Request for Comment on Proposed Statement of Policy on Bank Merger Transactions, 29222-29244 [2024-08020]
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FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 303
RIN 3064–ZA31
Request for Comment on Proposed
Statement of Policy on Bank Merger
Transactions
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Proposed Policy Statement;
Request for Comment.
AGENCY:
The FDIC invites comments
on a proposed Statement of Policy (SOP)
on Bank Merger Transactions (Proposed
SOP) that is relevant to all insured
depository institutions (IDIs). The
Proposed SOP would replace the FDIC’s
current SOP on Bank Merger
Transactions (Current SOP) and
proposes a principles-based overview
that describes the FDIC’s administration
of its responsibilities under the Bank
Merger Act (BMA). The Proposed SOP
focuses on the scope of transactions
subject to FDIC approval, the FDIC’s
process for evaluating merger
applications, and the principles that
guide the FDIC’s consideration of the
applicable statutory factors as set forth
in the BMA. The Supplementary
Information section below contains
explanatory content, including
historical data, to provide additional
context for the Proposed SOP.
DATES: Comments must be received by
June 18, 2024.
ADDRESSES: All comments related to this
Proposed SOP must include the agency
name and RIN 3064–ZA31. Please send
comments by one method only directed
to:
• Agency Website: https://
www.fdic.gov/regulations/laws/federal/.
Follow the instructions for submitting
comments on the agency’s website.
• Email: Comments@fdic.gov. Include
RIN 3064–ZA31 in the subject line of
the message.
• Mail: James P. Sheesley, Assistant
Executive Secretary, Attention:
Comments-RIN: 3064–ZA31, Federal
Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
• Hand Delivery: Comments may be
hand-delivered to the guard station at
the rear of the 550 17th Street NW,
building (located on F Street NW) on
business days between 7:00 a.m. and
5:00 p.m. ET.
Public Inspection: All comments
received will be posted without change
to https://www.fdic.gov/regulations/laws/
federal/—including any personal
information provided—for public
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inspection. Commenters should submit
only information that the commenter
wishes to make available publicly. The
FDIC may review, redact, or refrain from
posting all or any portion of any
comment that it may deem to be
inappropriate for publication, such as
irrelevant or obscene material. The FDIC
may post only a single representative
example of identical or substantially
identical comments, and in such cases
will generally identify the number of
identical or substantially identical
comments represented by the posted
example. All comments that have been
redacted, as well as those that have not
been posted, that contain comments on
the merits of this document will be
retained in the public comment file and
will be considered as required under all
applicable laws. All comments may be
accessible under the Freedom of
Information Act.
FOR FURTHER INFORMATION CONTACT:
George Small, Senior Examination
Specialist, Division of Risk Management
Supervision, 347–267–2453, gsmall@
fdic.gov; Annmarie Boyd, Senior
Counsel, Legal Division, 202–898–3714,
aboyd@fdic.gov; Benjamin Klein,
Supervisory Counsel, Legal Division,
202–898–7027, bklein@fdic.gov; Jessica
Thurman, Chief, Division of Depositor
and Consumer Protection, 202–898–
3579, jthurman@fdic.gov; Mark Haley,
Chief, Division of Complex Institution
Supervision and Regulation, 917–320–
2911, mahaley@fdic.gov; and Ryan
Singer, Chief, Division of Insurance and
Research, 202–898–7532, rsinger@
fdic.gov.
SUPPLEMENTARY INFORMATION:
I. Background
The Bank Merger Act (BMA), Section
18(c) of the Federal Deposit Insurance
Act (FDI Act), prohibits an insured
depository institution (IDI) from
engaging in a merger transaction
without regulatory approval. The FDIC
is one of three Federal banking agencies
with responsibility for evaluating
transactions subject to the BMA. The
FDIC has jurisdiction to act on merger
applications that involve an IDI and any
non-insured entity, notwithstanding the
IDI’s charter.1 The FDIC also has
jurisdiction to act on merger
applications that solely involve IDIs in
which the acquiring, assuming, or
resulting institution is a state
nonmember bank or state savings
association (FDIC-supervised
institution).2
1 12
2 12
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U.S.C. 1828(c)(1).
U.S.C. 1828(c)(2).
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In order to implement its
responsibilities under the BMA, the
FDIC has codified regulations; issued a
Statement of Policy (SOP); and
published the Applications Procedures
Manual (APM). The FDIC’s APM
provides application-processing
instructions for the FDIC’s professional
staff assigned to review, evaluate, and
process applications, notices, and other
requests submitted to the FDIC. The
APM includes a section on processing
merger applications that provides
detailed procedural instructions to staff,
as well as information regarding the
assessment of each statutory factor. In
2019, the FDIC published the APM to its
external website to provide greater
transparency regarding the FDIC’s
internal application processes. In light
of prospective changes to the bank
merger process, additional revisions are
planned for the APM chapter on
mergers. Finally, together with the other
Federal banking agencies, the FDIC has
issued an interagency application form,
which includes a supplemental section
specific to the FDIC. Concurrent with
this Proposed SOP, the FDIC is seeking
comment on proposed revisions to its
supplemental section to the interagency
form.
The current SOP on Bank Merger
Transactions (Current SOP), last
amended in 2008, addresses the FDIC’s
process for reviewing proposed merger
applications in the context of the
applicable statutory factors.3 Since the
Current SOP was last revised, the BMA
has been amended and significant
changes have occurred in the banking
industry and financial system, including
continued growth and consolidation.
This growth and consolidation, which
has been ongoing for the past several
decades, has significantly reduced the
number of smaller banking
organizations, increased the number of
large and systemically important
banking organizations, and contributed
to the need for a review of the regulatory
framework that applies to bank merger
transactions subject to the BMA.4
The number of large IDIs, especially
IDIs with total assets of $100 billion or
more, has grown considerably over the
past few decades. This is due to a
combination of factors, including
consolidation in the banking sector
(fueled in part by mergers and
acquisitions), the easing of interstate
banking restrictions,5 and organic
3 FDIC Statement of Policy on Bank Merger
Transactions, 73 FR 8870.
4 12 U.S.C. 1828(c).
5 Prior to the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, Public Law 103–
328, many states did not permit intra-state or
interstate branching, and interstate branch
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growth. As of December 31, 2004, there
were only 12 IDIs with total assets
greater than $100 billion; however, that
number increased to 33 by December 31,
2023. Of the 33 IDIs with total assets
greater than $100 billion, nine were
owned by the eight U.S. bank holding
companies designated as U.S. Global
Systemically Important Banks (GSIBs),
and four were owned by foreign banking
organizations designated as foreign
GSIBs.6 While IDIs with total assets of
more than $100 billion as of December
31, 2023, comprised less than one
percent of the total number of IDIs, they
held approximately 71 percent of total
industry assets and approximately 68
percent of domestic deposits.
The FDIC has a responsibility to
promote public confidence in the
banking system, maintain financial
stability, and resolve failing IDIs. Given
the increased number, size, and
complexity of large banks, greater
attention to the financial stability risks
that could arise from a merger involving
a large bank is warranted. In particular,
the failure of a large IDI could present
greater challenges to the FDIC’s
resolution and receivership functions,
and could present a broader financial
stability threat. For various reasons,
including their size, sources of funding,
and other organizational complexities,
the resolution of large IDIs can present
significant risk to the Deposit Insurance
Fund (DIF), as well as material
operational risk for the FDIC. In
addition, as a practical matter, the size
of an IDI may limit the resolution
options available to the FDIC in the
event of failure.
After the 2008 financial crisis, the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act) amended the BMA to include, for
the first time, a factor related to the risk
to the stability of the United States
(U.S.) banking or financial system
(financial stability factor). The FDIC is
seeking public comment on the SOP’s
approach to the financial stability factor,
which integrates and builds upon the
FDIC’s existing framework for assessing
this factor.
On July 9, 2021, an Executive Order
addressed the impact that consolidation
may have on maintaining a competitive
marketplace. The Executive Order also
addressed the impact that consolidation
may have on maintaining a fair, open,
and competitive marketplace, as well as
branching was not federally sanctioned. Following
the passage of this law, many multi-bank holding
companies with subsidiary IDIs with different home
states chose to consolidate existing bank charters.
6 See Financial Stability Board 2022 list of GSIBs
available at https://www.fsb.org/wp-content/
uploads/P211122.pdf
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the impact on the welfare of workers,
farmers, small businesses, startups, and
consumers. The FDIC continues to
coordinate with the Department of
Justice (DOJ) and the other Federal
banking agencies in modernizing bank
merger oversight.7
On March 31, 2022, the FDIC
published in the Federal Register a
request for information and comment
(RFI) regarding the application of the
laws, practices, rules, regulations,
guidance, and SOP that apply to merger
transactions subject to FDIC approval.8
The RFI requested comments regarding
the effectiveness of the FDIC’s existing
framework in meeting the requirements
of the BMA. After review of the public
comments received in response to the
RFI, the FDIC determined that it is both
timely and appropriate to review its
regulatory framework for merger
transactions as outlined in the Current
SOP. The Proposed SOP was drafted in
consideration of the comments received
regarding the RFI and is being published
in the Federal Register to obtain further
input from interested parties.
II. Summary of Comments
While not all of the questions
described in the RFI are pertinent to the
SOP, the FDIC is summarizing the
comments received to provide
transparency with respect to the overall
process for developing updated mergerrelated policies and procedures. The
FDIC received 33 comment letters in
response to the RFI.9 The majority of
RFI commenters (25 or 76 percent) were
in favor of at least some changes to the
FDIC’s merger review processes. Six RFI
commenters (18 percent) were against
changes to the FDIC’s merger review
processes, and two RFI commenters (6
percent) were neither in favor of, nor
against, changes to the FDIC’s merger
review processes.
Among RFI commenters in favor of
updating the FDIC’s processes that
apply to merger transactions, four
common themes for potential changes
were observed: (i) amend the calculation
of market concentration and the
competitive effects analysis; (ii) enhance
the analysis of the convenience and
needs of the community to be served
factor; (iii) establish risk criteria and
7 E.O. 14036 ‘‘Promoting Competition in the
American Economy’’ (July 9, 2021). On December
18, 2023, the DOJ and the Federal Trade
Commission (FTC) jointly released the 2023 Merger
Guidelines (guidelines). These guidelines build
upon, expand, and clarify frameworks set out in
previous versions.
8 87 FR 18740 (March 31, 2022).
9 Request for Information and Comment on Rules,
Regulations, Guidance, and Statements of Policy
Regarding Bank Merger Transactions. See 87 FR
18740.
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thresholds for the analysis of the
financial stability factor; and (iv) create
a de minimis exception (or presumption
of approval) for mergers involving small
and mid-sized IDIs.
Some RFI commenters suggested the
need for an interagency approach to the
development of any new merger
regulations, guidelines, and
instructions, and noted that any new
elements should be applied
prospectively. RFI commenters also
suggested enhancing the public’s ability
to review and comment on proposed
mergers, including making the
information exchange (questions posed
and responses received between the
FDIC and applicants) a part of the
public record. Finally, RFI commenters
requested that the FDIC review, to the
extent possible, the effects of past
mergers to evaluate the appropriateness
of any revised merger guidelines. These
RFI commenters requested that the FDIC
make the results of the evaluation
public and apply the results to future
merger decisions.
Six RFI commenters were against
updating the FDIC’s merger related
processes. In general, these RFI
commenters argued that the FDIC’s
current framework for reviewing
proposed merger transactions was
sound and that revisions might harm the
banking sector. More specifically, some
RFI commenters argued that any change
to the competitive review would make
bank mergers more difficult; and such
changes risked disproportionately
impacting community, mid-size, and
regional banks.
Multiple RFI commenters suggested
revisions to the receipt and compilation
of the FDIC’s Summary of Deposits
(SOD) data, and amendments to the
calculations to improve the quality,
accuracy, and consistency of the data
used to calculate the Herfindahl–
Hirschman Index (HHI).10 The RFI
commenters broadly agreed that the
increased presence of non-bank firms,
including those specializing in financial
technology (fintech), and increased
consolidation within the banking
industry necessitate revision to the
evaluative considerations for
competitive effects to reflect the
economic realities and the industry’s
competitive landscape. Some RFI
10 The HHI is calculated by squaring the market
share of each firm competing in the market and
then summing the resulting numbers. For example,
for a market consisting of four firms with shares of
30, 30, 20, and 20 percent, the HHI is 2,600 (302
+ 302 + 202 + 202 = 2,600). The HHI calculation can
also be applied to other relevant Consolidated
Reports of Condition categories or other appropriate
sources of data, aside from deposits. For example,
the HHI analysis may also include data relative to
commercial and industrial loans.
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commenters posited that deposit data
for institutions that rely on technologybased delivery channels are not
dependent on their branch locations.
Multiple RFI commenters stated that
the HHI threshold for prospective
competitive effects concerns should be
increased from its current limit. These
RFI commenters contended that the HHI
screens applied to the banking industry
were stricter than those that had been
applied in any other industry. In the
opinion of these RFI commenters,
raising the HHI would account for the
growing competition that IDIs with
physical branches face from competitors
with different business models,
including fintech firms and digital
banks.
Conversely, other RFI commenters
suggested the overall HHI threshold
should be lowered, and the threshold
for a change in HHI should be revised
from the current level. These RFI
commenters suggested that mergers
disproportionally affect low- to
moderate-income and/or minority
communities, and therefore, the
threshold (and any change in it) must be
lowered to appropriately capture
competitive effects.
Some RFI commenters suggested
consideration of alternate measures of
concentration and/or evaluating the HHI
of other asset or product categories such
as business loans or residential lending.
In addition, multiple RFI commenters
requested that the FDIC revise the SOD
data collection and calculation to
improve precision. These RFI
commenters suggested that the FDIC: (i)
differentiate corporate and centrally
booked deposits from retail deposits; (ii)
amend methods and reporting
standards, and provide more guidance
on how a reporting entity attributes
deposits to branches; (iii) include more
data on depositors in certain
circumstances in order to increase
geographic specificity; and (iv) add data
on thrifts, credit unions, fintech firms,
farm credit banks, and online entities
that serve customers in the relevant
market.
Multiple RFI commenters
recommended revisions to the analysis
of the convenience and needs of the
community to be served statutory factor.
In general, these RFI commenters
recommended that the FDIC focus the
analysis on the additive benefits of the
merger transaction for consumers,
particularly in low- to moderate-income
and minority communities; and place
higher burden on applicants to
demonstrate the public interest benefits
of the transaction. Concerns with regard
to the impact of branch closings were
noted. A few RFI commenters suggested
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that the applicant should be required to
submit a full plan related to branch
closings.
Approximately half of the RFI
commenters requested that the Federal
banking agencies establish specific
stability risk considerations (e.g. size,
substitute providers,
interconnectedness, complexity, and
cross-border activities) and formalize
thresholds (such as total asset metrics)
for developing a resolution plan for
large bank mergers.
About one quarter of RFI commenters
noted a perceived burden on small
institutions. These RFI commenters
requested that the FDIC create a small
bank de minimis exception whereby
small bank mergers would be presumed
not to create monopolies or have
anticompetitive effects if they meet
certain prudential thresholds that can
only be overturned based on other
criteria such as the results of the
competitive effects analysis.
In general, RFI comments were mixed
on the following topics: (i) whether
there is a presumption of approval for
merger applications; (ii) whether the
existing framework considers all aspects
of the BMA; and (iii) whether prudential
considerations or ‘‘bright lines’’ should
be developed for any of the statutory
factors. Many of the comments, as well
as new questions that the FDIC has
developed in response to public
comments on the RFI, are addressed in
this preamble.
III. Description of the Proposed
Statement of Policy
Overall Changes in the Proposed SOP
The Proposed SOP reflects regulatory,
legislative, and industry changes since
the SOP was last published for comment
in 1997. Further, the Proposed SOP
includes new content to make it more
principles based, communicates the
FDIC Board’s expectations regarding the
evaluation of merger applications filed
pursuant to the BMA, and describes the
types of merger applications for which
the FDIC is the responsible agency.
The Proposed SOP does not include
the application procedures narrative
that is included in the Current SOP. The
APM describes procedural matters such
as application filing, expedited
processing and notification to the
Attorney General. The Proposed SOP
includes a separate discussion of each
statutory factor, including: competitive
effects, financial and managerial
resources, future prospects, convenience
and needs of the community to be
served, risk to the stability of the U.S.
banking or financial system, and
effectiveness in combatting money
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laundering. In addition, the Proposed
SOP includes a declarative statement for
each statutory factor to highlight the
Board’s expectations and accompanying
narrative to describe the analytical
considerations for the evaluation of each
factor. While historical performance
provides contextual insight into the
evaluation of these factors, the SOP
affirms that the evaluations are forward
looking. A detailed discussion of each
statutory factor follows this section.
The FDIC seeks comment on all
aspects of the Proposed SOP.
Question:
1. Does the structure of the Proposed
SOP effectively present the FDIC’s
expectations with regard to review and
evaluation of merger applications? If
not, please describe how the structure
could be improved.
Jurisdiction and Scope
The Proposed SOP clarifies the
circumstances in which FDIC approval
is required in connection with a
proposed merger transaction. The FDIC
plays an important role in the
administration of the BMA, which is
codified in the FDI Act and covers a
broad range of transactions.11
Specifically, Section 18(c)(1) of the
BMA requires FDIC approval in
connection with transactions in which
an IDI: (A) merges or consolidates with
any non-insured bank or institution,12
(B) assumes liability to pay any deposits
or similar liabilities in a non-insured
bank or institution,13 or (C) transfers
assets to any non-insured bank or
institution in consideration of an
assumption of deposit liabilities of the
IDI.14 The FDIC’s authority extends to a
variety of transactions between an IDI
and a non-insured entity, which are
‘‘merger transactions’’ for the purposes
11 The broad scope of transactions expressly
subject to FDIC approval under the BMA evinces a
clear congressional intent for the FDIC to review a
wide array of transactions between IDIs and noninsured entities that have the potential to affect the
safety and soundness of a resultant IDI or increase
the potential liability of the Deposit Insurance
Fund.
12 12 U.S.C. 1828(c)(1)(A). A non-insured entity
refers to any entity that is not FDIC insured.
Although there is no definition of the term ‘‘noninsured institution’’ in the BMA, it has long been
the FDIC’s interpretation that the term includes any
non-insured entity with which an IDI can legally
merge. Notably, although federally insured credit
unions are insured by the National Credit Union
Administration, such credit unions are not IDIs for
the purposes of the FDI Act, see 12 U.S.C. 1813(a)(c), and any merger transaction between an IDI and
a credit union is therefore subject to FDIC approval
under the BMA.
13 12 U.S.C. 1828(c)(1)(B).
14 12 U.S.C. 1828(c)(1)(C). The statutory
requirements of 12 U.S.C. 1828(c)(1) originate from
the Banking Act of 1935. Sec. 101, Public Law 74–
305 (adopting Section 12B(v)(4) of the Federal
Reserve Act).
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of the BMA, even if the transaction is
not legally structured as a merger.15
Mergers and Consolidations Involving
IDIs and Non-Insured Entities
Section 18(c)(1)(A) of the BMA
prohibits an IDI from merging or
consolidating with a non-insured entity
without the FDIC’s approval. Neither
the BMA nor the FDIC Rules and
Regulations define the terms ‘‘merge’’ or
‘‘consolidate.’’ 16 The FDIC implements
the BMA by emphasizing a transaction’s
substance over its form and asserting
jurisdiction over transactions that
substantively result in a merger (merger
in substance). The FDIC interprets the
term ‘‘merge’’ in the BMA to encompass
all transactions that result in an IDI
substantively and effectively combining
with a non-insured entity, regardless of
whether the transaction is structured as
a merger or asset acquisition.
Although acquisitions of assets are
not specifically enumerated as a
category of transactions subject to FDIC
approval under the BMA, an IDI’s
acquisition of assets from a non-insured
entity could be the substantive
equivalent of a transaction legally
structured as a merger. For example,
this occurs when the acquired assets
constitute all, or substantially all, of the
non-insured entity’s assets or business
enterprise and if the non-insured entity
dissolves, is rendered a shell, or
otherwise substantially ceases its main
business operations or enterprise. This
applies when there is a transfer of all,
or substantially all, of a non-insured
entity’s assets to an IDI, regardless of
whether: (i) such transactions consist of
an assumption of identified liabilities,
(ii) the assets acquired are tangible or
intangible (without regard to whether
the assets would be considered assets
under generally accepted accounting
principles), or (iii) such acquisitions
occur as a single transaction or over the
course of a series of transactions.
Excluding transactions that are mergers
in substance involving IDIs and noninsured entities from FDIC review
would be inconsistent with the
purposes of the BMA by overlooking
transactions that could affect the safety
and soundness of an IDI and increase
the risk to the DIF.
The Proposed SOP clarifies the
applicability of Section 18(c)(1)(A) of
15 12
U.S.C. 1828(c)(1)–(3).
consolidation generally is a combination of
the assets and liabilities of two or more IDIs into
a newly chartered IDI, and the extinguishment or
cancellation of the charters of the other institutions.
Although rare, the FDIC would consider two
institutions substantively combining with a newly
created third institution to be a consolidation in
substance.
16 A
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the BMA by emphasizing that the scope
of merger transactions subject to
approval encompasses transactions that
take other forms, including purchase
and assumption transactions that are
mergers in substance. The Proposed
SOP provides an example of a
transaction that is a merger in
substance, and is therefore subject to the
BMA, such as when an IDI absorbs all
(or substantially all) of a target entity’s
assets and the target entity dissolves or
otherwise ceases engaging in the
acquired lines of business.
Questions:
2. How can the FDIC increase clarity
to interested parties regarding the
applicability of the BMA to a merger in
substance?
3. What additional clarity should the
FDIC provide regarding the
circumstances in which a transaction is
subject to FDIC approval under the
BMA, including transactions involving
an IDI and a non-insured entity that is
not a traditional financial institution,
such as a fintech firm, whose assets may
be primarily intangible in nature?
Assumptions of Deposits by IDIs From
Non-Insured Entities
Section 18(c)(1)(B) of the BMA
prohibits an IDI from assuming liability
to pay any deposits made in, or similar
liabilities of, any non-insured bank or
entity.17 The scope of this provision
depends on the meaning of deposit (or
other similar liability) and on the
interpretation of what constitutes an
IDI’s assumption of such a deposit (or
other similar liability). Section 3(l) of
the FDI Act defines ‘‘deposit’’ broadly.
In addition to the definition generally
encompassing unpaid balances of
money, the definition expressly
includes a variety of other instruments,
including trust funds and escrow
funds.18
In addition to the breadth of the
definition of ‘‘deposit,’’ the FDIC
broadly interprets what it means to
assume liability to pay such deposits for
the purposes of Section 18(c)(1)(B) of
the BMA in order to prevent
circumvention of the provision.
Specifically, the applicability of Section
18(c)(1)(B) does not depend on the
existence of a formal written agreement
between an IDI and a non-insured entity
to transfer deposit liabilities. In cases
where an IDI and a non-insured entity
cooperate to arrange a transfer of
deposits from a non-insured entity to an
IDI, the FDIC will generally consider
17 12
U.S.C. 1828(c)(1)(B) (emphasis added).
12 U.S.C. 1813(l). Section 18(c)(1)(B) also
includes liabilities that would be deposits except
for the provision in Section 3(l)(5) of the FDI Act.
18 See
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such an orchestration to constitute an
assumption of deposits or other similar
liabilities for the purposes of Section
18(c)(1)(B).19
Unlike the applicability of Section
18(c)(1)(A) of the BMA to asset
acquisitions, which depends in part on
the acquisition of ‘‘all or substantially
all’’ of a non-insured entity’s assets, the
applicability of Section 18(c)(1)(B) does
not depend on a finding that an IDI
assumes all, or substantially all, of a
non-insured entity’s deposits or similar
liabilities. The assumption of any
deposits or other similar liabilities is
sufficient to implicate Section
18(c)(1)(B).
The FDIC takes the view that any
expansion of an IDI’s deposit base via
acquisition would be subject to approval
under the BMA. As discussed above,
when an IDI assumes liability to pay a
deposit or other similar liability from a
non-insured entity, FDIC approval is
required under Section 18(c)(1)(B). As
discussed later in this section, when an
FDIC-supervised IDI assumes liability to
pay a deposit from another IDI, FDIC
approval is required under Section
18(c)(2)(C). The FDIC clarifies that the
BMA would not necessarily be
implicated by an organic expansion of
an IDI’s deposit base, such as when a
depositor or a nonaffiliated third party
that acts as agent, custodian, or trustee
for a depositor, elects—at their
initiative—to establish a deposit
relationship with the IDI or to place
deposits with the IDI. However, in cases
where the agent, custodian, or trustee
itself serves as a depository, a transfer
of deposits for which it has liability to
pay to an IDI would be subject to FDIC
approval under the BMA. Furthermore,
if customers are solicited to transfer
their deposits to an IDI in connection
with, or in relation to, an arrangement
or agreement to which that IDI is party,
the IDI is expected to seek approval
under the BMA in connection with the
ultimate transfer of such deposits.
The Proposed SOP seeks to capture
and convey the broad applicability of
Section 18(c)(1)(B) of the BMA by
affirming that an FDIC-supervised IDI’s
assumption of a deposit from another
IDI, or any IDI’s assumption of a deposit
from a non-FDIC insured entity, is
likewise subject to FDIC approval even
in the absence of an express agreement
for a direct assumption. The Proposed
SOP highlights the broad definition of
‘‘deposit’’ in Section 3(l) of the FDI Act,
and notes that the definition extends
beyond traditional demand deposits to
include, among other things, trust
funds, and escrow funds.
19 See
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Question:
4. Does the Proposed SOP sufficiently
alert interested parties to the range of
transactions that could be subject to
FDIC approval under Section 18(c)(1)(B)
of the BMA? If not, please comment on
how the range of transactions could be
more clearly articulated.
Asset and Deposit Transfers From IDIs
to Non-Insured Entities
Section 18(c)(1)(C) of the BMA
prohibits an IDI from transferring assets
to any non-insured bank or entity in
consideration of the assumption for any
portion of the deposits made in such
IDI. Generally, when an IDI transfers
deposits to a non-insured entity, an
application to the FDIC would be
necessary under Section 18(c)(1)(C)
since such transfers are typically
accompanied by a transfer of assets,
even if such assets consist only of cash.
As with Section 18(c)(1)(B), the
applicability of Section 18(c)(1)(C) is
broad given the scope of the FDI Act’s
definition of deposit. Furthermore,
similar to the FDIC’s approach to
Section 18(c)(1)(B), the FDIC generally
views an orchestration of a transfer of
deposits from an IDI to a non-insured
entity to be subject to FDIC approval
under Section 18(c)(1)(C), even in the
absence of an express agreement.
Although parties seeking to engage in
transferring customer accounts that
consist of both custodial and deposit
relationships may characterize the
transaction solely as a transfer of
custodial relationships, such
transactions implicate the BMA if they
also result in a transfer of the deposit
relationship. It has therefore been the
view of the FDIC that the BMA is
implicated if an IDI transfers deposit
relationships concurrent with, or
subsequent to, a transfer of the custodial
relationship. Accordingly, where
customers have both a custodial and
depository relationship with an IDI, an
IDI may not evade the BMA by
transferring custodial rights to a third
party that, in its newly acquired
custodial capacity, causes the
customer’s depository relationship to be
transferred either to itself or to another
entity. This is true even if such transfer
was ostensibly at the direction of a noninsured entity pursuant to custodial
rights acquired from the IDI.
The Proposed SOP communicates the
FDIC’s policy with regard to transfers of
deposits from IDIs to non-insured
entities by stating that a transfer of
deposits from any IDI to a non-insured
entity is subject to FDIC approval.
Question:
5. What additional clarity, if any, is
needed to make interested parties aware
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of the circumstances in which FDIC
approval would be required in
connection with a transfer of deposits
from an IDI to a non-insured entity?
the pre-filing process and the
importance of filing a substantially
complete application. The Proposed
SOP alerts applicants to the FDIC’s
expectation that all submitted materials,
Merger Transactions Solely Involving
including the financial projections and
Insured Depository Institutions
any related analyses, be well supported
Section 18(c)(2)(C) of the BMA
and sufficiently detailed. In addition,
generally prohibits an IDI from merging
the Proposed SOP emphasizes the
or consolidating with any other IDI or,
importance of the narrative supporting
either directly or indirectly, acquiring
the rationale for the proposed
the assets of, or assuming liability to pay transaction, and communicates the
any deposits made in, any other IDI
FDIC’s expectation that the narrative be
except with the prior written approval
supported by studies, surveys, analyses
of the FDIC if the acquiring, assuming,
and reports, including those prepared
or resulting bank is a state nonmember
by or for officers, directors, or deal team
bank or state savings association.20 If the leads.
acquiring, assuming, or resulting bank is
Merger Application Adjudication
a national bank or Federal savings
Generally, if all statutory factors are
association, the approval of the Office of
favorably resolved, and all other
the Comptroller of the Currency (OCC)
regulatory requirements are satisfied,
is required, and if it is a state member
the FDIC will approve the merger
bank, the approval of the Board of
application. Approvals will be subject to
Governors of the Federal Reserve
the standard conditions detailed in 12
System (FRB) is required.21
CFR 303.2(bb) and any non-standard
As with transactions involving IDIs
conditions deemed appropriate by the
and non-insured entities, the FDIC
considers that a transaction in which an FDIC. However, the FDIC will not use
IDI absorbs another IDI by acquiring all, conditions or written agreements that
may be required as part of the
or substantially all, of its assets would
conditions, as a means for favorably
be subject to FDIC approval under
Section 18(c)(2)(C) of the BMA. It is less resolving any statutory factors that
otherwise present material concerns.
common for the FDIC to evaluate
The Order and Basis for Approval
whether a large-scale transaction
(Order) will be posted to the FDIC’s
exclusively among IDIs constitutes a
Decisions on Bank Applications page.
merger in substance since such
The Order will address all statutory
transactions typically include an
factors, as well as summarize
assumption of deposits, which is itself
information regarding any Community
a sufficient basis to implicate Section
Reinvestment Act (CRA) protests. The
18(c)(2). As previously stated, the
FDIC will summarize the related
breadth of the FDIC’s definition of
analysis and conclusions and include
‘‘deposit’’ causes Section 18(c)(2) to
encompass a wide range of transactions, any conditions imposed in conjunction
with the approval. Finally, the SOP
and the FDIC similarly takes a broad
articulates certain elements that may
view as to what constitutes a direct or
result in unfavorable findings and
indirect assumption of liability to pay
would require action by the Board of
deposits.
Directors on the application. This
The foregoing discussion addresses
commentary presents a general
the FDIC’s policy with regard to the
overview of the potential scenarios and
applicability of the BMA to a wide
fact patterns that would present
variety of transactions. However, the
significant challenges to favorable
FDIC emphasizes that this is not an
findings on the statutory factors. The
exhaustive overview of potential
FDIC may not be able to find favorably
transactions that are subject to FDIC
on any given statutory factor (or
approval under the BMA. Interested
therefore approve the application) if
parties should be alert to the FDIC’s
there are unresolved deficiencies,
policies of emphasizing a transaction’s
issues, or concerns (including with
substance over its form, its interest in
respect to any public comments), or the
preventing evasion of the BMA, and of
lack of sustained performance under
the scope of the terms used in Sections
corrective programs particularly when
18(c)(1) and 18(c)(2) of the BMA.
the transaction implicates the areas that
Overview of the Application Process
are the subject of the corrective
The Proposed SOP describes the
program.
FDIC’s expectations for application
Merger Application Activity
processing, emphasizing the utility of
To provide some perspective on the
20 12 U.S.C. 1828(c)(2)(C).
volume and types of filings subject to
21 12 U.S.C. 1828(c)(2)(A)–(B).
FDIC review and action, the tables in
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Appendix A to this preamble were
developed regarding the volume,
disposition, and size of merger
transactions processed by the FDIC from
January 1, 2004, through December 31,
2023. In total, the FDIC processed 2,497
merger applications that were either
‘‘bank-to-bank’’ merger applications
solely involving IDIs where the resulting
institution was an FDIC-supervised
institution or that involved an IDI and
a credit union or other non-insured
institution.22 This does not include
pending applications or applications for
corporate reorganizations or interim
mergers.23
As shown in Table 1, the volume of
bank-to-bank merger applications
processed by the FDIC has ranged
between 49 and 152 annually from 2004
through 2023. The annual average
number of such applications processed
during this period was 110. Of the 2,209
bank-to-bank applications processed
over the referenced period, 92.9 percent
(2,054) were approved, 5.4 percent (116)
were withdrawn at the applicant’s
discretion, 1.7 percent (39) were
returned due to insufficient information
provided in the application submission,
and none were denied. Applicants that
choose to withdraw an application
frequently do so before receiving a
public denial. As described in the
APM,24 when applications are
recommended for denial, FDIC staff are
directed to contact applicants, describe
the concerns, and provide a final
opportunity to provide additional
information that might influence the
decision. The APM also states that at its
discretion, the FDIC may offer the
applicants the opportunity to withdraw
the application. If an applicant
22 As of December 31, 2023, there were 17
pending bank-to-bank merger applications and ten
pending merger applications that involve a credit
union or other non-insured institution. Data
regarding FDIC-processed merger applications
involving credit unions and other non-insured
entities is provided as Tables 3–6 in Appendix A
to this preamble. Table 7 in Appendix A provides
data regarding the number of IDIs acquired by FDICsupervised banks or savings associations, or by
credit unions in purchase and assumption
transactions.
23 A corporate reorganization is a merger
transaction that involves solely an IDI and one or
more of its affiliates. Corporate reorganizations may
include transactions where two IDIs merge
immediately following a merger between two bank
holding companies. An interim merger transaction
is a merger transaction between an IDI and a newly
formed IDI that is established solely to facilitate a
corporate reorganization. From the beginning of
2004 through December 31, 2023, the FDIC
processed 2,008 corporate reorganizations and 483
interim mergers. As of December 31, 2023, there
were nine pending corporate reorganization
applications and five pending interim merger
applications.
24 See APM, Section 1.3, ‘‘Denials and
Disapprovals.’’
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withdraws their filing, the FDIC Board
of Directors may release a statement
regarding the concerns with the
transaction if such a statement is
considered to be in the public interest
for purposes of creating transparency for
the public and future applicants.
Table 2 provides a breakdown of the
bank-to-bank merger applications
processed during this period by the size
of the resulting IDI. Approximately 93.0
percent (2,055) of applications received
and acted upon, and 95.0 percent of
applications approved, were for IDIs
that would be $10 billion or less in asset
size following the proposed merger. Of
the 2,054 approved applications,
approximately 4.4 percent (91) involved
resulting IDIs with an asset size between
$10 billion and $100 billion in total
assets, and 0.3 percent (seven) were in
excess of $100 billion.
Statutory Factors
Monopolistic or Anticompetitive Effects
The Federal banking agencies are
prohibited from approving a merger that
would result in a monopoly, or which
would be in furtherance of any
combination or conspiracy to
monopolize or to attempt to monopolize
the business of banking in the United
States.25 There is no exception to this
prohibition. Furthermore, the Federal
banking agencies are prohibited from
approving a merger that does not
constitute a monopoly or conspiracy to
monopolize, but that would nonetheless
substantially lessen competition, tend to
create a monopoly, or otherwise be in
restraint of trade, unless the
anticompetitive effects of the
transaction are clearly outweighed in
the public interest by the probable effect
of the transaction in meeting the
convenience and needs of the
community to be served.26 For example,
this public interest exception may apply
where a transaction is necessary to
prevent the probable failure of an IDI.
The FDIC conducts its own
independent analysis to ensure
compliance with the BMA’s prohibition
against the approval of any merger
transaction that would result in a
monopoly or be in furtherance of an
attempt to monopolize the business of
banking in any part of the U.S.27 In
25 12
U.S.C. 1828(c)(5)(A).
U.S.C. 1828(c)(5)(B).
27 12 U.S.C. 1828(c)(5)(A). In addition to the
BMA’s prohibition against approving merger
transactions that would result in a monopoly, the
BMA generally prohibits the Federal banking
agencies from approving an interstate merger that
would result in an IDI (together with its affiliates)
controlling more than 10 percent of the total
amount of deposits of IDIs in the U.S. See 12 U.S.C.
1828(c)(13).
26 12
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29227
situations where a transaction would
not result in a monopoly but where
anticompetitive effects are nonetheless
identified, the FDIC will evaluate
whether the applicants have established
that the benefits to the convenience and
needs of the community will clearly
outweigh any anticompetitive effects.
The way in which the convenience
and needs of the community to be
served is juxtaposed against the
antitrust competitive standard is
important. A non-monopolistic yet
anticompetitive merger can only be
approved in situations where the
proponents to the transaction can
establish that the advantage of the
merger for the convenience and needs of
the community clearly outweighs the
anticompetitive effects. This creates a
heavy burden for the proponents of a
merger to support that the benefits to
the community outweigh identified
anticompetitive concerns. A favorable
finding on the convenience and needs of
the community to be served factor may
not support approval of the application
when anticompetitive effects are
identified.
In addition to its own independent
analysis, the BMA requires the FDIC to
request a competitive factors report from
the Attorney General for any merger
between an IDI and a non-affiliated
entity, unless the FDIC finds that it must
act immediately in order to prevent the
probable failure of an IDI involved in
the transaction.28 The FDIC may consult
with the DOJ on mergers that may raise
competitive concerns. In cases where
the FDIC considers proposed
divestitures of business lines, branches,
or portions thereof to mitigate
anticompetitive effects, the FDIC will
generally expect such divestitures to be
completed before allowing the merger to
be consummated. Additionally, to
promote the ongoing competitiveness of
the divested business lines, branches, or
portions thereof, the FDIC will generally
require that the selling institution will
neither enter into non-compete
agreements with any employee of the
divested entity nor enforce any existing
non-compete agreements with any of
those entities.
The Proposed SOP does not include
any bright lines or specific metrics for
which it is presumed that the
transaction would be considered
anticompetitive. A few RFI commenters
suggested that the FDIC develop a
benchmark asset size at or below which
there is no presumption of noncompetitive effects. The Proposed SOP
does not include such metrics or
benchmarks, as it is important to
28 12
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maintain flexibility to appropriately
evaluate the facts and circumstances of
each application filed.
The Proposed SOP reaffirms the
FDIC’s commitment to undertaking a
thorough review of the potential
competitive effects of a proposed merger
transaction. As described in the
Proposed SOP, the FDIC will tailor its
evaluation of competitive effects to
consider all relevant market participants
(local, regional, and national). The
Proposed SOP establishes the relevant
geographic markets as the areas where
the merging entities have a physical
presence in the form of an office
(generally a main office or a branch). It
also notes that the market may include
areas where the merging entities do not
have a physical presence, but may still
provide products and services. The
Proposed SOP outlines the FDIC’s
approach to considering product
markets. The FDIC uses deposits as an
initial proxy for commercial banking
products and services, but it will tailor
the product market definition to
individual products as needed. In its
analysis, the FDIC uses proxies that
reasonably reflect the competitive
dynamics of the market, including
deposit and loan activity. However, the
Proposed SOP notes that the FDIC will,
if appropriate, utilize additional
analytical methods, data sources, or
geographic or product market
definitions in order to assess the
competitive effects of a proposed merger
when practicable and relevant with
consideration given to whether
consumers retain meaningful choices.
Consistent with the approach of the
DOJ and the other Federal banking
agencies, the FDIC uses deposits as
reported in the SOD data submitted by
IDIs (and compiled by the FDIC), as a
general proxy for the product market
and then calculates the resulting market
concentration and change in market
concentration in each relevant
geographic market using the HHI
calculation. The FDIC initially focuses
on the respective shares of total deposits
held by the merging IDIs and the various
other participants with offices in the
relevant geographic market(s) to
measure market concentration. Multiple
RFI commenters suggested that the
analysis of competition should include
the influence of thrifts, credit unions,
fintech firms, Farm Credit System
institutions, and other online entities
that offer products and services in the
relevant market. The Proposed SOP
affirms that the FDIC considers the
influence of these entities when
evaluating competitive effects. Some
RFI commenters suggested alternatives
to the HHI calculation such as the Hall-
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Tideman Index (HTI) 29 or the
comprehensive industrial concentration
index (CCI).30 The Proposed SOP
indicates that the FDIC will consider
other products in its competitive
analysis, but does not incorporate any
specific alternatives to the HHI
calculation.
Several RFI commenters requested
changes to how the FDIC compiles SOD
data, such as assigning online accounts
to the account owner’s residence, rather
than the main office of the entity
receiving the deposit. Additionally, RFI
commenters requested that the FDIC
amend both the methods and reporting
standards for SOD data, and provide
more guidance and instruction
regarding how a reporting entity
attributes deposits to branches to
enhance geographic specificity. The
Proposed SOP indicates that, as
applicable, the FDIC will take into
account any additional data sources,
appropriate analytical approaches, or
additional products beyond deposits to
fully assess the competitive effects of
the transaction. Further, to the extent
that amendments or revisions to the
SOD’s reporting requirements,
standards, and methods are considered,
they will be published in a separate
request for industry comment and
feedback.
The relevant geographic markets are
the areas where the merging entities
have overlapping branch footprints, and
generally correspond with the
geographic markets defined by the FRB.
The Proposed SOP notes that on a caseby-case basis, the FDIC may consider
alternative or additional geographic and
product markets. A few RFI commenters
suggested that the FDIC should conduct
a separate analysis of the competitive
impact in rural areas, minority markets,
or low- to moderate-income
communities when relevant. While the
Proposed SOP does not specifically
address analytics of rural, minority, or
low- to moderate-income communities,
it does affirm that the FDIC will use a
geographic market with a scope that is
suited to the products or services
offered or planned.
RFI commenters were split on
changes to the HHI; some RFI
commenters suggested that the overall
threshold should be raised, while others
suggested that the overall level should
29 The HTI is used to measure the concentration
(or unequal distribution) of n market participants,
who each have a market share hi and a rank i
(ordered according to decreasing market shares).
30 The CCI is the sum of the proportional share
of the leading IDI and the summation of the squares
of the proportional sizes of each IDI, weighted by
a multiplier reflecting the proportional size of the
rest of the industry.
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be lowered. Similar differences were
also noted with respect to the change in
the HHI calculation; some RFI
commenters suggested that the current
change threshold be increased, while
others believed it should be lowered or
reflect any point change. Some RFI
commenters suggested that the HHI
should be calculated for certain types of
loans such as residential or small
business loans, rather than (or in
addition to) deposits. The Proposed SOP
does not address the calculation of the
HHI or the attendant thresholds. The
Proposed SOP notes that the FDIC will
consider additional methods of
assessing the competitive nature of
markets for relevant products or
services, as necessary or appropriate.
The FDIC plans to coordinate with other
appropriate agencies regarding any
potential changes to the calculation of,
or thresholds for, HHI usage.
Questions:
6. To what extent is the FDIC’s
approach to analyzing the competitive
effects of a proposed merger transaction
appropriate?
7. What changes to the current
approach should the FDIC consider to
better reflect present-day competitive
conditions?
8. Should the HHI be a definitive
factor in making a determination? In
other words, should the FDIC find
favorably regarding competitive effects
if the proposed merger does not exceed
the defined banking-specific HHI
thresholds? If not, why not?
9. How should the Proposed SOP
specifically address the ways to
calculate the competitive effects of
mergers of IDIs with non-insured
entities, whether credit unions,
financial services entities, bank service
corporations, or other entities?
10. What additional information
should the FDIC provide about the
circumstances under which it will
consider products other than deposits
and loans for transparency and so that
filers may provide a more complete
initial submission?
11. Is the geographic market
definition outdated? If so, why? How
should the definition be updated and
why?
12. Would it be appropriate to define
relevant geographic markets by
reference to markets in which the
merging institutions have delineated
CRA assessment areas, including both
facility-based assessment areas and
retail lending assessment areas?
13. Would it be appropriate to define
relevant geographic markets by
reference to markets in which the
merging institutions have delineated
CRA assessment areas?
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14. Other than the HHI, what tools
could be used to assess market
concentration and why would such
tools be appropriate?
15. How should the Proposed SOP
specifically address analytics for rural,
minority, or low- to moderate-income
communities? What type of analytical
standards or criteria would be
appropriate?
16. How can the FDIC’s review
address competitive effects beyond
geographic markets? For example,
commenters are invited to provide their
views on any concerns that might
typically be associated with mergers
that result in a large institution of a
certain asset size, and are further invited
to identify what asset size thresholds
(e.g., $50 billion, $100 billion, $250
billion, etc.) are most likely to present
such concerns. In addition, commenters
are invited to provide detailed views on
the nature of competitive concerns that
are associated with mergers that involve
a large institution absorbing a
community bank.
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Financial Resources and Managerial
Resources and Future Prospects
The BMA requires the Federal
banking agencies to take into account
the financial and managerial resources
and future prospects of the existing and
proposed institutions involved in a
merger transaction.
Financial Resources
The FDIC assesses the financial
history, condition, and performance of
each entity involved in the merger
transaction, as well as the combined
financial resources of the resulting IDI.
The assessment of financial resources
includes an analysis of capital, asset
quality, earnings, liquidity, and
sensitivity to market risk. The FDIC will
consider the liquidity risk of the
resultant IDI, including the extent of its
projected reliance on uninsured
deposits and its contingency funding
strategies. An IDI’s overreliance on
uninsured deposits or non-core funding
sources may not be consistent with a
favorable finding on this statutory
factor.
Overall, the FDIC expects that the
resulting IDI will reflect sound financial
performance and condition consistent
with the IDI’s size, complexity, and risk
profile. Generally, the FDIC will not
find favorably on this factor if the
merger would result in a larger, weaker
IDI from an overall financial
perspective.
RFI commenters were split on
whether bright lines or formally defined
metrics should be developed and
implemented for the evaluation of this
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factor. Several RFI commenters desired
to have defined ratings and benchmarks
formally articulated, and requested that
merging entities meeting these defined
standards should have a streamlined
review or a presumption of approval.
The Proposed SOP does not include
specific requirements for a favorable
finding on this factor, as the FDIC
believes each transaction should be
evaluated based on the facts and
circumstances presented in the
application, and any determination on
the filing should be specific to that
transaction. The incorporation or
adoption of formal metrics restricts the
FDIC’s ability to effectively analyze the
findings regarding the statutory factors
and make informed determinations and
recommendations based on those
findings.
If the proposed merger involves an
operating non-insured entity, the FDIC
will consider the entity’s operational
activities and performance record when
evaluating financial resources. The FDIC
will review audited financial statements
(covering at least three years, unless the
entity’s operating history is shorter)
including details regarding any deferred
tax assets or liabilities, intangible assets,
contingent liabilities, and any recent or
pending legal or regulatory actions. The
FDIC may also require an identification
of, and accounting for, low quality
assets, including independent
appraisals or valuations to support the
projected value of any businesses or
assets expected to transfer to the
resultant IDI upon consummation of the
merger.
The FDIC’s evaluation of financial
resources also will consider the current
and projected financial impact of any
related entities on the IDI, including the
parent organization and any key
affiliates. For each relevant entity, the
FDIC will consider, among other items,
the size and scope of operations, capital
position, quality of assets, overall
financial performance and condition,
compliance and regulatory history,
primary revenue and expense sources,
and funding strategies.
Depending on the anticipated risk
profile of the resulting IDI, the FDIC
may impose, as a non-standard
condition, capital requirements that are
higher than applicable capital
standards. Further, as appropriate, the
FDIC may impose a non-standard
condition that requires the resulting IDI
and other applicable parties (such as
certain affiliates or investors) to enter
into one or more written agreements
that may address, as applicable, capital
maintenance requirements, liquidity or
funding support, affiliate transactions,
and other relevant items.
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29229
Managerial Resources
The FDIC assesses the managerial
resources of the existing entities
involved in a merger transaction, as well
as the proposed management of the
resulting IDI. The FDIC expects that the
proposed directors, officers, and as
appropriate, principal shareholders
(collectively, management) possess the
capabilities to administer the resultant
IDI’s affairs in a safe and sound manner.
The background and experience of each
member of the proposed management
team will be reviewed relative to the
size, complexity, and risk profile of the
resulting IDI. The capability of
management to identify, measure,
monitor, and control risks and ensure an
efficient operation in compliance with
applicable laws and regulations are
important facets of the evaluation of
managerial resources.
A few RFI commenters requested that
specific performance standards (such as
the management component rating) for
small and mid-sized institutions should
be publicly stated, and entities in
compliance with these standards that
meet certain other metrics (such as total
asset size) would have a presumption of
approval or streamlined review
protocols. As previously stated, the
Proposed SOP does not include specific
performance metrics or bright lines for
any of the statutory factors in order to
maintain flexibility in the analysis and
to ensure each proposed transaction is
evaluated on its merits, facts, and
circumstances.
The FDIC will review supervisory
assessments of management made by
the relevant prudential regulators. This
includes the current and historical
management ratings for any IDI
involved in the proposed merger, and
the managerial performance and
supervisory record of any subsidiaries
and affiliates. The FDIC will evaluate
the extent and effect of any
organizational relationships on the IDI,
while also considering the operating
history, risk management, and control
environment of the parent organization.
Inherent in these considerations are the
condition, performance, risk profile, and
prospects of the organization as a whole,
as well as the capacity of management
to successfully implement the resulting
IDI’s strategic (or business) plan.
The evaluation of managerial
resources includes an assessment of
each entity’s record of compliance with
respect to consumer protection, fair
lending, and other relevant consumer
laws and regulations. The FDIC will
review supervisory assessments of
management made by the relevant
regulators. In addition, the FDIC will
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analyze the record of compliance with
consumer laws and regulations, the
compliance management system for
each of the IDIs, as well as the
compliance management rating system
for the resulting IDI, to ensure that there
are appropriate controls to identify,
monitor, and address consumer
compliance risks. Consideration is also
given to the consumer compliance
rating pursuant to the Uniform
Interagency Consumer Compliance
Rating System and the CRA.31
The FDIC expects management to
develop and implement effective plans
and strategies, and the resulting IDI to
have sufficient managerial and
operational capacity, to integrate the
acquired entity. Effective integration
includes, but is not limited to, human
capital; products and services; operating
systems, policies, and procedures;
internal controls and audit coverage;
physical locations; information
technology; and risk management
programs. In conjunction with the
integration, the FDIC expects a resulting
IDI to have the managerial and
operational capacity, and to devote
adequate resources, to ensure full and
timely compliance with any outstanding
corrective programs or supervisory
recommendations.
Various other matters are also
pertinent to the evaluation of
managerial resources. The FDIC will
consider the breadth and depth of
management, including the adequacy of
succession planning; responsiveness to
issues or supervisory recommendations
raised by regulators or auditors; existing
or pending formal or informal
enforcement actions; management’s
performance with respect to information
technology, consumer protection, and
other specialty or functional areas;
recent rapid growth and the record of
management in overseeing and
controlling risks associated with such
growth; and the reasonableness of fees,
expenses, and other payments made to
insiders.
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Future Prospects
The FDIC evaluates the future
prospects of the existing and proposed
entities involved in a merger
transaction. As part of this evaluation,
the FDIC will review the submitted
business (or strategic) plan, including
pro-forma financial projections and
related assumptions to assess whether
the resulting IDI will be able to operate
in a safe and sound manner on a
31 Uniform Interagency Consumer Compliance
Rating System, 81 FR 79473, (Nov. 14, 2016).
Community Reinvestment Act ratings are defined in
12 CFR part 345, Appendix A.
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sustained basis following
consummation of the merger. Any
accompanying valuations (such as those
related to the target entity, goodwill, or
other assets) will also be reviewed to
ensure that the applicant adequately
supports that the resulting IDI will
maintain an acceptable risk profile.
The FDIC will consider the economic
environment, the competitive
landscape, the acquiring IDI’s history in
integrating merger targets, the
anticipated scope of the resulting IDI’s
operations and the quality of its
supporting infrastructure, and any other
relevant factors. Any significant
planned changes to the resulting IDI’s
strategies, operations, products or
services, activities, income or expense
levels, or other key elements of its
business will be closely assessed.
Questions:
17. To what extent is the FDIC’s
evaluation of financial resources
appropriate, and what additional items,
if any, should be considered?
18. To what extent is the FDIC’s
evaluation of managerial resources
appropriate, and what additional items,
if any, should be considered?
19. To what extent is the FDIC’s
evaluation of future prospects
appropriate, and what additional items,
if any, should be considered?
Convenience and Needs of the
Community To Be Served
The BMA requires the Federal
banking agencies to take into account
the convenience and needs of the
community to be served when
evaluating a merger transaction.32 One
of the items considered in connection
with this factor is each IDI’s CRA
performance evaluation record and any
comments submitted by the public on
the application. The FDIC provides the
public the ability to search pending
merger applications submitted to the
FDIC and allows comments on merger
applications to be submitted
electronically during the comment
period. A few RFI commenters
suggested that the FDIC update its
website to facilitate the public’s ability
to review and comment on applications;
and that the FDIC should post any
regulatory questions or information
requests to the applicants, and any
applicant responses to its website. The
FDIC is considering enhancing the
current website to include information
regarding public comments received on
applications.
Several RFI commenters requested
that approval should be conditioned
upon the fulfillment of a strategy to
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address the convenience and needs of
the community, and that regulatory
approval or non-objection should be
sought when the resultant IDI deviates
from the submitted plan. The Proposed
SOP describes the analytical
considerations, but does not require a
separate strategy to address the
convenience and needs of the
community. However, the applicant is
expected to provide forward-looking
information to the FDIC for the purposes
of evaluating the benefits of the merger
on the community to be served. As
appropriate, claims and commitments
made by the applicant to the FDIC may
be included in the Order and Basis for
Approval, and the FDIC’s ongoing
supervisory efforts will evaluate the
IDI’s adherence to any such claims and
commitments.
Multiple RFI commenters raised
concerns with reliance on only the most
recent CRA evaluation. One RFI
commenter noted that an Outstanding
CRA rating on two out of the most
recent three CRA evaluations should be
a predicate to obtain regulatory approval
for a merger; and another RFI
commenter requested a three-year
average score for the CRA rating as a
benchmark. Some RFI commenters
stated the CRA rating should be no less
than Outstanding, with a minimum of
Satisfactory ratings on component
categories. A few RFI commenters
requested that a presumptive denial
should be established if the CRA rating
is not currently (or over a recent, multiyear average period) at least
Outstanding with Satisfactory
component ratings. The Proposed SOP
does not establish specific CRA rating
benchmarks or bright lines in order to
maintain flexibility in the analysis and
to ensure each proposed transaction is
evaluated on its merits, facts, and
circumstances. However, a less than
Satisfactory rating or significant
deterioration in CRA performance may
present significant concerns in resolving
this factor. The FDIC’s review is not
limited to the CRA record of the
institutions and will encompass a broad
review of the institutions’ existing
products and services and whether the
products and services proposed by the
applicants will meet the convenience
and needs of the community to be
served.
In addition, the FDIC will consider
the record of each institution in
complying with consumer protection
requirements and maintaining a sound
and effective compliance management
system. This review will include
consideration of any existing orders,
ongoing enforcement actions, and
pending reviews or investigations of
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violations of consumer protection laws
and regulations. A less than Satisfactory
consumer compliance rating may
present significant concerns in resolving
this factor.
The FDIC will evaluate the
community to be served broadly, which
will include the proposed assessment
area(s), retail delivery systems,
populations in affected communities,
and identified needs for banking
services. The FDIC expects that a merger
between IDIs will enable the resulting
IDI to better meet the convenience and
the needs of the community to be served
than would occur absent the merger.
The FDIC expects applicants to
demonstrate how the transaction will
benefit the community such as through
higher lending limits, greater access to
existing products and services,
introduction of new or expanded
products or services, reduced prices and
fees, increased convenience in utilizing
the credit and banking services and
facilities of the resulting IDI, or other
means. Several RFI commenters
suggested that a higher burden should
be placed on the applicant to
demonstrate the public benefits of the
transaction. Multiple RFI commenters
stated that the FDIC should focus the
analysis on the additive benefits of the
transaction for consumers, particularly
those in low- to moderate-income and
minority communities. Numerous RFI
commenters indicated that a community
benefit plan should be required, as
should mandatory public hearings to
discuss the impact on the relevant
communities. Further, several RFI
commenters stated that a cost/benefit
analysis of the proposed merger should
be prepared and included in the
publicly available application materials.
The Proposed SOP outlines the FDIC
Board’s expectations with regard to the
public benefits of the transaction, but
does not require public benefit
statements or plans to be established.
In addition to the CRA and consumer
compliance ratings and performance,
the FDIC will also consider the resulting
assessment area(s) and branch locations,
as well as the impact of branch closings
or consolidations, particularly on lowand moderate-income neighborhoods or
designated areas. The application form
solicits information regarding projected
or anticipated branch expansions,
closings, or consolidations. Generally,
the FDIC considers a substantially
complete merger application to include,
among other items, at least three years
of information regarding projected
branch expansions, closings, or
consolidations. Some RFI commenters
suggested that the projected impact of
prospective branch closings should be
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closely scrutinized, and that public
meetings and community hearings
should be conducted to discuss the
impact of the proposed closings. The
Proposed SOP states that any proposed
or expected closures, including the
timing of each closure, the effect on the
availability of products and services,
particularly to low- or moderate-income
individuals or designated areas, any job
losses or lost job opportunities from
branching changes, and the broader
effects on the convenience and needs of
the community to be served will be
closely evaluated. Applications that
project material reductions in service to
low- and moderate-income communities
or consumers will generally result in
unfavorable findings. A favorable
finding on this factor may not
necessarily be sufficient for approval of
the application when anticompetitive
effects are noted.
Further, the Proposed SOP advises
applicants to be prepared to make
commitments regarding future retail
banking services in the community to be
served for at least three years following
consummation of the merger. The
Proposed SOP places an affirmative
expectation on applicants to provide
specific and forward-looking
information to enable the FDIC to
evaluate the expected impact of the
merger on convenience and needs of the
community to be served. In certain
cases, the FDIC may hold hearings or
other proceedings in connection with
evaluating a merger application The
Proposed SOP provides that the FDIC
will generally consider it is in the
public interest to hold a hearing for
merger applications resulting in an IDI
with greater than $50 billion in assets or
for which a significant number of CRA
protests are received. The FDIC may
also hold public or private meetings to
receive input on the transaction. The
decision to hold such meetings depends
on issues raised during the comment
period and the significance of the
merger transaction to the public interest,
the banking industry, and communities
affected.
Questions:
20. How could the Proposed SOP
more effectively describe the FDIC’s
expectations with regard to its review of
the convenience and needs factor, and
what notable considerations, if any, are
overlooked?
21. What are the pros and cons of
providing forward-looking information?
What are some specific challenges and
difficulties that applicants might
experience when providing information
concerning projected or anticipated
branch expansion, closings, or
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consolidations for the first three years
following consummation of the merger?
22. What are the pros and cons of
holding a hearing for merger
applications resulting in an IDI with
greater than $50 billion in assets or for
which a significant number of CRA
protests are received? For what other
situations, in addition to those
described, would it generally be in the
public interest to hold hearings?
23. How can the FDIC best consider
comments and feedback from the public
in the context of evaluating the
convenience and needs of the
community to be served, consistent with
the BMA’s public notice requirements?
24. What are the benefits of imposing
a non-standard condition that captures
the affirmative commitments an IDI has
made to the FDIC to serve the needs of
its community?
25. In addition to the methods
described, how should the FDIC
consider an institution’s CRA
performance in the context of an
application subject to the BMA?
26. What additional information
should be included in the application
materials to enable a more
comprehensive review of branch
closings or consolidations? What
additional information should be
included in application materials
related to retail delivery systems?
27. What additional benefits to the
community could be specified in the
SOP beyond those already detailed?
28. What other elements should be
considered in the evaluation of the
convenience and needs of the
community with respect to mergers?
29. What types of merger transactions
may present unique factors that the
FDIC should consider in its evaluation
of the convenience and needs of the
community to be served? For example,
are there special considerations that
should be considered in connection
with transactions in which a community
bank is absorbed by a larger institution?
Risk to the Stability of the United States
Banking or Financial System
The Dodd-Frank Act amended the
BMA to require the responsible agency
to consider the risk to the stability of the
U.S. banking or financial system when
evaluating a proposed bank merger.33
The FDIC expects that the resulting IDI
will not materially increase the risk to
the stability of the U.S. banking or
financial system. Multiple RFI
commenters noted the FDIC’s Current
SOP does not incorporate this statutory
factor. Additionally, while some RFI
commenters asked for more clarity and
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transparency regarding the FDIC’s
financial stability analysis, others
objected to changing the existing
regulatory framework. Finally, some RFI
commenters asserted that recent large
mergers have increased concentration
within the banking sector and have
created more systemic risk, while others
presented positions that attempt to
refute this assertion. The Proposed SOP
largely builds upon the financial
stability criteria previously employed in
practice by the FDIC, FRB, and OCC
since passage of the Dodd-Frank Act,
and clarifies the FDIC’s perspective
when conducting the analysis.34
The Proposed SOP details the
considerations that the FDIC uses to
determine whether a resulting IDI’s
systemic footprint would be such that
its financial distress or failure could
compromise the stability of the U.S.
banking or financial system. While
many RFI commenters addressed
entities other than a resulting IDI (e.g.,
bank holding companies and brokerdealer subsidiaries), the Proposed SOP
considers financial stability influences
primarily from the perspective of the
resulting IDI. Where appropriate, the
FDIC’s analysis will take into account
the facts and circumstances of parent
companies and affiliates. Proposed
transactions that solely involve affiliates
that were related at the time a merger
application is filed generally will not
raise concerns with regard to this factor.
However, each such proposal will be
reviewed to ensure that the resulting IDI
would not present any new or
unforeseen stability risks that may not
have existed when the merging entities
operated on a standalone basis.
In evaluating the risk to the stability
of the U.S. banking or financial system,
the Proposed SOP identifies the
following: (i) the size of the entities
involved in the transaction; (ii) the
availability of substitute providers for
any critical products and services to be
offered by the resulting IDI; (iii) the
resulting IDI’s degree of
interconnectedness with the U.S.
banking or financial system; (iv) the
extent to which the resulting IDI
contributes to the U.S. banking or
financial system’s complexity; and (v)
the extent of the resulting IDI’s crossborder activities. These items are
addressed in more detail below:
Size. The distress or failure of an IDI
is more likely to adversely impact the
banking or financial system if the IDI’s
activities comprise a relatively large
34 See, e.g., Order and Basis for Corporation
approval of BB&T’s application for consent to
merger with SunTrust Bank. Refer to FDIC Press
Release PR–111–2019: https://www.fdic.gov/news/
press-releases/2019/pr19111.html.
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share of system-wide activities. Upon
financial distress or failure, a larger IDI
may present greater challenges to
replacing or substituting the services
and products it provides, as compared
with smaller institutions, thereby
potentially increasing the possibility for
the IDI’s distress or failure to disrupt the
broader system. Additionally, the
negative effects to the banking or
financial system caused by stress at a
single large institution may be greater
than the impact of simultaneous stress
at multiple smaller institutions engaged
in business lines similar to those of their
larger peer. The majority of comments
regarding financial stability focused on
the resulting IDI’s asset size with many
concerned about not creating
institutions that are ‘‘too big to fail.’’
Numerous RFI commenters suggested
the imposition of asset limits,
thresholds, or other quantitative
measures that would be applicable to
IDIs of a certain size, and suggested that
any analysis start with certain
presumptions. Others stated that any
limits or presumptions with respect to
asset size would be contrary to the plain
language of the BMA, have
anticompetitive results, and could even
serve to ‘‘insulate’’ the largest banks.
Some RFI commenters suggested the
imposition of enhanced capital
requirements in lieu of size limitations.
With respect to these suggestions, the
FDIC believes that the asset size of a
resulting IDI should not serve as the sole
basis for evaluating this statutory factor.
Rather, size is only one of several
important considerations that needs to
be evaluated in the context of the other
criteria. However, transactions that
result in a large IDI (e.g., in excess of
$100 billion) are more likely to present
potential financial stability concerns
with respect to substitute providers,
interconnectedness, complexity, and
cross-border activities, and will be
subject to added scrutiny. The FDIC
takes the view that the failure of a larger
IDI with a traditional community bank
business model may pose significantly
different resolvability and stability risks
than a smaller IDI with one or more
complex business lines, large derivative
exposures, or extensive cross-border
operations.
Availability of substitute providers.
The purpose of considering the
availability of substitute providers is to
understand whether an inability or
unwillingness by a resulting IDI to
continue providing specific products or
services could be disruptive to the U.S.
banking or financial system. The FDIC
considers whether the resulting IDI
provides critical products or services
that may be difficult to replace or
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substitute, or conducts activities that
comprise a relatively large share of the
relevant activity in the banking or
financial system. Concerns are
heightened, and may preclude favorable
resolution of this factor, in situations
where there are limited readily available
substitutes, as relied upon services may
be disrupted or discontinued if the
resulting IDI encounters financial
distress or fails. Several RFI commenters
recommended that specific risk factors
be developed to address the availability
of substitute providers; however, the
Proposed SOP does not include specific
targets or bright lines regarding the
consideration and assessment of this
factor.
Interconnectedness. The purpose of
considering interconnectedness is to
assess the degree to which the resulting
IDI may be engaged in transactions with
other financial system participants and
the risk that exposures to the resulting
IDI of creditors, counterparties,
investors, or other market participants
could affect U.S. banking or financial
system stability. The purpose of
considering the effects of asset
liquidation by the resulting IDI as a
component of interconnectedness is to
assess whether, following the proposed
merger, the resulting IDI would hold
assets that, if liquidated quickly, could
significantly disrupt the operation of
key markets or cause significant losses
or funding problems for other firms with
similar holdings. The analysis of
interconnectedness specifically
contemplates intra-financial system
assets and liabilities; exposures to
creditors and counterparties; the
potential volatility of the resulting IDI’s
funding structure; and the potential
results of rapid asset liquidation.
A resulting IDI may present greater
risk from a stability perspective if key
aspects of its business (including any
on- or off-balance sheet activities) are
highly interconnected with other
financial system participants. For
example, securities contracts,
commodity contracts, forward contracts,
repurchase agreements, swap
agreements, inter-affiliate guarantees,
and other similar contracts which the
FDI Act refers to collectively as
‘‘qualified financial contracts’’ 35 are all
examples of interconnected exposures
within the U.S. banking or financial
system. A high volume of such contracts
may equate to a higher degree of
potential systemic spillover effects if the
resulting IDI, or its parent or affiliates,
are unable to perform.
Increased Complexity. Under the
Proposed SOP, evaluation of the
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resulting IDI’s contribution to the U.S
banking or financial system’s
complexity would consider the full
scope of the resulting IDI’s operations.
This includes the resulting IDI’s
business lines, products and services,
on- and off-balance sheet activities,
delivery channels, and any material
affiliate or other third-party
relationships. One RFI commenter
stated that many large regional banks do
not have complex operations and have
recently reduced their level of
complexity. The FDIC considers an
important part of the complexity
analysis to be the potential financial
stability consequences of the resulting
IDI failing and being placed into a
receivership under Section 11 of the FDI
Act. The FDIC is responsible for
resolving the resulting IDI in a way least
costly to the DIF.
The FDIC has several options for
carrying out the resolution of an IDI.
First, the FDIC can sell some or most of
the assets of the failed IDI to a healthy
acquiring IDI, which would also
generally assume all of the deposits or
only the insured deposits of the failed
IDI along with some or most of the
remaining liabilities. This is generally
called a ‘‘purchase and assumption
transaction.’’ Second, a special type of
purchase and assumption transaction
used when additional time is needed to
market a failed IDI is referred to as a
‘‘bridge bank.’’ A bridge bank is a bank
chartered by the OCC and temporarily
owned and operated by the FDIC to
bridge the time between the date of
failure and the date of sale to an
acquiring IDI. Use of a bridge bank
enhances the FDIC’s ability to pursue
options that could involve the sale to
multiple acquirers, and/or spinning off
some remaining streamlined operations
as a restructured entity with ongoing
viability depending on which strategy is
most desirable. The final option is
executing an insured deposit payout.
However, in deciding which option to
pursue, the FDIC must show how it
would meet the least cost test set forth
in Section 13(c)(4) of the FDI Act.
Additionally, regardless of the strategy
selected, the challenges associated with
resolving a large bank would be
significant, both operationally and
financially.
In addition to the resolution
challenges presented based on size,
many regional IDIs present complexities
such as large branch networks,
substantial information technology
systems, millions of account holders,
and heavy reliance on uninsured
deposits. Further, cross-border
operations or key dependencies on nonaffiliated entities can raise additional
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challenges to effecting an orderly and
least costly resolution.
The failure of a larger IDI with a
traditional community bank business
model may present significantly
different resolvability and stability risks
than a smaller IDI with a complex
businesses model. Staff from the FDIC’s
Division of Resolutions and
Receiverships and (if appropriate) the
Division of Complex Institution
Supervision and Resolution will
identify potential purchasers for the
resulting IDI or its component parts, and
identify resolution impediments that
could impact the stability of the U.S.
banking or financial system. Some
potential resolution impediments
include the resulting IDI’s
organizational structure and the
necessity and difficulty of: (i)
continuing the IDI’s operations and
activities until they can be sold or
wound down, (ii) marketing and selling
key business lines and asset portfolios at
the least cost to the DIF,36 and (iii)
separating business lines and other
assets to enable their sale or other
disposition. While the FDIC would
perform this analysis on the IDI, it
would also take into account possible
alternative resolution strategies and
scenarios. This process could consider
the presence of support agreements from
the resulting IDI’s ultimate parent
company, strengthened risk governance
procedures, and capital maintenance
requirements for the IDI. Several RFI
commenters suggested formal
thresholds should be developed (such as
total asset metrics) for when a resolution
plan should be required. Such
thresholds have not been incorporated
into the Proposed SOP as each
prospective resolution presents unique
facts and circumstances, and the FDIC
does not believe a one size fits all
approach to the resolution process is
appropriate.
While the vast majority of IDIs that
the FDIC has resolved have been
relatively small in size (assets under $10
billion), experience has shown that the
failure of a larger IDI can have a
contagion effect. Two recent examples
that illustrate the systemic risk
associated with the failure of a large
regional IDI are Silicon Valley Bank
(SVB) and Signature Bank.
SVB, with $209 billion in assets as of
December 31, 2022, failed on March 10,
2023. SVP’s depositors were primarily
commercial and private banking clients,
mostly linked to businesses financed
through venture capital. Total assets
grew rapidly, coinciding with rapid
growth in the innovation economy and
36 Id.
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a significant increase in the valuation
placed on public and private
companies. The resulting influx of
deposits was largely invested in
medium- and long-term Treasury and
Agency securities.
On March 8, 2023, Silvergate Bank,
with $11.3 billion in assets as of
December 31, 2022, and a business
model focused almost exclusively on
providing services to digital asset firms,
announced its self-liquidation.37 On
that same day, SVB announced that it
had sold substantially its entire
available-for-sale securities portfolio at a
loss. Many of SVB’s venture capital
customers took to social media to urge
companies to move their deposit
accounts out of SVB. The deposit run,
coupled with insufficient liquidity to
meet the demands of depositors and
other creditors, resulted in its failure.
On March 12, 2023, just two days
after the failure of SVB, Signature Bank,
with $110 billion in assets at year-end
2022, was closed and the FDIC was
appointed as receiver. Signature Bank
implemented an operating model that
shared risk characteristics with SVB.
Like SVB, Signature Bank grew rapidly,
held deposit accounts for crypto-asset
firms, and was heavily reliant on
uninsured deposits for funding. As
word of SVB’s problems began to
spread, Signature Bank began to
experience contagion effects with
deposit outflows. Signature Bank failed
as withdrawal requests mounted beyond
its ability to pay.
Because of these failures, and the fact
that other institutions were
experiencing stress, serious concerns
arose about a broader economic
spillover. As such, the FDIC invoked the
systemic risk exception under Section
13 of the FDI Act in winding down SVB
and Signature Bank.38 These failures
demonstrate the implications that IDIs
with assets over $100 billion can have
on financial stability. As of December
2023, the failures of SVB and Signature
Bank have resulted in an estimated cost
37 Following the collapse of digital asset exchange
FTX in November 2022, Silvergate Bank
experienced a rapid loss of deposits, which
necessitated the sale of debt securities to cover
deposit withdrawals. The securities sales resulted
in substantial losses. The troubles experienced by
Silvergate Bank demonstrated the impact of a lack
of diversification, aggressive growth, maturity
mismatches in a rising interest rate environment,
and inadequate management of liquidity risk. Many
of these same risks were also present at SVB.
38 As a general rule, Section 13(c)(4) of the FDI
Act requires the FDIC to resolve failed IDIs at the
least cost to the DIF, but provides an exception for
instances where the failure would have serious
adverse effects on economic conditions or financial
stability, and any action to be taken would avoid
or mitigate such adverse effects.
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of $21.8 billion and $1.8 billion,
respectively, to the DIF.39
Additional examples that highlight
the impact of a larger IDI failure on the
DIF are the failures of Washington
Mutual Bank and IndyMac Bank in
2008. Washington Mutual Bank
(Washington Mutual), with over $300
billion in assets at the time of its failure
in September 2008, was the largest thrift
institution in the United States and the
sixth largest IDI. Its failure was the
largest in the FDIC’s history in terms of
the IDI’s asset size. Several factors made
it possible for Washington Mutual to fail
with no loss to the DIF and no loss
imposed on its $45 billion of uninsured
deposits, which approximated 24
percent of total deposits. First, there was
an acquirer with the capacity to assume
all the assets and all the deposits
through a traditional purchase and
assumption transaction. This acquirer
could act quickly at the time of failure
because it had previously performed
due diligence on Washington Mutual for
a potential open bank acquisition.
Second, Washington Mutual had a
substantial volume of unsecured debt—
$13.8 billion, or 4.5 percent of total
assets—which was available to absorb
losses in resolution. This loss absorbing
capacity was essential to meeting the
least cost test and for uninsured
depositors to avoid taking a loss. Absent
these factors, the FDIC likely would
have had to establish a bridge bank and
take over the operation of the failed
institution. The failure of Washington
Mutual in that scenario would have
depleted the DIF, and uninsured
depositors would likely have had to take
a loss in order to meet the least cost test.
Imposing losses on uninsured deposits
could have had a significantly
destabilizing effect, especially given the
stressed economic and financial
environment in September 2008. The
only way to avoid that outcome would
have been for the FDIC to exercise the
systemic risk exception.
When IndyMac Bank—a $30 billion
thrift—failed in July 2008, it had no
unsecured debt and there was no viable
acquirer. The FDIC established a bridge
bank and uninsured depositors realized
losses.40 IndyMac Bank was the most
costly failure in the FDIC’s history up to
that point, resulting in a $12.4 billion
loss to the DIF. If these conditions were
to repeat for an institution several times
larger, the effects could be significant
for U.S. financial stability.
39 See 2023 FDIC Annual Report, at https://
www.fdic.gov/about/financial-reports/reports/
2023annualreport/2023-arfinal.pdf.
40 Uninsured deposits totaled $2.6 billion, which
was almost 14 percent of total deposits.
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Cross-Border Activities. The purpose
of considering cross-border activities is
to assess the degree to which
coordination of the resulting IDI’s
supervision and resolution could be
complicated by different legal
requirements, geopolitical events, and
competing national interests, leading to
increased potential for spillover effects.
A high degree of cross-border activity by
the resulting IDI presents significant
challenges to supervising and
examining the operations of IDIs and
their subsidiaries. Historically, crossborder operations present significant
challenges to supervision and
examination, and cross-border
proceedings can be slow, cumbersome,
and require significant amounts of
coordination between different
resolution authorities with differing
objectives and administrators.
Accordingly, the FDIC would determine
if the resulting IDI’s cross-border
activities represent a significant
component of operations; and if so,
whether the activities present a high
degree of cross-jurisdictional claims,
liabilities, and other impediments to
effective supervision and resolution.
The Proposed SOP affirms that such
activities may present challenges from
both supervisory and resolution
perspectives given the potential
exposure to differing legal requirements,
geopolitical events, and competing
national interests.
Other Financial Stability Considerations
RFI commenters suggested that the
FDIC impose various requirements upon
large newly merged IDIs such as a
requirement to submit resolution plans,
a single-point-of entry resolution
strategy, enhanced capital levels, total
loss absorbing capacity standards, and
other quantitative measures. With
respect to these comments, the Proposed
SOP does not include such
requirements, in order to enable the
FDIC to retain flexibility to review and
evaluate the facts and circumstances
appropriate to the application. For
example, the FDIC may consider
previously filed resolution plans (if
any) 41 relevant to any IDI that may be
41 This would include resolution plans filed
under 12 CFR part 381 (those filed under Section
165(d) of the Dodd-Frank Act), as well as those filed
under 12 CFR 360.10 (IDI Plans). Section 165(d)
resolution plans typically include details of the
firm’s structure, assets, and obligations; information
on how the depository subsidiaries are protected
from risks posed by its non-bank affiliates; and
information on the firm’s cross-guarantees,
counterparties, and processes for determining to
whom collateral has been pledged. IDI Plans
typically include information and analysis on the
IDI that better enable the FDIC to resolve the IDI
under the FDI Act.
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party to a bank merger application.
Resolution plans submitted are highly
relevant and those submitted by large
IDIs are intended to enable the FDIC, as
receiver, to provide customers prompt
access to their insured deposits and
maximize the return from the sale or
disposition of the bank’s assets. These
resolution plans include information
pertaining to the bank’s organizational
structure, core business lines,
information technology, funding needs,
and other data to assist in the sale or
disposition of the bank’s deposit
franchise, business lines, and material
assets.
The FDIC will closely assess the
degree to which the resulting IDI’s
potential financial distress or failure
could cause other IDIs with similar
activities or business profiles to
experience a loss of market confidence,
falling asset values, or liquidity stress
and decreased funding options. Further,
the FDIC may consider the resulting
IDI’s regulatory framework post-merger;
however, the resulting framework
cannot solely ameliorate other identified
financial stability concerns.
In addition to the items previously
noted, the FDIC will evaluate any
additional elements that may affect the
risk to the U.S. banking or financial
system stability. This may include the
resulting IDI’s regulatory framework;
however, the framework alone would
not result in a favorable finding on this
factor when other financial stability
concerns exist. As appropriate,
consideration may be given to the
merging IDIs’ records with respect to
cybersecurity as well as their stresstesting results. For example, the FDIC
evaluates the IDI’s record of preventing
data breaches and responding to and
preventing cybersecurity threats.
Questions:
30. How could the FDIC enhance its
approach to evaluating risk to the
stability of the U.S. banking or financial
system?
31. Should the FDIC adopt size
thresholds (other than the proposed
$100 billion threshold) related to
financial stability? If so, why, and what
size thresholds would be appropriate to
identify transactions that present
concerns for this statutory factor?
32. Should the FDIC consider a
quantitative risk indicator for overall
financial stability? If so, how should
this indicator be calculated, and what
historical data would support the
validity of its usage?
33. How should the FDIC measure the
potential impact (e.g., financial,
economic, or other) of a resulting IDI on
the banking or financial system?
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34. When measuring the potential
impact of a merger, what potential
scenarios or assumptions regarding
financial and economic conditions
would be appropriate, regarding both
the merger transaction parties and the
overall banking and financial systems?
35. What, if any, additional criteria
should be included in the evaluation of
the financial stability risk factor?
36. How should the FDIC assess
whether a change in the overall risk to
financial stability is problematic?
Should the FDIC place more emphasis
on the creation of new risk to financial
stability, an increase to existing risk, or
both? If so, what emphasis should be
placed and why?
Effectiveness in Combatting Money
Laundering Activities
In every case, the BMA directs the
responsible agency to consider the
effectiveness of any IDI involved in the
proposed merger transaction in
combatting money laundering activities,
including in overseas branches.42 The
FDIC expects that the resulting IDI will
operate under a satisfactory anti-money
laundering (AML)/countering the
financing of terrorism (CFT) program
commensurate with its risk profile and
business (or strategic) plan.43
As part of its evaluation of this factor,
the FDIC will undertake a
comprehensive analysis of each entity’s
record with regard to AML/CFT. Among
other relevant items, the FDIC will
consider each entity’s overseas branch
operations; policies, procedures, and
processes; risk management programs;
supervisory record, including
compliance with the Bank Secrecy Act
(BSA) and its implementing regulations;
and remediation efforts pursuant to any
outstanding corrective programs.
Significant unresolved AML/CFT
deficiencies, or an outstanding or
proposed formal or informal
enforcement action that includes
provisions related to AML/CFT, is
generally inconsistent with a favorable
resolution of this factor. One RFI
42 12
U.S.C. 1828(c)(11).
Anti-Money Laundering Act of 2020 (the
AML Act), amended subchapter II of chapter 53 of
title 31 United States Code (the legislative
framework commonly referred to as the Bank
Secrecy Act or BSA). The AML Act requires the
Financial Crimes Enforcement Network (FinCEN),
in consultation with Federal functional regulators,
to promulgate AML/CFT regulations. Due to the
addition of the CFT, and for consistency with
FinCEN, the FDIC will use the term AML/CFT
(which includes BSA) when referring to, issuing, or
amending regulations to address the requirements
of the AML Act of 2020.
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43 The
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commenter suggested a bar on the
approval of any mergers where an IDI
‘‘has been found guilty of AML
misconduct in the previous five years.’’
No such bar has been included in the
Proposed SOP to retain flexibility in
evaluating the merits of each proposed
transaction.
Questions:
37. What additional items should the
FDIC evaluate as it relates to the
respective merger parties’ AML/CFT
programs?
38. If one party to the transaction has
a less than satisfactory AML/CFT
compliance program, how much
emphasis should be placed on the
resultant IDI’s AML/CFT compliance
program and its plan for integrating the
target entity?
Other Matters and Considerations
With regard to interstate mergers, the
Proposed SOP states that the FDIC will
ensure that the additional requirements
and restrictions of Section 44 are
satisfied.44
The SOP highlights other matters and
considerations, such as filings from nonbanks 45 or banks that are not traditional
community bank 46 applicants, as well
as applications from operating noninsured entities.
While the Proposed SOP is solely an
FDIC issuance, the FDIC is working
collaboratively with the relevant Federal
agencies to review and evaluate existing
merger—related regulations, guidance,
44 See
12 U.S.C.1831u.
‘‘non-bank’’ refers to an IDI that is a ‘‘bank’’
for purposes of the FDI Act, but not for purposes
of the BHCA. Non-banks may be owned by parent
companies that are not subject to the BHCA and
therefore may not regulated or supervised by the
FRB. Existing insured non-banks include IDIs that
are controlled by parent organizations engaged in a
variety of commercial activities. These include
industrial banks and industrial loan companies,
trust and credit card banks organized under the
Competitive Equality Banking Act, and other IDIs,
such as municipal deposit banks.
46 In contrast to a traditional community bank, an
IDI that is not a traditional community bank
generally: (1) focuses on products, services,
activities, market segments, funding, or delivery
channels other than local lending and deposit
taking; (2) pursues a broad geographic footprint
(such as operating nationwide from a limited
number of offices); (3) pursues a monoline, limited,
or specialty business model; or (4) operates within
an organizational structure that involves significant
affiliate or other third-party relationships (other
than common relationships such as audit, human
resources, or core information technology
processing services). A non-community bank may
or may not operate under a non-bank charter.
Specialty (sometimes referred to as ‘‘niche’’) IDIs
are less-diversified and usually considered ‘‘noncommunity’’ in nature given the concentrated
business focus or emphasis on specialized
activities.
45 A
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29235
and instruction. Several RFI
commenters requested that any
amendments to any new merger
regulations, guidelines, and instructions
should be applied on an interagency
basis, and any changes should be made
prospectively. Regarding the roles of the
Federal banking agencies, several RFI
commenters requested that the
Consumer Financial Protection Bureau
(CFPB) be consulted on all mergers, or
at least all mergers for which the CFPB
has an examination interest. A similar
number of RFI commenters presented
the opposite position and noted that the
CFPB should not be consulted in any
capacity, as that is not their
congressional mandate. Several RFI
commenters noted that state regulatory
and supervisory authorities should be
consulted, such as state financial
regulators, state Attorney’s General, and
courts. The Proposed SOP does not
specifically address the CFPB by name,
but as previously stated, the FDIC works
collaboratively with the other Federal
regulators, as well as the relevant state
authorities when processing merger
applications.
Finally, RFI commenters requested
that the FDIC review, to the extent
possible, the effects of past mergers to
evaluate the appropriateness of merger
guidelines; and make the results of the
evaluation public and apply the results
to future merger decisions. The FDIC is
considering this recommendation.
Question:
39. Are there other elements of the
Proposed SOP that would benefit from
additional clarity? If so, please provide
details and explain how the elements
may be clarified.
IV. Administrative Law Matters
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(PRA),47 the agencies may not conduct
or sponsor, and the 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 proposed SOP does not create
any new or revise any existing
collections of information under the
PRA. Therefore, no information
collection request will be submitted to
the OMB for review. The FDIC is
separately requesting comment on
proposed changes to the FDIC
Supplement to the interagency Bank
Merger Act application form.
47 44
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Appendix A—Merger Application
Activity 48
TABLE 1—NUMBER AND DISPOSITION REGULAR MERGER APPLICATIONS 49 (BANK-TO-BANK)
[1/1/2004–12/31/2023]
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Approve
Return
Withdraw
Totals
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
145
103
137
143
99
66
86
84
135
133
136
135
108
96
118
94
58
88
44
46
2
1
3
2
........................
2
5
1
6
7
........................
........................
........................
1
2
3
1
1
........................
2
2
3
7
1
10
11
5
13
11
10
11
5
4
4
5
........................
6
........................
7
1
149
107
147
146
109
79
96
98
152
150
147
140
112
101
125
97
65
89
51
49
Totals ........................................................................................................
2,054
39
116
2,209
TABLE 2—NUMBER AND DISPOSITION REGULAR MERGER APPLICATIONS BY ASSET SIZE OF RESULTANT IDI (BANK-TOBANK)
[1/1/2004–12/31/2023]
Asset size of resultant IDI
Approve
Return
Withdraw
No Reported Assets ........................................................................................
Assets >$0 and ≤$10 Billion ............................................................................
Assets >$10 Billion and ≤$100 Billion .............................................................
Assets >$100 Billion ........................................................................................
3
1,953
91
7
13
26
........................
........................
34
76
6
........................
50
2,055
97
7
Totals ........................................................................................................
2,054
39
116
2,209
48 Source
of data in Tables 1–7: FDIC.
applications may be returned if they are
not substantially complete. At its discretion, the
FDIC may offer an applicant an opportunity to
withdraw an application. Applicants may withdraw
an application at any time if they elect not to
pursue the transaction. In some cases, in
anticipation of a denial recommendation,
applicants choose to withdraw their filing. The
number of mergers that occur in a given year may
differ from the number of mergers approved by the
FDIC that same year, as a merger may not be
consummated in the same year it is approved.
A regular merger is generally a combination of the
assets and liabilities of two or more unaffiliated IDIs
under one IDI’s charter with the extinguishment or
cancellation of the charter(s) of the other IDI(s). For
purposes of these tables, ‘‘Bank to Bank’’ refers to
a merger when all of the parties involved are IDIs
and the resulting IDI is a state nonmember bank or
state savings association; ‘‘Involving Credit Unions’’
refers to a merger that involves the combination of
any IDI with a credit union; and ‘‘Involving
Uninsured Entities’’ refers to a merger that involves
the combination of any IDI with an uninsured
entity.
49 Merger
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TABLE 3—NUMBER AND DISPOSITION REGULAR MERGER APPLICATIONS (INVOLVING CREDIT UNIONS)
[1/1/2004–12/31/2023]
Year
Approve
Return
Withdraw
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
1
2
2
1
........................
........................
2
2
4
7
3
2
7
5
12
17
13
8
19
14
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
3
........................
........................
........................
........................
1
........................
........................
........................
........................
........................
........................
........................
1
........................
........................
1
2
........................
4
1
2
........................
1
2
3
1
0
0
2
2
4
7
4
2
7
6
14
17
17
12
21
14
Totals ........................................................................................................
121
3
12
136
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Totals
TABLE 4—NUMBER AND DISPOSITION REGULAR MERGER APPLICATIONS BY ASSET SIZE OF RESULTANT IDI (INVOLVING
CREDIT UNIONS)
[1/1/2004–12/31/2023]
Asset size of resultant institution
Approve
Return
Withdraw
Totals
No Reported Assets ........................................................................................
Assets >$0 and ≤$10 Billion ............................................................................
Assets >$10 Billion and ≤$100 Billion .............................................................
Assets >$100 Billion ........................................................................................
........................
115
5
1
........................
3
........................
........................
2
10
........................
........................
2
126
5
1
Totals ........................................................................................................
121
3
12
136
TABLE 5—NUMBER AND DISPOSITION REGULAR MERGER APPLICATIONS (INVOLVING UNINSURED ENTITIES)
[1/1/2004–12/31/2023]
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Year
Approve
Return
Withdraw
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
6
6
15
2
5
2
2
........................
4
2
5
2
10
8
11
14
6
10
5
1
2
........................
........................
........................
........................
2
........................
........................
........................
........................
........................
........................
3
1
........................
1
........................
........................
........................
1
1
........................
2
1
2
1
1
........................
4
1
1
1
1
2
1
........................
2
1
3
1
9
6
17
3
7
5
3
0
8
3
6
3
14
11
12
15
8
11
8
3
Totals ........................................................................................................
116
10
26
152
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
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TABLE 6—NUMBER AND DISPOSITION REGULAR MERGER APPLICATIONS BY ASSET SIZE OF RESULTANT IDI (INVOLVING
UNINSURED ENTITIES)
[1/1/2004–12/31/2023]
Asset size of resultant IDI
Approve
Return
Withdraw
Totals
No Reported Assets ........................................................................................
Assets >$0 and ≤$10 Billion ............................................................................
Assets >$10 Billion and ≤$100 Billion .............................................................
Assets >$100 Billion ........................................................................................
1
92
20
3
7
2
1
........................
8
15
........................
3
16
109
21
6
Totals ........................................................................................................
116
10
26
152
TABLE 7—NUMBER OF IDIS ACQUIRED PURCHASE & ASSUMPTION TRANSACTIONS 50
[1/1/2004–12/31/2023]
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
No.
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
..........................................................................................................
128
132
167
148
130
91
104
106
112
152
146
161
159
134
149
151
99
94
75
78
Total ..........................................................................................................
V. Proposed Statement of Policy
The text of the proposed Statement of
Policy follows:
FDIC Statement of Policy on Bank
Merger Transactions
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I. Introduction
This Statement of Policy (SOP)
communicates the FDIC Board of
Directors’ expectations and views
regarding applications filed pursuant to
Section 18(c) of the Federal Deposit
Insurance Act (FDI Act), which is
referred to herein as the Bank Merger
Act (BMA). The SOP reflects the FDIC’s
interpretations of the BMA and its
implementing regulations. The structure
of the SOP follows the BMA’s core
statutory provisions, and its content
highlights the principles that guide the
FDIC’s evaluation of the statutory
factors for a merger application.
50 Only
includes transactions in which the
resulting institution was an FDIC-supervised state
nonmember bank or state savings association, or in
which an IDI sold substantially all of its assets to
a credit union and ceased operation.
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2,516
The BMA prohibits an insured
depository institution (IDI) from
engaging in a merger transaction
without regulatory approval. It
identifies the types of undertakings that
constitute ‘‘merger transactions’’ and
outlines which of the three Federal
banking agencies is the ‘‘responsible
agency’’ for acting on a given merger
application.1 In addition, the BMA sets
forth advance public notice
requirements 2 and generally requires
the responsible agency to request a
report on the competitive factors for a
merger transaction from the Attorney
General.3
The BMA generally prohibits the
responsible agency from approving a
monopolistic or otherwise
anticompetitive merger transaction.4 In
addition to competitive considerations,
the BMA requires the relevant agency to
evaluate a merger transaction in light of
1 12
U.S.C. 1828(c)(1) and (2).
2 12 U.S.C. 1828(c)(3).
3 12 U.S.C. 1828(c)(4).
4 12 U.S.C. 1828(c)(5).
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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 (U.S.) banking or financial
system,5 and the effectiveness of the
IDIs involved in the merger transaction
in combatting money laundering.6
II. Jurisdiction and Scope
The FDIC is one of three Federal
banking agencies with responsibility for
evaluating transactions subject to the
BMA. The FDIC has jurisdiction to act
on merger applications that involve an
IDI and any non-insured entity,7 and
those that solely involve IDIs in which
the acquiring, assuming, or resulting
5 Ibid.
6 See Financial Stability Board 2022 list of GSIBs
available at https://www.fsb.org/wp-content/
uploads/P211122.pdf.
7 12 U.S.C. 1828(c)(1). A non-insured entity refers
to any entity that is not FDIC insured.
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institution is an FDIC-supervised
institution.8
The BMA requires regulatory
approval for any merger transaction
involving an IDI.9 The applicability of
the BMA will depend on the facts and
circumstances of the proposed
transaction. In addition to transactions
that combine institutions into a single
legal entity through merger or
consolidation, the scope of merger
transactions subject to approval under
the BMA encompasses transactions that
take other forms, including purchase
and assumption transactions or other
transactions that are mergers in
substance, and assumptions of deposits
or other similar liabilities.10
The FDIC considers transactions to be
mergers in substance when a target
would no longer compete in the market,
regardless of whether the target plans to
liquidate immediately after
consummating the transaction. An
example of a transaction that is a merger
in substance, and therefore subject to
the BMA, is when an IDI absorbs all (or
substantially all) of a target entity’s
assets and the target entity dissolves (or
otherwise ceases to engage in the
acquired lines of business).
An FDIC-supervised IDI’s assumption
of a deposit from another IDI, or any
IDI’s assumption of a deposit from a
non-insured entity, is likewise subject to
FDIC approval even in the absence of an
express agreement for a direct
assumption. Similarly, a transfer of
deposits from any IDI to a non-insured
entity is subject to FDIC approval.11 The
definition of ‘‘deposit’’ per Section 3(l)
of the FDI Act is broad and extends
beyond traditional demand deposits to
include trust funds and escrow funds,
among other items.
Merger and other corporate
transactions may be conducted through
a single transaction or through a series
of related transactions that each require
an application, such as transactions
8 The Office of the Comptroller of the Currency
has jurisdiction for any merger transaction between
IDIs in which the acquiring, assuming, or resulting
institution is a national bank or a Federal savings
association. The Board of Governors of the Federal
Reserve System (FRB) has jurisdiction for any
merger transaction between IDIs in which the
acquiring, assuming, or resulting institution is a
state-chartered bank that is a member of the Federal
Reserve System. The FRB also has approval
authority under the Bank Holding Company Act for
mergers involving bank holding companies and the
Home Owners’ Loan Act for mergers involving
savings and loan holding companies. Merger
transactions that are subject to the FDIC’s review
may also be subject to the review of state
authorities.
9 12 U.S.C. 1828(c).
10 A merger that includes the establishment or
relocation of branches is also subject to approval
under 12 U.S.C. 1828(d).
11 12 U.S.C. 1828(c)(1)(C).
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effected through interim institutions. In
all cases, the FDIC will evaluate the
substance of all of the facts and
circumstances of the transaction and
any related transactions, identify which
aspects of the transaction(s) are subject
to FDIC approval, and fully evaluate the
statutory factors applicable to each
transaction.
Overview of the Application Process
The FDIC encourages prospective
applicants to engage in a pre-filing
process to discuss regulatory
expectations. It is particularly important
for the application to be substantially
complete when initially filed.12 The
quality and comprehensiveness of a
filing are critical to the FDIC’s
evaluation of the application under the
statutory factors and other regulatory
requirements.13 The FDIC expects all
submitted materials, including the
financial projections and any related
analyses, to be well supported and
sufficiently detailed. The narrative
describing the analysis and evaluation
of the transaction should be supported
by studies, surveys, analyses and
reports, including those prepared by or
for officers, directors, or deal team
leads. Incomplete filings or nonresponsiveness to additional
information requests are substantial
impediments to the FDIC’s ability to
fully evaluate and resolve the statutory
factors.
Public feedback is an important
component of the FDIC’s review of a
merger application. Section 18(c)(3) of
the FDI Act requires that public notice
of the proposed merger transaction be
published in an approved form and at
appropriate intervals in a newspaper or
newspapers of general circulation. A list
of pending merger applications subject
to the Community Reinvestment Act
(CRA) is available on the FDIC’s website
using the Applications in Process
Subject to the CRA Report Selection
Options.14 In all cases, the FDIC will
review and evaluate any public
comments received regarding the merger
application, and will provide the
applicant an opportunity to respond to
any comment that is determined to be
a CRA protest.15 The FDIC will also
12 As noted in Section 1.1 of the Applications
Procedures Manual, a filing that is not substantially
complete lacks the substance necessary for the FDIC
to evaluate the statutory factors.
13 Regulatory requirements for merger
applications are provided in 12 CFR part 303
(including Subparts A and D) and any other Federal
or state regulations, statutes, or laws applicable to
the filing.
14 Applications In Process Subject to the CRA
Report Selection Options, https://cra.fdic.gov/.
15 12 CFR 303.2(l) defines the term ‘‘CRA protest’’
to mean any adverse comment from the public
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29239
consider the views of each relevant
Federal and state agency. Generally, the
FDIC will not approve a merger
application if adverse CRA comments
have not been resolved.16 In certain
cases, the FDIC may hold hearings or
other proceedings in connection with
evaluating a merger application.17
Section 18(c)(4) of the FDI Act
requires the FDIC to request a
competitive factors report from the
Attorney General of the United States
for any merger transaction between an
IDI and a non-affiliated entity, unless
the FDIC finds that it must act
immediately in order to prevent the
probable failure of an IDI involved in
the transaction.18 As circumstances
warrant, the Department of Justice (DOJ)
and the FDIC will coordinate the review
when there are concerns or questions
regarding the competitive effects of the
transaction. As described below, the
FDIC undertakes an independent review
consistent with the statutory factors of
the BMA.
Merger Application Adjudication
Generally, if all statutory factors are
favorably resolved, and all other
regulatory requirements are satisfied,
the FDIC will approve the merger
application. Approvals will be subject to
the standard conditions detailed in 12
CFR 303.2(bb) and any non-standard
conditions deemed appropriate by the
FDIC. However, the FDIC will not use
conditions as a means for favorably
resolving any statutory factors that
otherwise present material concerns.
The Order and Basis for Approval
(Order) will be posted to the FDIC’s
Decisions on Bank Applications web
page.19 The Order will address all
statutory factors, as well as summarize
information regarding any CRA protests.
The FDIC will summarize the related
analysis and conclusions and include
any conditions imposed in conjunction
with the approval.
The FDIC’s publicly available
Delegations of Authority set forth
criteria that must be satisfied in order
for staff in the FDIC Regional Offices or
related to a pending filing that raises a negative
issue relative to the CRA, whether or not it is
labeled a protest and whether or not a hearing is
requested. An ‘‘adverse comment’’ is defined in 12
CFR 303.2(c), as any objection, protest, or other
adverse written statement submitted by an
interested party relating to a filing.
16 See 12 CFR 303.2(c) and 303.2(l).
17 See 12 CFR 303.10.
18 12 U.S.C. 1828(c)(4). In addition to acting to
prevent the probable failure of an IDI, Section
18(c)(4)(C) of the FDI Act includes exceptions for
merger transactions involving solely an IDI and one
or more of its affiliates.
19 Decisions on Bank Applications, https://
www.fdic.gov/regulations/laws/bankdecisions/
merger/.
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Washington Office to approve a merger
application.20 Notably, the Board of
Directors reserves the authority to deny
any merger application or act on certain
types of proposed transactions,
including any transaction for which one
or more statutory factors are unfavorably
resolved.
Generally, applications will present
significant concerns and will likely
result in unfavorable findings with
regard to one or more statutory factors
if they include the following
circumstances:
• Non-compliance with applicable
Federal or state statutes, rules, or
regulations (this includes, for example,
transactions that would exceed the 10
percent nationwide deposit limit, as
well as both issued and pending
enforcement actions);
• Unsafe or unsound condition
relating to the existing IDIs or the
resulting IDI;
• Less than Satisfactory examination
ratings, including for any specialty areas
(i.e., information technology or trust
examinations);
• Significant concerns regarding
financial performance or condition, risk
profile, or future prospects;
• Inadequate management, including
significant turnover, weak or poor
corporate governance, or lax oversight
and administration; or
• Incomplete, unsustainable,
unrealistic or unsupported projections,
analyses, and/or assumptions.
Additionally, the FDIC may not be
able to find favorably on any given
statutory factor (and the application as
a whole) if there are unresolved
deficiencies, issues, or concerns
(including with respect to any public
comments). A lack of sustained
performance under corrective programs
will also be inconsistent with a
favorable finding on one or more
statutory factors, particularly when the
transaction implicates the areas that are
the subject of the corrective program.
Further, the inability or unwillingness
of the applicant to agree to proposed
conditions or execute written
agreements, if deemed necessary, will
result in unfavorable findings and
would require action by the Board of
Directors on the application.
If FDIC staff finds unfavorably on one
or more statutory factors based on the
application review, staff generally will
recommend denial of the application. At
the FDIC’s discretion, applicants may be
offered the opportunity to withdraw the
filing. If an applicant withdraws their
filing, the Board of Directors may
20 Refer
to https://www.fdic.gov/regulations/laws/
matrix/delegations-filings.pdf.
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release a statement regarding the
concerns with the transaction if such a
statement is considered to be in the
public interest for purposes of creating
transparency for the public and future
applicants.
III. Statutory Factors
Merger applications are evaluated
under the framework of statutory factors
as described in the BMA. Generally, the
BMA prohibits approval of monopolistic
or otherwise anticompetitive
transactions; and requires the
responsible agency to consider specific
statutory factors related to financial and
managerial resources and future
prospects, convenience and needs of the
community to be served, combatting
money laundering, and financial
stability. The BMA also prohibits
interstate mergers in which the resulting
IDI would control more than 10 percent
of the deposits of IDIs in the United
States.21 Evaluations of each statutory
factor consider the respective entities’
supervisory record, potential risks and
compensating controls, and any other
available information deemed
appropriate.
Monopolistic or Anticompetitive Effects
The FDIC strives to ensure that
resulting institutions continue as
participants in a competitive
environment. Section 18(c)(5) of the
BMA prohibits the FDIC from approving
a merger transaction that would result
in a monopoly or would be in
furtherance of an attempt to monopolize
the business of banking in any part of
the U.S. The BMA also prohibits the
FDIC from approving a merger
transaction that may substantially lessen
competition in any section of the
country, unless the anticompetitive
effects of the proposed transaction are
clearly outweighed in the public interest
by the probable effect of the transaction
in meeting the convenience and needs
of the community to be served.22 For
example, such a circumstance may exist
where a transaction is necessary to
prevent the probable failure of an IDI.
The FDIC will evaluate the
competitive effects of a proposed merger
in a manner that is most relevant to each
transaction. Consistent with the
majority of merger transactions typically
presented to the FDIC, the FDIC
generally employs a framework for
evaluating competitive effects involving
a transaction between IDIs with
traditional community banking
operations within their local geographic
21 12 U.S.C. 1828(c)(5), 1828(c)(11), and
1828(c)(13).
22 12 U.S.C. 1828(c)(5).
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markets. However, the FDIC will tailor
its evaluation to consider the size and
competitive effects of the resulting IDI.
Additionally, the FDIC will consider all
relevant market participants. For
example, the FDIC may include any
other financial service providers that the
FDIC views as competitive with the
merging entities, including providers
located outside the geographic market
when it is evident that such providers
materially influence the market.
Further, in cases involving merging
entities with specialty lines of business
or non-traditional products, services, or
delivery methods, the FDIC will take
into account any additional data sources
or appropriate analytical approaches to
fully assess the competitive effects of
the transaction.
In assessing competitive effects, the
FDIC considers concentrations with
respect to both geographic and product
markets. The FDIC identifies all relevant
geographic markets (local, regional, and
national) based on the geographic areas
in which the merging entities operate
and in which customers may practically
turn to competitors for alternative
products and services.23 The FDIC uses
deposits as an initial proxy for
commercial banking products and
services. The FDIC will initially
measure the respective shares of total
deposits held by the merging entities
and the various other participants with
offices in the geographic market. The
FDIC evaluates the market concentration
and change in market concentration in
each geographic and product market.24
In addition, the FDIC will consider
concentrations beyond those based on
deposits. As appropriate, the FDIC may
consider concentrations in any specific
products or customer segments, such as,
for example, the volume of small
business or residential loan originations
or activities requiring specialized
expertise. Additionally, when relevant,
the analysis may incorporate other
products offered by the merging entities
with consideration given to whether
consumers retain meaningful choices. In
its analysis, the FDIC will evaluate a
market with a scope that is appropriate
to the products or services offered or
planned. Moreover, the FDIC will
consider the emergence of new
competitors for products or services in
relevant markets; and the expansion of
products and services offered by the
merging entities and other market
participants. Finally, as necessary or
23 See United States v. Philadelphia National
Bank, 374 U.S. 321 (1963).
24 Indicators of market concentration and change
in concentration include calculations using the
Herfindahl-Hirschman Index (HHI).
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appropriate, the FDIC will consider
other products or services and
additional methods of assessing the
competitive nature of markets. In
particular, the FDIC may consider
information on the pricing of products
and services to assess the competitive
effects of a proposed merger when
practicable and relevant.
The FDIC may require divestitures of
business lines, branches, or portions
thereof as a means to mitigate
competitive concerns before allowing
the merger to be consummated. In such
cases, the FDIC will generally require
that the selling institution will not enter
into non-compete agreements with any
employee of the divested entity nor
enforce any existing non-compete
agreements with any of those entities.
Nationwide Deposit Cap
The BMA prohibits approval of an
interstate merger that results in an IDI
(and its affiliates) controlling more than
10 percent of the total deposits of IDIs
in the U.S.25 This prohibition does not
apply to transactions that involve one or
more IDIs in default or in danger of
default. Consistent with the competitive
effects review, the FDIC will use the
most current Summary of Deposits data
to confirm the nationwide deposit share
of the resulting IDI following the
proposed transaction.
Financial Resources
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The BMA requires the responsible
agency to consider the financial
resources of the existing and proposed
entities involved in a merger
transaction.26 The FDIC expects that the
resulting IDI will reflect sound financial
performance and condition.27 Generally,
the FDIC will not find favorably on the
financial resources factor if the merger
would result in a weaker IDI from an
overall financial perspective.
A critical component of the analysis
of financial resources is the resultant
IDI’s ability to meet applicable capital
standards (including maintenance of
appropriate allowances for loan or
credit losses). Depending on the
anticipated risk profile of the resulting
IDI, the FDIC may impose, as a nonstandard condition, capital
requirements that are higher than
applicable capital standards.28 Further,
25 12
U.S.C. 1828(c)(13).
U.S.C. 1828(c)(5).
27 This evaluation encompasses capital, asset
quality, earnings, liquidity, and sensitivity to
market risk, as described in the Uniform Financial
Institution Rating System (UFIRS); see 61 FR 67021
(December 19, 1996).
28 Refer to the applicable capital regulations for
the relevant parties. The minimum capital ratios for
FDIC-supervised institutions are set forth at 12 CFR
26 12
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as appropriate, the FDIC may impose a
non-standard condition that requires the
resulting IDI and other relevant parties
(such as certain affiliates or investors) to
enter into one or more written
agreements that address, as applicable,
capital maintenance requirements,
liquidity or funding support, affiliate
transactions, and other relevant
provisions. The FDIC also expects the
resulting IDI to maintain sufficient
liquidity and appropriate funding
strategies given its size, complexity, and
risk profile.
The FDIC will also consider the
current and projected financial impact
of any related entities on the IDI,
including the parent organization and
any key affiliates. For each relevant
entity, the FDIC will consider, among
other items, the size and scope of
operations, capital position, quality of
assets, overall financial performance
and condition, compliance and
regulatory history, primary revenue and
expense sources, and funding strategies.
Managerial Resources
The BMA requires the responsible
agency to consider the managerial
resources of the existing and proposed
entities involved in a merger
transaction.29 The FDIC expects that the
directors, officers, and as appropriate,
principal shareholders (collectively,
management) possess the capabilities to
administer the resultant IDI’s affairs in
a safe and sound manner, and
effectively implement post-merger
integration plans and strategies.
The capability of management to
identify, measure, monitor, and control
risks and ensure a safe and sound
operation in compliance with applicable
laws and regulations is included in the
evaluation of managerial resources. The
FDIC will consider the background and
experience of each member of
management relative to the size,
complexity, and risk profile of the
resulting IDI, including the managerial
performance and supervisory record of
affiliates and subsidiaries.
The FDIC will review supervisory
assessments of management made by
the relevant regulatory authorities, as
well as the nature and extent of
organizational relationships. The FDIC
will also evaluate the effect of such
relationships on the IDI, as well as the
operating history, risk management, and
control environment of the parent
organization. Inherent in these
considerations are the condition,
324.10, and the capital measures and capital
category definitions for the purposes of Prompt
Corrective Action are set forth at 12 CFR 324.403
for FDIC-supervised institutions.
29 12 U.S.C. 1828(c)(5).
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29241
performance, risk profile, and prospects
of the organization as a whole, as well
as the consistency of the proposed
merger with the resulting IDI’s strategic
(or business) plan.
The FDIC will assess each IDI’s record
of compliance with respect to consumer
protection, fair lending, and other
relevant consumer laws and regulations.
The FDIC will analyze the compliance
management system of each of the IDIs,
as well as the compliance management
system for the resulting IDI to ensure
that appropriate controls will be
implemented to identify, monitor, and
address consumer compliance risks.
Consideration will also be given to the
consumer compliance rating pursuant to
the Uniform Interagency Consumer
Compliance Rating System and the CRA
rating.30
Additional managerial resource
considerations include:
• The supervisory history of each
entity involved in the proposed merger,
including the management rating 31 for
any IDI involved in the transaction;
• The breadth and depth of
management, and adequacy of
succession planning;
• Management’s responsiveness to
issues or supervisory recommendations
raised by regulators or auditors;
• Any existing or pending
enforcement actions;
• Any issues or concerns with regard
to specialty areas including information
technology, trust, consumer compliance,
CRA, or Anti-Money Laundering (AML)/
countering the financing of terrorist
activities (CFT); 32 and
• The reasonableness of fees,
expenses, and other payments made to
insiders.
• Recent rapid growth and the record
of management in overseeing and
controlling risks associated with such
growth.
The FDIC expects management to
develop and implement effective plans
and strategies, and the resulting IDI to
have the managerial and operational
capacity to integrate the acquired entity.
Effective integration includes, but is not
limited to, human capital; products and
30 81
FR 79473, (Nov. 14, 2016).
management rating is defined in the
31 The
UFIRS.
32 The Anti-Money Laundering Act of 2020 (the
AML Act), amended subchapter II of chapter 53 of
title 31 United States Code (the legislative
framework commonly referred to as the Bank
Secrecy Act or BSA). The AML Act requires the
Financial Crimes Enforcement Network (FinCEN),
in consultation with Federal functional regulators,
to promulgate AML/CFT regulations. Due to the
addition of the CFT, and for consistency with
FinCEN, the FDIC will use the term AML/CFT
(which includes BSA) when referring to, issuing, or
amending regulations to address the requirements
of the AML Act of 2020.
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services; operating systems, policies,
and procedures; internal controls and
audit coverage; physical locations;
information technology; and risk
management programs. In conjunction
with the integration, the FDIC expects a
resulting IDI to have the managerial and
operational capacity, and to devote
adequate resources, to ensure full and
timely compliance with any outstanding
corrective programs or supervisory
recommendations.
Future Prospects
The BMA requires the responsible
agency to consider the future prospects
of the existing and proposed entities
involved in a merger transaction.33 The
FDIC expects that the resulting IDI will
operate in a safe and sound manner on
a sustained basis following
consummation of the merger. Among
other items, the FDIC will consider the
economic environment, the competitive
landscape, the acquiring IDI’s history in
integrating merger targets and managing
growth, the anticipated scope of the
resulting IDI’s operations, the quality of
its supporting infrastructure, and other
pertinent factors. Any significant
planned changes to the resulting IDI’s
strategies, operations, products or
services, activities, income or expense
levels, or other key elements of its
business will be closely assessed. The
FDIC will review the pro forma financial
projections, the underlying
assumptions, and any accompanying
valuations (such as those related to the
target entity, goodwill, or other assets)
to ensure they demonstrate and support
that the resulting IDI will maintain an
acceptable risk profile.
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Convenience and Needs of the
Community To Be Served
The BMA requires the responsible
agency to consider the convenience and
needs of the community to be served
when evaluating a merger transaction.34
The FDIC expects that a merger between
IDIs will enable the resulting IDI to
better meet the convenience and the
needs of the community to be served
than would occur absent the merger.
Applicants are expected to demonstrate
how the transaction will benefit the
public through higher lending limits,
greater access to existing products and
services, introduction of new or
expanded products or services, reduced
prices and fees, increased convenience
in utilizing the credit and banking
services and facilities of the resulting
IDI, or other means.
The FDIC expects applicants to
provide specific and forward-looking
information to enable the FDIC to
evaluate the expected benefits of the
merger on the convenience and needs of
the community to be served. As
appropriate, claims and commitments
made to the FDIC to support the FDIC’s
evaluation of the expected benefits of
the merger may be included in the
Order, and the FDIC’s ongoing
supervisory efforts will evaluate the
IDI’s adherence with any such claims
and commitments. The FDIC will
evaluate the community to be served
broadly, which will include the
proposed assessment area(s), retail
delivery systems, populations in
affected communities, and identified
needs for banking services.
As part of its evaluation, the FDIC
will review the CRA record of the
institutions. The CRA requires the FDIC
to take into account each IDI’s record of
meeting the credit needs of its entire
community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of such institution.35 As such,
the FDIC will consider each institution’s
CRA performance evaluation record of
helping to meet the credit needs of its
assessment areas, including low- and
moderate-income neighborhoods, and
record of community development
activity, as applicable. A less than
Satisfactory historical rating or
significant deterioration in CRA
performance will generally result in
unfavorable findings. The FDIC’s review
is not limited to the CRA record of the
institutions and will encompass a broad
review of the institutions’ existing
products and services and whether the
products and services proposed by the
applicants will meet the convenience
and needs of the community to be
served.
In addition, the FDIC will consider
the record of each institution in
complying with consumer protection
requirements and maintaining a sound
and effective compliance management
system. This review will include
consideration of any existing or pending
orders, ongoing enforcement actions,
and pending reviews or investigations of
violations of consumer protection laws
and regulations. A less than Satisfactory
consumer compliance rating 36 may
present significant concerns in resolving
this factor.
The CRA assessment area(s) and
branch locations resulting from the
merger are evaluated as part of this
35 12
33 12
U.S.C. 1828(c)(5).
34 12 U.S.C. 2902(3)(E) and 2903(a)(2).
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U.S.C. 2902(3)(E) and 2903(a)(2).
Interagency Consumer Compliance
Rating System, 81 FR 79473 (Nov. 14, 2016).
36 Uniform
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factor. The assessment area(s) should be
delineated in accordance with 12 CFR
part 345 (or other appropriate
regulations), and should not reflect
illegal discrimination. The FDIC will
evaluate all projected or anticipated
branch expansion, closings, or
consolidations for the first three years
following consummation of the
merger.37 Branch closings are subject to
both Section 42 of the FDI Act and the
Interagency Policy Statement
Concerning Branch Closing Notices and
Policies.38 Information regarding any
proposed or expected closures,
including the timing of each closure, the
effect on the availability of products and
services, particularly to low- or
moderate-income individuals or
designated areas, any job losses or lost
job opportunities from branching
changes, and the broader effects on the
convenience and needs of the
community to be served will be closely
evaluated. Applications that project
material reductions in service to lowand moderate-income communities or
consumers will generally result in
unfavorable findings.
The FDIC will consider all substantive
public comments received in
accordance with 12 CFR 303.9, as well
as the views of relevant state and
Federal regulators regarding the ability
of the applicant to meet the convenience
and needs of the community to be
served. Non-standard conditions may be
imposed, as appropriate, in response to
CRA weaknesses, relevant regulator
input, bank commitments, or public
comments. The FDIC will consider
whether it is in the public interest to
hold a hearing for merger applications,
and generally expects to hold a hearing
for any application resulting in an IDI
with greater than $50 billion in assets or
for which a significant number of CRA
protests are received. The FDIC may
also hold public or private meetings to
receive input on the transaction. The
decision to hold such meetings depend
on issues raised during the comment
period and the significance of the
merger transaction to the public interest,
to the banking industry, and
communities affected.
As noted above, the BMA prohibits
the FDIC from approving a merger
transaction that may substantially lessen
competition in any section of the
country, unless the anticompetitive
37 Generally, the FDIC considers a substantially
complete merger application to include, among
other items, at least three years of information
regarding projected branch expansions, closings, or
consolidations. Short-distance consolidations that
may not be subject to Section 42 outside of a merger
context should be included in this information.
38 64 FR 34845 (June 29, 1999).
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effects of the proposed transaction are
clearly outweighed in the public interest
by the probable effect of the transaction
in meeting the convenience and needs
of the community to be served.39 In
situations where anticompetitive effects
are identified, the FDIC will evaluate
whether the applicant has established
that the benefits to the convenience and
needs of the community will clearly
outweigh the anticompetitive effects. A
favorable finding on the convenience
and needs of the community to be
served factor may not support approval
of the application when anticompetitive
effects are identified.
Risk to the Stability of the United States
Banking or Financial System
Section 604 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (Dodd-Frank Act) amended the
BMA to require the FDIC to consider the
risk posed by a merger transaction to the
stability of the U.S. banking or financial
system. The FDIC expects that the
resulting IDI (or consolidated company)
will not materially increase the risk to
the stability of the U.S. banking or
financial system.40 Consistent with the
other Federal banking agencies,41 the
FDIC evaluates this factor with respect
to the following:
• The size of the entities involved in
the transaction;
• The availability of substitute
providers for any critical products or
services to be offered by the resulting
IDI;
• The resulting IDI’s degree of
interconnectedness with the U.S.
banking or financial system;
• The extent to which the resulting
IDI contributes to the U.S. banking or
financial system’s complexity; and
• The extent of the resulting IDI’s
cross-border activities.
Generally, the FDIC will not view the
size of the entities involved in a
proposed merger transaction as a sole
basis for determining the risk to the U.S.
banking or financial system’s stability.
However, transactions that result in a
large IDI (e.g., in excess of $100 billion)
are more likely to present potential
financial stability concerns with respect
to substitute providers,
interconnectedness, complexity, and
cross border activities, and will be
subject to added scrutiny. The FDIC will
consider the nature and scope of
operations of the target entity, the
39 12
U.S.C. 1828(c)(5).
U.S.C. 1828(c)(5).
41 The FDIC will consider data collected by the
Federal Reserve to monitor the systemic risk profile
of the institutions, which are subject to enhanced
prudential standards under Section 165 of the
Dodd-Frank Act.
40 12
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resulting IDI, and any other elements
that may also influence the risk to the
U.S. banking or financial system’s
stability.
With regard to substitute providers,
the FDIC will consider whether the
resulting IDI provides critical products
or services that may be difficult to
replace, or conducts activities
(including specific business lines) that
comprise a relatively large share of
system-wide activities. Concerns are
heightened, and may preclude favorable
resolution of this factor, in situations
where there are limited readily available
substitutes, as relied upon services may
be disrupted or discontinued if the
resulting IDI encounters financial
distress or fails.
In assessing the resulting IDI’s
interconnectedness, the FDIC will
consider the degree to which the
merging entities are engaged in
transactions or relationships with IDIs,
affiliates of banking organizations, or
other financial service providers.
Consideration will be given to whether
any exposures with creditors,
counterparties, investors, or other
market participants could affect the U.S.
banking or financial system. A resulting
IDI may present financial stability
concerns if key aspects of its business
(including any on- or off-balance sheet
activities) are highly interconnected
with other financial system participants.
The FDIC’s evaluation of the resulting
IDI’s contribution to the U.S banking or
financial system’s complexity will
consider the full scope of the IDI’s
operations. This includes the IDI’s
business lines, products and services,
on- and off-balance sheet activities,
branch network and delivery channels,
number of account holders (including
the volume of uninsured deposits),
extent of information technology
systems, and any material affiliate or
other third-party relationships. As part
of evaluating the resulting IDI’s impact
on complexity, the FDIC will also
consider its resolvability in a potential
failure situation. The FDIC may not be
able to find favorably on this factor
when the resultant IDI’s organizational
and funding structure preclude its
ability to: (i) continue operations and
activities until they can be sold or
wound down, (ii) sell key business lines
or large asset portfolios, and (iii) be
marketed for sale in a manner that limits
the potential for losses to the Deposit
Insurance Fund.42
42 In addition to considering the FDIC’s potential
role as receiver of the resulting IDI under Section
11 of the FDI Act, it will also take into account
possible alternative resolution scenarios.
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29243
The extent of a resulting IDI’s crossborder activities may also have
implications with regard to a favorable
finding on this factor. The FDIC will
consider whether cross-border activities
comprise a material component of the
resulting IDI’s operations and present a
significant degree of cross-jurisdictional
claims or liabilities. Such activities may
present challenges from both
supervisory and resolution perspectives
given the potential exposure to differing
legal requirements, geopolitical events,
and competing national interests.
Other Stability Considerations
The above list of items is not
exhaustive. The FDIC will evaluate any
additional elements that may affect the
risk to the U.S. banking or financial
system’s stability. This may include the
resulting IDI’s regulatory framework;
however, the framework alone would
not result in a favorable finding on this
factor when other financial stability
concerns exist. As appropriate,
consideration may be given to the
merging IDIs’ records with respect to
cybersecurity and stress-testing results.
The FDIC may also evaluate the degree
to which the resultant IDI’s potential
financial distress or rapid liquidation
could cause other market participants
with similar activities or business
profiles to experience a loss of market
confidence, falling asset values, or
decreased funding options.
Proposed transactions that solely
involve affiliates that were related at the
time a merger application is filed
generally will not raise concerns with
regard to this factor. However, each
proposal will be reviewed to ensure that
the resulting IDI would not present any
new or unforeseen financial stability
risks that may not have existed when
the merging entities operated as
affiliates or on a standalone basis.
Effectiveness in Combatting Money
Laundering Activities
The BMA requires the responsible
agency to consider the effectiveness of
any IDI involved in a merger transaction
in combatting money-laundering
activities, including in overseas
branches.43 The FDIC expects that
approved merger transactions will result
in institutions with effective programs
to combat money laundering (AntiMoney Laundering or AML) and counter
the financing of terrorism (CFT). A
favorable finding on this factor will be
based on a comprehensive evaluation of
each entity’s AML/CFT program that
includes overseas branches; policies,
procedures, and processes; risk
43 12
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management programs; the supervisory
record of each participating entity, the
entity’s compliance with Bank Secrecy
Act (BSA) and its implementing
regulations; and remediation efforts
pursuant to an outstanding corrective
program.44 In all cases, the FDIC will
consider whether the resulting IDI has
developed an appropriate plan for the
integration of the combined operations
into a single, comprehensive, and
effective program to combat money
laundering and terrorist financing.
Additionally, the FDIC expects the
applicant to demonstrate how the
resulting IDI will comply with the BSA
and its implementing regulations
following consummation of the merger.
Significant unresolved AML/CFT
concerns or uncorrected problems, or an
outstanding or proposed formal or
informal enforcement action that
includes provisions related to AML/
CFT, will generally result in unfavorable
findings on this factor. In limited cases,
sufficient mitigating factors may support
a favorable finding, such as when an
acquirer with a strong AML/CFT
program replaces a target entity’s less
than satisfactory program and presents
an appropriate plan to address the target
entity’s deficiencies.
IV. Other Matters and Considerations
Interstate Merger Transactions
In cases where Section 44 of the FDI
Act applies to an interstate merger
transaction, the FDIC will ensure that
the additional requirements and
restrictions of Section 44 are satisfied.45
Applications Involving Non-Banks or
Banks That Are Not Traditional
Community Banks
Historically, most merger transactions
considered by the FDIC have involved
traditional community banks. In
general, traditional community banks
focus on providing the banking services,
including loans and core deposits,
typically relied on by individuals and
businesses in their local communities.
However, merger applications may also
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44 An
IDI under an outstanding formal
enforcement action should make substantial
progress to correct problem(s) addressed in the
action. Progress should be sufficient to determine
that the AML/CFT program is now adequate.
45 See 12 U.S.C.1831u.
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involve non-banks 46 or banks that are
not traditional community banks, which
may involve more complexity than a
traditional community bank in terms of
its business model, products, services,
activities, market segments, funding,
delivery channels, geographic footprint,
operations, or intercompany or other
third-party relationships. Merger
applications where the resulting IDI will
be a non-bank or not a traditional
community bank are subject to the same
statutory factors as any other merger
application. However, the FDIC will
appropriately tailor its review to the
nature, complexity, and scale of the
entities involved in the transaction and
the underlying business model. The
FDIC’s Washington Office or Board of
Directors reserve authority to act on
certain merger applications that do not
involve traditional community banks.
Applications Involving Operating NonInsured Entities
Applications may involve an existing
IDI merging with an operating entity
that is not FDIC-insured. Operating noninsured entities may vary widely in the
type of business and activities
conducted (e.g., credit unions, which
typically offer products and services
consistent with a traditional community
bank, mortgage companies, financing
companies, payment services firms, or
other types of entities whose business
model may have elements more
consistent with that of a noncommunity bank). Merger applications
that involve an operating non-insured
entity are subject to the same statutory
factors as any other merger application.
However, in reviewing such
applications, the FDIC will consider the
nature and complexity of the noninsured entity, its scale relative to the
existing IDI, its current condition and
historical performance, and any other
relevant information regarding the
entity’s operations or risk profile.
The FDIC will review audited
financial statements (covering at least
three years, unless the entity’s operating
history is shorter) and assess any
46 A ‘‘non-bank’’ refers to an IDI that is a bank for
purposes of the FDI Act, but that is not a bank for
purposes of the Bank Holding Company Act
(BHCA). Non-banks may be owned by parent
companies that are not subject to the BHCA, and
therefore may not regulated or supervised by the
FRB.
PO 00000
Frm 00024
Fmt 4701
Sfmt 9990
deferred tax assets or liabilities,
intangible assets, contingent liabilities,
and any recent or pending legal or
regulatory actions. Further, independent
appraisals or valuations may be
necessary to support the projected value
of any business (or assets) expected to
be transferred from the operating noninsured entity to the resultant IDI
through the merger transaction.
V. Resources
FDIC Bank Application Resource page,
https://www.fdic.gov/regulations/
applications/resources/
FDIC Regional Offices, https://www.fdic.gov/
about/contact/directory/region.html
FDIC Law, Regulations, Related Acts, https://
www.fdic.gov/regulations/laws/rules/
Section 18(c) of the FDI Act, 12 U.S.C.
1828(c)
Section 42 of the FDI Act, 12 U.S.C. 1831r–
1
Section 44 of the FDI Act, 12 U.S.C. 1831u
12 CFR part 303, subparts A and D
Interagency Policy Statement Concerning
Branch Closing Notices and Policies, 64
FR. 34845 (June 29, 1999)
Applications Procedures Manual (APM),
https://www.fdic.gov/regulations/
applications/resources/apps-procmanual/
Section 1 of the FDIC APM, https://
www.fdic.gov/regulations/applications/
resources/apps-proc-manual/section-0101-overview.pdf
Section 4 of the FDIC Application Procedures
Manual, https://www.fdic.gov/
regulations/applications/resources/appsproc-manual/section-04-mergers.pdf
FDIC Delegations of Authority—Filings,
https://www.fdic.gov/regulations/laws/
matrix/
Interagency Bank Merger Act Form, https://
www.fdic.gov/formsdocuments/f622001.pdf
Deposit Market Share Reports—Summary of
Deposits, https://www.fdic.gov/sod
Federal Reserve Bank of St. Louis,
Competitive Analysis and Structure
Source Instrument for Depository
Institutions, https://
cassidi.stlouisfed.org/index
Authority: 12 U.S.C. 1813, 1818, 1819,
1828, 1831u, 1831r–1, 1835a, 2901–2908,
5412.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, March 21, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024–08020 Filed 4–18–24; 8:45 am]
BILLING CODE 6714–01–P
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[Federal Register Volume 89, Number 77 (Friday, April 19, 2024)]
[Proposed Rules]
[Pages 29222-29244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08020]
[[Page 29221]]
Vol. 89
Friday,
No. 77
April 19, 2024
Part V
Federal Deposit Insurance Corporation
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12 CFR Part 303
Request for Comment on Proposed Statement of Policy on Bank Merger
Transactions; Agency Information Collection Activities; Proposals,
Submissions, and Approvals; Proposed Rule and Notice
Federal Register / Vol. 89 , No. 77 / Friday, April 19, 2024 /
Proposed Rules
[[Page 29222]]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 303
RIN 3064-ZA31
Request for Comment on Proposed Statement of Policy on Bank
Merger Transactions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Proposed Policy Statement; Request for Comment.
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SUMMARY: The FDIC invites comments on a proposed Statement of Policy
(SOP) on Bank Merger Transactions (Proposed SOP) that is relevant to
all insured depository institutions (IDIs). The Proposed SOP would
replace the FDIC's current SOP on Bank Merger Transactions (Current
SOP) and proposes a principles-based overview that describes the FDIC's
administration of its responsibilities under the Bank Merger Act (BMA).
The Proposed SOP focuses on the scope of transactions subject to FDIC
approval, the FDIC's process for evaluating merger applications, and
the principles that guide the FDIC's consideration of the applicable
statutory factors as set forth in the BMA. The Supplementary
Information section below contains explanatory content, including
historical data, to provide additional context for the Proposed SOP.
DATES: Comments must be received by June 18, 2024.
ADDRESSES: All comments related to this Proposed SOP must include the
agency name and RIN 3064-ZA31. Please send comments by one method only
directed to:
Agency Website: https://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the
agency's website.
Email: [email protected]. Include RIN 3064-ZA31 in the
subject line of the message.
Mail: James P. Sheesley, Assistant Executive Secretary,
Attention: Comments-RIN: 3064-ZA31, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
Hand Delivery: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street NW, building (located on F
Street NW) on business days between 7:00 a.m. and 5:00 p.m. ET.
Public Inspection: All comments received will be posted without
change to https://www.fdic.gov/regulations/laws/federal/--including any
personal information provided--for public inspection. Commenters should
submit only information that the commenter wishes to make available
publicly. The FDIC may review, redact, or refrain from posting all or
any portion of any comment that it may deem to be inappropriate for
publication, such as irrelevant or obscene material. The FDIC may post
only a single representative example of identical or substantially
identical comments, and in such cases will generally identify the
number of identical or substantially identical comments represented by
the posted example. All comments that have been redacted, as well as
those that have not been posted, that contain comments on the merits of
this document will be retained in the public comment file and will be
considered as required under all applicable laws. All comments may be
accessible under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: George Small, Senior Examination
Specialist, Division of Risk Management Supervision, 347-267-2453,
[email protected]; Annmarie Boyd, Senior Counsel, Legal Division, 202-
898-3714, [email protected]; Benjamin Klein, Supervisory Counsel, Legal
Division, 202-898-7027, [email protected]; Jessica Thurman, Chief,
Division of Depositor and Consumer Protection, 202-898-3579,
[email protected]; Mark Haley, Chief, Division of Complex Institution
Supervision and Regulation, 917-320-2911, [email protected]; and Ryan
Singer, Chief, Division of Insurance and Research, 202-898-7532,
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Bank Merger Act (BMA), Section 18(c) of the Federal Deposit
Insurance Act (FDI Act), prohibits an insured depository institution
(IDI) from engaging in a merger transaction without regulatory
approval. The FDIC is one of three Federal banking agencies with
responsibility for evaluating transactions subject to the BMA. The FDIC
has jurisdiction to act on merger applications that involve an IDI and
any non-insured entity, notwithstanding the IDI's charter.\1\ The FDIC
also has jurisdiction to act on merger applications that solely involve
IDIs in which the acquiring, assuming, or resulting institution is a
state nonmember bank or state savings association (FDIC-supervised
institution).\2\
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\1\ 12 U.S.C. 1828(c)(1).
\2\ 12 U.S.C. 1828(c)(2).
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In order to implement its responsibilities under the BMA, the FDIC
has codified regulations; issued a Statement of Policy (SOP); and
published the Applications Procedures Manual (APM). The FDIC's APM
provides application-processing instructions for the FDIC's
professional staff assigned to review, evaluate, and process
applications, notices, and other requests submitted to the FDIC. The
APM includes a section on processing merger applications that provides
detailed procedural instructions to staff, as well as information
regarding the assessment of each statutory factor. In 2019, the FDIC
published the APM to its external website to provide greater
transparency regarding the FDIC's internal application processes. In
light of prospective changes to the bank merger process, additional
revisions are planned for the APM chapter on mergers. Finally, together
with the other Federal banking agencies, the FDIC has issued an
interagency application form, which includes a supplemental section
specific to the FDIC. Concurrent with this Proposed SOP, the FDIC is
seeking comment on proposed revisions to its supplemental section to
the interagency form.
The current SOP on Bank Merger Transactions (Current SOP), last
amended in 2008, addresses the FDIC's process for reviewing proposed
merger applications in the context of the applicable statutory
factors.\3\ Since the Current SOP was last revised, the BMA has been
amended and significant changes have occurred in the banking industry
and financial system, including continued growth and consolidation.
This growth and consolidation, which has been ongoing for the past
several decades, has significantly reduced the number of smaller
banking organizations, increased the number of large and systemically
important banking organizations, and contributed to the need for a
review of the regulatory framework that applies to bank merger
transactions subject to the BMA.\4\
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\3\ FDIC Statement of Policy on Bank Merger Transactions, 73 FR
8870.
\4\ 12 U.S.C. 1828(c).
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The number of large IDIs, especially IDIs with total assets of $100
billion or more, has grown considerably over the past few decades. This
is due to a combination of factors, including consolidation in the
banking sector (fueled in part by mergers and acquisitions), the easing
of interstate banking restrictions,\5\ and organic
[[Page 29223]]
growth. As of December 31, 2004, there were only 12 IDIs with total
assets greater than $100 billion; however, that number increased to 33
by December 31, 2023. Of the 33 IDIs with total assets greater than
$100 billion, nine were owned by the eight U.S. bank holding companies
designated as U.S. Global Systemically Important Banks (GSIBs), and
four were owned by foreign banking organizations designated as foreign
GSIBs.\6\ While IDIs with total assets of more than $100 billion as of
December 31, 2023, comprised less than one percent of the total number
of IDIs, they held approximately 71 percent of total industry assets
and approximately 68 percent of domestic deposits.
---------------------------------------------------------------------------
\5\ Prior to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, Public Law 103-328, many states did not
permit intra-state or interstate branching, and interstate branch
branching was not federally sanctioned. Following the passage of
this law, many multi-bank holding companies with subsidiary IDIs
with different home states chose to consolidate existing bank
charters.
\6\ See Financial Stability Board 2022 list of GSIBs available
at https://www.fsb.org/wp-content/uploads/P211122.pdf
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The FDIC has a responsibility to promote public confidence in the
banking system, maintain financial stability, and resolve failing IDIs.
Given the increased number, size, and complexity of large banks,
greater attention to the financial stability risks that could arise
from a merger involving a large bank is warranted. In particular, the
failure of a large IDI could present greater challenges to the FDIC's
resolution and receivership functions, and could present a broader
financial stability threat. For various reasons, including their size,
sources of funding, and other organizational complexities, the
resolution of large IDIs can present significant risk to the Deposit
Insurance Fund (DIF), as well as material operational risk for the
FDIC. In addition, as a practical matter, the size of an IDI may limit
the resolution options available to the FDIC in the event of failure.
After the 2008 financial crisis, the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act) amended the BMA to
include, for the first time, a factor related to the risk to the
stability of the United States (U.S.) banking or financial system
(financial stability factor). The FDIC is seeking public comment on the
SOP's approach to the financial stability factor, which integrates and
builds upon the FDIC's existing framework for assessing this factor.
On July 9, 2021, an Executive Order addressed the impact that
consolidation may have on maintaining a competitive marketplace. The
Executive Order also addressed the impact that consolidation may have
on maintaining a fair, open, and competitive marketplace, as well as
the impact on the welfare of workers, farmers, small businesses,
startups, and consumers. The FDIC continues to coordinate with the
Department of Justice (DOJ) and the other Federal banking agencies in
modernizing bank merger oversight.\7\
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\7\ E.O. 14036 ``Promoting Competition in the American Economy''
(July 9, 2021). On December 18, 2023, the DOJ and the Federal Trade
Commission (FTC) jointly released the 2023 Merger Guidelines
(guidelines). These guidelines build upon, expand, and clarify
frameworks set out in previous versions.
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On March 31, 2022, the FDIC published in the Federal Register a
request for information and comment (RFI) regarding the application of
the laws, practices, rules, regulations, guidance, and SOP that apply
to merger transactions subject to FDIC approval.\8\ The RFI requested
comments regarding the effectiveness of the FDIC's existing framework
in meeting the requirements of the BMA. After review of the public
comments received in response to the RFI, the FDIC determined that it
is both timely and appropriate to review its regulatory framework for
merger transactions as outlined in the Current SOP. The Proposed SOP
was drafted in consideration of the comments received regarding the RFI
and is being published in the Federal Register to obtain further input
from interested parties.
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\8\ 87 FR 18740 (March 31, 2022).
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II. Summary of Comments
While not all of the questions described in the RFI are pertinent
to the SOP, the FDIC is summarizing the comments received to provide
transparency with respect to the overall process for developing updated
merger-related policies and procedures. The FDIC received 33 comment
letters in response to the RFI.\9\ The majority of RFI commenters (25
or 76 percent) were in favor of at least some changes to the FDIC's
merger review processes. Six RFI commenters (18 percent) were against
changes to the FDIC's merger review processes, and two RFI commenters
(6 percent) were neither in favor of, nor against, changes to the
FDIC's merger review processes.
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\9\ Request for Information and Comment on Rules, Regulations,
Guidance, and Statements of Policy Regarding Bank Merger
Transactions. See 87 FR 18740.
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Among RFI commenters in favor of updating the FDIC's processes that
apply to merger transactions, four common themes for potential changes
were observed: (i) amend the calculation of market concentration and
the competitive effects analysis; (ii) enhance the analysis of the
convenience and needs of the community to be served factor; (iii)
establish risk criteria and thresholds for the analysis of the
financial stability factor; and (iv) create a de minimis exception (or
presumption of approval) for mergers involving small and mid-sized
IDIs.
Some RFI commenters suggested the need for an interagency approach
to the development of any new merger regulations, guidelines, and
instructions, and noted that any new elements should be applied
prospectively. RFI commenters also suggested enhancing the public's
ability to review and comment on proposed mergers, including making the
information exchange (questions posed and responses received between
the FDIC and applicants) a part of the public record. Finally, RFI
commenters requested that the FDIC review, to the extent possible, the
effects of past mergers to evaluate the appropriateness of any revised
merger guidelines. These RFI commenters requested that the FDIC make
the results of the evaluation public and apply the results to future
merger decisions.
Six RFI commenters were against updating the FDIC's merger related
processes. In general, these RFI commenters argued that the FDIC's
current framework for reviewing proposed merger transactions was sound
and that revisions might harm the banking sector. More specifically,
some RFI commenters argued that any change to the competitive review
would make bank mergers more difficult; and such changes risked
disproportionately impacting community, mid-size, and regional banks.
Multiple RFI commenters suggested revisions to the receipt and
compilation of the FDIC's Summary of Deposits (SOD) data, and
amendments to the calculations to improve the quality, accuracy, and
consistency of the data used to calculate the Herfindahl-Hirschman
Index (HHI).\10\ The RFI commenters broadly agreed that the increased
presence of non-bank firms, including those specializing in financial
technology (fintech), and increased consolidation within the banking
industry necessitate revision to the evaluative considerations for
competitive effects to reflect the economic realities and the
industry's competitive landscape. Some RFI
[[Page 29224]]
commenters posited that deposit data for institutions that rely on
technology-based delivery channels are not dependent on their branch
locations.
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\10\ The HHI is calculated by squaring the market share of each
firm competing in the market and then summing the resulting numbers.
For example, for a market consisting of four firms with shares of
30, 30, 20, and 20 percent, the HHI is 2,600 (30\2\ + 30\2\ + 20\2\
+ 20\2\ = 2,600). The HHI calculation can also be applied to other
relevant Consolidated Reports of Condition categories or other
appropriate sources of data, aside from deposits. For example, the
HHI analysis may also include data relative to commercial and
industrial loans.
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Multiple RFI commenters stated that the HHI threshold for
prospective competitive effects concerns should be increased from its
current limit. These RFI commenters contended that the HHI screens
applied to the banking industry were stricter than those that had been
applied in any other industry. In the opinion of these RFI commenters,
raising the HHI would account for the growing competition that IDIs
with physical branches face from competitors with different business
models, including fintech firms and digital banks.
Conversely, other RFI commenters suggested the overall HHI
threshold should be lowered, and the threshold for a change in HHI
should be revised from the current level. These RFI commenters
suggested that mergers disproportionally affect low- to moderate-income
and/or minority communities, and therefore, the threshold (and any
change in it) must be lowered to appropriately capture competitive
effects.
Some RFI commenters suggested consideration of alternate measures
of concentration and/or evaluating the HHI of other asset or product
categories such as business loans or residential lending. In addition,
multiple RFI commenters requested that the FDIC revise the SOD data
collection and calculation to improve precision. These RFI commenters
suggested that the FDIC: (i) differentiate corporate and centrally
booked deposits from retail deposits; (ii) amend methods and reporting
standards, and provide more guidance on how a reporting entity
attributes deposits to branches; (iii) include more data on depositors
in certain circumstances in order to increase geographic specificity;
and (iv) add data on thrifts, credit unions, fintech firms, farm credit
banks, and online entities that serve customers in the relevant market.
Multiple RFI commenters recommended revisions to the analysis of
the convenience and needs of the community to be served statutory
factor. In general, these RFI commenters recommended that the FDIC
focus the analysis on the additive benefits of the merger transaction
for consumers, particularly in low- to moderate-income and minority
communities; and place higher burden on applicants to demonstrate the
public interest benefits of the transaction. Concerns with regard to
the impact of branch closings were noted. A few RFI commenters
suggested that the applicant should be required to submit a full plan
related to branch closings.
Approximately half of the RFI commenters requested that the Federal
banking agencies establish specific stability risk considerations (e.g.
size, substitute providers, interconnectedness, complexity, and cross-
border activities) and formalize thresholds (such as total asset
metrics) for developing a resolution plan for large bank mergers.
About one quarter of RFI commenters noted a perceived burden on
small institutions. These RFI commenters requested that the FDIC create
a small bank de minimis exception whereby small bank mergers would be
presumed not to create monopolies or have anticompetitive effects if
they meet certain prudential thresholds that can only be overturned
based on other criteria such as the results of the competitive effects
analysis.
In general, RFI comments were mixed on the following topics: (i)
whether there is a presumption of approval for merger applications;
(ii) whether the existing framework considers all aspects of the BMA;
and (iii) whether prudential considerations or ``bright lines'' should
be developed for any of the statutory factors. Many of the comments, as
well as new questions that the FDIC has developed in response to public
comments on the RFI, are addressed in this preamble.
III. Description of the Proposed Statement of Policy
Overall Changes in the Proposed SOP
The Proposed SOP reflects regulatory, legislative, and industry
changes since the SOP was last published for comment in 1997. Further,
the Proposed SOP includes new content to make it more principles based,
communicates the FDIC Board's expectations regarding the evaluation of
merger applications filed pursuant to the BMA, and describes the types
of merger applications for which the FDIC is the responsible agency.
The Proposed SOP does not include the application procedures
narrative that is included in the Current SOP. The APM describes
procedural matters such as application filing, expedited processing and
notification to the Attorney General. The Proposed SOP includes a
separate discussion of each statutory factor, including: competitive
effects, financial and managerial resources, future prospects,
convenience and needs of the community to be served, risk to the
stability of the U.S. banking or financial system, and effectiveness in
combatting money laundering. In addition, the Proposed SOP includes a
declarative statement for each statutory factor to highlight the
Board's expectations and accompanying narrative to describe the
analytical considerations for the evaluation of each factor. While
historical performance provides contextual insight into the evaluation
of these factors, the SOP affirms that the evaluations are forward
looking. A detailed discussion of each statutory factor follows this
section.
The FDIC seeks comment on all aspects of the Proposed SOP.
Question:
1. Does the structure of the Proposed SOP effectively present the
FDIC's expectations with regard to review and evaluation of merger
applications? If not, please describe how the structure could be
improved.
Jurisdiction and Scope
The Proposed SOP clarifies the circumstances in which FDIC approval
is required in connection with a proposed merger transaction. The FDIC
plays an important role in the administration of the BMA, which is
codified in the FDI Act and covers a broad range of transactions.\11\
Specifically, Section 18(c)(1) of the BMA requires FDIC approval in
connection with transactions in which an IDI: (A) merges or
consolidates with any non-insured bank or institution,\12\ (B) assumes
liability to pay any deposits or similar liabilities in a non-insured
bank or institution,\13\ or (C) transfers assets to any non-insured
bank or institution in consideration of an assumption of deposit
liabilities of the IDI.\14\ The FDIC's authority extends to a variety
of transactions between an IDI and a non-insured entity, which are
``merger transactions'' for the purposes
[[Page 29225]]
of the BMA, even if the transaction is not legally structured as a
merger.\15\
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\11\ The broad scope of transactions expressly subject to FDIC
approval under the BMA evinces a clear congressional intent for the
FDIC to review a wide array of transactions between IDIs and non-
insured entities that have the potential to affect the safety and
soundness of a resultant IDI or increase the potential liability of
the Deposit Insurance Fund.
\12\ 12 U.S.C. 1828(c)(1)(A). A non-insured entity refers to any
entity that is not FDIC insured. Although there is no definition of
the term ``non-insured institution'' in the BMA, it has long been
the FDIC's interpretation that the term includes any non-insured
entity with which an IDI can legally merge. Notably, although
federally insured credit unions are insured by the National Credit
Union Administration, such credit unions are not IDIs for the
purposes of the FDI Act, see 12 U.S.C. 1813(a)-(c), and any merger
transaction between an IDI and a credit union is therefore subject
to FDIC approval under the BMA.
\13\ 12 U.S.C. 1828(c)(1)(B).
\14\ 12 U.S.C. 1828(c)(1)(C). The statutory requirements of 12
U.S.C. 1828(c)(1) originate from the Banking Act of 1935. Sec. 101,
Public Law 74-305 (adopting Section 12B(v)(4) of the Federal Reserve
Act).
\15\ 12 U.S.C. 1828(c)(1)-(3).
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Mergers and Consolidations Involving IDIs and Non-Insured Entities
Section 18(c)(1)(A) of the BMA prohibits an IDI from merging or
consolidating with a non-insured entity without the FDIC's approval.
Neither the BMA nor the FDIC Rules and Regulations define the terms
``merge'' or ``consolidate.'' \16\ The FDIC implements the BMA by
emphasizing a transaction's substance over its form and asserting
jurisdiction over transactions that substantively result in a merger
(merger in substance). The FDIC interprets the term ``merge'' in the
BMA to encompass all transactions that result in an IDI substantively
and effectively combining with a non-insured entity, regardless of
whether the transaction is structured as a merger or asset acquisition.
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\16\ A consolidation generally is a combination of the assets
and liabilities of two or more IDIs into a newly chartered IDI, and
the extinguishment or cancellation of the charters of the other
institutions. Although rare, the FDIC would consider two
institutions substantively combining with a newly created third
institution to be a consolidation in substance.
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Although acquisitions of assets are not specifically enumerated as
a category of transactions subject to FDIC approval under the BMA, an
IDI's acquisition of assets from a non-insured entity could be the
substantive equivalent of a transaction legally structured as a merger.
For example, this occurs when the acquired assets constitute all, or
substantially all, of the non-insured entity's assets or business
enterprise and if the non-insured entity dissolves, is rendered a
shell, or otherwise substantially ceases its main business operations
or enterprise. This applies when there is a transfer of all, or
substantially all, of a non-insured entity's assets to an IDI,
regardless of whether: (i) such transactions consist of an assumption
of identified liabilities, (ii) the assets acquired are tangible or
intangible (without regard to whether the assets would be considered
assets under generally accepted accounting principles), or (iii) such
acquisitions occur as a single transaction or over the course of a
series of transactions. Excluding transactions that are mergers in
substance involving IDIs and non-insured entities from FDIC review
would be inconsistent with the purposes of the BMA by overlooking
transactions that could affect the safety and soundness of an IDI and
increase the risk to the DIF.
The Proposed SOP clarifies the applicability of Section 18(c)(1)(A)
of the BMA by emphasizing that the scope of merger transactions subject
to approval encompasses transactions that take other forms, including
purchase and assumption transactions that are mergers in substance. The
Proposed SOP provides an example of a transaction that is a merger in
substance, and is therefore subject to the BMA, such as when an IDI
absorbs all (or substantially all) of a target entity's assets and the
target entity dissolves or otherwise ceases engaging in the acquired
lines of business.
Questions:
2. How can the FDIC increase clarity to interested parties
regarding the applicability of the BMA to a merger in substance?
3. What additional clarity should the FDIC provide regarding the
circumstances in which a transaction is subject to FDIC approval under
the BMA, including transactions involving an IDI and a non-insured
entity that is not a traditional financial institution, such as a
fintech firm, whose assets may be primarily intangible in nature?
Assumptions of Deposits by IDIs From Non-Insured Entities
Section 18(c)(1)(B) of the BMA prohibits an IDI from assuming
liability to pay any deposits made in, or similar liabilities of, any
non-insured bank or entity.\17\ The scope of this provision depends on
the meaning of deposit (or other similar liability) and on the
interpretation of what constitutes an IDI's assumption of such a
deposit (or other similar liability). Section 3(l) of the FDI Act
defines ``deposit'' broadly. In addition to the definition generally
encompassing unpaid balances of money, the definition expressly
includes a variety of other instruments, including trust funds and
escrow funds.\18\
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\17\ 12 U.S.C. 1828(c)(1)(B) (emphasis added).
\18\ See 12 U.S.C. 1813(l). Section 18(c)(1)(B) also includes
liabilities that would be deposits except for the provision in
Section 3(l)(5) of the FDI Act.
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In addition to the breadth of the definition of ``deposit,'' the
FDIC broadly interprets what it means to assume liability to pay such
deposits for the purposes of Section 18(c)(1)(B) of the BMA in order to
prevent circumvention of the provision. Specifically, the applicability
of Section 18(c)(1)(B) does not depend on the existence of a formal
written agreement between an IDI and a non-insured entity to transfer
deposit liabilities. In cases where an IDI and a non-insured entity
cooperate to arrange a transfer of deposits from a non-insured entity
to an IDI, the FDIC will generally consider such an orchestration to
constitute an assumption of deposits or other similar liabilities for
the purposes of Section 18(c)(1)(B).\19\
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\19\ See id.
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Unlike the applicability of Section 18(c)(1)(A) of the BMA to asset
acquisitions, which depends in part on the acquisition of ``all or
substantially all'' of a non-insured entity's assets, the applicability
of Section 18(c)(1)(B) does not depend on a finding that an IDI assumes
all, or substantially all, of a non-insured entity's deposits or
similar liabilities. The assumption of any deposits or other similar
liabilities is sufficient to implicate Section 18(c)(1)(B).
The FDIC takes the view that any expansion of an IDI's deposit base
via acquisition would be subject to approval under the BMA. As
discussed above, when an IDI assumes liability to pay a deposit or
other similar liability from a non-insured entity, FDIC approval is
required under Section 18(c)(1)(B). As discussed later in this section,
when an FDIC-supervised IDI assumes liability to pay a deposit from
another IDI, FDIC approval is required under Section 18(c)(2)(C). The
FDIC clarifies that the BMA would not necessarily be implicated by an
organic expansion of an IDI's deposit base, such as when a depositor or
a nonaffiliated third party that acts as agent, custodian, or trustee
for a depositor, elects--at their initiative--to establish a deposit
relationship with the IDI or to place deposits with the IDI. However,
in cases where the agent, custodian, or trustee itself serves as a
depository, a transfer of deposits for which it has liability to pay to
an IDI would be subject to FDIC approval under the BMA. Furthermore, if
customers are solicited to transfer their deposits to an IDI in
connection with, or in relation to, an arrangement or agreement to
which that IDI is party, the IDI is expected to seek approval under the
BMA in connection with the ultimate transfer of such deposits.
The Proposed SOP seeks to capture and convey the broad
applicability of Section 18(c)(1)(B) of the BMA by affirming that an
FDIC-supervised IDI's assumption of a deposit from another IDI, or any
IDI's assumption of a deposit from a non-FDIC insured entity, is
likewise subject to FDIC approval even in the absence of an express
agreement for a direct assumption. The Proposed SOP highlights the
broad definition of ``deposit'' in Section 3(l) of the FDI Act, and
notes that the definition extends beyond traditional demand deposits to
include, among other things, trust funds, and escrow funds.
[[Page 29226]]
Question:
4. Does the Proposed SOP sufficiently alert interested parties to
the range of transactions that could be subject to FDIC approval under
Section 18(c)(1)(B) of the BMA? If not, please comment on how the range
of transactions could be more clearly articulated.
Asset and Deposit Transfers From IDIs to Non-Insured Entities
Section 18(c)(1)(C) of the BMA prohibits an IDI from transferring
assets to any non-insured bank or entity in consideration of the
assumption for any portion of the deposits made in such IDI. Generally,
when an IDI transfers deposits to a non-insured entity, an application
to the FDIC would be necessary under Section 18(c)(1)(C) since such
transfers are typically accompanied by a transfer of assets, even if
such assets consist only of cash. As with Section 18(c)(1)(B), the
applicability of Section 18(c)(1)(C) is broad given the scope of the
FDI Act's definition of deposit. Furthermore, similar to the FDIC's
approach to Section 18(c)(1)(B), the FDIC generally views an
orchestration of a transfer of deposits from an IDI to a non-insured
entity to be subject to FDIC approval under Section 18(c)(1)(C), even
in the absence of an express agreement.
Although parties seeking to engage in transferring customer
accounts that consist of both custodial and deposit relationships may
characterize the transaction solely as a transfer of custodial
relationships, such transactions implicate the BMA if they also result
in a transfer of the deposit relationship. It has therefore been the
view of the FDIC that the BMA is implicated if an IDI transfers deposit
relationships concurrent with, or subsequent to, a transfer of the
custodial relationship. Accordingly, where customers have both a
custodial and depository relationship with an IDI, an IDI may not evade
the BMA by transferring custodial rights to a third party that, in its
newly acquired custodial capacity, causes the customer's depository
relationship to be transferred either to itself or to another entity.
This is true even if such transfer was ostensibly at the direction of a
non-insured entity pursuant to custodial rights acquired from the IDI.
The Proposed SOP communicates the FDIC's policy with regard to
transfers of deposits from IDIs to non-insured entities by stating that
a transfer of deposits from any IDI to a non-insured entity is subject
to FDIC approval.
Question:
5. What additional clarity, if any, is needed to make interested
parties aware of the circumstances in which FDIC approval would be
required in connection with a transfer of deposits from an IDI to a
non-insured entity?
Merger Transactions Solely Involving Insured Depository Institutions
Section 18(c)(2)(C) of the BMA generally prohibits an IDI from
merging or consolidating with any other IDI or, either directly or
indirectly, acquiring the assets of, or assuming liability to pay any
deposits made in, any other IDI except with the prior written approval
of the FDIC if the acquiring, assuming, or resulting bank is a state
nonmember bank or state savings association.\20\ If the acquiring,
assuming, or resulting bank is a national bank or Federal savings
association, the approval of the Office of the Comptroller of the
Currency (OCC) is required, and if it is a state member bank, the
approval of the Board of Governors of the Federal Reserve System (FRB)
is required.\21\
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\20\ 12 U.S.C. 1828(c)(2)(C).
\21\ 12 U.S.C. 1828(c)(2)(A)-(B).
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As with transactions involving IDIs and non-insured entities, the
FDIC considers that a transaction in which an IDI absorbs another IDI
by acquiring all, or substantially all, of its assets would be subject
to FDIC approval under Section 18(c)(2)(C) of the BMA. It is less
common for the FDIC to evaluate whether a large-scale transaction
exclusively among IDIs constitutes a merger in substance since such
transactions typically include an assumption of deposits, which is
itself a sufficient basis to implicate Section 18(c)(2). As previously
stated, the breadth of the FDIC's definition of ``deposit'' causes
Section 18(c)(2) to encompass a wide range of transactions, and the
FDIC similarly takes a broad view as to what constitutes a direct or
indirect assumption of liability to pay deposits.
The foregoing discussion addresses the FDIC's policy with regard to
the applicability of the BMA to a wide variety of transactions.
However, the FDIC emphasizes that this is not an exhaustive overview of
potential transactions that are subject to FDIC approval under the BMA.
Interested parties should be alert to the FDIC's policies of
emphasizing a transaction's substance over its form, its interest in
preventing evasion of the BMA, and of the scope of the terms used in
Sections 18(c)(1) and 18(c)(2) of the BMA.
Overview of the Application Process
The Proposed SOP describes the FDIC's expectations for application
processing, emphasizing the utility of the pre-filing process and the
importance of filing a substantially complete application. The Proposed
SOP alerts applicants to the FDIC's expectation that all submitted
materials, including the financial projections and any related
analyses, be well supported and sufficiently detailed. In addition, the
Proposed SOP emphasizes the importance of the narrative supporting the
rationale for the proposed transaction, and communicates the FDIC's
expectation that the narrative be supported by studies, surveys,
analyses and reports, including those prepared by or for officers,
directors, or deal team leads.
Merger Application Adjudication
Generally, if all statutory factors are favorably resolved, and all
other regulatory requirements are satisfied, the FDIC will approve the
merger application. Approvals will be subject to the standard
conditions detailed in 12 CFR 303.2(bb) and any non-standard conditions
deemed appropriate by the FDIC. However, the FDIC will not use
conditions or written agreements that may be required as part of the
conditions, as a means for favorably resolving any statutory factors
that otherwise present material concerns. The Order and Basis for
Approval (Order) will be posted to the FDIC's Decisions on Bank
Applications page.
The Order will address all statutory factors, as well as summarize
information regarding any Community Reinvestment Act (CRA) protests.
The FDIC will summarize the related analysis and conclusions and
include any conditions imposed in conjunction with the approval.
Finally, the SOP articulates certain elements that may result in
unfavorable findings and would require action by the Board of Directors
on the application. This commentary presents a general overview of the
potential scenarios and fact patterns that would present significant
challenges to favorable findings on the statutory factors. The FDIC may
not be able to find favorably on any given statutory factor (or
therefore approve the application) if there are unresolved
deficiencies, issues, or concerns (including with respect to any public
comments), or the lack of sustained performance under corrective
programs particularly when the transaction implicates the areas that
are the subject of the corrective program.
Merger Application Activity
To provide some perspective on the volume and types of filings
subject to FDIC review and action, the tables in
[[Page 29227]]
Appendix A to this preamble were developed regarding the volume,
disposition, and size of merger transactions processed by the FDIC from
January 1, 2004, through December 31, 2023. In total, the FDIC
processed 2,497 merger applications that were either ``bank-to-bank''
merger applications solely involving IDIs where the resulting
institution was an FDIC-supervised institution or that involved an IDI
and a credit union or other non-insured institution.\22\ This does not
include pending applications or applications for corporate
reorganizations or interim mergers.\23\
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\22\ As of December 31, 2023, there were 17 pending bank-to-bank
merger applications and ten pending merger applications that involve
a credit union or other non-insured institution. Data regarding
FDIC-processed merger applications involving credit unions and other
non-insured entities is provided as Tables 3-6 in Appendix A to this
preamble. Table 7 in Appendix A provides data regarding the number
of IDIs acquired by FDIC-supervised banks or savings associations,
or by credit unions in purchase and assumption transactions.
\23\ A corporate reorganization is a merger transaction that
involves solely an IDI and one or more of its affiliates. Corporate
reorganizations may include transactions where two IDIs merge
immediately following a merger between two bank holding companies.
An interim merger transaction is a merger transaction between an IDI
and a newly formed IDI that is established solely to facilitate a
corporate reorganization. From the beginning of 2004 through
December 31, 2023, the FDIC processed 2,008 corporate
reorganizations and 483 interim mergers. As of December 31, 2023,
there were nine pending corporate reorganization applications and
five pending interim merger applications.
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As shown in Table 1, the volume of bank-to-bank merger applications
processed by the FDIC has ranged between 49 and 152 annually from 2004
through 2023. The annual average number of such applications processed
during this period was 110. Of the 2,209 bank-to-bank applications
processed over the referenced period, 92.9 percent (2,054) were
approved, 5.4 percent (116) were withdrawn at the applicant's
discretion, 1.7 percent (39) were returned due to insufficient
information provided in the application submission, and none were
denied. Applicants that choose to withdraw an application frequently do
so before receiving a public denial. As described in the APM,\24\ when
applications are recommended for denial, FDIC staff are directed to
contact applicants, describe the concerns, and provide a final
opportunity to provide additional information that might influence the
decision. The APM also states that at its discretion, the FDIC may
offer the applicants the opportunity to withdraw the application. If an
applicant withdraws their filing, the FDIC Board of Directors may
release a statement regarding the concerns with the transaction if such
a statement is considered to be in the public interest for purposes of
creating transparency for the public and future applicants.
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\24\ See APM, Section 1.3, ``Denials and Disapprovals.''
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Table 2 provides a breakdown of the bank-to-bank merger
applications processed during this period by the size of the resulting
IDI. Approximately 93.0 percent (2,055) of applications received and
acted upon, and 95.0 percent of applications approved, were for IDIs
that would be $10 billion or less in asset size following the proposed
merger. Of the 2,054 approved applications, approximately 4.4 percent
(91) involved resulting IDIs with an asset size between $10 billion and
$100 billion in total assets, and 0.3 percent (seven) were in excess of
$100 billion.
Statutory Factors
Monopolistic or Anticompetitive Effects
The Federal banking agencies are prohibited from approving a merger
that would result in a monopoly, or which would be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize
the business of banking in the United States.\25\ There is no exception
to this prohibition. Furthermore, the Federal banking agencies are
prohibited from approving a merger that does not constitute a monopoly
or conspiracy to monopolize, but that would nonetheless substantially
lessen competition, tend to create a monopoly, or otherwise be in
restraint of trade, unless the anticompetitive effects of the
transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs
of the community to be served.\26\ For example, this public interest
exception may apply where a transaction is necessary to prevent the
probable failure of an IDI.
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\25\ 12 U.S.C. 1828(c)(5)(A).
\26\ 12 U.S.C. 1828(c)(5)(B).
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The FDIC conducts its own independent analysis to ensure compliance
with the BMA's prohibition against the approval of any merger
transaction that would result in a monopoly or be in furtherance of an
attempt to monopolize the business of banking in any part of the
U.S.\27\ In situations where a transaction would not result in a
monopoly but where anticompetitive effects are nonetheless identified,
the FDIC will evaluate whether the applicants have established that the
benefits to the convenience and needs of the community will clearly
outweigh any anticompetitive effects.
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\27\ 12 U.S.C. 1828(c)(5)(A). In addition to the BMA's
prohibition against approving merger transactions that would result
in a monopoly, the BMA generally prohibits the Federal banking
agencies from approving an interstate merger that would result in an
IDI (together with its affiliates) controlling more than 10 percent
of the total amount of deposits of IDIs in the U.S. See 12 U.S.C.
1828(c)(13).
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The way in which the convenience and needs of the community to be
served is juxtaposed against the antitrust competitive standard is
important. A non-monopolistic yet anticompetitive merger can only be
approved in situations where the proponents to the transaction can
establish that the advantage of the merger for the convenience and
needs of the community clearly outweighs the anticompetitive effects.
This creates a heavy burden for the proponents of a merger to support
that the benefits to the community outweigh identified anticompetitive
concerns. A favorable finding on the convenience and needs of the
community to be served factor may not support approval of the
application when anticompetitive effects are identified.
In addition to its own independent analysis, the BMA requires the
FDIC to request a competitive factors report from the Attorney General
for any merger between an IDI and a non-affiliated entity, unless the
FDIC finds that it must act immediately in order to prevent the
probable failure of an IDI involved in the transaction.\28\ The FDIC
may consult with the DOJ on mergers that may raise competitive
concerns. In cases where the FDIC considers proposed divestitures of
business lines, branches, or portions thereof to mitigate
anticompetitive effects, the FDIC will generally expect such
divestitures to be completed before allowing the merger to be
consummated. Additionally, to promote the ongoing competitiveness of
the divested business lines, branches, or portions thereof, the FDIC
will generally require that the selling institution will neither enter
into non-compete agreements with any employee of the divested entity
nor enforce any existing non-compete agreements with any of those
entities.
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\28\ 12 U.S.C. 1828(c)(4).
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The Proposed SOP does not include any bright lines or specific
metrics for which it is presumed that the transaction would be
considered anticompetitive. A few RFI commenters suggested that the
FDIC develop a benchmark asset size at or below which there is no
presumption of non-competitive effects. The Proposed SOP does not
include such metrics or benchmarks, as it is important to
[[Page 29228]]
maintain flexibility to appropriately evaluate the facts and
circumstances of each application filed.
The Proposed SOP reaffirms the FDIC's commitment to undertaking a
thorough review of the potential competitive effects of a proposed
merger transaction. As described in the Proposed SOP, the FDIC will
tailor its evaluation of competitive effects to consider all relevant
market participants (local, regional, and national). The Proposed SOP
establishes the relevant geographic markets as the areas where the
merging entities have a physical presence in the form of an office
(generally a main office or a branch). It also notes that the market
may include areas where the merging entities do not have a physical
presence, but may still provide products and services. The Proposed SOP
outlines the FDIC's approach to considering product markets. The FDIC
uses deposits as an initial proxy for commercial banking products and
services, but it will tailor the product market definition to
individual products as needed. In its analysis, the FDIC uses proxies
that reasonably reflect the competitive dynamics of the market,
including deposit and loan activity. However, the Proposed SOP notes
that the FDIC will, if appropriate, utilize additional analytical
methods, data sources, or geographic or product market definitions in
order to assess the competitive effects of a proposed merger when
practicable and relevant with consideration given to whether consumers
retain meaningful choices.
Consistent with the approach of the DOJ and the other Federal
banking agencies, the FDIC uses deposits as reported in the SOD data
submitted by IDIs (and compiled by the FDIC), as a general proxy for
the product market and then calculates the resulting market
concentration and change in market concentration in each relevant
geographic market using the HHI calculation. The FDIC initially focuses
on the respective shares of total deposits held by the merging IDIs and
the various other participants with offices in the relevant geographic
market(s) to measure market concentration. Multiple RFI commenters
suggested that the analysis of competition should include the influence
of thrifts, credit unions, fintech firms, Farm Credit System
institutions, and other online entities that offer products and
services in the relevant market. The Proposed SOP affirms that the FDIC
considers the influence of these entities when evaluating competitive
effects. Some RFI commenters suggested alternatives to the HHI
calculation such as the Hall-Tideman Index (HTI) \29\ or the
comprehensive industrial concentration index (CCI).\30\ The Proposed
SOP indicates that the FDIC will consider other products in its
competitive analysis, but does not incorporate any specific
alternatives to the HHI calculation.
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\29\ The HTI is used to measure the concentration (or unequal
distribution) of n market participants, who each have a market share
hi and a rank i (ordered according to decreasing market shares).
\30\ The CCI is the sum of the proportional share of the leading
IDI and the summation of the squares of the proportional sizes of
each IDI, weighted by a multiplier reflecting the proportional size
of the rest of the industry.
---------------------------------------------------------------------------
Several RFI commenters requested changes to how the FDIC compiles
SOD data, such as assigning online accounts to the account owner's
residence, rather than the main office of the entity receiving the
deposit. Additionally, RFI commenters requested that the FDIC amend
both the methods and reporting standards for SOD data, and provide more
guidance and instruction regarding how a reporting entity attributes
deposits to branches to enhance geographic specificity. The Proposed
SOP indicates that, as applicable, the FDIC will take into account any
additional data sources, appropriate analytical approaches, or
additional products beyond deposits to fully assess the competitive
effects of the transaction. Further, to the extent that amendments or
revisions to the SOD's reporting requirements, standards, and methods
are considered, they will be published in a separate request for
industry comment and feedback.
The relevant geographic markets are the areas where the merging
entities have overlapping branch footprints, and generally correspond
with the geographic markets defined by the FRB. The Proposed SOP notes
that on a case-by-case basis, the FDIC may consider alternative or
additional geographic and product markets. A few RFI commenters
suggested that the FDIC should conduct a separate analysis of the
competitive impact in rural areas, minority markets, or low- to
moderate-income communities when relevant. While the Proposed SOP does
not specifically address analytics of rural, minority, or low- to
moderate-income communities, it does affirm that the FDIC will use a
geographic market with a scope that is suited to the products or
services offered or planned.
RFI commenters were split on changes to the HHI; some RFI
commenters suggested that the overall threshold should be raised, while
others suggested that the overall level should be lowered. Similar
differences were also noted with respect to the change in the HHI
calculation; some RFI commenters suggested that the current change
threshold be increased, while others believed it should be lowered or
reflect any point change. Some RFI commenters suggested that the HHI
should be calculated for certain types of loans such as residential or
small business loans, rather than (or in addition to) deposits. The
Proposed SOP does not address the calculation of the HHI or the
attendant thresholds. The Proposed SOP notes that the FDIC will
consider additional methods of assessing the competitive nature of
markets for relevant products or services, as necessary or appropriate.
The FDIC plans to coordinate with other appropriate agencies regarding
any potential changes to the calculation of, or thresholds for, HHI
usage.
Questions:
6. To what extent is the FDIC's approach to analyzing the
competitive effects of a proposed merger transaction appropriate?
7. What changes to the current approach should the FDIC consider to
better reflect present-day competitive conditions?
8. Should the HHI be a definitive factor in making a determination?
In other words, should the FDIC find favorably regarding competitive
effects if the proposed merger does not exceed the defined banking-
specific HHI thresholds? If not, why not?
9. How should the Proposed SOP specifically address the ways to
calculate the competitive effects of mergers of IDIs with non-insured
entities, whether credit unions, financial services entities, bank
service corporations, or other entities?
10. What additional information should the FDIC provide about the
circumstances under which it will consider products other than deposits
and loans for transparency and so that filers may provide a more
complete initial submission?
11. Is the geographic market definition outdated? If so, why? How
should the definition be updated and why?
12. Would it be appropriate to define relevant geographic markets
by reference to markets in which the merging institutions have
delineated CRA assessment areas, including both facility-based
assessment areas and retail lending assessment areas?
13. Would it be appropriate to define relevant geographic markets
by reference to markets in which the merging institutions have
delineated CRA assessment areas?
[[Page 29229]]
14. Other than the HHI, what tools could be used to assess market
concentration and why would such tools be appropriate?
15. How should the Proposed SOP specifically address analytics for
rural, minority, or low- to moderate-income communities? What type of
analytical standards or criteria would be appropriate?
16. How can the FDIC's review address competitive effects beyond
geographic markets? For example, commenters are invited to provide
their views on any concerns that might typically be associated with
mergers that result in a large institution of a certain asset size, and
are further invited to identify what asset size thresholds (e.g., $50
billion, $100 billion, $250 billion, etc.) are most likely to present
such concerns. In addition, commenters are invited to provide detailed
views on the nature of competitive concerns that are associated with
mergers that involve a large institution absorbing a community bank.
Financial Resources and Managerial Resources and Future Prospects
The BMA requires the Federal banking agencies to take into account
the financial and managerial resources and future prospects of the
existing and proposed institutions involved in a merger transaction.
Financial Resources
The FDIC assesses the financial history, condition, and performance
of each entity involved in the merger transaction, as well as the
combined financial resources of the resulting IDI. The assessment of
financial resources includes an analysis of capital, asset quality,
earnings, liquidity, and sensitivity to market risk. The FDIC will
consider the liquidity risk of the resultant IDI, including the extent
of its projected reliance on uninsured deposits and its contingency
funding strategies. An IDI's overreliance on uninsured deposits or non-
core funding sources may not be consistent with a favorable finding on
this statutory factor.
Overall, the FDIC expects that the resulting IDI will reflect sound
financial performance and condition consistent with the IDI's size,
complexity, and risk profile. Generally, the FDIC will not find
favorably on this factor if the merger would result in a larger, weaker
IDI from an overall financial perspective.
RFI commenters were split on whether bright lines or formally
defined metrics should be developed and implemented for the evaluation
of this factor. Several RFI commenters desired to have defined ratings
and benchmarks formally articulated, and requested that merging
entities meeting these defined standards should have a streamlined
review or a presumption of approval. The Proposed SOP does not include
specific requirements for a favorable finding on this factor, as the
FDIC believes each transaction should be evaluated based on the facts
and circumstances presented in the application, and any determination
on the filing should be specific to that transaction. The incorporation
or adoption of formal metrics restricts the FDIC's ability to
effectively analyze the findings regarding the statutory factors and
make informed determinations and recommendations based on those
findings.
If the proposed merger involves an operating non-insured entity,
the FDIC will consider the entity's operational activities and
performance record when evaluating financial resources. The FDIC will
review audited financial statements (covering at least three years,
unless the entity's operating history is shorter) including details
regarding any deferred tax assets or liabilities, intangible assets,
contingent liabilities, and any recent or pending legal or regulatory
actions. The FDIC may also require an identification of, and accounting
for, low quality assets, including independent appraisals or valuations
to support the projected value of any businesses or assets expected to
transfer to the resultant IDI upon consummation of the merger.
The FDIC's evaluation of financial resources also will consider the
current and projected financial impact of any related entities on the
IDI, including the parent organization and any key affiliates. For each
relevant entity, the FDIC will consider, among other items, the size
and scope of operations, capital position, quality of assets, overall
financial performance and condition, compliance and regulatory history,
primary revenue and expense sources, and funding strategies.
Depending on the anticipated risk profile of the resulting IDI, the
FDIC may impose, as a non-standard condition, capital requirements that
are higher than applicable capital standards. Further, as appropriate,
the FDIC may impose a non-standard condition that requires the
resulting IDI and other applicable parties (such as certain affiliates
or investors) to enter into one or more written agreements that may
address, as applicable, capital maintenance requirements, liquidity or
funding support, affiliate transactions, and other relevant items.
Managerial Resources
The FDIC assesses the managerial resources of the existing entities
involved in a merger transaction, as well as the proposed management of
the resulting IDI. The FDIC expects that the proposed directors,
officers, and as appropriate, principal shareholders (collectively,
management) possess the capabilities to administer the resultant IDI's
affairs in a safe and sound manner. The background and experience of
each member of the proposed management team will be reviewed relative
to the size, complexity, and risk profile of the resulting IDI. The
capability of management to identify, measure, monitor, and control
risks and ensure an efficient operation in compliance with applicable
laws and regulations are important facets of the evaluation of
managerial resources.
A few RFI commenters requested that specific performance standards
(such as the management component rating) for small and mid-sized
institutions should be publicly stated, and entities in compliance with
these standards that meet certain other metrics (such as total asset
size) would have a presumption of approval or streamlined review
protocols. As previously stated, the Proposed SOP does not include
specific performance metrics or bright lines for any of the statutory
factors in order to maintain flexibility in the analysis and to ensure
each proposed transaction is evaluated on its merits, facts, and
circumstances.
The FDIC will review supervisory assessments of management made by
the relevant prudential regulators. This includes the current and
historical management ratings for any IDI involved in the proposed
merger, and the managerial performance and supervisory record of any
subsidiaries and affiliates. The FDIC will evaluate the extent and
effect of any organizational relationships on the IDI, while also
considering the operating history, risk management, and control
environment of the parent organization. Inherent in these
considerations are the condition, performance, risk profile, and
prospects of the organization as a whole, as well as the capacity of
management to successfully implement the resulting IDI's strategic (or
business) plan.
The evaluation of managerial resources includes an assessment of
each entity's record of compliance with respect to consumer protection,
fair lending, and other relevant consumer laws and regulations. The
FDIC will review supervisory assessments of management made by the
relevant regulators. In addition, the FDIC will
[[Page 29230]]
analyze the record of compliance with consumer laws and regulations,
the compliance management system for each of the IDIs, as well as the
compliance management rating system for the resulting IDI, to ensure
that there are appropriate controls to identify, monitor, and address
consumer compliance risks. Consideration is also given to the consumer
compliance rating pursuant to the Uniform Interagency Consumer
Compliance Rating System and the CRA.\31\
---------------------------------------------------------------------------
\31\ Uniform Interagency Consumer Compliance Rating System, 81
FR 79473, (Nov. 14, 2016). Community Reinvestment Act ratings are
defined in 12 CFR part 345, Appendix A.
---------------------------------------------------------------------------
The FDIC expects management to develop and implement effective
plans and strategies, and the resulting IDI to have sufficient
managerial and operational capacity, to integrate the acquired entity.
Effective integration includes, but is not limited to, human capital;
products and services; operating systems, policies, and procedures;
internal controls and audit coverage; physical locations; information
technology; and risk management programs. In conjunction with the
integration, the FDIC expects a resulting IDI to have the managerial
and operational capacity, and to devote adequate resources, to ensure
full and timely compliance with any outstanding corrective programs or
supervisory recommendations.
Various other matters are also pertinent to the evaluation of
managerial resources. The FDIC will consider the breadth and depth of
management, including the adequacy of succession planning;
responsiveness to issues or supervisory recommendations raised by
regulators or auditors; existing or pending formal or informal
enforcement actions; management's performance with respect to
information technology, consumer protection, and other specialty or
functional areas; recent rapid growth and the record of management in
overseeing and controlling risks associated with such growth; and the
reasonableness of fees, expenses, and other payments made to insiders.
Future Prospects
The FDIC evaluates the future prospects of the existing and
proposed entities involved in a merger transaction. As part of this
evaluation, the FDIC will review the submitted business (or strategic)
plan, including pro-forma financial projections and related assumptions
to assess whether the resulting IDI will be able to operate in a safe
and sound manner on a sustained basis following consummation of the
merger. Any accompanying valuations (such as those related to the
target entity, goodwill, or other assets) will also be reviewed to
ensure that the applicant adequately supports that the resulting IDI
will maintain an acceptable risk profile.
The FDIC will consider the economic environment, the competitive
landscape, the acquiring IDI's history in integrating merger targets,
the anticipated scope of the resulting IDI's operations and the quality
of its supporting infrastructure, and any other relevant factors. Any
significant planned changes to the resulting IDI's strategies,
operations, products or services, activities, income or expense levels,
or other key elements of its business will be closely assessed.
Questions:
17. To what extent is the FDIC's evaluation of financial resources
appropriate, and what additional items, if any, should be considered?
18. To what extent is the FDIC's evaluation of managerial resources
appropriate, and what additional items, if any, should be considered?
19. To what extent is the FDIC's evaluation of future prospects
appropriate, and what additional items, if any, should be considered?
Convenience and Needs of the Community To Be Served
The BMA requires the Federal banking agencies to take into account
the convenience and needs of the community to be served when evaluating
a merger transaction.\32\ One of the items considered in connection
with this factor is each IDI's CRA performance evaluation record and
any comments submitted by the public on the application. The FDIC
provides the public the ability to search pending merger applications
submitted to the FDIC and allows comments on merger applications to be
submitted electronically during the comment period. A few RFI
commenters suggested that the FDIC update its website to facilitate the
public's ability to review and comment on applications; and that the
FDIC should post any regulatory questions or information requests to
the applicants, and any applicant responses to its website. The FDIC is
considering enhancing the current website to include information
regarding public comments received on applications.
---------------------------------------------------------------------------
\32\ 12 U.S.C. 1828(c)(5).
---------------------------------------------------------------------------
Several RFI commenters requested that approval should be
conditioned upon the fulfillment of a strategy to address the
convenience and needs of the community, and that regulatory approval or
non-objection should be sought when the resultant IDI deviates from the
submitted plan. The Proposed SOP describes the analytical
considerations, but does not require a separate strategy to address the
convenience and needs of the community. However, the applicant is
expected to provide forward-looking information to the FDIC for the
purposes of evaluating the benefits of the merger on the community to
be served. As appropriate, claims and commitments made by the applicant
to the FDIC may be included in the Order and Basis for Approval, and
the FDIC's ongoing supervisory efforts will evaluate the IDI's
adherence to any such claims and commitments.
Multiple RFI commenters raised concerns with reliance on only the
most recent CRA evaluation. One RFI commenter noted that an Outstanding
CRA rating on two out of the most recent three CRA evaluations should
be a predicate to obtain regulatory approval for a merger; and another
RFI commenter requested a three-year average score for the CRA rating
as a benchmark. Some RFI commenters stated the CRA rating should be no
less than Outstanding, with a minimum of Satisfactory ratings on
component categories. A few RFI commenters requested that a presumptive
denial should be established if the CRA rating is not currently (or
over a recent, multi-year average period) at least Outstanding with
Satisfactory component ratings. The Proposed SOP does not establish
specific CRA rating benchmarks or bright lines in order to maintain
flexibility in the analysis and to ensure each proposed transaction is
evaluated on its merits, facts, and circumstances. However, a less than
Satisfactory rating or significant deterioration in CRA performance may
present significant concerns in resolving this factor. The FDIC's
review is not limited to the CRA record of the institutions and will
encompass a broad review of the institutions' existing products and
services and whether the products and services proposed by the
applicants will meet the convenience and needs of the community to be
served.
In addition, the FDIC will consider the record of each institution
in complying with consumer protection requirements and maintaining a
sound and effective compliance management system. This review will
include consideration of any existing orders, ongoing enforcement
actions, and pending reviews or investigations of
[[Page 29231]]
violations of consumer protection laws and regulations. A less than
Satisfactory consumer compliance rating may present significant
concerns in resolving this factor.
The FDIC will evaluate the community to be served broadly, which
will include the proposed assessment area(s), retail delivery systems,
populations in affected communities, and identified needs for banking
services. The FDIC expects that a merger between IDIs will enable the
resulting IDI to better meet the convenience and the needs of the
community to be served than would occur absent the merger. The FDIC
expects applicants to demonstrate how the transaction will benefit the
community such as through higher lending limits, greater access to
existing products and services, introduction of new or expanded
products or services, reduced prices and fees, increased convenience in
utilizing the credit and banking services and facilities of the
resulting IDI, or other means. Several RFI commenters suggested that a
higher burden should be placed on the applicant to demonstrate the
public benefits of the transaction. Multiple RFI commenters stated that
the FDIC should focus the analysis on the additive benefits of the
transaction for consumers, particularly those in low- to moderate-
income and minority communities. Numerous RFI commenters indicated that
a community benefit plan should be required, as should mandatory public
hearings to discuss the impact on the relevant communities. Further,
several RFI commenters stated that a cost/benefit analysis of the
proposed merger should be prepared and included in the publicly
available application materials. The Proposed SOP outlines the FDIC
Board's expectations with regard to the public benefits of the
transaction, but does not require public benefit statements or plans to
be established.
In addition to the CRA and consumer compliance ratings and
performance, the FDIC will also consider the resulting assessment
area(s) and branch locations, as well as the impact of branch closings
or consolidations, particularly on low- and moderate-income
neighborhoods or designated areas. The application form solicits
information regarding projected or anticipated branch expansions,
closings, or consolidations. Generally, the FDIC considers a
substantially complete merger application to include, among other
items, at least three years of information regarding projected branch
expansions, closings, or consolidations. Some RFI commenters suggested
that the projected impact of prospective branch closings should be
closely scrutinized, and that public meetings and community hearings
should be conducted to discuss the impact of the proposed closings. The
Proposed SOP states that any proposed or expected closures, including
the timing of each closure, the effect on the availability of products
and services, particularly to low- or moderate-income individuals or
designated areas, any job losses or lost job opportunities from
branching changes, and the broader effects on the convenience and needs
of the community to be served will be closely evaluated. Applications
that project material reductions in service to low- and moderate-income
communities or consumers will generally result in unfavorable findings.
A favorable finding on this factor may not necessarily be sufficient
for approval of the application when anticompetitive effects are noted.
Further, the Proposed SOP advises applicants to be prepared to make
commitments regarding future retail banking services in the community
to be served for at least three years following consummation of the
merger. The Proposed SOP places an affirmative expectation on
applicants to provide specific and forward-looking information to
enable the FDIC to evaluate the expected impact of the merger on
convenience and needs of the community to be served. In certain cases,
the FDIC may hold hearings or other proceedings in connection with
evaluating a merger application The Proposed SOP provides that the FDIC
will generally consider it is in the public interest to hold a hearing
for merger applications resulting in an IDI with greater than $50
billion in assets or for which a significant number of CRA protests are
received. The FDIC may also hold public or private meetings to receive
input on the transaction. The decision to hold such meetings depends on
issues raised during the comment period and the significance of the
merger transaction to the public interest, the banking industry, and
communities affected.
Questions:
20. How could the Proposed SOP more effectively describe the FDIC's
expectations with regard to its review of the convenience and needs
factor, and what notable considerations, if any, are overlooked?
21. What are the pros and cons of providing forward-looking
information? What are some specific challenges and difficulties that
applicants might experience when providing information concerning
projected or anticipated branch expansion, closings, or consolidations
for the first three years following consummation of the merger?
22. What are the pros and cons of holding a hearing for merger
applications resulting in an IDI with greater than $50 billion in
assets or for which a significant number of CRA protests are received?
For what other situations, in addition to those described, would it
generally be in the public interest to hold hearings?
23. How can the FDIC best consider comments and feedback from the
public in the context of evaluating the convenience and needs of the
community to be served, consistent with the BMA's public notice
requirements?
24. What are the benefits of imposing a non-standard condition that
captures the affirmative commitments an IDI has made to the FDIC to
serve the needs of its community?
25. In addition to the methods described, how should the FDIC
consider an institution's CRA performance in the context of an
application subject to the BMA?
26. What additional information should be included in the
application materials to enable a more comprehensive review of branch
closings or consolidations? What additional information should be
included in application materials related to retail delivery systems?
27. What additional benefits to the community could be specified in
the SOP beyond those already detailed?
28. What other elements should be considered in the evaluation of
the convenience and needs of the community with respect to mergers?
29. What types of merger transactions may present unique factors
that the FDIC should consider in its evaluation of the convenience and
needs of the community to be served? For example, are there special
considerations that should be considered in connection with
transactions in which a community bank is absorbed by a larger
institution?
Risk to the Stability of the United States Banking or Financial System
The Dodd-Frank Act amended the BMA to require the responsible
agency to consider the risk to the stability of the U.S. banking or
financial system when evaluating a proposed bank merger.\33\ The FDIC
expects that the resulting IDI will not materially increase the risk to
the stability of the U.S. banking or financial system. Multiple RFI
commenters noted the FDIC's Current SOP does not incorporate this
statutory factor. Additionally, while some RFI commenters asked for
more clarity and
[[Page 29232]]
transparency regarding the FDIC's financial stability analysis, others
objected to changing the existing regulatory framework. Finally, some
RFI commenters asserted that recent large mergers have increased
concentration within the banking sector and have created more systemic
risk, while others presented positions that attempt to refute this
assertion. The Proposed SOP largely builds upon the financial stability
criteria previously employed in practice by the FDIC, FRB, and OCC
since passage of the Dodd-Frank Act, and clarifies the FDIC's
perspective when conducting the analysis.\34\
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\33\ 12 U.S.C. 1828(c)(5).
\34\ See, e.g., Order and Basis for Corporation approval of
BB&T's application for consent to merger with SunTrust Bank. Refer
to FDIC Press Release PR-111-2019: https://www.fdic.gov/news/press-releases/2019/pr19111.html.
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The Proposed SOP details the considerations that the FDIC uses to
determine whether a resulting IDI's systemic footprint would be such
that its financial distress or failure could compromise the stability
of the U.S. banking or financial system. While many RFI commenters
addressed entities other than a resulting IDI (e.g., bank holding
companies and broker-dealer subsidiaries), the Proposed SOP considers
financial stability influences primarily from the perspective of the
resulting IDI. Where appropriate, the FDIC's analysis will take into
account the facts and circumstances of parent companies and affiliates.
Proposed transactions that solely involve affiliates that were related
at the time a merger application is filed generally will not raise
concerns with regard to this factor. However, each such proposal will
be reviewed to ensure that the resulting IDI would not present any new
or unforeseen stability risks that may not have existed when the
merging entities operated on a standalone basis.
In evaluating the risk to the stability of the U.S. banking or
financial system, the Proposed SOP identifies the following: (i) the
size of the entities involved in the transaction; (ii) the availability
of substitute providers for any critical products and services to be
offered by the resulting IDI; (iii) the resulting IDI's degree of
interconnectedness with the U.S. banking or financial system; (iv) the
extent to which the resulting IDI contributes to the U.S. banking or
financial system's complexity; and (v) the extent of the resulting
IDI's cross-border activities. These items are addressed in more detail
below:
Size. The distress or failure of an IDI is more likely to adversely
impact the banking or financial system if the IDI's activities comprise
a relatively large share of system-wide activities. Upon financial
distress or failure, a larger IDI may present greater challenges to
replacing or substituting the services and products it provides, as
compared with smaller institutions, thereby potentially increasing the
possibility for the IDI's distress or failure to disrupt the broader
system. Additionally, the negative effects to the banking or financial
system caused by stress at a single large institution may be greater
than the impact of simultaneous stress at multiple smaller institutions
engaged in business lines similar to those of their larger peer. The
majority of comments regarding financial stability focused on the
resulting IDI's asset size with many concerned about not creating
institutions that are ``too big to fail.'' Numerous RFI commenters
suggested the imposition of asset limits, thresholds, or other
quantitative measures that would be applicable to IDIs of a certain
size, and suggested that any analysis start with certain presumptions.
Others stated that any limits or presumptions with respect to asset
size would be contrary to the plain language of the BMA, have
anticompetitive results, and could even serve to ``insulate'' the
largest banks. Some RFI commenters suggested the imposition of enhanced
capital requirements in lieu of size limitations.
With respect to these suggestions, the FDIC believes that the asset
size of a resulting IDI should not serve as the sole basis for
evaluating this statutory factor. Rather, size is only one of several
important considerations that needs to be evaluated in the context of
the other criteria. However, transactions that result in a large IDI
(e.g., in excess of $100 billion) are more likely to present potential
financial stability concerns with respect to substitute providers,
interconnectedness, complexity, and cross-border activities, and will
be subject to added scrutiny. The FDIC takes the view that the failure
of a larger IDI with a traditional community bank business model may
pose significantly different resolvability and stability risks than a
smaller IDI with one or more complex business lines, large derivative
exposures, or extensive cross-border operations.
Availability of substitute providers. The purpose of considering
the availability of substitute providers is to understand whether an
inability or unwillingness by a resulting IDI to continue providing
specific products or services could be disruptive to the U.S. banking
or financial system. The FDIC considers whether the resulting IDI
provides critical products or services that may be difficult to replace
or substitute, or conducts activities that comprise a relatively large
share of the relevant activity in the banking or financial system.
Concerns are heightened, and may preclude favorable resolution of this
factor, in situations where there are limited readily available
substitutes, as relied upon services may be disrupted or discontinued
if the resulting IDI encounters financial distress or fails. Several
RFI commenters recommended that specific risk factors be developed to
address the availability of substitute providers; however, the Proposed
SOP does not include specific targets or bright lines regarding the
consideration and assessment of this factor.
Interconnectedness. The purpose of considering interconnectedness
is to assess the degree to which the resulting IDI may be engaged in
transactions with other financial system participants and the risk that
exposures to the resulting IDI of creditors, counterparties, investors,
or other market participants could affect U.S. banking or financial
system stability. The purpose of considering the effects of asset
liquidation by the resulting IDI as a component of interconnectedness
is to assess whether, following the proposed merger, the resulting IDI
would hold assets that, if liquidated quickly, could significantly
disrupt the operation of key markets or cause significant losses or
funding problems for other firms with similar holdings. The analysis of
interconnectedness specifically contemplates intra-financial system
assets and liabilities; exposures to creditors and counterparties; the
potential volatility of the resulting IDI's funding structure; and the
potential results of rapid asset liquidation.
A resulting IDI may present greater risk from a stability
perspective if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other
financial system participants. For example, securities contracts,
commodity contracts, forward contracts, repurchase agreements, swap
agreements, inter-affiliate guarantees, and other similar contracts
which the FDI Act refers to collectively as ``qualified financial
contracts'' \35\ are all examples of interconnected exposures within
the U.S. banking or financial system. A high volume of such contracts
may equate to a higher degree of potential systemic spillover effects
if the resulting IDI, or its parent or affiliates, are unable to
perform.
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\35\ 12 U.S.C. 1821(e)(8)(d)(i).
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Increased Complexity. Under the Proposed SOP, evaluation of the
[[Page 29233]]
resulting IDI's contribution to the U.S banking or financial system's
complexity would consider the full scope of the resulting IDI's
operations. This includes the resulting IDI's business lines, products
and services, on- and off-balance sheet activities, delivery channels,
and any material affiliate or other third-party relationships. One RFI
commenter stated that many large regional banks do not have complex
operations and have recently reduced their level of complexity. The
FDIC considers an important part of the complexity analysis to be the
potential financial stability consequences of the resulting IDI failing
and being placed into a receivership under Section 11 of the FDI Act.
The FDIC is responsible for resolving the resulting IDI in a way least
costly to the DIF.
The FDIC has several options for carrying out the resolution of an
IDI. First, the FDIC can sell some or most of the assets of the failed
IDI to a healthy acquiring IDI, which would also generally assume all
of the deposits or only the insured deposits of the failed IDI along
with some or most of the remaining liabilities. This is generally
called a ``purchase and assumption transaction.'' Second, a special
type of purchase and assumption transaction used when additional time
is needed to market a failed IDI is referred to as a ``bridge bank.'' A
bridge bank is a bank chartered by the OCC and temporarily owned and
operated by the FDIC to bridge the time between the date of failure and
the date of sale to an acquiring IDI. Use of a bridge bank enhances the
FDIC's ability to pursue options that could involve the sale to
multiple acquirers, and/or spinning off some remaining streamlined
operations as a restructured entity with ongoing viability depending on
which strategy is most desirable. The final option is executing an
insured deposit payout. However, in deciding which option to pursue,
the FDIC must show how it would meet the least cost test set forth in
Section 13(c)(4) of the FDI Act. Additionally, regardless of the
strategy selected, the challenges associated with resolving a large
bank would be significant, both operationally and financially.
In addition to the resolution challenges presented based on size,
many regional IDIs present complexities such as large branch networks,
substantial information technology systems, millions of account
holders, and heavy reliance on uninsured deposits. Further, cross-
border operations or key dependencies on non-affiliated entities can
raise additional challenges to effecting an orderly and least costly
resolution.
The failure of a larger IDI with a traditional community bank
business model may present significantly different resolvability and
stability risks than a smaller IDI with a complex businesses model.
Staff from the FDIC's Division of Resolutions and Receiverships and (if
appropriate) the Division of Complex Institution Supervision and
Resolution will identify potential purchasers for the resulting IDI or
its component parts, and identify resolution impediments that could
impact the stability of the U.S. banking or financial system. Some
potential resolution impediments include the resulting IDI's
organizational structure and the necessity and difficulty of: (i)
continuing the IDI's operations and activities until they can be sold
or wound down, (ii) marketing and selling key business lines and asset
portfolios at the least cost to the DIF,\36\ and (iii) separating
business lines and other assets to enable their sale or other
disposition. While the FDIC would perform this analysis on the IDI, it
would also take into account possible alternative resolution strategies
and scenarios. This process could consider the presence of support
agreements from the resulting IDI's ultimate parent company,
strengthened risk governance procedures, and capital maintenance
requirements for the IDI. Several RFI commenters suggested formal
thresholds should be developed (such as total asset metrics) for when a
resolution plan should be required. Such thresholds have not been
incorporated into the Proposed SOP as each prospective resolution
presents unique facts and circumstances, and the FDIC does not believe
a one size fits all approach to the resolution process is appropriate.
---------------------------------------------------------------------------
\36\ Id.
---------------------------------------------------------------------------
While the vast majority of IDIs that the FDIC has resolved have
been relatively small in size (assets under $10 billion), experience
has shown that the failure of a larger IDI can have a contagion effect.
Two recent examples that illustrate the systemic risk associated with
the failure of a large regional IDI are Silicon Valley Bank (SVB) and
Signature Bank.
SVB, with $209 billion in assets as of December 31, 2022, failed on
March 10, 2023. SVP's depositors were primarily commercial and private
banking clients, mostly linked to businesses financed through venture
capital. Total assets grew rapidly, coinciding with rapid growth in the
innovation economy and a significant increase in the valuation placed
on public and private companies. The resulting influx of deposits was
largely invested in medium- and long-term Treasury and Agency
securities.
On March 8, 2023, Silvergate Bank, with $11.3 billion in assets as
of December 31, 2022, and a business model focused almost exclusively
on providing services to digital asset firms, announced its self-
liquidation.\37\ On that same day, SVB announced that it had sold
substantially its entire available-for-sale securities portfolio at a
loss. Many of SVB's venture capital customers took to social media to
urge companies to move their deposit accounts out of SVB. The deposit
run, coupled with insufficient liquidity to meet the demands of
depositors and other creditors, resulted in its failure.
---------------------------------------------------------------------------
\37\ Following the collapse of digital asset exchange FTX in
November 2022, Silvergate Bank experienced a rapid loss of deposits,
which necessitated the sale of debt securities to cover deposit
withdrawals. The securities sales resulted in substantial losses.
The troubles experienced by Silvergate Bank demonstrated the impact
of a lack of diversification, aggressive growth, maturity mismatches
in a rising interest rate environment, and inadequate management of
liquidity risk. Many of these same risks were also present at SVB.
---------------------------------------------------------------------------
On March 12, 2023, just two days after the failure of SVB,
Signature Bank, with $110 billion in assets at year-end 2022, was
closed and the FDIC was appointed as receiver. Signature Bank
implemented an operating model that shared risk characteristics with
SVB. Like SVB, Signature Bank grew rapidly, held deposit accounts for
crypto-asset firms, and was heavily reliant on uninsured deposits for
funding. As word of SVB's problems began to spread, Signature Bank
began to experience contagion effects with deposit outflows. Signature
Bank failed as withdrawal requests mounted beyond its ability to pay.
Because of these failures, and the fact that other institutions
were experiencing stress, serious concerns arose about a broader
economic spillover. As such, the FDIC invoked the systemic risk
exception under Section 13 of the FDI Act in winding down SVB and
Signature Bank.\38\ These failures demonstrate the implications that
IDIs with assets over $100 billion can have on financial stability. As
of December 2023, the failures of SVB and Signature Bank have resulted
in an estimated cost
[[Page 29234]]
of $21.8 billion and $1.8 billion, respectively, to the DIF.\39\
---------------------------------------------------------------------------
\38\ As a general rule, Section 13(c)(4) of the FDI Act requires
the FDIC to resolve failed IDIs at the least cost to the DIF, but
provides an exception for instances where the failure would have
serious adverse effects on economic conditions or financial
stability, and any action to be taken would avoid or mitigate such
adverse effects.
\39\ See 2023 FDIC Annual Report, at https://www.fdic.gov/about/financial-reports/reports/2023annualreport/2023-arfinal.pdf.
---------------------------------------------------------------------------
Additional examples that highlight the impact of a larger IDI
failure on the DIF are the failures of Washington Mutual Bank and
IndyMac Bank in 2008. Washington Mutual Bank (Washington Mutual), with
over $300 billion in assets at the time of its failure in September
2008, was the largest thrift institution in the United States and the
sixth largest IDI. Its failure was the largest in the FDIC's history in
terms of the IDI's asset size. Several factors made it possible for
Washington Mutual to fail with no loss to the DIF and no loss imposed
on its $45 billion of uninsured deposits, which approximated 24 percent
of total deposits. First, there was an acquirer with the capacity to
assume all the assets and all the deposits through a traditional
purchase and assumption transaction. This acquirer could act quickly at
the time of failure because it had previously performed due diligence
on Washington Mutual for a potential open bank acquisition. Second,
Washington Mutual had a substantial volume of unsecured debt--$13.8
billion, or 4.5 percent of total assets--which was available to absorb
losses in resolution. This loss absorbing capacity was essential to
meeting the least cost test and for uninsured depositors to avoid
taking a loss. Absent these factors, the FDIC likely would have had to
establish a bridge bank and take over the operation of the failed
institution. The failure of Washington Mutual in that scenario would
have depleted the DIF, and uninsured depositors would likely have had
to take a loss in order to meet the least cost test. Imposing losses on
uninsured deposits could have had a significantly destabilizing effect,
especially given the stressed economic and financial environment in
September 2008. The only way to avoid that outcome would have been for
the FDIC to exercise the systemic risk exception.
When IndyMac Bank--a $30 billion thrift--failed in July 2008, it
had no unsecured debt and there was no viable acquirer. The FDIC
established a bridge bank and uninsured depositors realized losses.\40\
IndyMac Bank was the most costly failure in the FDIC's history up to
that point, resulting in a $12.4 billion loss to the DIF. If these
conditions were to repeat for an institution several times larger, the
effects could be significant for U.S. financial stability.
---------------------------------------------------------------------------
\40\ Uninsured deposits totaled $2.6 billion, which was almost
14 percent of total deposits.
---------------------------------------------------------------------------
Cross-Border Activities. The purpose of considering cross-border
activities is to assess the degree to which coordination of the
resulting IDI's supervision and resolution could be complicated by
different legal requirements, geopolitical events, and competing
national interests, leading to increased potential for spillover
effects. A high degree of cross-border activity by the resulting IDI
presents significant challenges to supervising and examining the
operations of IDIs and their subsidiaries. Historically, cross-border
operations present significant challenges to supervision and
examination, and cross-border proceedings can be slow, cumbersome, and
require significant amounts of coordination between different
resolution authorities with differing objectives and administrators.
Accordingly, the FDIC would determine if the resulting IDI's cross-
border activities represent a significant component of operations; and
if so, whether the activities present a high degree of cross-
jurisdictional claims, liabilities, and other impediments to effective
supervision and resolution. The Proposed SOP affirms that such
activities may present challenges from both supervisory and resolution
perspectives given the potential exposure to differing legal
requirements, geopolitical events, and competing national interests.
Other Financial Stability Considerations
RFI commenters suggested that the FDIC impose various requirements
upon large newly merged IDIs such as a requirement to submit resolution
plans, a single-point-of entry resolution strategy, enhanced capital
levels, total loss absorbing capacity standards, and other quantitative
measures. With respect to these comments, the Proposed SOP does not
include such requirements, in order to enable the FDIC to retain
flexibility to review and evaluate the facts and circumstances
appropriate to the application. For example, the FDIC may consider
previously filed resolution plans (if any) \41\ relevant to any IDI
that may be party to a bank merger application. Resolution plans
submitted are highly relevant and those submitted by large IDIs are
intended to enable the FDIC, as receiver, to provide customers prompt
access to their insured deposits and maximize the return from the sale
or disposition of the bank's assets. These resolution plans include
information pertaining to the bank's organizational structure, core
business lines, information technology, funding needs, and other data
to assist in the sale or disposition of the bank's deposit franchise,
business lines, and material assets.
---------------------------------------------------------------------------
\41\ This would include resolution plans filed under 12 CFR part
381 (those filed under Section 165(d) of the Dodd-Frank Act), as
well as those filed under 12 CFR 360.10 (IDI Plans). Section 165(d)
resolution plans typically include details of the firm's structure,
assets, and obligations; information on how the depository
subsidiaries are protected from risks posed by its non-bank
affiliates; and information on the firm's cross-guarantees,
counterparties, and processes for determining to whom collateral has
been pledged. IDI Plans typically include information and analysis
on the IDI that better enable the FDIC to resolve the IDI under the
FDI Act.
---------------------------------------------------------------------------
The FDIC will closely assess the degree to which the resulting
IDI's potential financial distress or failure could cause other IDIs
with similar activities or business profiles to experience a loss of
market confidence, falling asset values, or liquidity stress and
decreased funding options. Further, the FDIC may consider the resulting
IDI's regulatory framework post-merger; however, the resulting
framework cannot solely ameliorate other identified financial stability
concerns.
In addition to the items previously noted, the FDIC will evaluate
any additional elements that may affect the risk to the U.S. banking or
financial system stability. This may include the resulting IDI's
regulatory framework; however, the framework alone would not result in
a favorable finding on this factor when other financial stability
concerns exist. As appropriate, consideration may be given to the
merging IDIs' records with respect to cybersecurity as well as their
stress-testing results. For example, the FDIC evaluates the IDI's
record of preventing data breaches and responding to and preventing
cybersecurity threats.
Questions:
30. How could the FDIC enhance its approach to evaluating risk to
the stability of the U.S. banking or financial system?
31. Should the FDIC adopt size thresholds (other than the proposed
$100 billion threshold) related to financial stability? If so, why, and
what size thresholds would be appropriate to identify transactions that
present concerns for this statutory factor?
32. Should the FDIC consider a quantitative risk indicator for
overall financial stability? If so, how should this indicator be
calculated, and what historical data would support the validity of its
usage?
33. How should the FDIC measure the potential impact (e.g.,
financial, economic, or other) of a resulting IDI on the banking or
financial system?
[[Page 29235]]
34. When measuring the potential impact of a merger, what potential
scenarios or assumptions regarding financial and economic conditions
would be appropriate, regarding both the merger transaction parties and
the overall banking and financial systems?
35. What, if any, additional criteria should be included in the
evaluation of the financial stability risk factor?
36. How should the FDIC assess whether a change in the overall risk
to financial stability is problematic? Should the FDIC place more
emphasis on the creation of new risk to financial stability, an
increase to existing risk, or both? If so, what emphasis should be
placed and why?
Effectiveness in Combatting Money Laundering Activities
In every case, the BMA directs the responsible agency to consider
the effectiveness of any IDI involved in the proposed merger
transaction in combatting money laundering activities, including in
overseas branches.\42\ The FDIC expects that the resulting IDI will
operate under a satisfactory anti-money laundering (AML)/countering the
financing of terrorism (CFT) program commensurate with its risk profile
and business (or strategic) plan.\43\
---------------------------------------------------------------------------
\42\ 12 U.S.C. 1828(c)(11).
\43\ The Anti-Money Laundering Act of 2020 (the AML Act),
amended subchapter II of chapter 53 of title 31 United States Code
(the legislative framework commonly referred to as the Bank Secrecy
Act or BSA). The AML Act requires the Financial Crimes Enforcement
Network (FinCEN), in consultation with Federal functional
regulators, to promulgate AML/CFT regulations. Due to the addition
of the CFT, and for consistency with FinCEN, the FDIC will use the
term AML/CFT (which includes BSA) when referring to, issuing, or
amending regulations to address the requirements of the AML Act of
2020.
---------------------------------------------------------------------------
As part of its evaluation of this factor, the FDIC will undertake a
comprehensive analysis of each entity's record with regard to AML/CFT.
Among other relevant items, the FDIC will consider each entity's
overseas branch operations; policies, procedures, and processes; risk
management programs; supervisory record, including compliance with the
Bank Secrecy Act (BSA) and its implementing regulations; and
remediation efforts pursuant to any outstanding corrective programs.
Significant unresolved AML/CFT deficiencies, or an outstanding or
proposed formal or informal enforcement action that includes provisions
related to AML/CFT, is generally inconsistent with a favorable
resolution of this factor. One RFI commenter suggested a bar on the
approval of any mergers where an IDI ``has been found guilty of AML
misconduct in the previous five years.'' No such bar has been included
in the Proposed SOP to retain flexibility in evaluating the merits of
each proposed transaction.
Questions:
37. What additional items should the FDIC evaluate as it relates to
the respective merger parties' AML/CFT programs?
38. If one party to the transaction has a less than satisfactory
AML/CFT compliance program, how much emphasis should be placed on the
resultant IDI's AML/CFT compliance program and its plan for integrating
the target entity?
Other Matters and Considerations
With regard to interstate mergers, the Proposed SOP states that the
FDIC will ensure that the additional requirements and restrictions of
Section 44 are satisfied.\44\
---------------------------------------------------------------------------
\44\ See 12 U.S.C.1831u.
---------------------------------------------------------------------------
The SOP highlights other matters and considerations, such as
filings from non-banks \45\ or banks that are not traditional community
bank \46\ applicants, as well as applications from operating non-
insured entities.
---------------------------------------------------------------------------
\45\ A ``non-bank'' refers to an IDI that is a ``bank'' for
purposes of the FDI Act, but not for purposes of the BHCA. Non-banks
may be owned by parent companies that are not subject to the BHCA
and therefore may not regulated or supervised by the FRB. Existing
insured non-banks include IDIs that are controlled by parent
organizations engaged in a variety of commercial activities. These
include industrial banks and industrial loan companies, trust and
credit card banks organized under the Competitive Equality Banking
Act, and other IDIs, such as municipal deposit banks.
\46\ In contrast to a traditional community bank, an IDI that is
not a traditional community bank generally: (1) focuses on products,
services, activities, market segments, funding, or delivery channels
other than local lending and deposit taking; (2) pursues a broad
geographic footprint (such as operating nationwide from a limited
number of offices); (3) pursues a monoline, limited, or specialty
business model; or (4) operates within an organizational structure
that involves significant affiliate or other third-party
relationships (other than common relationships such as audit, human
resources, or core information technology processing services). A
non-community bank may or may not operate under a non-bank charter.
Specialty (sometimes referred to as ``niche'') IDIs are less-
diversified and usually considered ``non-community'' in nature given
the concentrated business focus or emphasis on specialized
activities.
---------------------------------------------------------------------------
While the Proposed SOP is solely an FDIC issuance, the FDIC is
working collaboratively with the relevant Federal agencies to review
and evaluate existing merger--related regulations, guidance, and
instruction. Several RFI commenters requested that any amendments to
any new merger regulations, guidelines, and instructions should be
applied on an interagency basis, and any changes should be made
prospectively. Regarding the roles of the Federal banking agencies,
several RFI commenters requested that the Consumer Financial Protection
Bureau (CFPB) be consulted on all mergers, or at least all mergers for
which the CFPB has an examination interest. A similar number of RFI
commenters presented the opposite position and noted that the CFPB
should not be consulted in any capacity, as that is not their
congressional mandate. Several RFI commenters noted that state
regulatory and supervisory authorities should be consulted, such as
state financial regulators, state Attorney's General, and courts. The
Proposed SOP does not specifically address the CFPB by name, but as
previously stated, the FDIC works collaboratively with the other
Federal regulators, as well as the relevant state authorities when
processing merger applications.
Finally, RFI commenters requested that the FDIC review, to the
extent possible, the effects of past mergers to evaluate the
appropriateness of merger guidelines; and make the results of the
evaluation public and apply the results to future merger decisions. The
FDIC is considering this recommendation.
Question:
39. Are there other elements of the Proposed SOP that would benefit
from additional clarity? If so, please provide details and explain how
the elements may be clarified.
IV. Administrative Law Matters
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA),\47\ the agencies may not conduct or sponsor, and the
respondent is not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(OMB) control number.
---------------------------------------------------------------------------
\47\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------
The proposed SOP does not create any new or revise any existing
collections of information under the PRA. Therefore, no information
collection request will be submitted to the OMB for review. The FDIC is
separately requesting comment on proposed changes to the FDIC
Supplement to the interagency Bank Merger Act application form.
[[Page 29236]]
Appendix A--Merger Application Activity \48\
---------------------------------------------------------------------------
\48\ Source of data in Tables 1-7: FDIC.
\49\ Merger applications may be returned if they are not
substantially complete. At its discretion, the FDIC may offer an
applicant an opportunity to withdraw an application. Applicants may
withdraw an application at any time if they elect not to pursue the
transaction. In some cases, in anticipation of a denial
recommendation, applicants choose to withdraw their filing. The
number of mergers that occur in a given year may differ from the
number of mergers approved by the FDIC that same year, as a merger
may not be consummated in the same year it is approved.
A regular merger is generally a combination of the assets and
liabilities of two or more unaffiliated IDIs under one IDI's charter
with the extinguishment or cancellation of the charter(s) of the
other IDI(s). For purposes of these tables, ``Bank to Bank'' refers
to a merger when all of the parties involved are IDIs and the
resulting IDI is a state nonmember bank or state savings
association; ``Involving Credit Unions'' refers to a merger that
involves the combination of any IDI with a credit union; and
``Involving Uninsured Entities'' refers to a merger that involves
the combination of any IDI with an uninsured entity.
Table 1--Number and Disposition Regular Merger Applications \49\ (Bank-to-Bank)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Year Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
2004............................................ 145 2 2 149
2005............................................ 103 1 3 107
2006............................................ 137 3 7 147
2007............................................ 143 2 1 146
2008............................................ 99 .............. 10 109
2009............................................ 66 2 11 79
2010............................................ 86 5 5 96
2011............................................ 84 1 13 98
2012............................................ 135 6 11 152
2013............................................ 133 7 10 150
2014............................................ 136 .............. 11 147
2015............................................ 135 .............. 5 140
2016............................................ 108 .............. 4 112
2017............................................ 96 1 4 101
2018............................................ 118 2 5 125
2019............................................ 94 3 .............. 97
2020............................................ 58 1 6 65
2021............................................ 88 1 .............. 89
2022............................................ 44 .............. 7 51
2023............................................ 46 2 1 49
---------------------------------------------------------------
Totals...................................... 2,054 39 116 2,209
----------------------------------------------------------------------------------------------------------------
Table 2--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Bank-to-Bank)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Asset size of resultant IDI Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets.............................. 3 13 34 50
Assets >$0 and <=$10 Billion.................... 1,953 26 76 2,055
Assets >$10 Billion and <=$100 Billion.......... 91 .............. 6 97
Assets >$100 Billion............................ 7 .............. .............. 7
---------------------------------------------------------------
Totals...................................... 2,054 39 116 2,209
----------------------------------------------------------------------------------------------------------------
[[Page 29237]]
Table 3--Number and Disposition Regular Merger Applications (Involving Credit Unions)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Year Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
2004............................................ 1 .............. .............. 1
2005............................................ 2 .............. .............. 2
2006............................................ 2 .............. 1 3
2007............................................ 1 .............. .............. 1
2008............................................ .............. .............. .............. 0
2009............................................ .............. .............. .............. 0
2010............................................ 2 .............. .............. 2
2011............................................ 2 .............. .............. 2
2012............................................ 4 .............. .............. 4
2013............................................ 7 .............. .............. 7
2014............................................ 3 .............. 1 4
2015............................................ 2 .............. .............. 2
2016............................................ 7 .............. .............. 7
2017............................................ 5 .............. 1 6
2018............................................ 12 .............. 2 14
2019............................................ 17 .............. .............. 17
2020............................................ 13 .............. 4 17
2021............................................ 8 3 1 12
2022............................................ 19 .............. 2 21
2023............................................ 14 .............. .............. 14
---------------------------------------------------------------
Totals...................................... 121 3 12 136
----------------------------------------------------------------------------------------------------------------
Table 4--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Involving Credit
Unions)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Asset size of resultant institution Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets.............................. .............. .............. 2 2
Assets >$0 and <=$10 Billion.................... 115 3 10 126
Assets >$10 Billion and <=$100 Billion.......... 5 .............. .............. 5
Assets >$100 Billion............................ 1 .............. .............. 1
---------------------------------------------------------------
Totals...................................... 121 3 12 136
----------------------------------------------------------------------------------------------------------------
Table 5--Number and Disposition Regular Merger Applications (Involving Uninsured Entities)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Year Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
2004............................................ 6 2 1 9
2005............................................ 6 .............. .............. 6
2006............................................ 15 .............. 2 17
2007............................................ 2 .............. 1 3
2008............................................ 5 .............. 2 7
2009............................................ 2 2 1 5
2010............................................ 2 .............. 1 3
2011............................................ .............. .............. .............. 0
2012............................................ 4 .............. 4 8
2013............................................ 2 .............. 1 3
2014............................................ 5 .............. 1 6
2015............................................ 2 .............. 1 3
2016............................................ 10 3 1 14
2017............................................ 8 1 2 11
2018............................................ 11 .............. 1 12
2019............................................ 14 1 .............. 15
2020............................................ 6 .............. 2 8
2021............................................ 10 .............. 1 11
2022............................................ 5 .............. 3 8
2023............................................ 1 1 1 3
---------------------------------------------------------------
Totals...................................... 116 10 26 152
----------------------------------------------------------------------------------------------------------------
[[Page 29238]]
Table 6--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Involving Uninsured
Entities)
[1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
Asset size of resultant IDI Approve Return Withdraw Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets.............................. 1 7 8 16
Assets >$0 and <=$10 Billion.................... 92 2 15 109
Assets >$10 Billion and <=$100 Billion.......... 20 1 .............. 21
Assets >$100 Billion............................ 3 .............. 3 6
---------------------------------------------------------------
Totals...................................... 116 10 26 152
----------------------------------------------------------------------------------------------------------------
Table 7--Number of IDIs Acquired Purchase & Assumption Transactions \50\
[1/1/2004-12/31/2023]
------------------------------------------------------------------------
Year No.
------------------------------------------------------------------------
2004................................... 128
2005................................... 132
2006................................... 167
2007................................... 148
2008................................... 130
2009................................... 91
2010................................... 104
2011................................... 106
2012................................... 112
2013................................... 152
2014................................... 146
2015................................... 161
2016................................... 159
2017................................... 134
2018................................... 149
2019................................... 151
2020................................... 99
2021................................... 94
2022................................... 75
2023................................... 78
--------------------------------
Total.................................. 2,516
------------------------------------------------------------------------
V. Proposed Statement of Policy
---------------------------------------------------------------------------
\50\ Only includes transactions in which the resulting
institution was an FDIC-supervised state nonmember bank or state
savings association, or in which an IDI sold substantially all of
its assets to a credit union and ceased operation.
---------------------------------------------------------------------------
The text of the proposed Statement of Policy follows:
FDIC Statement of Policy on Bank Merger Transactions
I. Introduction
This Statement of Policy (SOP) communicates the FDIC Board of
Directors' expectations and views regarding applications filed pursuant
to Section 18(c) of the Federal Deposit Insurance Act (FDI Act), which
is referred to herein as the Bank Merger Act (BMA). The SOP reflects
the FDIC's interpretations of the BMA and its implementing regulations.
The structure of the SOP follows the BMA's core statutory provisions,
and its content highlights the principles that guide the FDIC's
evaluation of the statutory factors for a merger application.
The BMA prohibits an insured depository institution (IDI) from
engaging in a merger transaction without regulatory approval. It
identifies the types of undertakings that constitute ``merger
transactions'' and outlines which of the three Federal banking agencies
is the ``responsible agency'' for acting on a given merger
application.\1\ In addition, the BMA sets forth advance public notice
requirements \2\ and generally requires the responsible agency to
request a report on the competitive factors for a merger transaction
from the Attorney General.\3\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1828(c)(1) and (2).
\2\ 12 U.S.C. 1828(c)(3).
\3\ 12 U.S.C. 1828(c)(4).
---------------------------------------------------------------------------
The BMA generally prohibits the responsible agency from approving a
monopolistic or otherwise anticompetitive merger transaction.\4\ In
addition to competitive considerations, the BMA requires the relevant
agency to evaluate a merger transaction in light of 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 (U.S.) banking or
financial system,\5\ and the effectiveness of the IDIs involved in the
merger transaction in combatting money laundering.\6\
---------------------------------------------------------------------------
\4\ 12 U.S.C. 1828(c)(5).
\5\ Ibid.
\6\ See Financial Stability Board 2022 list of GSIBs available
at https://www.fsb.org/wp-content/uploads/P211122.pdf.
---------------------------------------------------------------------------
II. Jurisdiction and Scope
The FDIC is one of three Federal banking agencies with
responsibility for evaluating transactions subject to the BMA. The FDIC
has jurisdiction to act on merger applications that involve an IDI and
any non-insured entity,\7\ and those that solely involve IDIs in which
the acquiring, assuming, or resulting
[[Page 29239]]
institution is an FDIC-supervised institution.\8\
---------------------------------------------------------------------------
\7\ 12 U.S.C. 1828(c)(1). A non-insured entity refers to any
entity that is not FDIC insured.
\8\ The Office of the Comptroller of the Currency has
jurisdiction for any merger transaction between IDIs in which the
acquiring, assuming, or resulting institution is a national bank or
a Federal savings association. The Board of Governors of the Federal
Reserve System (FRB) has jurisdiction for any merger transaction
between IDIs in which the acquiring, assuming, or resulting
institution is a state-chartered bank that is a member of the
Federal Reserve System. The FRB also has approval authority under
the Bank Holding Company Act for mergers involving bank holding
companies and the Home Owners' Loan Act for mergers involving
savings and loan holding companies. Merger transactions that are
subject to the FDIC's review may also be subject to the review of
state authorities.
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The BMA requires regulatory approval for any merger transaction
involving an IDI.\9\ The applicability of the BMA will depend on the
facts and circumstances of the proposed transaction. In addition to
transactions that combine institutions into a single legal entity
through merger or consolidation, the scope of merger transactions
subject to approval under the BMA encompasses transactions that take
other forms, including purchase and assumption transactions or other
transactions that are mergers in substance, and assumptions of deposits
or other similar liabilities.\10\
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\9\ 12 U.S.C. 1828(c).
\10\ A merger that includes the establishment or relocation of
branches is also subject to approval under 12 U.S.C. 1828(d).
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The FDIC considers transactions to be mergers in substance when a
target would no longer compete in the market, regardless of whether the
target plans to liquidate immediately after consummating the
transaction. An example of a transaction that is a merger in substance,
and therefore subject to the BMA, is when an IDI absorbs all (or
substantially all) of a target entity's assets and the target entity
dissolves (or otherwise ceases to engage in the acquired lines of
business).
An FDIC-supervised IDI's assumption of a deposit from another IDI,
or any IDI's assumption of a deposit from a non-insured entity, is
likewise subject to FDIC approval even in the absence of an express
agreement for a direct assumption. Similarly, a transfer of deposits
from any IDI to a non-insured entity is subject to FDIC approval.\11\
The definition of ``deposit'' per Section 3(l) of the FDI Act is broad
and extends beyond traditional demand deposits to include trust funds
and escrow funds, among other items.
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\11\ 12 U.S.C. 1828(c)(1)(C).
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Merger and other corporate transactions may be conducted through a
single transaction or through a series of related transactions that
each require an application, such as transactions effected through
interim institutions. In all cases, the FDIC will evaluate the
substance of all of the facts and circumstances of the transaction and
any related transactions, identify which aspects of the transaction(s)
are subject to FDIC approval, and fully evaluate the statutory factors
applicable to each transaction.
Overview of the Application Process
The FDIC encourages prospective applicants to engage in a pre-
filing process to discuss regulatory expectations. It is particularly
important for the application to be substantially complete when
initially filed.\12\ The quality and comprehensiveness of a filing are
critical to the FDIC's evaluation of the application under the
statutory factors and other regulatory requirements.\13\ The FDIC
expects all submitted materials, including the financial projections
and any related analyses, to be well supported and sufficiently
detailed. The narrative describing the analysis and evaluation of the
transaction should be supported by studies, surveys, analyses and
reports, including those prepared by or for officers, directors, or
deal team leads. Incomplete filings or non-responsiveness to additional
information requests are substantial impediments to the FDIC's ability
to fully evaluate and resolve the statutory factors.
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\12\ As noted in Section 1.1 of the Applications Procedures
Manual, a filing that is not substantially complete lacks the
substance necessary for the FDIC to evaluate the statutory factors.
\13\ Regulatory requirements for merger applications are
provided in 12 CFR part 303 (including Subparts A and D) and any
other Federal or state regulations, statutes, or laws applicable to
the filing.
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Public feedback is an important component of the FDIC's review of a
merger application. Section 18(c)(3) of the FDI Act requires that
public notice of the proposed merger transaction be published in an
approved form and at appropriate intervals in a newspaper or newspapers
of general circulation. A list of pending merger applications subject
to the Community Reinvestment Act (CRA) is available on the FDIC's
website using the Applications in Process Subject to the CRA Report
Selection Options.\14\ In all cases, the FDIC will review and evaluate
any public comments received regarding the merger application, and will
provide the applicant an opportunity to respond to any comment that is
determined to be a CRA protest.\15\ The FDIC will also consider the
views of each relevant Federal and state agency. Generally, the FDIC
will not approve a merger application if adverse CRA comments have not
been resolved.\16\ In certain cases, the FDIC may hold hearings or
other proceedings in connection with evaluating a merger
application.\17\
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\14\ Applications In Process Subject to the CRA Report Selection
Options, https://cra.fdic.gov/.
\15\ 12 CFR 303.2(l) defines the term ``CRA protest'' to mean
any adverse comment from the public related to a pending filing that
raises a negative issue relative to the CRA, whether or not it is
labeled a protest and whether or not a hearing is requested. An
``adverse comment'' is defined in 12 CFR 303.2(c), as any objection,
protest, or other adverse written statement submitted by an
interested party relating to a filing.
\16\ See 12 CFR 303.2(c) and 303.2(l).
\17\ See 12 CFR 303.10.
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Section 18(c)(4) of the FDI Act requires the FDIC to request a
competitive factors report from the Attorney General of the United
States for any merger transaction between an IDI and a non-affiliated
entity, unless the FDIC finds that it must act immediately in order to
prevent the probable failure of an IDI involved in the transaction.\18\
As circumstances warrant, the Department of Justice (DOJ) and the FDIC
will coordinate the review when there are concerns or questions
regarding the competitive effects of the transaction. As described
below, the FDIC undertakes an independent review consistent with the
statutory factors of the BMA.
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\18\ 12 U.S.C. 1828(c)(4). In addition to acting to prevent the
probable failure of an IDI, Section 18(c)(4)(C) of the FDI Act
includes exceptions for merger transactions involving solely an IDI
and one or more of its affiliates.
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Merger Application Adjudication
Generally, if all statutory factors are favorably resolved, and all
other regulatory requirements are satisfied, the FDIC will approve the
merger application. Approvals will be subject to the standard
conditions detailed in 12 CFR 303.2(bb) and any non-standard conditions
deemed appropriate by the FDIC. However, the FDIC will not use
conditions as a means for favorably resolving any statutory factors
that otherwise present material concerns. The Order and Basis for
Approval (Order) will be posted to the FDIC's Decisions on Bank
Applications web page.\19\ The Order will address all statutory
factors, as well as summarize information regarding any CRA protests.
The FDIC will summarize the related analysis and conclusions and
include any conditions imposed in conjunction with the approval.
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\19\ Decisions on Bank Applications, https://www.fdic.gov/regulations/laws/bankdecisions/merger/.
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The FDIC's publicly available Delegations of Authority set forth
criteria that must be satisfied in order for staff in the FDIC Regional
Offices or
[[Page 29240]]
Washington Office to approve a merger application.\20\ Notably, the
Board of Directors reserves the authority to deny any merger
application or act on certain types of proposed transactions, including
any transaction for which one or more statutory factors are unfavorably
resolved.
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\20\ Refer to https://www.fdic.gov/regulations/laws/matrix/delegations-filings.pdf.
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Generally, applications will present significant concerns and will
likely result in unfavorable findings with regard to one or more
statutory factors if they include the following circumstances:
Non-compliance with applicable Federal or state statutes,
rules, or regulations (this includes, for example, transactions that
would exceed the 10 percent nationwide deposit limit, as well as both
issued and pending enforcement actions);
Unsafe or unsound condition relating to the existing IDIs
or the resulting IDI;
Less than Satisfactory examination ratings, including for
any specialty areas (i.e., information technology or trust
examinations);
Significant concerns regarding financial performance or
condition, risk profile, or future prospects;
Inadequate management, including significant turnover,
weak or poor corporate governance, or lax oversight and administration;
or
Incomplete, unsustainable, unrealistic or unsupported
projections, analyses, and/or assumptions.
Additionally, the FDIC may not be able to find favorably on any
given statutory factor (and the application as a whole) if there are
unresolved deficiencies, issues, or concerns (including with respect to
any public comments). A lack of sustained performance under corrective
programs will also be inconsistent with a favorable finding on one or
more statutory factors, particularly when the transaction implicates
the areas that are the subject of the corrective program. Further, the
inability or unwillingness of the applicant to agree to proposed
conditions or execute written agreements, if deemed necessary, will
result in unfavorable findings and would require action by the Board of
Directors on the application.
If FDIC staff finds unfavorably on one or more statutory factors
based on the application review, staff generally will recommend denial
of the application. At the FDIC's discretion, applicants may be offered
the opportunity to withdraw the filing. If an applicant withdraws their
filing, the Board of Directors may release a statement regarding the
concerns with the transaction if such a statement is considered to be
in the public interest for purposes of creating transparency for the
public and future applicants.
III. Statutory Factors
Merger applications are evaluated under the framework of statutory
factors as described in the BMA. Generally, the BMA prohibits approval
of monopolistic or otherwise anticompetitive transactions; and requires
the responsible agency to consider specific statutory factors related
to financial and managerial resources and future prospects, convenience
and needs of the community to be served, combatting money laundering,
and financial stability. The BMA also prohibits interstate mergers in
which the resulting IDI would control more than 10 percent of the
deposits of IDIs in the United States.\21\ Evaluations of each
statutory factor consider the respective entities' supervisory record,
potential risks and compensating controls, and any other available
information deemed appropriate.
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\21\ 12 U.S.C. 1828(c)(5), 1828(c)(11), and 1828(c)(13).
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Monopolistic or Anticompetitive Effects
The FDIC strives to ensure that resulting institutions continue as
participants in a competitive environment. Section 18(c)(5) of the BMA
prohibits the FDIC from approving a merger transaction that would
result in a monopoly or would be in furtherance of an attempt to
monopolize the business of banking in any part of the U.S. The BMA also
prohibits the FDIC from approving a merger transaction that may
substantially lessen competition in any section of the country, unless
the anticompetitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the community to be
served.\22\ For example, such a circumstance may exist where a
transaction is necessary to prevent the probable failure of an IDI.
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\22\ 12 U.S.C. 1828(c)(5).
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The FDIC will evaluate the competitive effects of a proposed merger
in a manner that is most relevant to each transaction. Consistent with
the majority of merger transactions typically presented to the FDIC,
the FDIC generally employs a framework for evaluating competitive
effects involving a transaction between IDIs with traditional community
banking operations within their local geographic markets. However, the
FDIC will tailor its evaluation to consider the size and competitive
effects of the resulting IDI. Additionally, the FDIC will consider all
relevant market participants. For example, the FDIC may include any
other financial service providers that the FDIC views as competitive
with the merging entities, including providers located outside the
geographic market when it is evident that such providers materially
influence the market. Further, in cases involving merging entities with
specialty lines of business or non-traditional products, services, or
delivery methods, the FDIC will take into account any additional data
sources or appropriate analytical approaches to fully assess the
competitive effects of the transaction.
In assessing competitive effects, the FDIC considers concentrations
with respect to both geographic and product markets. The FDIC
identifies all relevant geographic markets (local, regional, and
national) based on the geographic areas in which the merging entities
operate and in which customers may practically turn to competitors for
alternative products and services.\23\ The FDIC uses deposits as an
initial proxy for commercial banking products and services. The FDIC
will initially measure the respective shares of total deposits held by
the merging entities and the various other participants with offices in
the geographic market. The FDIC evaluates the market concentration and
change in market concentration in each geographic and product
market.\24\
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\23\ See United States v. Philadelphia National Bank, 374 U.S.
321 (1963).
\24\ Indicators of market concentration and change in
concentration include calculations using the Herfindahl-Hirschman
Index (HHI).
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In addition, the FDIC will consider concentrations beyond those
based on deposits. As appropriate, the FDIC may consider concentrations
in any specific products or customer segments, such as, for example,
the volume of small business or residential loan originations or
activities requiring specialized expertise. Additionally, when
relevant, the analysis may incorporate other products offered by the
merging entities with consideration given to whether consumers retain
meaningful choices. In its analysis, the FDIC will evaluate a market
with a scope that is appropriate to the products or services offered or
planned. Moreover, the FDIC will consider the emergence of new
competitors for products or services in relevant markets; and the
expansion of products and services offered by the merging entities and
other market participants. Finally, as necessary or
[[Page 29241]]
appropriate, the FDIC will consider other products or services and
additional methods of assessing the competitive nature of markets. In
particular, the FDIC may consider information on the pricing of
products and services to assess the competitive effects of a proposed
merger when practicable and relevant.
The FDIC may require divestitures of business lines, branches, or
portions thereof as a means to mitigate competitive concerns before
allowing the merger to be consummated. In such cases, the FDIC will
generally require that the selling institution will not enter into non-
compete agreements with any employee of the divested entity nor enforce
any existing non-compete agreements with any of those entities.
Nationwide Deposit Cap
The BMA prohibits approval of an interstate merger that results in
an IDI (and its affiliates) controlling more than 10 percent of the
total deposits of IDIs in the U.S.\25\ This prohibition does not apply
to transactions that involve one or more IDIs in default or in danger
of default. Consistent with the competitive effects review, the FDIC
will use the most current Summary of Deposits data to confirm the
nationwide deposit share of the resulting IDI following the proposed
transaction.
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\25\ 12 U.S.C. 1828(c)(13).
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Financial Resources
The BMA requires the responsible agency to consider the financial
resources of the existing and proposed entities involved in a merger
transaction.\26\ The FDIC expects that the resulting IDI will reflect
sound financial performance and condition.\27\ Generally, the FDIC will
not find favorably on the financial resources factor if the merger
would result in a weaker IDI from an overall financial perspective.
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\26\ 12 U.S.C. 1828(c)(5).
\27\ This evaluation encompasses capital, asset quality,
earnings, liquidity, and sensitivity to market risk, as described in
the Uniform Financial Institution Rating System (UFIRS); see 61 FR
67021 (December 19, 1996).
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A critical component of the analysis of financial resources is the
resultant IDI's ability to meet applicable capital standards (including
maintenance of appropriate allowances for loan or credit losses).
Depending on the anticipated risk profile of the resulting IDI, the
FDIC may impose, as a non-standard condition, capital requirements that
are higher than applicable capital standards.\28\ Further, as
appropriate, the FDIC may impose a non-standard condition that requires
the resulting IDI and other relevant parties (such as certain
affiliates or investors) to enter into one or more written agreements
that address, as applicable, capital maintenance requirements,
liquidity or funding support, affiliate transactions, and other
relevant provisions. The FDIC also expects the resulting IDI to
maintain sufficient liquidity and appropriate funding strategies given
its size, complexity, and risk profile.
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\28\ Refer to the applicable capital regulations for the
relevant parties. The minimum capital ratios for FDIC-supervised
institutions are set forth at 12 CFR 324.10, and the capital
measures and capital category definitions for the purposes of Prompt
Corrective Action are set forth at 12 CFR 324.403 for FDIC-
supervised institutions.
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The FDIC will also consider the current and projected financial
impact of any related entities on the IDI, including the parent
organization and any key affiliates. For each relevant entity, the FDIC
will consider, among other items, the size and scope of operations,
capital position, quality of assets, overall financial performance and
condition, compliance and regulatory history, primary revenue and
expense sources, and funding strategies.
Managerial Resources
The BMA requires the responsible agency to consider the managerial
resources of the existing and proposed entities involved in a merger
transaction.\29\ The FDIC expects that the directors, officers, and as
appropriate, principal shareholders (collectively, management) possess
the capabilities to administer the resultant IDI's affairs in a safe
and sound manner, and effectively implement post-merger integration
plans and strategies.
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\29\ 12 U.S.C. 1828(c)(5).
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The capability of management to identify, measure, monitor, and
control risks and ensure a safe and sound operation in compliance with
applicable laws and regulations is included in the evaluation of
managerial resources. The FDIC will consider the background and
experience of each member of management relative to the size,
complexity, and risk profile of the resulting IDI, including the
managerial performance and supervisory record of affiliates and
subsidiaries.
The FDIC will review supervisory assessments of management made by
the relevant regulatory authorities, as well as the nature and extent
of organizational relationships. The FDIC will also evaluate the effect
of such relationships on the IDI, as well as the operating history,
risk management, and control environment of the parent organization.
Inherent in these considerations are the condition, performance, risk
profile, and prospects of the organization as a whole, as well as the
consistency of the proposed merger with the resulting IDI's strategic
(or business) plan.
The FDIC will assess each IDI's record of compliance with respect
to consumer protection, fair lending, and other relevant consumer laws
and regulations. The FDIC will analyze the compliance management system
of each of the IDIs, as well as the compliance management system for
the resulting IDI to ensure that appropriate controls will be
implemented to identify, monitor, and address consumer compliance
risks. Consideration will also be given to the consumer compliance
rating pursuant to the Uniform Interagency Consumer Compliance Rating
System and the CRA rating.\30\
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\30\ 81 FR 79473, (Nov. 14, 2016).
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Additional managerial resource considerations include:
The supervisory history of each entity involved in the
proposed merger, including the management rating \31\ for any IDI
involved in the transaction;
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\31\ The management rating is defined in the UFIRS.
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The breadth and depth of management, and adequacy of
succession planning;
Management's responsiveness to issues or supervisory
recommendations raised by regulators or auditors;
Any existing or pending enforcement actions;
Any issues or concerns with regard to specialty areas
including information technology, trust, consumer compliance, CRA, or
Anti-Money Laundering (AML)/countering the financing of terrorist
activities (CFT); \32\ and
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\32\ The Anti-Money Laundering Act of 2020 (the AML Act),
amended subchapter II of chapter 53 of title 31 United States Code
(the legislative framework commonly referred to as the Bank Secrecy
Act or BSA). The AML Act requires the Financial Crimes Enforcement
Network (FinCEN), in consultation with Federal functional
regulators, to promulgate AML/CFT regulations. Due to the addition
of the CFT, and for consistency with FinCEN, the FDIC will use the
term AML/CFT (which includes BSA) when referring to, issuing, or
amending regulations to address the requirements of the AML Act of
2020.
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The reasonableness of fees, expenses, and other payments
made to insiders.
Recent rapid growth and the record of management in
overseeing and controlling risks associated with such growth.
The FDIC expects management to develop and implement effective
plans and strategies, and the resulting IDI to have the managerial and
operational capacity to integrate the acquired entity. Effective
integration includes, but is not limited to, human capital; products
and
[[Page 29242]]
services; operating systems, policies, and procedures; internal
controls and audit coverage; physical locations; information
technology; and risk management programs. In conjunction with the
integration, the FDIC expects a resulting IDI to have the managerial
and operational capacity, and to devote adequate resources, to ensure
full and timely compliance with any outstanding corrective programs or
supervisory recommendations.
Future Prospects
The BMA requires the responsible agency to consider the future
prospects of the existing and proposed entities involved in a merger
transaction.\33\ The FDIC expects that the resulting IDI will operate
in a safe and sound manner on a sustained basis following consummation
of the merger. Among other items, the FDIC will consider the economic
environment, the competitive landscape, the acquiring IDI's history in
integrating merger targets and managing growth, the anticipated scope
of the resulting IDI's operations, the quality of its supporting
infrastructure, and other pertinent factors. Any significant planned
changes to the resulting IDI's strategies, operations, products or
services, activities, income or expense levels, or other key elements
of its business will be closely assessed. The FDIC will review the pro
forma financial projections, the underlying assumptions, and any
accompanying valuations (such as those related to the target entity,
goodwill, or other assets) to ensure they demonstrate and support that
the resulting IDI will maintain an acceptable risk profile.
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\33\ 12 U.S.C. 1828(c)(5).
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Convenience and Needs of the Community To Be Served
The BMA requires the responsible agency to consider the convenience
and needs of the community to be served when evaluating a merger
transaction.\34\ The FDIC expects that a merger between IDIs will
enable the resulting IDI to better meet the convenience and the needs
of the community to be served than would occur absent the merger.
Applicants are expected to demonstrate how the transaction will benefit
the public through higher lending limits, greater access to existing
products and services, introduction of new or expanded products or
services, reduced prices and fees, increased convenience in utilizing
the credit and banking services and facilities of the resulting IDI, or
other means.
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\34\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
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The FDIC expects applicants to provide specific and forward-looking
information to enable the FDIC to evaluate the expected benefits of the
merger on the convenience and needs of the community to be served. As
appropriate, claims and commitments made to the FDIC to support the
FDIC's evaluation of the expected benefits of the merger may be
included in the Order, and the FDIC's ongoing supervisory efforts will
evaluate the IDI's adherence with any such claims and commitments. The
FDIC will evaluate the community to be served broadly, which will
include the proposed assessment area(s), retail delivery systems,
populations in affected communities, and identified needs for banking
services.
As part of its evaluation, the FDIC will review the CRA record of
the institutions. The CRA requires the FDIC to take into account each
IDI's record of meeting the credit needs of its entire community,
including low- and moderate-income neighborhoods, consistent with the
safe and sound operation of such institution.\35\ As such, the FDIC
will consider each institution's CRA performance evaluation record of
helping to meet the credit needs of its assessment areas, including
low- and moderate-income neighborhoods, and record of community
development activity, as applicable. A less than Satisfactory
historical rating or significant deterioration in CRA performance will
generally result in unfavorable findings. The FDIC's review is not
limited to the CRA record of the institutions and will encompass a
broad review of the institutions' existing products and services and
whether the products and services proposed by the applicants will meet
the convenience and needs of the community to be served.
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\35\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
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In addition, the FDIC will consider the record of each institution
in complying with consumer protection requirements and maintaining a
sound and effective compliance management system. This review will
include consideration of any existing or pending orders, ongoing
enforcement actions, and pending reviews or investigations of
violations of consumer protection laws and regulations. A less than
Satisfactory consumer compliance rating \36\ may present significant
concerns in resolving this factor.
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\36\ Uniform Interagency Consumer Compliance Rating System, 81
FR 79473 (Nov. 14, 2016).
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The CRA assessment area(s) and branch locations resulting from the
merger are evaluated as part of this factor. The assessment area(s)
should be delineated in accordance with 12 CFR part 345 (or other
appropriate regulations), and should not reflect illegal
discrimination. The FDIC will evaluate all projected or anticipated
branch expansion, closings, or consolidations for the first three years
following consummation of the merger.\37\ Branch closings are subject
to both Section 42 of the FDI Act and the Interagency Policy Statement
Concerning Branch Closing Notices and Policies.\38\ Information
regarding any proposed or expected closures, including the timing of
each closure, the effect on the availability of products and services,
particularly to low- or moderate-income individuals or designated
areas, any job losses or lost job opportunities from branching changes,
and the broader effects on the convenience and needs of the community
to be served will be closely evaluated. Applications that project
material reductions in service to low- and moderate-income communities
or consumers will generally result in unfavorable findings.
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\37\ Generally, the FDIC considers a substantially complete
merger application to include, among other items, at least three
years of information regarding projected branch expansions,
closings, or consolidations. Short-distance consolidations that may
not be subject to Section 42 outside of a merger context should be
included in this information.
\38\ 64 FR 34845 (June 29, 1999).
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The FDIC will consider all substantive public comments received in
accordance with 12 CFR 303.9, as well as the views of relevant state
and Federal regulators regarding the ability of the applicant to meet
the convenience and needs of the community to be served. Non-standard
conditions may be imposed, as appropriate, in response to CRA
weaknesses, relevant regulator input, bank commitments, or public
comments. The FDIC will consider whether it is in the public interest
to hold a hearing for merger applications, and generally expects to
hold a hearing for any application resulting in an IDI with greater
than $50 billion in assets or for which a significant number of CRA
protests are received. The FDIC may also hold public or private
meetings to receive input on the transaction. The decision to hold such
meetings depend on issues raised during the comment period and the
significance of the merger transaction to the public interest, to the
banking industry, and communities affected.
As noted above, the BMA prohibits the FDIC from approving a merger
transaction that may substantially lessen competition in any section of
the country, unless the anticompetitive
[[Page 29243]]
effects of the proposed transaction are clearly outweighed in the
public interest by the probable effect of the transaction in meeting
the convenience and needs of the community to be served.\39\ In
situations where anticompetitive effects are identified, the FDIC will
evaluate whether the applicant has established that the benefits to the
convenience and needs of the community will clearly outweigh the
anticompetitive effects. A favorable finding on the convenience and
needs of the community to be served factor may not support approval of
the application when anticompetitive effects are identified.
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\39\ 12 U.S.C. 1828(c)(5).
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Risk to the Stability of the United States Banking or Financial System
Section 604 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) amended the BMA to require the FDIC to
consider the risk posed by a merger transaction to the stability of the
U.S. banking or financial system. The FDIC expects that the resulting
IDI (or consolidated company) will not materially increase the risk to
the stability of the U.S. banking or financial system.\40\ Consistent
with the other Federal banking agencies,\41\ the FDIC evaluates this
factor with respect to the following:
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\40\ 12 U.S.C. 1828(c)(5).
\41\ The FDIC will consider data collected by the Federal
Reserve to monitor the systemic risk profile of the institutions,
which are subject to enhanced prudential standards under Section 165
of the Dodd-Frank Act.
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The size of the entities involved in the transaction;
The availability of substitute providers for any critical
products or services to be offered by the resulting IDI;
The resulting IDI's degree of interconnectedness with the
U.S. banking or financial system;
The extent to which the resulting IDI contributes to the
U.S. banking or financial system's complexity; and
The extent of the resulting IDI's cross-border activities.
Generally, the FDIC will not view the size of the entities involved
in a proposed merger transaction as a sole basis for determining the
risk to the U.S. banking or financial system's stability. However,
transactions that result in a large IDI (e.g., in excess of $100
billion) are more likely to present potential financial stability
concerns with respect to substitute providers, interconnectedness,
complexity, and cross border activities, and will be subject to added
scrutiny. The FDIC will consider the nature and scope of operations of
the target entity, the resulting IDI, and any other elements that may
also influence the risk to the U.S. banking or financial system's
stability.
With regard to substitute providers, the FDIC will consider whether
the resulting IDI provides critical products or services that may be
difficult to replace, or conducts activities (including specific
business lines) that comprise a relatively large share of system-wide
activities. Concerns are heightened, and may preclude favorable
resolution of this factor, in situations where there are limited
readily available substitutes, as relied upon services may be disrupted
or discontinued if the resulting IDI encounters financial distress or
fails.
In assessing the resulting IDI's interconnectedness, the FDIC will
consider the degree to which the merging entities are engaged in
transactions or relationships with IDIs, affiliates of banking
organizations, or other financial service providers. Consideration will
be given to whether any exposures with creditors, counterparties,
investors, or other market participants could affect the U.S. banking
or financial system. A resulting IDI may present financial stability
concerns if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other
financial system participants.
The FDIC's evaluation of the resulting IDI's contribution to the
U.S banking or financial system's complexity will consider the full
scope of the IDI's operations. This includes the IDI's business lines,
products and services, on- and off-balance sheet activities, branch
network and delivery channels, number of account holders (including the
volume of uninsured deposits), extent of information technology
systems, and any material affiliate or other third-party relationships.
As part of evaluating the resulting IDI's impact on complexity, the
FDIC will also consider its resolvability in a potential failure
situation. The FDIC may not be able to find favorably on this factor
when the resultant IDI's organizational and funding structure preclude
its ability to: (i) continue operations and activities until they can
be sold or wound down, (ii) sell key business lines or large asset
portfolios, and (iii) be marketed for sale in a manner that limits the
potential for losses to the Deposit Insurance Fund.\42\
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\42\ In addition to considering the FDIC's potential role as
receiver of the resulting IDI under Section 11 of the FDI Act, it
will also take into account possible alternative resolution
scenarios.
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The extent of a resulting IDI's cross-border activities may also
have implications with regard to a favorable finding on this factor.
The FDIC will consider whether cross-border activities comprise a
material component of the resulting IDI's operations and present a
significant degree of cross-jurisdictional claims or liabilities. Such
activities may present challenges from both supervisory and resolution
perspectives given the potential exposure to differing legal
requirements, geopolitical events, and competing national interests.
Other Stability Considerations
The above list of items is not exhaustive. The FDIC will evaluate
any additional elements that may affect the risk to the U.S. banking or
financial system's stability. This may include the resulting IDI's
regulatory framework; however, the framework alone would not result in
a favorable finding on this factor when other financial stability
concerns exist. As appropriate, consideration may be given to the
merging IDIs' records with respect to cybersecurity and stress-testing
results. The FDIC may also evaluate the degree to which the resultant
IDI's potential financial distress or rapid liquidation could cause
other market participants with similar activities or business profiles
to experience a loss of market confidence, falling asset values, or
decreased funding options.
Proposed transactions that solely involve affiliates that were
related at the time a merger application is filed generally will not
raise concerns with regard to this factor. However, each proposal will
be reviewed to ensure that the resulting IDI would not present any new
or unforeseen financial stability risks that may not have existed when
the merging entities operated as affiliates or on a standalone basis.
Effectiveness in Combatting Money Laundering Activities
The BMA requires the responsible agency to consider the
effectiveness of any IDI involved in a merger transaction in combatting
money-laundering activities, including in overseas branches.\43\ The
FDIC expects that approved merger transactions will result in
institutions with effective programs to combat money laundering (Anti-
Money Laundering or AML) and counter the financing of terrorism (CFT).
A favorable finding on this factor will be based on a comprehensive
evaluation of each entity's AML/CFT program that includes overseas
branches; policies, procedures, and processes; risk
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management programs; the supervisory record of each participating
entity, the entity's compliance with Bank Secrecy Act (BSA) and its
implementing regulations; and remediation efforts pursuant to an
outstanding corrective program.\44\ In all cases, the FDIC will
consider whether the resulting IDI has developed an appropriate plan
for the integration of the combined operations into a single,
comprehensive, and effective program to combat money laundering and
terrorist financing. Additionally, the FDIC expects the applicant to
demonstrate how the resulting IDI will comply with the BSA and its
implementing regulations following consummation of the merger.
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\43\ 12 U.S.C. 1828(c)(11).
\44\ An IDI under an outstanding formal enforcement action
should make substantial progress to correct problem(s) addressed in
the action. Progress should be sufficient to determine that the AML/
CFT program is now adequate.
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Significant unresolved AML/CFT concerns or uncorrected problems, or
an outstanding or proposed formal or informal enforcement action that
includes provisions related to AML/CFT, will generally result in
unfavorable findings on this factor. In limited cases, sufficient
mitigating factors may support a favorable finding, such as when an
acquirer with a strong AML/CFT program replaces a target entity's less
than satisfactory program and presents an appropriate plan to address
the target entity's deficiencies.
IV. Other Matters and Considerations
Interstate Merger Transactions
In cases where Section 44 of the FDI Act applies to an interstate
merger transaction, the FDIC will ensure that the additional
requirements and restrictions of Section 44 are satisfied.\45\
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\45\ See 12 U.S.C.1831u.
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Applications Involving Non-Banks or Banks That Are Not Traditional
Community Banks
Historically, most merger transactions considered by the FDIC have
involved traditional community banks. In general, traditional community
banks focus on providing the banking services, including loans and core
deposits, typically relied on by individuals and businesses in their
local communities. However, merger applications may also involve non-
banks \46\ or banks that are not traditional community banks, which may
involve more complexity than a traditional community bank in terms of
its business model, products, services, activities, market segments,
funding, delivery channels, geographic footprint, operations, or
intercompany or other third-party relationships. Merger applications
where the resulting IDI will be a non-bank or not a traditional
community bank are subject to the same statutory factors as any other
merger application. However, the FDIC will appropriately tailor its
review to the nature, complexity, and scale of the entities involved in
the transaction and the underlying business model. The FDIC's
Washington Office or Board of Directors reserve authority to act on
certain merger applications that do not involve traditional community
banks.
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\46\ A ``non-bank'' refers to an IDI that is a bank for purposes
of the FDI Act, but that is not a bank for purposes of the Bank
Holding Company Act (BHCA). Non-banks may be owned by parent
companies that are not subject to the BHCA, and therefore may not
regulated or supervised by the FRB.
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Applications Involving Operating Non-Insured Entities
Applications may involve an existing IDI merging with an operating
entity that is not FDIC-insured. Operating non-insured entities may
vary widely in the type of business and activities conducted (e.g.,
credit unions, which typically offer products and services consistent
with a traditional community bank, mortgage companies, financing
companies, payment services firms, or other types of entities whose
business model may have elements more consistent with that of a non-
community bank). Merger applications that involve an operating non-
insured entity are subject to the same statutory factors as any other
merger application. However, in reviewing such applications, the FDIC
will consider the nature and complexity of the non-insured entity, its
scale relative to the existing IDI, its current condition and
historical performance, and any other relevant information regarding
the entity's operations or risk profile.
The FDIC will review audited financial statements (covering at
least three years, unless the entity's operating history is shorter)
and assess any deferred tax assets or liabilities, intangible assets,
contingent liabilities, and any recent or pending legal or regulatory
actions. Further, independent appraisals or valuations may be necessary
to support the projected value of any business (or assets) expected to
be transferred from the operating non-insured entity to the resultant
IDI through the merger transaction.
V. Resources
FDIC Bank Application Resource page, https://www.fdic.gov/
regulations/applications/resources/
FDIC Regional Offices, https://www.fdic.gov/about/contact/directory/region.html
FDIC Law, Regulations, Related Acts, https://www.fdic.gov/regulations/laws/rules/
Section 18(c) of the FDI Act, 12 U.S.C. 1828(c)
Section 42 of the FDI Act, 12 U.S.C. 1831r-1
Section 44 of the FDI Act, 12 U.S.C. 1831u
12 CFR part 303, subparts A and D
Interagency Policy Statement Concerning Branch Closing Notices and
Policies, 64 FR. 34845 (June 29, 1999)
Applications Procedures Manual (APM), https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/
Section 1 of the FDIC APM, https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-01-01-overview.pdf
Section 4 of the FDIC Application Procedures Manual, https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-04-mergers.pdf
FDIC Delegations of Authority--Filings, https://www.fdic.gov/regulations/laws/matrix/
Interagency Bank Merger Act Form, https://www.fdic.gov/formsdocuments/f6220-01.pdf
Deposit Market Share Reports--Summary of Deposits, https://www.fdic.gov/sod
Federal Reserve Bank of St. Louis, Competitive Analysis and
Structure Source Instrument for Depository Institutions, https://cassidi.stlouisfed.org/index
Authority: 12 U.S.C. 1813, 1818, 1819, 1828, 1831u, 1831r-1,
1835a, 2901-2908, 5412.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, March 21, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-08020 Filed 4-18-24; 8:45 am]
BILLING CODE 6714-01-P