The Office of the Comptroller of the Currency is proposing ending the possibility of merger applications being approved based solely on the passage of time while adding transparency to standards consistent with merger approvals and denials.
In a Jan. 29 notice of proposed rulemaking, Acting Comptroller Michael Hsu said the agency plans to release a policy statement identifying the features of applications or indicators consistent and inconsistent with OCC approval under the Bank Merger Act. Applications where the acquiring bank has satisfactory supervisory rating, zero enforcement actions and no fair lending, Community Reinvestment Act, Bank Secrecy Act or consumer compliance concerns would reportedly be consistent with timely approval.
“Applications where the acquirer has unsatisfactory supervisory ratings, open or pending BSA enforcement actions, poor CRA ratings, or other supervisory concerns are highly unlikely to receive approval unless and until such concerns are resolved,” Hsu noted. “We expect most applications are likely to fall between those.”
The proposal would also eliminate a 1996 rule that allows certain merger applications to be declared approved by the OCC on the 15th day following the close of the comment period unless the agency removes the filing from expedited processing.
The OCC also plans to issue a report including a review of the literature related to bank mergers and consolidation and identify any outstanding questions. The agency also plans to post bank merger data subject to agency review later this year in a publicly accessible format on its website.
American Bankers Association President and CEO Rob Nichols said the announcement “offers an important opportunity to update this critical policy area. ABA has long supported making regulatory processes and standards clear and transparent. At the same time, regulators should ensure that the scope of required application information is tailored to each bank’s specific circumstances.
“In addition, bank mergers should not be evaluated based on arbitrary asset thresholds — regulators must consider holistically financial, competitive, managerial and other relevant factors involving banks of any size,” he added. “The key objective of this initiative should be timely, efficient decisions on mergers under clear standards and with a transparent process.”
Hsu said there is currently no framework for analyzing whether the OCC’s current case-by-case assessments of M&As are effective. “Absent a consensus view, policymakers can be accused of seeing what they want to see, leading to a perception that bank merger policy is fickle,” he noted. “The development of a macro view — thinking holistically about the banking system — can provide discipline to these analyses and studies.”
Hsu said the OCC is working with the Department of Justice on the competition section of the Bank Merger Act. Last June, Department of Justice Assistant Attorney General Jonathan Kanter announced the agency would expand its M&A competitive review process to include fees, interest rates, branch locations and the potential to further consolidate power in an already dominant bank.
Federal Reserve Gov. Michelle Bowman has also called on regulators to update M&A competitive considerations as community banks face growing competition from credit unions and fintechs. Speaking last fall, she called on nonbanks, digital banks and credit unions to be included in updated M&A guidelines as current guidelines don’t account for the advent of digital banking and the potential loss of local lending if a community bank is acquired by an out-of-town institution.
The OCC proposal was released as the number of bank charters has fallen to 4,500 today from 15,000 in 1985. The OCC supervised nearly 6,500 institutions with a total of $2 trillion in assets in 1984; today that number has fallen to 1,000 with more than $15 trillion in assets.
Hsu said the question of whether there are too many or too few community banks warrants closer study and analysis. There are currently more than 680 banks with less than $100 million in assets; 2,700 with between $100 million and $1 billion, and 820 with assets between $1 billion and $10 billion.