Statement by Martin J. Gruenberg Chairman, FDIC Final Statement of Policy on Bank Merger Transactions

Introduction

Today, the FDIC Board is considering a Final Statement of Policy on Bank Merger Transactions (Final Statement) that updates, strengthens, and clarifies the FDIC’s approach to evaluating transactions subject to its approval under the Bank Merger Act (BMA).  The Final Statement takes into consideration comments received in response to the FDIC’s request for comment on a Proposed Statement of Policy on Bank Merger Transactions (Proposed Statement), and reflects certain changes made in response to comments received.  The Final Statement 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.   

Statutory Framework

The FDIC’s role in evaluating bank mergers dates back to 1935, two years after the creation of the FDIC, when Congress prohibited any insured bank from merging with any noninsured bank without FDIC approval.¹ Following significant consolidation among insured banks in the 1950s, Congress passed the Bank Merger Act of 1960,² subsequently amended in 1966,³ to ensure that all mergers between insured depository institutions are subject to the approval of the primary federal regulator of the resulting institution. 

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 As originally enacted, it contains statutory factors that require consideration of the following:

• Monopolistic or Anti-Competitive Effects;
• The financial and managerial resources and future prospects of the existing and proposed institutions; and
• The convenience and needs of the community to be served.⁴

Congress added additional statutory factors as part of the USA PATRIOT Act in 2001, ⁵ and the Dodd-Frank Act in 2010,⁶ which codified two additional statutory factors:

• The effectiveness of any insured depository institution involved in the proposed merger transaction in combatting money laundering activities, including in overseas branches;⁷ and
• The risk to the stability of the United States banking or financial system.⁸

Finally, following the liberalization of interstate merger transactions in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,⁹ the Dodd-Frank Act amended the Bank Merger Act to conform with Riegle-Neal’s general prohibition on approval of an interstate merger that results in an insured depository institution (IDI) (and its affiliates) controlling more than 10 percent of the total deposits of IDIs in the United States.¹⁰ This prohibition does not apply to transactions that involve one or more IDIs in default or in danger of default.  This is the statutory framework within which the FDIC carries out its responsibilities under the Bank Merger Act today. 

Overview of the Final Statement of Policy

The Final Statement supersedes the prior FDIC Statement of Policy on Bank Merger Transactions (Superseded Statement), which was last amended in 2008.  Since the Superseded Statement was last revised, the BMA has been amended and significant changes have occurred in the banking industry and financial system, which have prompted the FDIC to develop this Final Statement.  Following the FDIC’s 2022 request for information and comment (RFI)¹¹ on rules, regulations, guidance, and statements of policy regarding bank merger transactions, the FDIC published a request for comment on its Proposed Statement in the Federal Register on April 19, 2024.¹²    

The FDIC received 23 letters in response to the Proposed Statement from the public, including representatives of the financial services industry, trade associations, consumer groups, academics, and Members of Congress.¹³ After reviewing the public comments received in response to the Proposed Statement, the FDIC has made revisions to address certain of the comments. 

Overview of the Final Statement of Policy 

As compared to the Superseded Statement, the Final Statement is more principles-based; addresses jurisdiction and scope; describes the FDIC’s approach to each statutory factor separately; and highlights other matters and considerations. Importantly, as with the Proposed Statement, the Final Statement highlights the FDIC’s expectations relative to each statutory factor and incorporates analytical considerations for these areas.  To that end, the Final Statement retains the Proposed Statement’s non-exhaustive list of circumstances that could lead to an unfavorable finding on one or more statutory factors, with some modifications, as I will describe later. 

The Final Statement also retains the FDIC’s longstanding tenet to not use conditions as a means to favorably resolve statutory factors.  The Final Statement indicates that the imposition of conditions will be taken into account as part of the FDIC’s consideration of the merger application, but will not necessarily lead to the favorable resolution of any statutory factor where the facts and circumstances are otherwise unfavorable.  As with the Proposed Statement, the Final Statement emphasizes that the FDIC Board of Directors (FDIC Board) reserves the authority to approve or deny any merger transaction for which one or more statutory factors are not favorably resolved by FDIC staff.  In addition, the FDIC Board reserves authority to act on applications for which the Attorney General has not given the FDIC notification in writing that the proposed transaction would not have a significantly adverse effect on competition. 

Like the Proposed Statement, the Final Statement indicates that the FDIC Board may release a statement regarding withdrawn merger applications if such a statement is considered to be in the public interest for creating transparency for the public and future applicants.  In the Final Statement, the FDIC indicates that such statements would only be issued when warranted by the circumstances, are not to be expected in every instance, and would be in conformance with the FDIC’s obligation to protect confidential information. 

The Final Statement retains the expectation that mergers resulting in insured depository institutions (IDIs) with $50 billion or more in total assets should be the subject of public hearings and the expectation that mergers resulting in IDIs with $100 billion or more in total assets be the subject of a heightened financial stability analysis.  This reflects the FDIC’s policy that an additional forum for public input and heightened financial stability analysis are appropriate for highly consequential mergers. 

I will now briefly discuss the analytical considerations for certain statutory factors under the Final Statement, noting that the Final Statement’s discussion of statutory factors relating to managerial resources, future prospects, and effectiveness of combatting money laundering activities are retained without change from the Proposed Statement.

Monopolistic or Anti-Competitive Effects

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 United States.  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. 

The Final Statement retains and builds upon the Proposed Statement’s discussion of how the FDIC evaluates the competitive effects of a merger transaction.  The Final Statement describes the FDIC’s approach to considering concentrations in relevant geographic and product markets, which begins with measuring concentrations based on local deposit shares, but as necessary, will take into account any appropriate data sources and analytical approaches relevant to fully assessing the competitive effects of the transaction. For example, the FDIC may consider concentration in any specific products or customer segments, such as the volume of small business or residential loan originations.  

In response to comments received, the Final Statement builds upon the Proposed Statement by highlighting practices that may be particularly relevant to rural institutions. Specifically, the Final Statement acknowledges that, as circumstances warrant, the FDIC will take into account certain non-bank competitors, expressly identifying credit unions, thrifts, and Farm Credit System institutions.  While the FDIC will consider such competitors whenever relevant, the FDIC expects that the presence of such competitors may be especially salient for mergers involving rural markets.  In addition, the Final Statement recognizes that mergers in rural areas involving local community banks may result in concentrated markets and emphasizes that the FDIC will carefully balance the competitive effects of such a merger with the public interest served by the capacity of the resulting IDI to meet the convenience and needs of the community. 

The FDIC continues to coordinate with the Department of Justice (DOJ) and the other federal banking agencies in modernizing bank merger oversight, and the Final Statement emphasizes that the analytical methods the FDIC employs in conducting its independent analysis will continue to be informed by the DOJ’s approach to evaluating competitive effects. 

The Final Statement discusses divestitures as a means to mitigate competitive concerns before allowing the merger to be consummated.  To promote the effectiveness of the divestiture(s) in mitigating anticompetitive concerns, the FDIC generally expects that the selling IDI 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.  In addition, the Final Statement communicates the FDIC’s expectation that in situations where an IDI is divesting or otherwise closing a branch in connection with the transaction, the FDIC also expects the IDI to waive any terms or conditions (e.g., exclusive use clauses) that preclude the ability of other IDIs to lease or purchase the property. 

Financial Resources

The Final Statement generally retains the Proposed Statement’s emphasis on the resulting IDI reflecting sound financial performance and condition and meeting applicable capital standards.  However, in response to comments, the Final Statement does not incorporate the Proposed Statement’s assertion that the FDIC will not find favorably on the financial resources factor if the merger would result in a “weaker IDI” from a financial perspective.  This statement was removed to avoid the suggestion that an IDI that reflects a satisfactory financial condition would be precluded from absorbing a weaker target. It was replaced with language affirming that a favorable finding on the financial resources factor would only be appropriate in cases where the merger results in a combined IDI that presents less financial risk than the financial risk posed by the institutions on a standalone basis.  The revised language affirms that the FDIC’s analysis balances the impact of the proposed merger on financial resources.  This language is consistent with the FDIC’s historical approach to the analysis of this factor, namely that the FDIC broadly considers the long-term financial impacts over the near-term implications of a merger. 

Convenience and Needs of the Community to be Served

The Final Statement retains, with certain modifications, the Proposed Statement’s discussion of the statutory factor related to the convenience and needs of the community to be served.  Notably, the Final Statement communicates and elaborates upon the FDIC’s expectation that a merger will enable the resulting IDI to better meet the convenience and needs of the community to be served than would occur absent the merger in order for FDIC staff to find favorably on this factor.  As I stated previously, the FDIC Board retains authority to evaluate any merger transaction for which one or more of the statutory factors are not favorably resolved by staff.  Further, the FDIC expects a favorable resolution of the convenience and needs factor to be clearly supported by a demonstration of how the merger transaction would position the resulting IDI to better meet the needs of the communities it serves.  A favorable finding on the convenience and needs of the community to be served factor may not be sufficient to support approval of the application when anticompetitive effects are identified.  In situations where anticompetitive effects are identified, the FDIC will evaluate whether the applicant has demonstrated that the benefits to the convenience and needs of the community will clearly outweigh the anticompetitive effects. 

In addition, as I described in my introduction, the Final Statement, like the Proposed Statement, communicates the FDIC’s expectation to hold public hearings for mergers resulting in IDIs that have $50 billion or more in total consolidated assets.  Public input is an essential part of the FDIC’s consideration of every merger transaction.  While the primary means of receiving public input on merger transactions is through the statutorily mandated public comment process, the Final Statement reflects the FDIC’s view that an additional forum for public input for the most consequential merger transactions would be appropriate. 

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

The Final Statement retains without change the Proposed Statement’s discussion of the financial stability factor.  The Final Statement emphasizes that size alone is not dispositive for determining the risk to the stability of the United States banking or financial system, but nonetheless recognizes that transactions that result in a large IDI are more likely to present potential stability concerns. The Final Statement communicates the FDIC’s expectation that additional scrutiny will be applied to the evaluation of such mergers.  For the purposes of clarifying expectations, the Final Statement reflects that this additional scrutiny will apply to transactions resulting in IDIs with $100 billion or more in total consolidated assets.  The FDIC further emphasizes that such bank merger applications are typically accompanied by companion applications at the holding company level, which are subject to approval by the Board of Governors of the Federal Reserve System (Federal Reserve Board).  The expectation that transactions related to a resulting IDI with total assets over $100 billion will receive additional scrutiny, as identified in the Final Statement, aligns with the Board of Governors of the Federal Reserve System’s (Fed Board) delegations of authority, which indicate that decisions related to mergers of this size are reserved for the Fed Board.¹⁴ 

Conclusion 

In conclusion, the Final Statement is a significant milestone in the FDIC’s efforts to update, strengthen, and clarify its approach to bank mergers.  It follows both the FDIC’s 2022 request for information on the framework applicable to bank mergers and the 2024 request for comment on a proposed Statement of Policy on Bank Merger Transactions.  The comments received in response to both the 2022 request for information and the 2024 request for comment have helped inform the content of this Final Statement. 

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

I strongly support publication of this Final Statement in the Federal Register.  Let me conclude with a word of thanks to the FDIC staff who worked thoughtfully and diligently on this Final Statement.