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Federal banking regulators have introduced a new rule that will intensify the scrutiny of bank mergers, particularly for large and mid-sized institutions, focusing on potential antitrust concerns.
The Federal Deposit Insurance Corporation (FDIC) approved a statement of policy on Tuesday, which mandates increased examination of mergers that result in institutions with $100 billion or more in assets. The purpose of the heightened scrutiny is to assess the financial stability of the merged entity and any potential antitrust issues.
In addition to this, the FDIC announced that mergers creating institutions with assets exceeding $50 billion will now be required to hold public hearings—a significant new requirement.
The new rule also outlines several key changes:
It expands the criteria for evaluating the competitive effects of a merger beyond just the concentration of deposits, now including an assessment of loan portfolios to small businesses and residents.
It clarifies that any proposed merger should result in less financial risk than would exist if the institutions remained separate.
It emphasizes the FDIC’s expectation that the merger should enable the resulting institution to better meet the needs and convenience of the community it will serve.
Originally proposed in March, this new rule replaces the FDIC’s 2008 policy on bank mergers. It also clarifies the review procedures under the Bank Merger Act, aligning with input from other regulatory bodies such as the Treasury Department’s Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the Department of Justice (DOJ).
Randy Benjenk, a partner in Covington’s Financial Services Group, noted that the rule "shows the current administration’s skepticism toward bank mergers, and especially mergers by larger institutions.” He added that more scrutiny and review will "inevitably lead to longer review times."
Michael Hsu, acting director of the OCC, expressed his support for the FDIC’s new rule, stating, “This final rule and policy statement provide clarity and transparency around the OCC’s consideration of bank mergers to improve outcomes to benefit communities, enhance competition, and support a diverse banking system.”
The DOJ also updated its 2023 banking merger guidelines on Tuesday, outlining the competitive factors its Antitrust Division will consider when evaluating such mergers. The department noted that it has officially withdrawn previous bank merger guidance from 1995.
In a press release, the DOJ explained, “Although the 2023 merger guidelines identify the factors and frameworks the department considers when investigating mergers, the department’s enforcement decisions will necessarily depend on the facts in any case and will continue to require prosecutorial discretion and judgment.”
According to Benjenk, the most significant changes under the new rule come from the antitrust perspective of regulators. He highlighted that “the DOJ and FDIC, in particular, have armed themselves with several new factors they can invoke to challenge a merger as being anticompetitive. In practice, it is unclear how the agencies will apply these factors and what data they will consider.” He added that this uncertainty could deter merger activity, as acquiring institutions want clarity in advance on whether antitrust-related divestitures will be required before they finalize any deals.
By fLEXI tEAM
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