(Originally published in ABA Risk and Compliance, January/February 2025)
On September 17, 2024, the OCC, Federal Deposit Insurance Corporation (FDIC), and Department of Justice Antitrust Division (DOJ) issued new antitrust guidance regarding bank merger transactions.
The OCC issued final rule RIN 1557-AF24 (AF24) to amend its procedures for reviewing applications under the Bank Merger Act (BMA).1 The rule includes a policy statement that summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the BMA. The FDIC Board of Directors also approved a final Statement of Policy (SOP) on bank merger transactions, superseding its existing policy statement, which was last revised in 2008.2 The SOP sets forth the FDIC Board’s expectations for merger transactions subject to FDIC approval, not limited to considerations that go into evaluating the relevant statutory issues in a prudential and forward-looking manner.
The DOJ released the 2024 Banking Addendum3 to the 2023 Merger Guidelines,4 which were previously issued jointly by the DOJ and the Federal Trade Commission (FTC). In addition, the FTC amended its Premerger Notification Rules under the Hart-Scott-Rodino Antitrust Improvement Act. The amendment enhances premerger notification processes to improve the ability of the FTC to detect illegal mergers and acquisitions prior to consummation. 5 Parties to certain mergers and acquisitions may be required to provide additional information that is necessary to determine which deals require an in-depth antitrust investigation, not limited to the issuance of “Second Requests.” The DOJ concurred with the FTC’s action.
The following comparative analysis highlights key components of the recent OCC, FDIC, DOJ, and FTC guidance.
Premerger disclosures
The FDIC’s new merger guidance also requires FDIC-regulated institutions to provide advance notice of a broader range of transactions, including acquisitions of nonbanking assets or entities that did not previously merit an application. The FDIC will determine on a case-by-case basis whether such a transaction constitutes a “merger in substance” requiring an application under the Bank Merger Act.
FTC’s HSR Act premerger form allows agencies to use disclosed information to conduct a premerger assessment within the timing parameters (e.g., normally 30 days). The DOJ has concurred with the FTC approach in this regard.
Antitrust and competition
The 2023 Guidelines returned to a more stringent definition of a “highly concentrated” market. Under the prior 2010 Horizontal Merger Guidelines, a market with a Herfindahl-Hirschman Index (HHI)6 of 2,500 or greater was classified as highly concentrated, and a merger that raised the HHI by more than 200 points was presumed to be anticompetitive. Under the 2023 Merger Guidelines, a market with an HHI greater than 1,800 is classified as highly concentrated and a merger or acquisition that increases the HHI by more than 100 points in a highly concentrated market creates a rebuttable presumption of anticompetitive effects.
In the 2024 Banking Addendum, the DOJ described the procedures and enforcement practices that it most often uses to investigate whether mergers violate antitrust laws. It underscored that bank mergers will be considered under the same guidelines as other mergers. Prior to this update, the DOJ had applied different guidance7 for bank mergers than for other mergers and acquisitions. However, with the 2024 Banking Addendum, the 2023 Merger Guidelines will be applied to banking mergers and acquisitions.
DOJ has traditionally worked in concert with bank regulators during the merger review process for the benefit of consistent and complementary application of laws within the purview of each regulatory agency’s domain. The 2024 Banking Addendum notes, “Accordingly, the Antitrust Division considers whether there is appreciable harm to identifiable and distinct groups of customers.” The 2024 Banking Addendum discusses several groups of bank customers that may warrant focused antitrust analyses, including large corporations, small businesses, nonprofits, economically underserved individuals, and individuals with low credit scores. This granular segmentation of bank customers may result in additional analyses prior to merger approval.
Under its new SOP, the FDIC will also consider competition provided by credit unions, thrifts, and Farm Credit lenders in its evaluation of mergers. Since the FDIC previously excluded credit unions and Farm Credit lenders and only gave thrifts 50 percent weight, this may benefit banks engaging in merger activity where the acquirer and target have overlapping markets. However, the FDIC declined industry participants’ requests to include fintechs and other nonbank financial services companies.
According to the FDIC, they will look at all relevant geographic markets (local, regional, and national) based on where the merging entities operate, consider all relevant market participants and their total deposits, and consider the size and competitive effects of the resulting Insured Depository Institution (IDI).
Both the FDIC and OCC clarified that competition is considered in combination with the convenience and needs of the community. The FDIC elaborated that this balancing may be particularly relevant in rural communities, where the community’s needs may outweigh interests in increased competition. The OCC AF24 promises more thorough assessments of competitive effects, not limited to stronger reviews of potential market concentration and antitrust concerns.
Community Reinvestment Act (CRA) and public interest
As expected, the OCC and FDIC policies include CRA as a core consideration so that banks continue meeting the credit needs of their communities post-merger. Both the OCC AF24 and the FDIC SOP highlight the convenience and needs of the communities to be served as part of the merger review process. Additionally, the DOJ notes in the 2024 Banking Addendum that, although DOJ review of bank mergers is limited to competitive factors, “Nonetheless, competition concerns may impact other factors such as the convenience and needs of the community, and bank regulators may choose to take these competitive considerations under advisement when assessing these other factors.”8
The FDIC SOP explicitly highlights public access to banking services and its impact on low- and moderate-income communities. In addition, the FDIC SOP sets an expectation that there will be net community benefits — that the merged institution will better meet the convenience and needs of the communities to be served. The FDIC will require public hearings for mergers resulting in institutions with assets greater than $50 billion.
The OCC focuses on the convenience and needs of all the communities to be served within the context of other statutory factors. In addition, OCC AF24 focuses on modernizing regulatory frameworks to better reflect current banking practices.
Application processes
The OCC’s final rule and policy statement eliminated the streamlined application and expedited review provisions under Part 5 of Title 12 of the Code of Federal Regulations. The OCC historically accepted a “streamlined” BMA application under Section 5.33(j). As noted above, the FDIC advance notice requirement may result in merger applications being required for a broader range of transactions that did not previously require an application.
Financial stability and risk assessment
The OCC AF24 emphasizes updating assessment of financial stability risks relative to evolving markets, advancements in technology, and emerging risks. The FDIC’s SOP homes in on traditional components of an institution’s risk areas (e.g., capital adequacy, managerial efficacy, liquidity, etc.) in assessing the potential impact to the Deposit Insurance Fund in the event of insolvency.
Taken together, the recent updates indicate a renewed focus on bank merger and acquisition activity. Overall, the new guidance documents align in promoting safe, sound, and competitive banking markets but may foretell more critical review of proposed mergers and acquisitions. Institutions considering mergers should carefully evaluate the impact of this guidance.
ABOUT THE AUTHORS
LYNN WOOSLEY, CRCM is a Managing Director with Asurity Advisors and a member of Case Western Reserve University’s Women in Finance Advisory Board. Lynn has more than 30 years of risk management experience in both financial services and regulatory environments. She is an expert in consumer protection, including fair lending, fair servicing, community reinvestment, and UDAAP. Before joining Asurity Advisors, Lynn led the fair banking practice for an advisory firm. She has also held multiple leadership positions, including Senior Vice President and Fair and Responsible Banking Officer, within the Enterprise Risk Management division of a top 10 bank. Prior to joining the private sector, Lynn served as Senior Examiner and Fair Lending Advisory Economist at the Federal Reserve Bank of Atlanta. Reach her at lwoosley@asurity.com.
VINCENT COE, a Director with Asurity Advisors, is a former Fair Lending/CRA Examiner with both the FDIC and the Federal Reserve. During his tenure at the FDIC, Vince received a Mission Achievement Award for his contributions in preserving confidence in the banking system following the financial market crash of 2008. He has over 15 years of financial services experience. Vince previously served as a Senior Risk Advisor, litigation consultant, legal extern, and law clerk. Through these roles, he gained a three-dimensional perspective on the financial services industry with respect to regulatory compliance challenges and legal nuances. Reach Vince at vcoe@asurity.com.
Endnotes
- https://www.occ.gov/news-issuances/federal-register/2024/nr-occ-2024-101a-federal-register.pdf
- https://www.fdic.gov/system/files?file=2024-09/final-statement-of-policy-on-bank-merger-transactions.pdf
- https://www.justice.gov/atr/media/1368576/dl
- https://www.justice.gov/d9/2023-12/2023%20Merger%20Guidelines.pdf
- https://www.ftc.gov/system/files/ftc_gov/pdf/p110014hsrfinalrule.pdf
- The HHI is a measure of market competitiveness. It can range from near zero in a highly competitive market to 10,000 in a market controlled by a single competitor. The HHI is calculated as the sum of the squared market share of each market participant. where is the market share of competitor I expressed as a whole number rather than a decimal.
- https://www.justice.gov/archives/atr/bank-merger-competitive-review-introduction-and-overview-1995
- https://www.justice.gov/atr/media/1368576/dl