Statement of Policy on Bank Merger Transactions

<RULE> FEDERAL DEPOSIT INSURANCE CORPORATION <CFR>12 CFR Part 303</CFR> <RIN>RIN 3064-ZA45</RIN> <SUBJECT>Statement of Policy on Bank Merger Transactions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Deposit Insurance Corporation (FDIC). <HD SOURCE="HED">ACTION:</HD> Final rescission and reinstatement of statement of policy. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The FDIC is taking final action to rescind the Statement of Policy on Bank Merger Transactions published in 2024 (2024 Statement of Policy) and reinstate its Statement of Policy on Bank Merger Transactions that was in effect prior to the 2024 Statement of Policy (Bank Merger Statement of Policy). The reinstated Bank Merger Statement of Policy will remain in effect pending the FDIC's review of all aspects of the regulatory framework governing the FDIC's review of merger transactions in connection with a future proposal to comprehensively revise its merger policy. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This Bank Merger Statement of Policy supersedes the 2024 Statement of Policy, effective on August 4, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Division of Risk Management Supervision:</E> Thomas F. Lyons, Associate Director of Risk Management Policy, (202) 898-6850, <E T="03">tlyons@fdic.gov;</E> Ryan C. Senegal, Chief, Policy and Program Development, (980) 249-3863, <E T="03">rsenegal@fdic.gov;</E> George J. Small, Senior Examination Specialist, (347) 267-2453, <E T="03">gsmall@fdic.gov.</E> Legal Division: Annmarie Boyd, Assistant General Counsel, (202) 898-3714, <E T="03">aboyd@fdic.gov;</E> Nicholas A. Simons, Counsel, (202) 898-6785, <E T="03">nsimons@fdic.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> Section 18(c) of the Federal Deposit Insurance Act (FDI Act), which codifies the Bank Merger Act (BMA), prohibits an insured depository institution (IDI) from engaging in a merger transaction except with the prior approval of the responsible agency. <SU>1</SU> <FTREF/> The FDIC has jurisdiction to act on merger transactions that solely involve IDIs in which the acquiring, assuming, or resulting institution is an FDIC-supervised institution. <SU>2</SU> <FTREF/> The FDIC also has jurisdiction to act on merger transactions that involve an IDI and any non-insured entity, notwithstanding the IDI's charter. <SU>3</SU> <FTREF/> <FTNT> <SU>1</SU>  12 U.S.C. 1828(c). </FTNT> <FTNT> <SU>2</SU>  12 U.S.C. 1828(c)(2). </FTNT> <FTNT> <SU>3</SU>  12 U.S.C. 1828(c)(1). </FTNT> On March 11, 2025, the FDIC published a request for comment  <SU>4</SU> <FTREF/> in the <E T="04">Federal Register</E> on a proposal to rescind the 2024 Statement of Policy issued on September 27, 2024  <SU>5</SU> <FTREF/> and to reinstate the FDIC's prior Bank Merger Statement of Policy, which was initially adopted in 1998 and amended most recently in 2008. <SU>6</SU> <FTREF/> <FTNT> <SU>4</SU>  90 FR 11679 (Mar. 11, 2025). </FTNT> <FTNT> <SU>5</SU>  89 FR 79125 (Sep. 27, 2024). </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> 63 FR 44761 (Aug. 20, 1998), 67 FR 48178 (Jul. 23, 2002), 67 FR 79278 (Dec. 27, 2002), and 73 FR 8870 (Feb. 15, 2008). </FTNT> Having considered the comments received, the FDIC Board of Directors is rescinding the 2024 Statement of Policy and reinstating the Bank Merger Statement of Policy as described in this <E T="02">Supplementary Information</E> . <HD SOURCE="HD1">II. Overview of the Proposal</HD> <HD SOURCE="HD2">A. Purpose</HD> The FDIC proposed to rescind the 2024 Statement of Policy and reinstate the Bank Merger Statement of Policy due to concerns that the 2024 Statement of Policy added considerable uncertainty to the merger application process and raised additional questions regarding when merger applications would be required. <SU>7</SU> <FTREF/> The 2024 Statement of Policy also deemphasized the use of the Herfindahl-Hirschman Index (HHI) thresholds in the competitive effects analysis, which had long served as a predictable proxy for determining whether a proposed transaction is anticompetitive, <SU>8</SU> <FTREF/> and replaced those thresholds with more subjective criteria. In addition, the 2024 Statement of Policy placed an affirmative burden on applicants to demonstrate that a merger transaction would enable the resulting institution to better meet the convenience and needs of the community to be served than would otherwise occur in the absence of the merger, without offering any objective or quantifiable criteria regarding how the FDIC would evaluate this factor. <SU>9</SU> <FTREF/> There were also concerns that the 2024 Statement of Policy made the FDIC's merger review process less transparent and predictable and left prospective applicants unclear about the prospects for approval and the resources and time necessary to complete the merger application process. Based on these concerns, in March of 2025, the FDIC proposed a return to its historical approach by seeking comment on the reinstatement of the prior Bank Merger Statement of Policy, which is well-understood by the public and market participants. Reinstatement of the Bank Merger Statement of Policy would serve as an interim measure while the agency develops future policy regarding merger transactions. <FTNT> <SU>7</SU>   <E T="03">See e.g., supra</E> n. 5 at 89 FR 79134 (“The applicability of the BMA will depend on the facts and circumstances of the proposed transaction. In addition to transactions that combine institutions into a single legal entity through merger or consolidation, the scope of merger transactions subject to approval under the BMA encompasses transactions that take other forms, including purchase and assumption transactions or other transactions that are mergers in substance, and assumptions of deposits or other similar liabilities.”). </FTNT> <FTNT> <SU>8</SU>   <E T="03">See id.</E> at 89 FR 79136. </FTNT> <FTNT> <SU>9</SU>   <E T="03">See id.</E> at 89 FR 79138. </FTNT> <HD SOURCE="HD2">B. Summary of the Merger Policy Statement</HD> The Bank Merger Statement of Policy was first published in 1998 and was subsequently amended several times without public comment, <SU>10</SU> <FTREF/> most recently in 2008. The Bank Merger Statement of Policy being reinstated is essentially  <SU>11</SU> <FTREF/> identical to the 2008 document. It includes a general introduction, followed by an overview of application procedures, a discussion of the FDIC's evaluation of the statutory factors required for consideration under the BMA, <SU>12</SU> <FTREF/> and concludes with a list of related considerations. The discussion of the BMA statutory factors addresses the competitive factors, the prudential considerations related to financial and managerial resources and future prospects, the convenience and needs of the community to be served, and the effectiveness of each IDI involved in the proposed merger transaction in combatting money-laundering activities. <FTNT> <SU>10</SU>   <E T="03">See supra</E> n. 6. </FTNT> <FTNT> <SU>11</SU>  The only changes are technical edits updating a room number and a citation. </FTNT> <FTNT> <SU>12</SU>   <E T="03">Supra</E> n. 1. </FTNT> Although the Bank Merger Statement of Policy does not directly address the BMA's statutory factor related to the risk to the stability of the United States banking or financial system, which was added to the BMA by the Dodd-Frank Act in 2010, <SU>13</SU> <FTREF/> the FDIC has articulated its approach to evaluating this factor in the context of merger transactions in the FDIC's Applications Procedures Manual. <SU>14</SU> <FTREF/> <FTNT> <SU>13</SU>  12 U.S.C. 1828(c)(5), as amended by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. 111-203, section 604(f), 124 Stat. 1376, 1602 (2010). </FTNT> <FTNT> <SU>14</SU>   <E T="03">See</E> FDIC Applications Procedures Manual, pp. 4-22—4-23, available at: <E T="03">https://www.fdic.gov/sites/default/files/2024-03/pr19111a.pdf.</E> (“In evaluating a merger application, the FDIC must consider the risk to the stability of the United States banking or financial system (Section 18(c)(5) of the FDI Act). [The FDIC] consider[s] both quantitative and qualitative metrics when evaluating a transaction's impact on financial stability. The following is a non-exhaustive list of quantitative metrics [the FDIC] consider[s]: the size of the resulting firm; the availability of substitute providers for any critical products and services offered by the resulting firm; the interconnectedness of the resulting firm with the banking or financial system; the extent to which the resulting firm contributes to the complexity of the financial system; and the extent of cross-border activities of the resulting firm. In addition to these quantitative metrics, qualitative factors should inform the evaluation of the financial stability factor. Such factors include those that are indicative of the relative degree of difficult in resolving the resulting firm, such as the opaqueness and complexity of the resulting institution's operations.”) </FTNT> <HD SOURCE="HD1">III. Summary and Discussion of Comments</HD> The FDIC received 12 comment letters from 10 commenters on its proposal to rescind the 2024 Statement of Policy and reinstate the Bank Merger Statement of Policy. Two of the commenters sent two letters each writing separately first to request an extension of the comment period and then to discuss the proposal. Commenters included academics, advocacy groups, trade associations, and an individual. <HD SOURCE="HD2">A. Request for Extension of the Comment Period</HD> Four commenters requested an extension of the ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 37k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━