Bank Merger-and-Acquisition Developments: Updates to the Analysis and Approval Processes for Bank Mergers

Merger, acquisition, and investment activity involving banks and their holding companies continues to attract significant attention from U.S. federal banking regulators and the U.S. Department of Justice (DOJ). On September 17, 2024, the Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and DOJ announced changes to their respective bank merger review policies. While the timing of the announcements indicates a degree of interagency coordination, the substance of the announced policies differs in certain material respects. Notably, the Board of Governors of the Federal Reserve System (Federal Reserve) did not announce any action relating to bank mergers and acquisitions (M&As).

Thoughtful consideration will be needed when considering both potential bank M&A activity and transactions between insured depository institutions (IDIs) and nonbanks that are subject to the provisions of the Bank Merger Act (BMA). At a high level, the updated frameworks may facilitate a faster and more predictable process for transactions involving smaller institutions with no significant outstanding regulatory concerns, but the implications for larger institutions and institutions facing regulatory challenges are more complex and could make the regulatory approval process for merger transactions longer and the outcome less certain.

Both the FDIC and OCC finalized proposals from earlier in 2024 about how these agencies assess applications filed under the BMA. In April, the FDIC sought comment on a new statement of policy (SOP) on bank merger transactions. This proposed SOP indicated that the FDIC would take a broad view of its jurisdiction with respect to transactions under the BMA, require additional information for evaluation of applications, and apply additional scrutiny to a subset of transactions (namely, mergers resulting in the creation of an IDI with $100 billion or more in total assets). The final FDIC SOP is largely consistent with the proposed FDIC SOP, with certain limited adjustments in response to public comments.

In January, the OCC sought comment on proposed amendments to its rule governing business combinations under the BMA. The proposed rule, detailed in an earlier Sidley Update, included substantive amendments to the procedures that the OCC uses for processing applications, eliminating expedited review and streamlining application processes under the BMA. It also included a proposed SOP regarding the evaluation of such transactions, which applies heightened scrutiny to transactions resulting in an IDI with $100 billion or more in total assets. As with the FDIC SOP, the finalized OCC rule and SOP are largely consistent with the OCC’s earlier proposal, with certain limited adjustments in response to public comments.

In December 2023, the DOJ (together with the Federal Trade Commission) announced the adoption of new merger guidelines (the 2023 Merger Guidelines) describing the factors and frameworks the DOJ will typically apply when reviewing proposed M&A activity. The 2023 Merger Guidelines are not industry specific, but previously the DOJ applied separate Bank Merger Guidelines jointly adopted in 1995 with the U.S. federal banking agencies to merger transactions in the banking industry. On September 17, the DOJ announced that it was withdrawing from the 1995 Bank Merger Guidelines and would instead rely upon the 2023 Merger Guidelines, as supplemented by a newly released 2024 Banking Addendum, in reviewing bank M&A activity.

I. Background on the Bank Merger Act

The BMA¹ was enacted in 1960 to establish additional competitive standards used for evaluation of mergers in the banking space (as distinct from the antitrust standards applicable to all industries more generally) and to ensure that all mergers between IDIs were subject to review and approval by the appropriate U.S. federal banking regulator. Accordingly, the statute requires that parties to a proposed merger or consolidation between two IDIs obtain prior written approval from the U.S. federal banking regulator with jurisdiction over the resulting IDI before such transaction may be consummated.² It also requires the prior written approval of the FDIC where an IDI proposes to merge or consolidate with any noninsured bank or institution, assume the deposits of a noninsured bank or institution, or sell or transfer deposits to a noninsured bank or institution.³ A noninsured institution generally includes virtually all types of entities, so even nonbank parties to M&A transactions with banks should carefully consider the possibility of FDIC jurisdiction under the BMA.

The statute specifies a number of criteria that must be satisfied for the applicable U.S. federal banking regulator to grant an approval. These are, broadly,⁴

• effects on competition (e.g., whether the transaction would result in or further a monopoly, lessen competition, or otherwise result in a restraint on trade)
• financial and managerial resources and future prospects of the banks involved
• probable effects on the convenience and needs of the community served
• banks’ effectiveness in combating money-laundering activities (and other material compliance issues)
• risk to the stability of the United States banking or financial system

The BMA also requires the U.S. federal banking regulator reviewing an application to request a report on the competitive factors involved in the transaction from the DOJ.⁵ Though the DOJ does not play a formal role in evaluation of a proposed transaction separate from this report, the BMA does contemplate the DOJ potentially taking action against a bank merger pursuant to general antitrust statutes (e.g., the Sherman Antitrust Act and the Clayton Act).⁶ In the event that the DOJ were to do so, the commencement of such action would generally stay any U.S. federal banking regulator’s approval under the BMA.⁷

II. FDIC Statement of Policy on Bank Merger Transactions

The FDIC finalized its updated Statement of Policy on Bank Merger Transactions on September 17 (the FDIC SOP).⁸ The FDIC’s prior SOP was first published in 1997 and last updated in 2008.⁹ Since that time, the FDIC notes, “the BMA has been amended and significant changes have occurred in the banking industry and financial system.”¹⁰ The FDIC SOP is meant to respond to these changes by “updat[ing], strengthen[ing], and clarif[ying] the FDIC’s policies related to the evaluation of bank merger applications.”¹¹

As compared with the prior SOP, the FDIC SOP introduces a more comprehensive and principles-based approach, describing and characterizing how the FDIC will address each statutory factor under the BMA separately. It addresses the FDIC’s jurisdiction under the BMA and the scope of transactions subject to regulatory approval. It also highlights other matters and considerations such as interstate mergers, BMA applications from nonbanks, operation of noninsured entities, and application of the BMA to banks that are not traditional community banks. It is the FDIC’s belief that this approach will increase transparency in the BMA application review process.

The FDIC SOP provides a list of circumstances that, if one or more are present, will likely result in unfavorable findings with respect to one or more BMA statutory factors. These are¹² 

• noncompliance with applicable federal or state statutes, rules, or regulations (this includes, e.g., transactions that would exceed the 10% nationwide deposit limit as well as both issued and pending enforcement actions);
• unsafe or unsound condition relating to the existing IDIs or the resulting IDI;
• less than satisfactory examination ratings, including for any specialty areas (i.e., information technology or trust examinations);
• significant concerns regarding financial performance or condition, risk profile, or future prospects;
• inadequate management, including significant turnover, weak or poor corporate governance, or lax oversight and administration; or
• incomplete, unsustainable, unrealistic, or unsupported projections, analyses, and/or assumptions.

The new SOP indicates that the FDIC intends to take a broad view of its authority under the BMA and to apply greater scrutiny to certain types of transactions. In particular, where the prior SOP indicated that transactions that “do not involve a transfer of deposit liabilities typically do not require prior FDIC approval under the [BMA], unless the transaction involves the acquisition of all or substantially all of an institution’s assets,” the FDIC SOP provides that the “FDIC considers transactions to be mergers in substance when a target would no longer compete in the market, regardless of whether the target plans to liquidate immediately after consummating the transaction.”¹³ It treats an IDI’s acquisition of all or substantially all of a target entity’s assets as an example of this, suggesting that a broader set of transactions may be viewed as “mergers in substance,” subject to the BMA.¹⁴

The FDIC SOP also indicates that the FDIC will apply greater scrutiny with regard to certain types of transactions and regarding certain statutory criteria.

• Total Assets in Excess of $100 Billion: The FDIC will apply added scrutiny to transactions resulting in a large IDI (defined by example in the FDIC SOP as one with total assets in excess of $100 billion). These transactions, per the FDIC, “are more likely to present potential financial stability concerns with respect to substitute providers, interconnectedness, complexity, and cross border activities,” and thus review of BMA applications relating to such institutions is likely to require additional information and to take additional time.¹⁵
• Total Assets in Excess of $50 Billion: The FDIC will consider it to be in the public interest to hold public hearings regarding merger transactions resulting in an IDI with greater than $50 billion in assets (or where a significant number of Community Reinvestment Act protests are received).¹⁶ This should bear upon the FDIC’s assessment under the “convenience and needs of the community to be served” statutory criterion, and may facilitate closer scrutiny of such transactions.
  • Related to this, and in potential tension with the statutory requirements under the BMA, the FDIC SOP also states that the institution resulting from a transaction should “better meet the convenience and needs of the community to be served than would occur absent the merger."¹⁷

The FDIC SOP indicates that generally, if all statutory factors are favorably resolved, the FDIC will approve a BMA application.¹⁸ Those approvals will be subject to the standard conditions imposed by the FDIC but also any nonstandard conditions deemed appropriate.¹⁹ The FDIC SOP notes that these conditions will be accounted for in the decision whether to approve an application, but if the facts and circumstances are unfavorable, offering or agreeing to conditions will not necessarily lead to a favorable resolution of any statutory factor.²⁰ In the event that an FDIC regional office determines that the facts and circumstances do not warrant a favorable finding on one or more statutory factors, the FDIC SOP expressly notes that such application must be elevated to the FDIC Board of Directors for additional review and a final determination.²¹ It also notes that the FDIC Board of Directors reserves authority to act on certain applications that raise potential antitrust concerns but where the DOJ has not indicated that there would be a significantly adverse effect on competition.²²

III. OCC Rule Governing Business Combinations Under the BMA

The OCC’s final rule, adopted on September 17 (the OCC Final Rule),²³ is largely consistent with the OCC’s earlier proposal, as described in our January Sidley Update. It includes two main elements: limited substantive amendments to the procedures for processing applications and a proposed SOP describing the standards that the OCC will apply in reviewing applications under the BMA (the OCC SOP). Substantive amendments to the application processing procedures were adopted as proposed. These amendments eliminate expedited review of certain applications, a procedure under which such applications were deemed approved 15 days after the end of the associated comment period (if the review period is not otherwise extended).²⁴ They also eliminate the OCC’s streamlined version of the BMA application, previously usable in certain specified transactions to reduce the burden of preparing an application.²⁵ These amendments reflect the agency’s view that any application filed under its regulations should be reviewed and adjudicated by the OCC rather than approved based on the passage of time.

In general, the OCC SOP describes the principles that the OCC will follow as well as how the OCC will analyze specific factors it is required by statute to address in reviewing BMA applications. This includes listing certain indicators that are consistent with the approval of an application and indicators that raise supervisory or regulatory concerns inconsistent with approvals.²⁶ However, in the preamble to the OCC Final Rule, the OCC noted that many commenters had interpreted the proposed OCC SOP to mean that the OCC would not approve an application if one or more of the positive indicators were absent. As such, the OCC noted in the preamble to the OCC Final Rule that it believes that “most transactions” will have some, but not all, of the positive indicators, and none of the indicators that raise supervisory or regulatory concerns.²⁷ Thus, while applications that “tend to withstand scrutiny more easily and are more likely to be approved expeditiously” generally satisfy each of the indicators consistent with approval but that they “are not required for a transaction to be approved.”²⁸

One of the indicators included in the proposed OCC SOP was that the institution resulting from a transaction would have less than $50 billion in total assets. In response to commenter concerns that this represented a “ceiling for transactions consistent with approval,”²⁹ the OCC expressly explained in the preamble to the final rule that this “$50 billion indicator merely reflects the likelihood of an expeditious approval” but that many larger transactions may also be approved.³⁰ The OCC provided similar clarifications regarding another indicator, that combined total assets are less than or equal to 50% of the acquirer’s total assets, stating that this indicator was merely meant to suggest that mergers of equals would require additional review rather than being discouraged.³¹ Finally, the OCC also clarified that the acquirer in a transaction being a global systemically important banking organization (GSIB), while included as an indicator inconsistent with approval, was not meant to flatly preclude approval of all transactions involving a GSIB.³²

IV. DOJ Withdrawal From 1995 Bank Merger Guidelines and New Bank Merger Addendum

Finally, on September 17, the DOJ announced its withdrawal from the 1995 Bank Merger Guidelines³³ and announced that it would now review bank merger transactions under its industry-agnostic 2023 Merger Guidelines (the 2023 Guidelines),³⁴ as supplemented by a newly released, nonbinding 2024 Banking Addendum³⁵ (the 2024 Addendum, and, together with the 2023 Guidelines, the New DOJ Guidance). Under the 1995 Bank Merger Guidelines, DOJ antitrust review of bank mergers focused primarily on deposit concentration in a given geographic market, as measured using an index of market concentration (the Herfindahl-Hirschman Index (HHI)).³⁶ Per DOJ, the HHI is defined as “the sum of the squares of the market shares; it is small when there are many small firms and grows larger as the market becomes more concentrated, reaching 10,000 in a market with a single firm.”³⁷ The 1995 Bank Merger Guidelines provided that a bank merger that did not increase the HHI by more than 200 points or result in a postmerger HHI over 1,800 (that is, a highly concentrated market) would generally not receive further review.

The 2023 Guidelines take a stricter approach. Under these guidelines, a rebuttable presumption of harm to competition arises where a transaction increases the HHI by more than 100 points in either a market where the HHI is greater than 1,800 or where the merged firm’s market share is greater than 30%.³⁸ Within that framework, the 2024 Addendum identifies the parts of the 2023 Guidelines that the DOJ typically considers to be relevant when evaluating the antitrust implications of a bank merger.³⁹ It does not, however, detail how the DOJ will evaluate bank merger transactions relative to each of these parts, including the evidence or data it might use in such analyses. Due to this lack of detail, even though the New DOJ Guidance appears to be stricter than the 1995 Bank Merger Guidelines in the abstract, a wider-ranging analysis may be required to help determine whether a potential transaction is likely to face an antitrust challenge from DOJ.

V. Four Key Takeaways

The FDIC SOP, OCC Final Rule, and New DOJ Guidance are complex, and understanding how certain elements of these documents will be applied will take some time. However, we note four key takeaways from these regulatory actions. The first three relate to transactions involving the potential merger of two IDIs, while the fourth relates to potential mergers of IDIs with noninsured banks or institutions (or transactions that are functionally equivalent to such a merger).

First, although the FDIC and OCC have indicated that the FDIC SOP and OCC Final Rule do not preclude mergers resulting in large financial institutions, it is clear that the environment for M&A activity will generally be more favorable for community banks and smaller regional institutions going forward. Both the FDIC and OCC have indicated that transactions resulting in IDIs with $100 billion or more in total assets will receive additional scrutiny (with the FDIC likely holding public hearings at the $50 billion threshold) and will therefore take longer to both review and approve if an approval is forthcoming. The FDIC also indicated that it would consider hearings to be in the public interest if the resulting IDI has $50 billion or more in total assets, with the result being that such mergers will similarly receive added scrutiny and likely take longer to review.

Second, with the implementation of the FDIC SOP, OCC Final Rule, and New DOJ Guidance, and no changes implemented yet by the Federal Reserve, each of the four agencies with potential responsibility for the evaluation of bank merger transactions now have differing analytic frameworks under which they will review such transactions. While each of the three U.S. federal banking regulators is charged with implementing the same statutory criteria under the BMA, the manner in which they are likely to approach the issue may differ. For example, while the New DOJ Guidance would apply stricter HHI thresholds to a proposed merger transaction, it does not specify how the types of evidence or data it would apply in its analysis more broadly, which could result in a situation where a U.S. federal banking regulator and the DOJ disagree on whether a transaction should be approved. Similarly, the FDIC SOP contains additional detail regarding the manner in which the agency will evaluate the competitive factors relating to a bank merger transaction that the OCC SOP lacks, with the potential for the OCC to take either a stricter or looser approach than the FDIC. As a result, institutions considering M&A activity will need to carefully consider the potential impact on the nature and extent of regulatory review that may result from the type of charter the resulting institution will hold.

Third, the FDIC SOP and New DOJ Guidance suggest that IDIs seeking to merge may be less able to rely on either potential conditions to approvals or proposed divestitures occurring after the closing of a transaction to address concerns arising from antitrust review. With respect to conditions, the FDIC SOP expressly notes that while the imposition of nonstandard conditions will be considered as part of the review of a BMA application, such conditions “will not necessarily lead to the favorable resolution of any statutory factor where the facts and circumstances are otherwise unfavorable.”⁴⁰ The FDIC SOP does, however, note that the FDIC would consider requiring “divestitures of business lines, branches, or portions thereof as a means to mitigate competitive concerns before allowing [a] merger to be consummated,”⁴¹ with the timing for such divestitures now necessarily occurring before, rather than after, closing. By contrast, the DOJ may be moving away from considering requiring divestitures altogether. Although not squarely addressed in the New DOJ Guidance, prior speeches from Assistant Attorney General for the Antitrust Division Jonathan Kanter indicate that DOJ may step back from requiring divestitures as part of the process for merging institutions to receive a positive competitive factors report.⁴² This may suggest that DOJ intends to leave such decision-making to the U.S. federal banking regulators but could also be interpreted to suggest that DOJ could be inclined to make more active use of its antitrust authorities under the Sherman Antitrust Act and the Clayton Act.

Fourth, and finally, the FDIC SOP indicates that the FDIC views its jurisdiction under the BMA broadly, to include both proposed mergers between IDIs and noninsured entities, as well as such transactions that are not mergers but that it views to be “mergers in substance.” The FDIC SOP provides an example of a merger in substance — “when an IDI absorbs all (or substantially all) of a target entity’s assets and the target entity dissolves (or otherwise ceases to engage in the acquired lines of business such that the target is no longer a viable competitor).”⁴³ This means that transactions in which an IDI acquires another entity (which may be a nonbank), or acquires substantially all of the assets of such an entity, could be subject to review by the FDIC under the BMA. Although this is arguably not a change from recent FDIC policy, it raises the question of where the FDIC will draw the line on asset acquisitions that would not otherwise trigger BMA approval by the FDIC. In turn, that has potential implications for potential bank acquisitions of fintech, payments, or other types of nonbank companies and suggests that IDIs and their holding companies will have to give careful consideration to both the manner in which such acquisitions are structured and which entity within the corporate structure is best suited to serve as acquirer.

¹ 12 U.S.C. § 1828(c).
² 12 U.S.C. § 1828(c)(2).
³ 12 U.S.C. § 1828(c)(1).
⁴ 12 U.S.C. § 1828(c)(5).
⁵ 12 U.S.C. § 1828(c)(4).
⁶ 12 U.S.C. § 1828(c)(7).
⁷ 12 U.S.C. § 1828(c)(7)(A).
⁸ FDIC, Final Statement of Policy on Bank Merger Transactions (Sep. 17, 2024), available at https://www.fdic.gov/system/files?file=2024-09/final-statement-of-policy-on-bank-merger-transactions.pdf.
⁹ FDIC, Statement of Policy on Bank Merger Transactions, 63 Fed. Reg. 44761 (Aug. 20, 1998) (as amended), available at https://www.fdic.gov/regulations/laws/rules/statement-of-policy-on-bank-merger-transactions.pdf.
¹⁰ FDIC SOP at 2.
¹¹ Id. at 3.
¹² Id. at 37.
¹³ FDIC SOP at 13.
¹⁴ Id.
¹⁵ See id. at 26-27, 50.
¹⁶ Id. at 49.
¹⁷ Id. at 46.
¹⁸ Id. at 36.
¹⁹ Id.
²⁰ Id.
²¹ Id.
²² Id. at 36-37.
²³ OCC, Business Combinations Under the Bank Merger Act (Sep. 17, 2024), available at https://www.occ.gov/news-issuances/federal-register/2024/nr-occ-2024-101a-federal-register.pdf.
²⁴ See id. at 4-9.
²⁵ See id.
²⁶ Id. at 45-47.
²⁷ Id. at 13-14.
²⁸Id. at 14.
²⁹ Id.
³⁰ Id.
³¹ Id. at 15.
³² Id. at 17.
³³ DOJ, Press Release: Justice Department Withdraws from 1995 Bank Merger Guidelines (Sep. 17, 2024), available at https://www.justice.gov/opa/pr/justice-department-withdraws-1995-bank-merger-guidelines.
³⁴ DOJ and Federal Trade Commission, Merger Guidelines (Dec. 18, 2023), available at https://www.justice.gov/d9/2023-12/2023%20Merger%20Guidelines.pdf.
³⁵ DOJ, 2024 Banking Addendum to 2023 Merger Guidelines (Sep. 17, 2024), available at https://www.justice.gov/atr/media/1368576/dl.
³⁶ DOJ, Bank Merger Competitive Review -- Introduction And Overview (1995), available at https://www.justice.gov/archives/atr/bank-merger-competitive-review-introduction-and-overview-1995.
³⁷ 2023 Guidelines at 5.
³⁸ 2023 Guidelines at 5-6.
³⁹ 2024 Addendum at 2.
⁴⁰ FDIC SOP at 36.
⁴¹ Id. at 41.
⁴² Jonathan Kanter, Assistant Attorney General, Merger Enforcement Sixty Years After Philadelphia National Bank (Jun. 20, 2023), available at https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-keynote-address-brookings-institution.
⁴³ FDIC SOP at 33.

Thank you to Knowledge Management Lawyer Sean Higgins for his significant contributions to this Sidley Update.