Proposed Changes to FDIC Statement of Policy on Bank Merger Transactions: Implications for Community Banks

The Federal Deposit Insurance Corporation (FDIC) has proposed changes to its Statement of Policy on Bank Merger Transactions, which could have significant implications for community banks. The Proposed SOP, open for comment until May 31, 2024, aims to provide additional perspective on the FDIC’s evaluation process for merger applications and the principles considered under the Bank Merger Act.

One of the key impacts for community banks if the Proposed SOP is implemented as proposed is longer processing times for acquisitions. Additionally, there will be a requirement for additional competitive effects analysis with any application, leading to potential uncertainty and new requests from the FDIC due to the broad “principle-based” approach of the Proposed SOP.

The rationale behind the Proposed SOP stems from concerns about growth, consolidation, and systemic risk in the banking industry. The FDIC is particularly focused on the financial stability risks that could arise from mergers involving large banks. The FDIC also emphasizes the anti-competitive impact of consolidation, aligning with President Biden’s executive order on maintaining a fair, open, and competitive marketplace.

The Proposed SOP includes a detailed discussion of each statutory factor, such as competitive effects, financial and managerial resources, future prospects, convenience and needs of the community, risk to the stability of the U.S. banking system, and effectiveness in combating money laundering activities. The FDIC’s jurisdiction and scope have also been clarified to encompass a wide range of transactions that could affect the safety and soundness of insured depository institutions.

Overall, the Proposed SOP signals a more rigorous and comprehensive approach to evaluating bank merger applications, with a focus on ensuring the resulting institutions operate in a safe and sound manner and meet the needs of the communities they serve. Community banks, in particular, may need to prepare for increased scrutiny and provide detailed information to support their merger applications. The potential impact of the Proposed SOP on the M&A market and deal certainty remains to be seen as the comment period continues until May 31, 2024.