OCC and FDIC Align on Bank Merger Policies, Signaling New Era of Regulatory Transparency

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have both issued new policy statements on bank merger transactions. This aligned approach, announced on September 17, 2024, aims to bring unprecedented transparency and clarity to the bank merger review process.

Acting Comptroller of the Currency Michael J. Hsu, speaking at the FDIC Board Meeting, expressed his support for the FDIC's Statement of Policy on Bank Merger Transactions, noting its broad consistency with the OCC's own policy statement released earlier the same day.

Highlights of the coordinated approach include:

1. Increased Transparency: Both agencies have taken steps to provide additional clarity on their review processes for applications under the Bank Merger Act (BMA).
2. Promoting Diversity and Dynamism: Hsu emphasized that the new policies aim to foster "a diverse and dynamic U.S. banking system – one that is safe and sound, pro-community, pro-competition, and pro-financial stability."
3. Guidance for Banks: The policy statements serve as "yardsticks and roadmaps," allowing banks to better understand and improve their chances of receiving regulatory approval for mergers.
4. Balanced Approach: Hsu stressed the need for a balanced merger policy that ensures communities are well-served while allowing for beneficial consolidation.
5. Openness to Positive Mergers: Regulators will remain open to approving mergers where strong, trusted banks acquire weaker ones with credible improvement plans.

Detailed Policy Changes

The OCC's final rule and policy statement, which apply to all national banks, federal savings associations, and federal branches of foreign banks, include:

• Removal of expedited review provisions for business combinations
• A new comprehensive policy statement outlining review principles
• Clarification on the evaluation of statutory factors such as financial stability and community impact
• Guidelines on public comment periods and meetings

Implications for the Banking Sector

This coordinated approach by the OCC and FDIC marks a pivotal moment in banking regulation. The new policies are expected to:

1. Encourage More Strategic Mergers: Banks will likely pursue mergers that clearly demonstrate benefits to communities and the overall banking system.
2. Increase Community Engagement: Enhanced transparency may lead to greater public participation in the merger review process.
3. Support Smaller Institutions: The emphasis on maintaining diversity could potentially benefit community banks in certain merger scenarios.
4. Promote Financial Stability: By clarifying expectations, regulators aim to ensure that mergers contribute to a more robust and resilient banking system.

While the full impact of these changes remains to be seen, initial reactions from the banking industry suggest a mix of caution and optimism. Some experts anticipate a short-term slowdown in merger activities as banks adjust to the new guidelines, followed by a potential increase in well-planned, community-focused merger proposals.

The alignment between the OCC and FDIC also raises questions about whether the Federal Reserve will follow suit with similar updates to its merger review process, potentially leading to a fully harmonized regulatory approach across all major banking authorities.

As Acting Comptroller Hsu stated, "Striking this balance will help promote a dynamic and diverse U.S. banking system by making it more competitive, more pro-community, and safer and sounder." With these new policies in place, the banking sector enters a new era of regulatory transparency, potentially reshaping the landscape of financial institutions across the United States.

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