Business Combinations Under the Bank Merger Act

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Office of the Comptroller of the Currency</SUBAGY> <CFR>12 CFR Part 5</CFR> <DEPDOC>[Docket ID OCC-2023-0017]</DEPDOC> <RIN>RIN 1557-AF24</RIN> <SUBJECT>Business Combinations Under the Bank Merger Act</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of the Comptroller of the Currency (OCC), Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The OCC is adopting a final rule to amend its procedures for reviewing applications under the Bank Merger Act and adding, as an appendix, a policy statement that summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the Bank Merger Act. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> The final rule is effective on January 1, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Valerie Song, Assistant Director, Christopher Crawford, Special Counsel, Elizabeth Small, Counsel, Chief Counsel's Office, 202-649-5490; or Yoo Jin Na, Director for Licensing Activities, 202-649-6260, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing or have a speech disability, please dial 7-1-1 to access telecommunications relay services. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> The Bank Merger Act (BMA), section 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c)), and the OCC's implementing regulation, 12 CFR 5.33, govern the OCC's review of business combinations of national banks and Federal savings associations with other insured depository institutions (institutions) that result in a national bank or Federal savings association. <SU>1</SU> <FTREF/> Under the BMA, the OCC must consider the following factors: competition, the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, the risk to the stability of the United States banking or financial system, and the effectiveness of any insured depository institution involved in combatting money laundering activities, including in overseas branches. <SU>2</SU> <FTREF/> The BMA generally requires public notice of the transaction to be published for 30 days. <SU>3</SU> <FTREF/> OCC regulations require the public notice include essential details about the transaction and instructions for public comment. The regulations incorporate the statutory 30-day public notice period and provide a 30-day public comment period, which the OCC may extend. <SU>4</SU> <FTREF/> The OCC may also hold a public hearing, public meeting, or private meeting on an application. <SU>5</SU> <FTREF/> <FTNT> <SU>1</SU>  A business combination for these purposes includes an assumption of deposits in addition to a merger or consolidation. </FTNT> <FTNT> <SU>2</SU>  12 U.S.C. 1828(c)(5), (11). </FTNT> <FTNT> <SU>3</SU>  12 U.S.C. 1828(c)(4). </FTNT> <FTNT> <SU>4</SU>  12 CFR 5.8(b), 5.10(b)(1). </FTNT> <FTNT> <SU>5</SU>  12 CFR 5.11. </FTNT> The OCC has issued several publications that provide additional information about the procedures that the OCC follows in reviewing and acting on proposed business combinations. For example, the “Business Combinations” booklet of the <E T="03">Comptroller's Licensing Manual</E> details the OCC's review of applications under the BMA. The “Public Notice and Comments” booklet of the <E T="03">Comptroller's Licensing Manual</E> sets forth policies related to the public notice and comment process, including hearings and meetings. The <E T="03">Comptroller's Licensing Manual</E> provides OCC staff, institutions, and the public with information about the procedures applicable to corporate applications filed with the OCC. After reviewing these materials, the OCC determined that additional transparency about the standards and procedures that the agency applies when reviewing bank business combinations may be helpful to institutions and the public. To better reflect the OCC's view that a business combination is a significant corporate transaction, the OCC proposed amendments to 12 CFR 5.33 to remove provisions related to expedited review and the use of streamlined applications. <SU>6</SU> <FTREF/> The OCC also proposed adding a policy statement at appendix A to 12 CFR part 5, subpart C, that would discuss both the general principles the agency uses to review applications under the BMA and how it considers financial stability, financial and managerial resources and future prospects, and convenience and needs factors. Proposed appendix A also described the criteria informing the OCC's decision on whether to hold a public meeting on an application subject to the BMA. <FTNT> <SU>6</SU>  89 FR 10010 (February 13, 2024). </FTNT> The OCC received 34 substantive written comments on this proposal from banks, trade groups, academics, and members of the public. Most commenters agreed that the OCC should update its merger regulations and guidelines, but expressed varying views on the proposed changes. The comments are addressed below with the relevant discussion of 12 CFR 5.33 and appendix A. After careful consideration of these comments, the OCC is adopting its proposed amendments to 12 CFR 5.33 in final form and making minor, clarifying modifications to proposed appendix A. <HD SOURCE="HD1">II. Description of the Final Policy Statement and Regulatory Amendments</HD> <HD SOURCE="HD2">Regulatory Amendments</HD> The OCC proposed two substantive changes to its business combination regulation at 12 CFR 5.33. First, the OCC proposed removing the expedited review procedures in § 5.33(i). Paragraph (i) currently provides that a filing that qualifies either as a business reorganization as defined in § 5.33(d)(3) or for a streamlined application under § 5.33(j) is deemed approved as of the 15th day after the close of the comment period, unless the OCC notifies the applicant that the filing is not eligible for expedited review or the expedited review process is extended under § 5.13(a)(2). <SU>7</SU> <FTREF/> <FTNT> <SU>7</SU>  Under the proposal, the provisions in 12 CFR 5.13(a)(2) regarding adverse comments would no longer apply to business combination applications because they only apply to filings that qualify for expedited review. </FTNT> Some commenters opposed eliminating the expedited review procedures. These commenters argued that eliminating the expedited review procedures would unnecessarily increase the complexity and cost of the application process for categories of transactions that are unlikely to present issues under the BMA, such as reorganizations. Further, many commenters expressed concern that removing § 5.33(i) would increase the burden on smaller institutions, including community banks. Some of these commenters suggested that the OCC continue to allow expedited processing for banks under a certain size. Other commenters supported eliminating expedited review, stating that eliminating the possibility that an application will be deemed approved solely due to the passage of time is necessary to address the systemic risks posed by large banks and the harms of consolidation. Further, some commenters that supported eliminating expedited review noted that the current expedited review process fails to adequately prevent anti-competitive mergers and the proposed changes to the review process would allow for a more comprehensive evaluation of merger application. Nevertheless, some supportive commenters noted that the proposed changes, including the removal of expedited review, do not go far enough to effectively address the issues raised by large bank consolidations. The OCC reviews business combination applications to determine whether applicable procedural  <SU>8</SU> <FTREF/> and substantive  <SU>9</SU> <FTREF/> requirements are met. The only benefit conferred by the expedited review provisions in § 5.33(i) is that these applications are deemed approved as of the 15th day after the close of the comment period  <SU>10</SU> <FTREF/> unless the OCC takes action to remove the application from expedited review or extends the expedited review process. As described in the OCC's Annual Report, Licensing Activity section, the OCC's current target time frame for licensing decisions on merger applications is 45 days for expedited review and 60 days for standard review. <SU>11</SU> <FTREF/> However, as noted in § 5.33(i), the OCC can remove an application from expedited review. Additionally, as noted in the OCC's Annual Report, the OCC may extend the standard review target time frame if it needs additional information to reach a decision, process a group of related filings as a single transaction, or extend the public comment period. The OCC's practice has been to approve or deny an application on expedited review within 15 days after the close of the comment period or remove the application from expedited review. The OCC is not aware of any application for a business combination having been deemed approved solely due to the passage of time. Accordingly, the OCC does not expect that removing this provision will result in a significant change to the time in which the OCC processes merger applications. Instead, this change will more closely align the regulatory framework with the OCC's current practices and promote transparency. Further, it is consistent with the OCC's view that any business combination subject to a filing under § 5.33 is a significant corporate transaction requiring active OCC consideration and decisioning of the application. The principles underlying the expedited process in § 5.33(i) ( <E T="03">i.e.,</E> transactions with certain indicators are likely to satisfy the statutory factors, do not otherw ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 115k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━