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Mar 31 -- The Federal Deposit Insurance Corporation (FDIC) is soliciting comments from interested parties regarding the application of the laws, practices, rules, regulations, guidance, and statements of policy (together, regulatory framework) that apply to merger transactions involving one or more insured depository institution, including the merger between an insured depository institution and a noninsured institution. The FDIC is interested in receiving comments regarding the effectiveness of the existing framework in meeting the requirements of section 18(c) of the Federal Deposit Insurance Act (known as the Bank Merger Act). Comments must be received by May 31, 2022.

Significant changes over the past several decades in the banking industry and financial system necessitate a review of the regulatory framework that applies to bank merger transactions involving one or more insured depository institutions pursuant to the Bank Merger Act.

First, more than three decades of consolidation and growth in the banking industry have significantly reduced the number of smaller banking organizations and increased the number of large and systemically-important banking organizations. Second, the FDIC has a responsibility to promote public confidence in the banking system, maintain financial stability, review proposed mergers, and resolve failing large insured depository institutions. Third, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended the Bank Merger Act to include, for the first time, a financial stability factor. Fourth, and finally, a recent Executive Order instructed U.S. agencies to consider the impact that consolidation may have on maintaining a competitive marketplace. Thus, the FDIC has determined that it is both timely and appropriate to review the regulatory framework and consider whether updates or other changes are warranted.
 
In light of the significant consolidation in the banking industry over the past three decades, the federal banking agencies requirement to consider financial stability risk under the BMA, the FDIC's responsibilities for the resolution of large insured depository institutions, and the Executive Order, the FDIC is soliciting comments from interested parties regarding the rules, regulations, guidance, and statements of policy (together, regulatory framework) that apply to bank merger transactions involving one or more insured depository institutions. The FDIC is interested in receiving comments regarding the effectiveness of the existing regulatory framework in meeting the requirements of the Bank Merger Act.
 
The FDIC is seeking comment on all aspects of the existing regulatory framework that applies to bank merger transactions. In responding to the following questions, the FDIC asks that commenters please include quantitative as well as qualitative support for their responses, as applicable.

Question 1. Does the existing regulatory framework properly consider all aspects of the Bank Merger Act as currently codified in Section 18(c) of the Federal Deposit Insurance Act?

Question 2. What, if any, additional requirements or criteria should be included in the existing regulatory framework to address the financial stability risk factor included by the Dodd-Frank Act? Are there specific quantitative or qualitative measures that should be used to address financial stability risk that may arise from bank mergers? If so, are there specific quantitative measures that would also ensure greater clarity and administrability? Should the FDIC presume that any merger transaction that results in a financial institution that exceeds a predetermined asset size threshold, for example $100 billion in total consolidated assets, poses a systemic risk concern?

Question 3. To what extent should prudential factors (for example, capital levels, management quality, earnings, etc.) be considered in acting on a merger application? Should bright line minimum standards for prudential factors be established? If so, what minimum standard(s) should be established and for which prudential factor(s)?

Question 4. To what extent should the convenience and needs factor be considered in acting on a merger application? Is the convenience and needs factor appropriately defined in the existing framework? Is the reliance on an insured depository institution's successful Community Reinvestment Act performance evaluation record sufficient? Are the convenience and needs of all stakeholders appropriately addressed in the existing regulatory framework? To what extent and how should the convenience and needs factor take into consideration the impact that branch closings and consolidations may have on affected communities? To what extent should the FDIC differentiate its consideration of the convenience and needs factor when considering merger transactions involving a large insured depository institution and merger transactions involving a small insured depository institution? To what extent should the CFPB be consulted by the FDIC when considering the convenience and needs factor and should that consultation be formalized?

Question 5. In addition to the HHI, are there other quantitative measures that the federal banking agencies should consider when reviewing a merger application? If so, please describe the measures and how such measures should be considered in conjunction with the HHI. To what extent should such quantitative measures be differentiated when considering mergers involving a large insured depository institution and mergers involving only small insured depository institutions?

Question 6. How and to what extent should the following factors be considered in determining whether a particular merger transaction creates a monopoly or is otherwise anticompetitive?

Please address the following factors:

(a) The merging parties do not significantly compete with one another;
(b) Rapid economic change has resulted in an outdated geographic market definition and an alternate market is more appropriate;
(c) Market shares are not an adequate indicator of the extent of competition in the market;
(d) A thrift institution is actively engaged in providing services to commercial customers, particularly loans for business startup or working capital purposes and cash management services;
(e) A credit union has such membership restrictions, or lack of restrictions, and offers such services to commercial customers that it should be considered to be in the market;
(f) There is actual competition by out-of-market institutions for commercial customers, particularly competition for loans for business startup or working capital purposes; and
(g) There is actual competition by non-bank institutions for commercial customers, particularly competition for loans for business startup or working capital purposes. With respect to the preceding factors, how and to what extent should the activity of current branches or pending branch applications be considered?

Question 7. Does the existing regulatory framework create an implicit presumption of approval? If so, what actions should the FDIC take to address this implicit presumption?

Question 8. Does the existing regulatory framework require an appropriate burden of proof from the merger applicant that the criteria of the Bank Merger Act have been met? If not, what modifications to the framework would be appropriate with respect to the burden of proof?

Question 9. The Bank Merger Act provides an exception to its requirements if the responsible agency finds that it must act immediately in order to prevent the probable failure of one of the insured depository institutions involved in the merger transaction. To what extent has this exception proven beneficial or detrimental to the bank resolution process and to financial stability? Should any requirements or controls be put into place regarding the use of this exemption, for example when considering purchase and assumption transactions in a large bank resolution? Are there attributes of GSIB resolvability, such as a Total Loss-Absorbing Capacity (TLAC) requirement, that could be put into place that would facilitate the resolution of a large insured depository institution without resorting to a merger with another large institution or a purchase and assumption transaction with another large institutions?

Question 10. To what extent would responses to Questions 1-9 differ for the consideration of merger transactions involving a small insured depository institution? Should the regulations and policies of the FDIC be updated to differentiate between merger transactions involving a large insured depository institution and those involving a small insured depository institution? If yes, please explain. How should the FDIC define large insured depository institutions for these purposes?

FR notice: https://www.federalregister.gov/d/2022-06720

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