Banks, Consumer Groups Tell US Regulators to Unify Merger Plans

Bank trade groups and backers of financial regulation urged the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to bring their closely watched merger review proposals into alignment.

The two federal banking regulators are both taking steps to increase their scrutiny of proposed bank tie-ups amid the Biden administration’s push to toughen antitrust scrutiny across a range of industries.

But each regulator is taking a distinct approach, with financial reform advocates backing the FDIC’s more aggressive stance. Bank trade groups opposed both proposals, but nevertheless urged a unified approach among federal supervisors.

“Inconsistencies between the FDIC Proposal and the OCC Proposal show that the agencies have failed to develop a cohesive, coordinated approach to bank merger policy,” the Mid-Size Bank Coalition of America said in a June 11 comment letter to the FDIC.

A lack of uniformity on merger reviews among bank regulators at the federal and state levels adds unnecessary uncertainty that will make it harder for crucial deals to go through, the Conference of State Bank Supervisors said in a comment letter to the FDIC.

The misalignment also increases the risk of regulatory arbitrage, the state banking regulators said.

“With different standards, expectations, and likelihood of regulatory approval, banks could have an incentive to choose their surviving charter and/or federal regulator based on which federal agency would conduct the merger review,” the CSBS letter said.

Comments on the OCC’s proposal were due June 15, and the FDIC’s deadline was Tuesday.

Slowing Down

The OCC took the first step in January when it proposed a rule that would eliminate a 15-day fast-track review process following public comments for some bank deals. The national bank regulator simultaneously issued a proposed policy statement that, if finalized, states the OCC would be unlikely to approve deals between “global systemically important banks,” taking into account financial stability and other risks.

Banks urged the OCC to keep the 15-day expedited review in place.

“The vast majority of bank mergers between traditional community banks are not complex and do not meaningfully impact competition in the business of banking or create additional risks to financial stability,” the Independent Community Bankers of America said in a letter to the OCC.

Other banks raised concerns that the OCC mentioned only negative characteristics that would cause regulators to kill a merger, and didn’t include a single positive indicator that would make it more likely for a deal to get approved.

“Although we are in general agreement with the proposal’s stated objective of transparency, certain terms of the proposal undercut that objective and have multiple adverse consequences,” the Bank Policy Institute, a trade group for the largest banks, said in its letter.

Financial reform advocates largely supported removing the 15-day expedited review, but called on the OCC to be even tougher in its merger evaluations.

Consumer advocates want the OCC to rescind Trump-era changes to the use of Community Reinvestment Act, a 1978 anti-redlining law, to inform merger reviews.

“The OCC’s proposed rule does not rescind harmful changes to merger application procedures adopted during the tenure of the former Comptroller Joseph Otting,” the National Community Reinvestment Coalition said in an April 23 letter.

The Americans for Financial Reform Education Fund said in an April 15 letter that the OCC is still too predisposed to approve deals, despite the focus on negative merger characteristics in the national bank regulator’s proposed policy statement.

“The thematic flaw in the proposed policy statement is that its fundamental orientation is to approve mergers and not to evaluate merger applications,” the group said.

Tougher Approach

Consumer advocates had fewer concerns with the FDIC’s plan.

The FDIC followed the OCC’s move in March with a proposed statement of policy that would heighten the FDIC’s focus on financial stability and consumer benefits in merger reviews, and give the agency more freedom to reject deals on a case-by-case basis.

“The Proposed SOP would help reorient the bank merger review process toward the forward-looking, case-by-case evaluation that the Bank Merger Act demands,” Jeremy Kress, a professor at the University of Michigan’s Ross School of Business who advised the Justice Department in its review of bank merger guidelines last year, wrote in a June 13 letter to the FDIC.

The Justice Department is still working on its bank merger review guidelines.

The OCC’s enhanced merger review processes would require a closer look at deals resulting in a bank with $50 billion in assets, while the FDIC’s threshold for tougher questioning would apply to tie-ups resulting in a bank with at least $100 billion in assets.

Kress sent a separate letter to the OCC urging it to bring its proposals closer in line with the FDIC’s.

Acting Comptroller of the Currency Michael Hsu, who sits on the FDIC’s board, voted to approve the FDIC’s proposal.

The FDIC is proposing to review whether a merger would improve a bank’s health and its customer and community services, expanding the existing review process that seeks to ensure a continuation of conditions existing prior to a merger.

That sort of approach may make it harder for regional banks to merge and provide real competition for giants such as JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., and Wells Fargo & Co., former FDIC Chair Sheila Bair and former agency Vice Chair Thomas Hoenig said in a letter.

The proposal could also make it harder for healthy banks to buy up ailing ones, they said.

“The unintended consequence of the proposed SOP could be to reduce, not promote, competition in the banking industry,” said Bair and Hoenig, who have been critical of the biggest banks and want to see greater competition.

Banking trade groups said the FDIC’s tougher approach may stifle merger activity, and set up an implicit threat of a lawsuit should the FDIC finalize its proposal.

“The effect would be significant, as neither potential acquirers nor targets would begin the costly and risky process of announcing a transaction and applying for regulatory approval if a regulator with approval authority has issued a policy statement indicating that disapproval was likely or even a meaningful possibility,” the BPI said in its June letter to the FDIC.

Leadership at the FDIC is currently in flux following a scathing report on sexual harassment and other conduct problems at the agency.

But Christy Goldsmith Romero, the Commodity Futures Trading Commission member and former special investigator for the Troubled Asset Relief Program nominated to lead the FDIC, is expected to take a similarly skeptical look at bank mergers. Her confirmation hearings are expected in July.