BPI: FDIC Bank Merger Rules Will Have ‘Chilling Effect’

The Federal Deposit Insurance Corp.’s finalized Statement of Policy on Bank Merger Transactions will have a “chilling effect” on bank mergers and other strategic decisions on investment, risk management and competitive positioning, a Bank Policy Institute (BPI) senior associate general counsel wrote.

Writing in a Tuesday (Oct. 29) blog post on the organization’s website, Sarah Flowers, senior vice president and senior associate general counsel, regulatory affairs, said the FDIC’s Statement of Policy increases uncertainty in the regulatory environment by changing how the agency evaluates mergers.

“These regulatory shifts will have lasting implications for the banking sector’s structure and competitive landscape,” Flowers wrote in the post.

Some aspects of the FDIC’s statement invite potential legal challenges, Flowers wrote.

These “problematic requirements” in the FDIC’s statement include the expansion of the agency’s authority beyond traditional mergers and consolidations, the shift from considering community needs regarding proposed mergers to requiring demonstrable benefits, and the heightened scrutiny of transactions that result in large insured depository institutions with assets over $100 billion, according to the post.

With each of these requirements, the agency exceeds its statutory authority, per the post.

“Although the FDIC policy statement is styled as ‘nonbinding,’ there is strong evidence that its contents are, in effect, legally binding,” Flowers wrote. “Once established as final agency actions, there are strong legal grounds to challenge the substance of these provisions.”

The FDIC board of directors approved the final Statement of Policy Sept. 17.

In a press release announcing the approval, FDIC Chairman Martin J. Gruenberg said: “The Final Statement of Policy on Bank Merger Transactions approved today by the FDIC Board updates, strengthens and clarifies the FDIC’s approach to evaluating transactions subject to its approval under the Bank Merger Act.”

PYMNTS reported Sept. 17 that the regulators’ new rules may hold up banks’ plans for mergers.

The updates replace guidelines that have been used for decades to judge the merits of bank mergers. Key changes include the increased scrutiny of some larger mergers and the consideration of proposed deals’ impact on concentrations of services and products other than deposits.