information section.
[[Page 10015]]
IV. Regulatory Analysis
A. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\30\ the OCC may
not conduct or sponsor, and a respondent is not required to respond to,
an information collection unless it displays a currently valid Office
of Management and Budget (OMB) control number. The information
collection requirements in this proposed rule have been submitted to
OMB under OMB control number 1557-0014 (Licensing Manual).
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\30\ 44 U.S.C. 3501-3521.
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The proposal would amend 12 CFR 5.33, by removing the expedited
review procedures in section 5.33(i), which currently allow an
application to be deemed approved by the OCC as of the 15th day after
the close of the comment period, unless the OCC notifies the filer that
the filing is not eligible for expedited review, or the expedited
review process is extended. The proposal also removes the streamlined
application in section 5.33(j), which would remove the ability of
eligible institutions to file for certain types of business
combinations using a streamlined application form.
Title: Licensing Manual.
OMB control number: 1557-0014.
Frequency of Response: Occasional.
Affected Public: National banks and Federal savings associations.
The changes to the burden of the Licensing Manual are de minis and
continue to be:
Estimated Number of Respondents: 3,694.
Estimated Total Annual Burden: 12,481.15.
Comments are invited on:
(a) Whether the collections of information are necessary for the
proper performance of the agency functions, including whether the
information has practical utility;
(b) The accuracy of the agency estimates of the burden of the
information collections, including the validity of the methodology and
assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires an agency, in connection with a proposed rule, to prepare an
Initial Regulatory Flexibility Analysis describing the impact of the
rule on small entities (defined by the Small Business Administration
(SBA) for purposes of the RFA to include commercial banks and savings
institutions with total assets of $850 million or less and trust
companies with total assets of $47 million or less) or to certify that
the proposed rule would not have a significant economic impact on a
substantial number of small entities. However, under section 605(b) of
the RFA, this analysis is not required if an agency certifies that the
rule would not have a significant economic impact on a substantial
number of small entities and publishes its certification and a short
explanatory statement in the Federal Register along with its rule.
The OCC currently supervises 1,057 institutions (commercial banks,
trust companies, federal savings associations, and branches or agencies
of foreign banks) of which approximately 661 are small entities.\31\
The OCC estimates that on average, 38 OCC-supervised institutions could
be impacted by the rule in a given year. This is based on a five-year
average of the number of business combination applications submitted to
the OCC from 2019 through 2023.\32\
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\31\ The OCC's estimate of the number of small entities is based
on the Small Business Administration's size thresholds for
commercial banks and savings institutions, and trust companies,
which are $850 million and $47 million, respectively. Consistent
with the General Principles of Affiliation 13 CFR 121.103(a), the
OCC counts the assets of affiliated financial institutions when
determining if we should classify an OCC-supervised institution as a
small entity. The OCC used December 31, 2022, to determine size
because a ``financial institution's assets are determined by
averaging the assets reported on its four quarterly financial
statements for the preceding year.'' See footnote 8 of the U.S.
Small Business Administration's Table of Size Standards.
\32\ The OCC received 51 merger applications in 2019, 36 in
2020, 46 in 2021, 36 in 2022, and 18 in 2023. For further details,
see https://www.occ.gov/publications-and-resources/publications/annual-report/files/2023-annual-report.pdf, https://www.occ.gov/publications-and-resources/publications/annual-report/files/2022-annual-report.pdf, https://www.occ.gov/publications-and-resources/publications/annual-report/files/2021-annual-report.pdf, https://www.occ.gov/publications-and-resources/publications/annual-report/files/2020-annual-report.pdf, and https://www.occ.gov/publications-and-resources/publications/annual-report/files/2019-annual-report.pdf.
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In terms of the potential impact of the proposed changes on
affected institutions, the OCC does not expect that the changes would:
(1) result in a different decision outcome for the merger application
by the OCC or (2) result in a burden on affected institutions. First,
proposed appendix A would seek to provide transparency with respect to
the OCC's BMA review process including the OCC's consideration of
certain statutory factors under the BMA, which should provide regulated
institutions with additional clarity and transparency about the OCC's
decision-making process. Second, the removal of the expedited review
process would potentially affect OCC staff, but not affect banks, as
the scope of information to be submitted by banks would not change. And
third, the OCC expects that the removal of the streamlined application
process would not result in a substantive impact on affected
institutions or on the information collected, as the streamlined
application and the interagency BMA application requests substantively
the same information.\33\ Therefore, the OCC expects the impact to
affected OCC-supervised institutions would likely be de minimis. For
these reasons, the OCC certifies that the proposed rule would not have
a significant economic impact on a substantial number of small
entities.\34\
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\33\ The same information is collected through both the
streamlined and regular merger application review processes. The
streamlined application generally asks yes or no questions about the
same type of information requested on the interagency application,
and if an applicant answers yes, then the applicant needs to provide
additional detail.
\34\ In general, the OCC classifies the economic impact on an
individual small entity as significant if the total estimated impact
in one year is greater than 5 percent of the small entity's total
annual salaries and benefits or greater than 2.5 percent of the
small entity's total non-interest expense.
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C. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act) (2 U.S.C. 1532) requires that the OCC prepare a budgetary
impact statement before promulgating a rule that includes any Federal
mandate that may result in the expenditure by state, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more (adjusted annually for inflation, currently $182
million) in any one year. If a budgetary impact statement is required,
section 205 of the Unfunded Mandates Act (2 U.S.C. 1535) also requires
the OCC to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule.
The OCC estimates that the annual aggregate cost of the proposal
once fully phased in would de minimis. Furthermore, the proposed
changes are
[[Page 10016]]
not new requirements for OCC-supervised institutions, but rather
describe considerations and principles that guide the OCC's review of
applications under the BMA. Therefore, the OCC concludes that the
proposed rule would not result in an expenditure of $182 million or
more annually by state, local, and tribal governments, or by the
private sector.
D. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (RCDRIA),\35\ in determining the
effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, the OCC must consider,
consistent with the principle of safety and soundness and the public
interest, any administrative burdens that such regulations would place
on depository institutions, including small depository institutions,
and customers of depository institutions, as well as the benefits of
such regulations. In addition, section 302(b) of RCDRIA, requires new
regulations and amendments to regulations that impose additional
reporting, disclosures, or other new requirements on insured depository
institutions generally to take effect on the first day of a calendar
quarter that begins on or after the date on which the regulations are
published in final form, with certain exceptions, including for good
cause.\36\
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\35\ 12 U.S.C. 4802(a).
\36\ 12 U.S.C. 4802(b).
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The OCC requests comment on any administrative burdens that the
proposed rule would place on depository institutions, including small
depository institutions, and their customers, and the benefits of the
proposed rule that the OCC should consider in determining the effective
date and administrative compliance requirements for a final rule.
List of Subjects in 12 CFR Part 5
Administrative practice and procedure, National banks, Reporting
and recordkeeping requirements, Savings associations, Securities.
For the reasons set forth in the preamble, OCC proposes to amend
chapter I of title 12 of the Code of Federal Regulations as follows:
PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
0
1. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24a, 35, 93a, 214a, 215, 215a,
215a-1, 215a-2, 215a-3, 215c, 371d, 481, 1462a, 1463, 1464, 1817(j),
1831i, 1831u, 2901 et seq., 3101 et seq., 3907, and 5412(b)(2)(B).
Sec. 5.33 [Amended]
0
2. Section 5.33 is amended by removing and reserving paragraphs (d)(3),
(i), and (j).
0
3. Add appendix A to part 5, subpart C to read as follows:
Appendix A: Policy Statement Regarding Statutory Factors Under the Bank
Merger Act
I. Introduction
The purpose of this policy statement is to provide insured
depository institutions (institutions) and the public with a better
understanding of the Office of the Comptroller of the Currency's
(OCC's) consideration of certain statutory factors under the Bank
Merger Act (BMA), 12 U.S.C. 1828(c). The matters discussed in this
statement are intended to provide greater transparency, facilitate
interagency coordination, and enhance public engagement.
II. General Principles of OCC Review
The OCC aims to act promptly on all applications. The agency's
range of potential actions on applications include approval, denial,
and requesting that an applicant withdraw the application because
any shortcomings are unlikely to be resolved in a timely manner.
Applications that are consistent with approval generally feature all
of the following indicators:
1. The acquirer is well capitalized under Sec. 5.3 of this part
and the resulting institution will be well capitalized;
2. The resulting institution will have total assets less than
$50 billion;
3. The acquirer has a Community Reinvestment Act (CRA) rating of
Outstanding or Satisfactory;
4. The acquirer has composite and management ratings of 1 or 2
under the Uniform Financial Institution Ratings System (UFIRS) or
ROCA rating system;
5. The acquirer has a consumer compliance rating of 1 or 2 under
the Uniform Interagency Consumer Compliance Rating System (CC Rating
System), if applicable;
6. The acquirer has no open formal or informal enforcement
actions;
7. The acquirer has no open or pending fair lending actions,
including referrals or notifications to other agencies;
8. The acquirer is effective in combatting money laundering
activities;
9. The target's combined total assets are less than or equal to
50% of acquirer's total assets;
10. The target is an eligible depository institution as defined
in Sec. 5.3 of this part;
11. The proposed transaction clearly would not have a
significant adverse effect on competition;
12. The OCC has not identified a significant legal or policy
issue; and
13. No adverse comment has raised a significant CRA or consumer
compliance concern.
If certain indicators that raise supervisory or regulatory
concerns are present, the OCC is unlikely to find that the statutory
factors under the BMA are consistent with approval unless and until
the applicant has adequately addressed or remediated the concern.
The following are examples of indicators that raise supervisory or
regulatory concerns:
1. The acquirer has a CRA rating of Needs to Improve or
Substantial Noncompliance.
2. The acquirer has a consumer compliance rating of 3 or worse.
3. The acquirer has UFIRS or ROCA composite or management
ratings of 3 or worse or the most recent report of examination
otherwise indicates that the acquirer is not financially sound or
well managed.
4. The acquirer is a global systemically important banking
organization, or subsidiary thereof.
5. The acquirer has open or pending Bank Secrecy Act/Anti-money
Laundering enforcement or fair lending actions, including referrals
or notifications to other agencies.
6. Failure by the acquirer to adopt, implement, and adhere to
all the corrective actions required by a formal enforcement action
in a timely manner; or multiple enforcement actions against the
acquirer executed or outstanding during a three-year period.
III. Financial Stability
A. Factors Considered
The BMA requires the OCC to consider ``the risk to the stability
of the United States banking or financial system'' when reviewing
transactions subject to the Act. In reviewing a BMA application
under this factor, the OCC considers the following factors:
1. Whether the proposed transaction would result in a material
increase in risks to financial system stability due to an increase
in size of the combining institutions.
2. Whether the proposed transaction would result in a reduction
in the availability of substitute providers for the services offered
by the combining institutions.
3. Whether the resulting institution would engage in any
business activities or participate in markets in a manner that, in
the event of financial distress of the resulting institution, would
cause significant risks to other institutions.
4. Whether the proposed transaction would materially increase
the extent to which the combining institutions contribute to the
complexity of the financial system.
5. Whether the proposed transaction would materially increase
the extent of cross-border activities of the combining institutions.
6. Whether the proposed transaction would increase the relative
degree of difficulty of resolving or winding up the resulting
institution's business in the event of failure or insolvency.
[[Page 10017]]
7. Any other factors that could indicate that the transaction
poses a risk to the U.S. banking or financial system.
B. Balancing Test
1. In general: The OCC applies a balancing test when considering
the factors in section III(A) of this appendix in light of all the
facts and circumstances available regarding the proposed
transaction, including weighing the financial stability risk posed
by the proposed transaction against the financial stability risk
posed by denial of the proposed transaction, particularly if the
proposed transaction involves a troubled target. The OCC considers
each factor both individually and in combination with others. Even
if only a single factor indicates that the proposed transaction
would pose a risk to the stability of the U.S. banking or financial
system, the OCC may determine that there would be an adverse effect
of the proposal on the stability of the U.S. banking or financial
system. Finally, the OCC also considers whether the proposed
transaction would provide any stability benefits and whether
enhanced prudential standards applicable as a result of the proposed
transaction would offset any potential risks.
2. Conditions: The OCC's review of the financial stability
factors will include, as appropriate, whether to impose conditions
on approval of the transaction. The OCC may impose conditions,
enforceable under 12 U.S.C. 1818, to address and mitigate financial
stability risk concerns, such as requiring asset divestitures by the
resulting institution, imposing higher minimum capital requirements,
or imposing other financial stability related conditions.
3. Recovery planning and heightened standards: The OCC's review
of the financial stability factors will consider the impact of the
proposed transaction in light of:
b. Standards applicable to the resulting institution pursuant to
12 CFR 30, appendix D, ``OCC Guidelines Establishing Heightened
Standards for Certain Large Insured National Banks, Insured Federal
Savings Associations, and Insured Federal Branches''; and
c. Standards requirements applicable to the resulting
institution's recovery planning pursuant to 12 CFR 30, appendix E,
``OCC Guidelines Establishing Standards for Recovery Planning by
Certain Large Insured National Banks, Insured Federal Savings
Associations, and Insured Federal Branches''.
4. Concurrent filings: the OCC's review of the financial
stability factors may consider the facts, circumstances, and
representations of concurrent filings for related transactions,
including the impact of the related transactions to the proposed
transaction under review by the OCC.
IV. Financial and Managerial Resources and Future Prospects
The OCC is required by the BMA to consider the managerial
resources, financial resources, and future prospects of the
combining and the resulting institutions. The OCC considers each of
these factors independently for both the combining and resulting
institutions. However, because these factors are directly related to
one another, the OCC also considers these factors holistically.
A. Overarching Considerations
1. The OCC tailors its consideration of the financial and
managerial resources and future prospects of the combining and
resulting institutions, to their size, complexity, and risk profile.
2. The OCC is more likely to approve combinations where the
acquirer has sufficient financial and managerial resources to ensure
safe and sound operations of the resulting institution than when:
a. The acquirer has a less than satisfactory supervisory record,
including its financial and managerial resources;
b. The acquirer has experienced rapid growth;
c. The acquirer has engaged in multiple acquisitions with
overlapping integration periods;
d. The acquirer has failed to comply with conditions imposed in
prior OCC licensing decisions; or
e. The acquirer is functionally the target in the transaction.
3. The OCC normally does not approve a combination that would
result in a depository institution with less than adequate capital
or liquidity, less than satisfactory management, or poor earnings
prospects.
4. The OCC considers all comments received on proposed business
combinations. However, the OCC's consideration of an institution's
financial and managerial resources and future prospects are
necessarily based on confidential supervisory information. While the
OCC will provide an appropriate discussion of comments pertaining to
the financial resources, managerial resources, and future prospects
factors, it will generally not discuss or otherwise disclose
confidential supervisory information in public decision letters.
B. Individual Factors
1. Financial Resources:
a. The OCC reviews the existing and proposed institutions'
current and pro forma capital levels.
i. The OCC reviews for compliance with the applicable capital
ratios required by 12 CFR part 3 and the Prompt Corrective Action
capital categories established by 12 CFR 6.4.
ii. The OCC may not approve a combination application filed by
an insured depository institution that is undercapitalized as
defined in 12 CFR 6.4 unless it has approved the institution's
capital restoration plan or the Board of Directors of the Federal
Deposit Insurance Corporation has determined that the transaction
would fulfill the purposes of 12 U.S.C. 1831o.
b. The OCC closely scrutinizes transactions that increase the
risk to the bank's financial condition and resilience, including
bank capital, liquidity, and earnings that can arise from any of the
eight categories of risk included in the OCC's Risk Assessment
System: credit, interest rate, liquidity, price, operational,
compliance, strategic, and reputation.
c. In relation to the financial resources factor, the OCC
considers management's ability to address increased risks that would
result from the transaction.
d. A transaction involving an acquirer with a strong supervisory
record relative to capital, liquidity, and earnings is more likely
to satisfy the review factors. By contrast, a transaction involving
an acquirer with a recent less than satisfactory financial or
supervisory record is less likely to satisfy this factor.
2. Managerial Resources: The OCC considers several factors when
considering the managerial resources of the institutions.
a. The OCC considers the supervisory record and current
condition of both the acquirer and target to determine if the
resulting institutions will have sufficient managerial resources to
manage the resulting institution.
i. A significant number of MRAs suggests there may be
insufficient managerial resources. Additionally, the OCC considers
both institutions' management ratings under the UFIRS or ROCA system
and component ratings under the CC Rating System, Uniform Rating
System for Information Technology, and Uniform Interagency Trust
Rating System, as applicable.
ii. When applicable, the OCC also considers the relevant Risk
Assessment System (RAS) conclusions for the combining institutions.
iii. The OCC considers the context in which a rating or RAS
element was assigned and any additional information resulting from
ongoing supervision.
iv. Less than satisfactory ratings at the target do not preclude
the approval of a transaction, provided that the acquirer can employ
sufficiently robust risk management and financial resources to
correct the weaknesses at the target.
b. The OCC considers whether the acquirer has conducted
sufficient due diligence of the target depository institution to
understand the business model, systems compatibility, and weaknesses
of the target. To facilitate the OCC's review, the acquirer's
management team should demonstrate its plans and ability to address
the acquirer's previously identified weaknesses, remediate the
target's weaknesses, and exercise appropriate risk management for
the size, complexity, and risk profile of the resulting institution.
c. The OCC also considers the acquirer's analysis and plans to
integrate the combining institutions' operations, including systems
and information security processes, products, services, employees,
and cultures. The OCC's consideration and degree of scrutiny
reflects the applicant's track record with information technology
governance, business continuity resilience, and, as applicable,
integrating acquisitions.
d. The OCC considers the acquirer's plans to identify and manage
systems compatibility and integration issues, such as information
technology compatibility and the implications for business
continuity resilience. Any combination in which the OCC identifies
systems integration concerns may lead to additional review.
i. A critical component of these plans includes the acquirer's
identification and assessment of overreliance on manual controls,
strategies for automating critical processes, and the strategies and
capacity for modernization of aging and legacy information
technology systems.
[[Page 10018]]
ii. The OCC may impose conditions, enforceable pursuant to 12
U.S.C. 1818, if it determines that information technology systems
compatibility and integration represent a supervisory significant
concern. These conditions may include requirements and time frames
for specific remedial actions and specific measures for assessing
and evaluating the depository institution's systems integration
progress.
iii. The OCC may deny the application if the integration issues
or other issues present significant supervisory concerns, and the
issues cannot be resolved through appropriate conditions or
otherwise.
e. The OCC also considers the proposed governance structure of
the resulting institution. This includes governance in decision-
making processes, the board management oversight structure, and the
risk management system, including change management. This also
includes expansion of existing activities, introduction of new or
more complex products or lines of business, and implications for
managing existing and acquired subsidiaries and equity investments.
When applicable, the resulting institution's governance is also
considered in the context of the institution's relationship with its
holding company and the scope of the holding company's activities.
3. Future Prospects:
a. The OCC considers the resulting institution's future
prospects in light of its assessment of the institutions' financial
and managerial resources.
b. The OCC also considers the proposed operations of the
resulting institution. The OCC's consideration and degree of
scrutiny reflects the acquirer's record of integrating acquisitions.
i. The OCC considers whether the integration of the combining
institutions would allow it to function effectively as a single
unit.
ii. The OCC considers the resulting institution's business plan
or strategy and management's ability to implement it in a safe and
sound manner.
iii. The OCC also considers the combination's potential impact
on the resulting institution's continuity planning and operational
resilience.
V. Convenience and Needs
A. The OCC considers the probable effects of the proposed
business combination on the community to be served. Review of the
convenience and needs factor is prospective and considers the likely
impact on the community of the resulting institution after the
transaction is consummated, including but not limited to:
1. any plans to close, expand, consolidate, or limit branches or
branching services, including in low- or moderate-income (LMI)
areas;
2. any plans to reduce the availability or increase the cost of
banking services or products, or plans to provide expanded or less
costly banking services or products to the community;
3. credit availability throughout the community, including, for
example, home mortgage, consumer, small business, and small farm
loans;
4. job losses or reduced job opportunities from branch staffing
changes, including branch closures or consolidations;
5. community investment or development initiatives, including,
for example, community reinvestment, community development
investment, and community outreach and engagement strategies; and
6. efforts to support affordable housing initiatives and small
businesses.
B. The OCC considers comments received during the comment period
and information provided during any public hearing or meeting for
proposed business combinations. To the extent public comments or
discussions address issues involving confidential supervisory
information, however, the OCC generally will not discuss or
otherwise disclose that confidential supervisory information in
public decision letters and forums.
C. The OCC considers the CRA record of performance of an
applicant in evaluating a business combination application. The
OCC's forward-looking evaluation of the convenience and needs factor
under the BMA is separate and distinct from its consideration of the
CRA record of performance of an applicant in helping to meet the
credit needs of the relevant community, including LMI neighborhoods.
VI. Public Comments and Meetings
A. Public Comments
1. Unless an exception applies, a combination under the BMA is
subject to a 30-day comment period following publication of the
notice of the proposed combination. The OCC may extend the comment
period in certain instances:
a. when a filer fails to file all required publicly available
information on a timely basis or makes a request for confidential
treatment not granted by the OCC;
b. when requested and the OCC determines that additional time is
necessary to develop factual information necessary to consider the
filing; and
c. when the OCC determines that other extenuating circumstances
exist.
2. The OCC may find that additional time is necessary to develop
factual information if a filer's response to a comment does not
fully address the matters raised in the comment, and the commenter
requests an opportunity to respond.
3. Examples of extenuating circumstances necessitating an
extension include:
a. transactions in which public meetings are held to allow for
public comment after the meeting;
b. unusual transactions (e.g., novel or complex transactions);
and
c. natural or other disasters occurring in geographic regions
affecting the public's ability to timely submit comments.
B. Public Meetings
1. While the BMA does not require the OCC to hold meetings or
hearings, the OCC has three methods for seeking oral input: (1)
public hearing, (2) public meeting, and (3) private meeting. Public
meetings are the most-employed public option.
2. The OCC will balance the public's interest in the transaction
with the value or harm of a public meeting to the decision-making
process (e.g., although there may be increased public interest in a
transaction, a public meeting will not be held if it would not
inform the OCC's decision on an application or would otherwise harm
the decision-making process).
3. Criteria informing the OCC's decision on whether to hold
public meetings include:
a. the extent of public interest in the proposed transaction.
b. whether a public meeting is appropriate in order to document
or clarify issues presented by a particular transaction based on
issues the public raises during the public comment process.
c. whether a public meeting would provide useful information
that the OCC would not otherwise be able to obtain in writing.
d. the significance of the transaction to the banking industry.
Relevant considerations may include the asset sizes of the
institutions involved (e.g., resulting institution will have $50
billion or more in total assets), and concentration of the resulting
institution in one or more markets.
e. the significance of the transaction to the communities
affected. Relevant considerations may include the effects of the
transaction on the convenience and needs of the community to be
served, including a consideration of a bank's CRA strategy and the
extent to which the acquirer and target are currently serving the
convenience and needs of their communities.
f. the acquirer's and target's CRA, consumer compliance, fair
lending, and other pertinent supervisory records, as applicable.
Michael J. Hsu,
Acting Comptroller of the Currency.
[FR Doc. 2024-02663 Filed 2-12-24; 8:45 am]
BILLING CODE 4810-33-P