The U.S. bank mergers will face tougher scrutiny under new guidelines from three agencies — the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the Justice Department (DOJ). 

On Tuesday, the FDIC voted to increase the examination levels that directly consider an acquisition's impact on communities, consumers, competition and financial stability. The DOJ and the OCC released modifications and guidelines on their assessments of bank transactions.

FDIC Guidelines for Bank Merger Deals

The FDIC Board of Directors approved a final Statement of Policy (Final SOP) on bank merger transactions, which addresses the scope of transactions subject to the FDIC approval, the process for evaluating merger applications and the principles that guide the regulator’s consideration of the applicable statutory factors as outlined in the Bank Merger Act (BMA).

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. It also clarifies that the proposed merger should result in less financial peril than the risk posed by the institutions on a standalone basis.

The FDIC will apply additional scrutiny to evaluate the financial stability of transactions resulting in an institution with $100 billion or more in total assets. Also, the FDIC is expected to hold public hearings for mergers resulting in an institution with more than $50 billion in total assets.

Last year’s bank failures underscore the risks that banks with assets exceeding $100 billion can have on the financial stability of the sector and the economy.

Though JPMorgan (JPM Quick QuoteJPM - Free Report) was allowed to acquire the failed First Republic Bank in May 2023, going forward, such deals will face increased regulatory scrutiny.

It is now likely that UMB Financial Corp.'s (UMBF Quick QuoteUMBF - Free Report) impending acquisition of Heartland Financial, USA Inc. might face heightened regulatory examination. This transaction, UMBF’s largest buyout in its 111-year history, is expected to increase its total assets by more than 40% to $64.5 billion. 

The final SOP from the FDIC replaces the existing Statement of Policy, which was last modified in 2008.

OCC Guidelines for Bank Merger Deals

The OCC approved a final rule updating its regulations for business combinations involving national banks and federal savings associations and a policy statement clarifying its review of applications under the BMA.

The OCC's final regulation concentrated on differentiating between mergers that need more investigation and those that can be approved quickly. Unless the agency takes action to remove the filing for expedited processing, the regulation terminates the practice of automatically accepting merger applications on the 15th day following the end of the comment period. Additionally, it modifies the OCC's evaluation criteria for prospects, convenience and needs, financial stability and management and financial resources. 

The final rulemaking is part of the OCC’s effort to enhance transparency around its process of reviewing transactions under the BMA.

DOJ’s Revamp for Bank Merger Deals

The DOJ scrapped its 1995 bank-merger guidelines, which focused on branch overlap and deposits when deciding whether two banks could merge. 

Instead, the agency’s antitrust division will now refer to its updated 2023 merger guidelines, which are broader and allow more flexibility.

New Merger Policy: A Dual-Edged Step

These updated policies can operate as benchmarks and road maps for banks looking to assess and increase their chances of obtaining regulatory approval for potential mergers by outlining considerations that each agency looks at when evaluating transactions.

The stricter merger regulations, particularly for consolidations that result in banks with assets of more than $50 billion, guarantee that mergers do not raise systemic concerns. 

This came after New York Community Bancorp, Inc.’s acquisition of parts of failed Signature Bank in early 2023 (immediately after acquiring Flagstar Bancorp in December 2022). The acquisition pushed NYCB above the $100-billion threshold in assets, which by law puts it under increased regulatory scrutiny. 

This steeper scrutiny could result in fewer proposed mergers and more denials of applications, slowing down M&A activity.

The updated rules demonstrate that regulators are realizing that the traditional study of bank competition needs to be updated to take into account the present state of the financial services industry. However, this approach toward bank M&A has put many impending merger deals on the sidelines. This might hinder competition among banks.