On Sept. 17, 2024, the Federal Deposit Insurance Corporation (FDIC) Board met to finalize an updated approach to increase scrutiny of bank mergers, particularly those that would result in a bank with over $100 billion in assets. The Office of the Comptroller of the Currency (OCC) and the Department of Justice (DOJ) concurrently issued updated guidance that enhances scrutiny of bank mergers. These moves by regulators signal a new whole-of-government approach to competition in the banking sector consistent with President Biden’s Executive Order (EO) on Promotion Competition in the American Economy (EO 14036). Separately, the FDIC issued a proposal to increase recordkeeping standards for custodial accounts held by fintech partners.
FDIC and OCC Bank Merger SOP
The FDIC Board voted 3-2 along party lines to approve the finalized Statement of Policy (Final SOP) on Bank Merger Transactions. The rule clarifies the scope of transactions the FDIC must approve, increases the transparency of what the FDIC considers in merger applications, and establishes how the FDIC utilizes the statutory factors outlined in the Bank Merger Act (P.L. 86-463).
More specifically, the Final SOP:
- Confirms that the FDIC’s evaluation of a merger’s competitive effects may take into account concentrations beyond deposits, including small business or residential loan originations;
- Clarifies that the proposed merger should result in less financial risk than the risk posed by the institutions on a standalone basis;
- Elaborates on the FDIC’s expectation that a merger will enable the resulting institution to better meet the convenience and needs of the community to be served;
- Applies additional scrutiny to the evaluation of financial stability for transactions resulting in an institution with $100 billion or more in total assets; and
- Communicates the FDIC’s expectation to hold public hearings for mergers resulting in an institution with over $50 billion in total assets.
The Final SOP also makes reference to credit unions, noting that it will take into account certain nonbank competitors, identifying credit unions, thrifts and Farm Credit System institutions. However, no changes were made to include a competitive effects analysis of credit union acquisitions of Insured Depository Institutions (IDIs), as some commenters suggested.
The Office of the Comptroller of the Currency (OCC) also issued its own bank merger policy statement final rule, which also toughens the OCC’s approach to bank mergers, similar to the FDIC’s. However, the new OCC policy statement eliminates the expected review provisions and streamlined business combination application, which the FDIC statement does not address.
DOJ Bank Merger Guidelines
The decision also coincides with changes in bank-merger scrutiny at the Department of Justice (DOJ), with the agency withdrawing its 1995 guidelines in favor of those published in 2023. The DOJ’s 2024 Banking Addendum to 2023 Merger Guidelines. The DOJ’s Antitrust Division provides views on the competitive impacts of a proposed merger to banking agencies. The Antitrust Division also has the ability to challenge the legality of a merger following the approval by a banking agency. The DOJ’s guidelines also heighten scrutiny of large bank mergers from an antitrust perspective, as the guidelines:
- Identify the distinct products and services that the bank merger may affect before assessing the potential for competitive harm;
- Consider whether there is appreciable harm to identifiable and distinct groups of customers; and
- Evaluate competition in banking on a market-by-market basis with particular attention to protecting competition in every relevant market.
FDIC Recordkeeping Proposal
On Sept. 17, the FDIC also issued a notice of proposed rulemaking (NPRM) to bolster efforts to monitor bank deposits received from third-party, nonbank financial institutions that accept those deposits on behalf of consumers and businesses. In their statement, the FDIC claimed the NPRM would “address risks related to these third-party arrangements, protect depositors, and promote public confidence in insured deposits.”
The proposal would require FDIC-insured banks to ensure that accurate account records of qualifying custodial accounts are maintained and determine the individual owner of the funds, as the proposal includes a requirement to reconcile the account for each owner on a daily basis. The regulation would apply even if the bank uses a third party to maintain records. It also expands the oversight and enforcement authority of the FDIC to ensure compliance with the regulation.
The NPRM should be particularly interesting to those in the Banking-as-a-Service (BaaS) sector. The rules would increase transparency between banks and their BaaS partners and clarify FDIC insurance claims in the case of collapse. The NPRM includes a 60-day comment period after publication in the Federal Register. The FDIC and other regulators are also in the early stages of examining bank-fintech relationships through a request for information (RFI) regarding bank-fintech seeking input on the “nature” of bank-fintech arrangements. The comment period deadline was recently extended to Oct. 30.
Next Steps
The steps taken by banking regulators on merger review should draw attention from across the financial services sector. The new guidelines bring more uncertainty into the bank merger process; the outcomes of the first reviews following these guidelines will be important to evaluate regulators’ new approach. The Federal Reserve has not taken steps to update its 1995 merger guidelines, despite calls from some lawmakers, though it could attempt to make changes in 2025. Additionally, the deposit recordkeeping guidelines could lead to the reconsideration of partnerships between banks and companies providing BaaS and raise questions about FDIC’s insurance on pass-through accounts.
Brownstein will continue to track and publish on these issues, as well as any other shifts in the financial services space. If you have any questions, please contact the authors of this alert.
THIS DOCUMENT IS INTENDED TO PROVIDE YOU WITH GENERAL INFORMATION REGARDING NEW FINANCIAL RULES ON BANK MERGERS AND DEPOSIT RECORDKEEPING. THE CONTENTS OF THIS DOCUMENT ARE NOT INTENDED TO PROVIDE SPECIFIC LEGAL ADVICE. IF YOU HAVE ANY QUESTIONS ABOUT THE CONTENTS OF THIS DOCUMENT OR IF YOU NEED LEGAL ADVICE AS TO AN ISSUE, PLEASE CONTACT THE ATTORNEYS LISTED OR YOUR REGULAR BROWNSTEIN HYATT FARBER SCHRECK, LLP ATTORNEY. THIS COMMUNICATION MAY BE CONSIDERED ADVERTISING IN SOME JURISDICTIONS.