[Federal Register Volume 89, Number 77 (Friday, April 19, 2024)]
[Proposed Rules]
[Pages 29222-29244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08020]



[[Page 29221]]

Vol. 89

Friday,

No. 77

April 19, 2024

Part V





Federal Deposit Insurance Corporation





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12 CFR Part 303





Request for Comment on Proposed Statement of Policy on Bank Merger 
Transactions; Agency Information Collection Activities; Proposals, 
Submissions, and Approvals; Proposed Rule and Notice

  Federal Register / Vol. 89 , No. 77 / Friday, April 19, 2024 / 
Proposed Rules  

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 303

RIN 3064-ZA31


Request for Comment on Proposed Statement of Policy on Bank 
Merger Transactions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Proposed Policy Statement; Request for Comment.

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SUMMARY: The FDIC invites comments on a proposed Statement of Policy 
(SOP) on Bank Merger Transactions (Proposed SOP) that is relevant to 
all insured depository institutions (IDIs). The Proposed SOP would 
replace the FDIC's current SOP on Bank Merger Transactions (Current 
SOP) and proposes a principles-based overview that describes the FDIC's 
administration of its responsibilities under the Bank Merger Act (BMA). 
The Proposed SOP focuses on the scope of transactions subject to FDIC 
approval, the FDIC's process for evaluating merger applications, and 
the principles that guide the FDIC's consideration of the applicable 
statutory factors as set forth in the BMA. The Supplementary 
Information section below contains explanatory content, including 
historical data, to provide additional context for the Proposed SOP.

DATES: Comments must be received by June 18, 2024.

ADDRESSES: All comments related to this Proposed SOP must include the 
agency name and RIN 3064-ZA31. Please send comments by one method only 
directed to:
     Agency Website: http://www.fdic.gov/regulations/laws/federal/. Follow the instructions for submitting comments on the 
agency's website.
     Email: [email protected]. Include RIN 3064-ZA31 in the 
subject line of the message.
     Mail: James P. Sheesley, Assistant Executive Secretary, 
Attention: Comments-RIN: 3064-ZA31, Federal Deposit Insurance 
Corporation, 550 17th Street NW, Washington, DC 20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street NW, building (located on F 
Street NW) on business days between 7:00 a.m. and 5:00 p.m. ET.
    Public Inspection: All comments received will be posted without 
change to http://www.fdic.gov/regulations/laws/federal/--including any 
personal information provided--for public inspection. Commenters should 
submit only information that the commenter wishes to make available 
publicly. The FDIC may review, redact, or refrain from posting all or 
any portion of any comment that it may deem to be inappropriate for 
publication, such as irrelevant or obscene material. The FDIC may post 
only a single representative example of identical or substantially 
identical comments, and in such cases will generally identify the 
number of identical or substantially identical comments represented by 
the posted example. All comments that have been redacted, as well as 
those that have not been posted, that contain comments on the merits of 
this document will be retained in the public comment file and will be 
considered as required under all applicable laws. All comments may be 
accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: George Small, Senior Examination 
Specialist, Division of Risk Management Supervision, 347-267-2453, 
[email protected]; Annmarie Boyd, Senior Counsel, Legal Division, 202-
898-3714, [email protected]; Benjamin Klein, Supervisory Counsel, Legal 
Division, 202-898-7027, [email protected]; Jessica Thurman, Chief, 
Division of Depositor and Consumer Protection, 202-898-3579, 
[email protected]; Mark Haley, Chief, Division of Complex Institution 
Supervision and Regulation, 917-320-2911, [email protected]; and Ryan 
Singer, Chief, Division of Insurance and Research, 202-898-7532, 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The Bank Merger Act (BMA), Section 18(c) of the Federal Deposit 
Insurance Act (FDI Act), prohibits an insured depository institution 
(IDI) from engaging in a merger transaction without regulatory 
approval. The FDIC is one of three Federal banking agencies with 
responsibility for evaluating transactions subject to the BMA. The FDIC 
has jurisdiction to act on merger applications that involve an IDI and 
any non-insured entity, notwithstanding the IDI's charter.\1\ The FDIC 
also has jurisdiction to act on merger applications that solely involve 
IDIs in which the acquiring, assuming, or resulting institution is a 
state nonmember bank or state savings association (FDIC-supervised 
institution).\2\
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    \1\ 12 U.S.C. 1828(c)(1).
    \2\ 12 U.S.C. 1828(c)(2).
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    In order to implement its responsibilities under the BMA, the FDIC 
has codified regulations; issued a Statement of Policy (SOP); and 
published the Applications Procedures Manual (APM). The FDIC's APM 
provides application-processing instructions for the FDIC's 
professional staff assigned to review, evaluate, and process 
applications, notices, and other requests submitted to the FDIC. The 
APM includes a section on processing merger applications that provides 
detailed procedural instructions to staff, as well as information 
regarding the assessment of each statutory factor. In 2019, the FDIC 
published the APM to its external website to provide greater 
transparency regarding the FDIC's internal application processes. In 
light of prospective changes to the bank merger process, additional 
revisions are planned for the APM chapter on mergers. Finally, together 
with the other Federal banking agencies, the FDIC has issued an 
interagency application form, which includes a supplemental section 
specific to the FDIC. Concurrent with this Proposed SOP, the FDIC is 
seeking comment on proposed revisions to its supplemental section to 
the interagency form.
    The current SOP on Bank Merger Transactions (Current SOP), last 
amended in 2008, addresses the FDIC's process for reviewing proposed 
merger applications in the context of the applicable statutory 
factors.\3\ Since the Current SOP was last revised, the BMA has been 
amended and significant changes have occurred in the banking industry 
and financial system, including continued growth and consolidation. 
This growth and consolidation, which has been ongoing for the past 
several decades, has significantly reduced the number of smaller 
banking organizations, increased the number of large and systemically 
important banking organizations, and contributed to the need for a 
review of the regulatory framework that applies to bank merger 
transactions subject to the BMA.\4\
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    \3\ FDIC Statement of Policy on Bank Merger Transactions, 73 FR 
8870.
    \4\ 12 U.S.C. 1828(c).
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    The number of large IDIs, especially IDIs with total assets of $100 
billion or more, has grown considerably over the past few decades. This 
is due to a combination of factors, including consolidation in the 
banking sector (fueled in part by mergers and acquisitions), the easing 
of interstate banking restrictions,\5\ and organic

[[Page 29223]]

growth. As of December 31, 2004, there were only 12 IDIs with total 
assets greater than $100 billion; however, that number increased to 33 
by December 31, 2023. Of the 33 IDIs with total assets greater than 
$100 billion, nine were owned by the eight U.S. bank holding companies 
designated as U.S. Global Systemically Important Banks (GSIBs), and 
four were owned by foreign banking organizations designated as foreign 
GSIBs.\6\ While IDIs with total assets of more than $100 billion as of 
December 31, 2023, comprised less than one percent of the total number 
of IDIs, they held approximately 71 percent of total industry assets 
and approximately 68 percent of domestic deposits.
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    \5\ Prior to the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994, Public Law 103-328, many states did not 
permit intra-state or interstate branching, and interstate branch 
branching was not federally sanctioned. Following the passage of 
this law, many multi-bank holding companies with subsidiary IDIs 
with different home states chose to consolidate existing bank 
charters.
    \6\ See Financial Stability Board 2022 list of GSIBs available 
at https://www.fsb.org/wp-content/uploads/P211122.pdf
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    The FDIC has a responsibility to promote public confidence in the 
banking system, maintain financial stability, and resolve failing IDIs. 
Given the increased number, size, and complexity of large banks, 
greater attention to the financial stability risks that could arise 
from a merger involving a large bank is warranted. In particular, the 
failure of a large IDI could present greater challenges to the FDIC's 
resolution and receivership functions, and could present a broader 
financial stability threat. For various reasons, including their size, 
sources of funding, and other organizational complexities, the 
resolution of large IDIs can present significant risk to the Deposit 
Insurance Fund (DIF), as well as material operational risk for the 
FDIC. In addition, as a practical matter, the size of an IDI may limit 
the resolution options available to the FDIC in the event of failure.
    After the 2008 financial crisis, the Dodd-Frank Wall Street Reform 
and Consumer Protection Act (Dodd-Frank Act) amended the BMA to 
include, for the first time, a factor related to the risk to the 
stability of the United States (U.S.) banking or financial system 
(financial stability factor). The FDIC is seeking public comment on the 
SOP's approach to the financial stability factor, which integrates and 
builds upon the FDIC's existing framework for assessing this factor.
    On July 9, 2021, an Executive Order addressed the impact that 
consolidation may have on maintaining a competitive marketplace. The 
Executive Order also addressed the impact that consolidation may have 
on maintaining a fair, open, and competitive marketplace, as well as 
the impact on the welfare of workers, farmers, small businesses, 
startups, and consumers. The FDIC continues to coordinate with the 
Department of Justice (DOJ) and the other Federal banking agencies in 
modernizing bank merger oversight.\7\
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    \7\ E.O. 14036 ``Promoting Competition in the American Economy'' 
(July 9, 2021). On December 18, 2023, the DOJ and the Federal Trade 
Commission (FTC) jointly released the 2023 Merger Guidelines 
(guidelines). These guidelines build upon, expand, and clarify 
frameworks set out in previous versions.
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    On March 31, 2022, the FDIC published in the Federal Register a 
request for information and comment (RFI) regarding the application of 
the laws, practices, rules, regulations, guidance, and SOP that apply 
to merger transactions subject to FDIC approval.\8\ The RFI requested 
comments regarding the effectiveness of the FDIC's existing framework 
in meeting the requirements of the BMA. After review of the public 
comments received in response to the RFI, the FDIC determined that it 
is both timely and appropriate to review its regulatory framework for 
merger transactions as outlined in the Current SOP. The Proposed SOP 
was drafted in consideration of the comments received regarding the RFI 
and is being published in the Federal Register to obtain further input 
from interested parties.
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    \8\ 87 FR 18740 (March 31, 2022).
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II. Summary of Comments

    While not all of the questions described in the RFI are pertinent 
to the SOP, the FDIC is summarizing the comments received to provide 
transparency with respect to the overall process for developing updated 
merger-related policies and procedures. The FDIC received 33 comment 
letters in response to the RFI.\9\ The majority of RFI commenters (25 
or 76 percent) were in favor of at least some changes to the FDIC's 
merger review processes. Six RFI commenters (18 percent) were against 
changes to the FDIC's merger review processes, and two RFI commenters 
(6 percent) were neither in favor of, nor against, changes to the 
FDIC's merger review processes.
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    \9\ Request for Information and Comment on Rules, Regulations, 
Guidance, and Statements of Policy Regarding Bank Merger 
Transactions. See 87 FR 18740.
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    Among RFI commenters in favor of updating the FDIC's processes that 
apply to merger transactions, four common themes for potential changes 
were observed: (i) amend the calculation of market concentration and 
the competitive effects analysis; (ii) enhance the analysis of the 
convenience and needs of the community to be served factor; (iii) 
establish risk criteria and thresholds for the analysis of the 
financial stability factor; and (iv) create a de minimis exception (or 
presumption of approval) for mergers involving small and mid-sized 
IDIs.
    Some RFI commenters suggested the need for an interagency approach 
to the development of any new merger regulations, guidelines, and 
instructions, and noted that any new elements should be applied 
prospectively. RFI commenters also suggested enhancing the public's 
ability to review and comment on proposed mergers, including making the 
information exchange (questions posed and responses received between 
the FDIC and applicants) a part of the public record. Finally, RFI 
commenters requested that the FDIC review, to the extent possible, the 
effects of past mergers to evaluate the appropriateness of any revised 
merger guidelines. These RFI commenters requested that the FDIC make 
the results of the evaluation public and apply the results to future 
merger decisions.
    Six RFI commenters were against updating the FDIC's merger related 
processes. In general, these RFI commenters argued that the FDIC's 
current framework for reviewing proposed merger transactions was sound 
and that revisions might harm the banking sector. More specifically, 
some RFI commenters argued that any change to the competitive review 
would make bank mergers more difficult; and such changes risked 
disproportionately impacting community, mid-size, and regional banks.
    Multiple RFI commenters suggested revisions to the receipt and 
compilation of the FDIC's Summary of Deposits (SOD) data, and 
amendments to the calculations to improve the quality, accuracy, and 
consistency of the data used to calculate the Herfindahl-Hirschman 
Index (HHI).\10\ The RFI commenters broadly agreed that the increased 
presence of non-bank firms, including those specializing in financial 
technology (fintech), and increased consolidation within the banking 
industry necessitate revision to the evaluative considerations for 
competitive effects to reflect the economic realities and the 
industry's competitive landscape. Some RFI

[[Page 29224]]

commenters posited that deposit data for institutions that rely on 
technology-based delivery channels are not dependent on their branch 
locations.
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    \10\ The HHI is calculated by squaring the market share of each 
firm competing in the market and then summing the resulting numbers. 
For example, for a market consisting of four firms with shares of 
30, 30, 20, and 20 percent, the HHI is 2,600 (30\2\ + 30\2\ + 20\2\ 
+ 20\2\ = 2,600). The HHI calculation can also be applied to other 
relevant Consolidated Reports of Condition categories or other 
appropriate sources of data, aside from deposits. For example, the 
HHI analysis may also include data relative to commercial and 
industrial loans.
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    Multiple RFI commenters stated that the HHI threshold for 
prospective competitive effects concerns should be increased from its 
current limit. These RFI commenters contended that the HHI screens 
applied to the banking industry were stricter than those that had been 
applied in any other industry. In the opinion of these RFI commenters, 
raising the HHI would account for the growing competition that IDIs 
with physical branches face from competitors with different business 
models, including fintech firms and digital banks.
    Conversely, other RFI commenters suggested the overall HHI 
threshold should be lowered, and the threshold for a change in HHI 
should be revised from the current level. These RFI commenters 
suggested that mergers disproportionally affect low- to moderate-income 
and/or minority communities, and therefore, the threshold (and any 
change in it) must be lowered to appropriately capture competitive 
effects.
    Some RFI commenters suggested consideration of alternate measures 
of concentration and/or evaluating the HHI of other asset or product 
categories such as business loans or residential lending. In addition, 
multiple RFI commenters requested that the FDIC revise the SOD data 
collection and calculation to improve precision. These RFI commenters 
suggested that the FDIC: (i) differentiate corporate and centrally 
booked deposits from retail deposits; (ii) amend methods and reporting 
standards, and provide more guidance on how a reporting entity 
attributes deposits to branches; (iii) include more data on depositors 
in certain circumstances in order to increase geographic specificity; 
and (iv) add data on thrifts, credit unions, fintech firms, farm credit 
banks, and online entities that serve customers in the relevant market.
    Multiple RFI commenters recommended revisions to the analysis of 
the convenience and needs of the community to be served statutory 
factor. In general, these RFI commenters recommended that the FDIC 
focus the analysis on the additive benefits of the merger transaction 
for consumers, particularly in low- to moderate-income and minority 
communities; and place higher burden on applicants to demonstrate the 
public interest benefits of the transaction. Concerns with regard to 
the impact of branch closings were noted. A few RFI commenters 
suggested that the applicant should be required to submit a full plan 
related to branch closings.
    Approximately half of the RFI commenters requested that the Federal 
banking agencies establish specific stability risk considerations (e.g. 
size, substitute providers, interconnectedness, complexity, and cross-
border activities) and formalize thresholds (such as total asset 
metrics) for developing a resolution plan for large bank mergers.
    About one quarter of RFI commenters noted a perceived burden on 
small institutions. These RFI commenters requested that the FDIC create 
a small bank de minimis exception whereby small bank mergers would be 
presumed not to create monopolies or have anticompetitive effects if 
they meet certain prudential thresholds that can only be overturned 
based on other criteria such as the results of the competitive effects 
analysis.
    In general, RFI comments were mixed on the following topics: (i) 
whether there is a presumption of approval for merger applications; 
(ii) whether the existing framework considers all aspects of the BMA; 
and (iii) whether prudential considerations or ``bright lines'' should 
be developed for any of the statutory factors. Many of the comments, as 
well as new questions that the FDIC has developed in response to public 
comments on the RFI, are addressed in this preamble.

III. Description of the Proposed Statement of Policy

Overall Changes in the Proposed SOP

    The Proposed SOP reflects regulatory, legislative, and industry 
changes since the SOP was last published for comment in 1997. Further, 
the Proposed SOP includes new content to make it more principles based, 
communicates the FDIC Board's expectations regarding the evaluation of 
merger applications filed pursuant to the BMA, and describes the types 
of merger applications for which the FDIC is the responsible agency.
    The Proposed SOP does not include the application procedures 
narrative that is included in the Current SOP. The APM describes 
procedural matters such as application filing, expedited processing and 
notification to the Attorney General. The Proposed SOP includes a 
separate discussion of each statutory factor, including: competitive 
effects, financial and managerial resources, future prospects, 
convenience and needs of the community to be served, risk to the 
stability of the U.S. banking or financial system, and effectiveness in 
combatting money laundering. In addition, the Proposed SOP includes a 
declarative statement for each statutory factor to highlight the 
Board's expectations and accompanying narrative to describe the 
analytical considerations for the evaluation of each factor. While 
historical performance provides contextual insight into the evaluation 
of these factors, the SOP affirms that the evaluations are forward 
looking. A detailed discussion of each statutory factor follows this 
section.
    The FDIC seeks comment on all aspects of the Proposed SOP.
    Question:
    1. Does the structure of the Proposed SOP effectively present the 
FDIC's expectations with regard to review and evaluation of merger 
applications? If not, please describe how the structure could be 
improved.

Jurisdiction and Scope

    The Proposed SOP clarifies the circumstances in which FDIC approval 
is required in connection with a proposed merger transaction. The FDIC 
plays an important role in the administration of the BMA, which is 
codified in the FDI Act and covers a broad range of transactions.\11\ 
Specifically, Section 18(c)(1) of the BMA requires FDIC approval in 
connection with transactions in which an IDI: (A) merges or 
consolidates with any non-insured bank or institution,\12\ (B) assumes 
liability to pay any deposits or similar liabilities in a non-insured 
bank or institution,\13\ or (C) transfers assets to any non-insured 
bank or institution in consideration of an assumption of deposit 
liabilities of the IDI.\14\ The FDIC's authority extends to a variety 
of transactions between an IDI and a non-insured entity, which are 
``merger transactions'' for the purposes

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of the BMA, even if the transaction is not legally structured as a 
merger.\15\
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    \11\ The broad scope of transactions expressly subject to FDIC 
approval under the BMA evinces a clear congressional intent for the 
FDIC to review a wide array of transactions between IDIs and non-
insured entities that have the potential to affect the safety and 
soundness of a resultant IDI or increase the potential liability of 
the Deposit Insurance Fund.
    \12\ 12 U.S.C. 1828(c)(1)(A). A non-insured entity refers to any 
entity that is not FDIC insured. Although there is no definition of 
the term ``non-insured institution'' in the BMA, it has long been 
the FDIC's interpretation that the term includes any non-insured 
entity with which an IDI can legally merge. Notably, although 
federally insured credit unions are insured by the National Credit 
Union Administration, such credit unions are not IDIs for the 
purposes of the FDI Act, see 12 U.S.C. 1813(a)-(c), and any merger 
transaction between an IDI and a credit union is therefore subject 
to FDIC approval under the BMA.
    \13\ 12 U.S.C. 1828(c)(1)(B).
    \14\ 12 U.S.C. 1828(c)(1)(C). The statutory requirements of 12 
U.S.C. 1828(c)(1) originate from the Banking Act of 1935. Sec. 101, 
Public Law 74-305 (adopting Section 12B(v)(4) of the Federal Reserve 
Act).
    \15\ 12 U.S.C. 1828(c)(1)-(3).
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Mergers and Consolidations Involving IDIs and Non-Insured Entities

    Section 18(c)(1)(A) of the BMA prohibits an IDI from merging or 
consolidating with a non-insured entity without the FDIC's approval. 
Neither the BMA nor the FDIC Rules and Regulations define the terms 
``merge'' or ``consolidate.'' \16\ The FDIC implements the BMA by 
emphasizing a transaction's substance over its form and asserting 
jurisdiction over transactions that substantively result in a merger 
(merger in substance). The FDIC interprets the term ``merge'' in the 
BMA to encompass all transactions that result in an IDI substantively 
and effectively combining with a non-insured entity, regardless of 
whether the transaction is structured as a merger or asset acquisition.
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    \16\ A consolidation generally is a combination of the assets 
and liabilities of two or more IDIs into a newly chartered IDI, and 
the extinguishment or cancellation of the charters of the other 
institutions. Although rare, the FDIC would consider two 
institutions substantively combining with a newly created third 
institution to be a consolidation in substance.
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    Although acquisitions of assets are not specifically enumerated as 
a category of transactions subject to FDIC approval under the BMA, an 
IDI's acquisition of assets from a non-insured entity could be the 
substantive equivalent of a transaction legally structured as a merger. 
For example, this occurs when the acquired assets constitute all, or 
substantially all, of the non-insured entity's assets or business 
enterprise and if the non-insured entity dissolves, is rendered a 
shell, or otherwise substantially ceases its main business operations 
or enterprise. This applies when there is a transfer of all, or 
substantially all, of a non-insured entity's assets to an IDI, 
regardless of whether: (i) such transactions consist of an assumption 
of identified liabilities, (ii) the assets acquired are tangible or 
intangible (without regard to whether the assets would be considered 
assets under generally accepted accounting principles), or (iii) such 
acquisitions occur as a single transaction or over the course of a 
series of transactions. Excluding transactions that are mergers in 
substance involving IDIs and non-insured entities from FDIC review 
would be inconsistent with the purposes of the BMA by overlooking 
transactions that could affect the safety and soundness of an IDI and 
increase the risk to the DIF.
    The Proposed SOP clarifies the applicability of Section 18(c)(1)(A) 
of the BMA by emphasizing that the scope of merger transactions subject 
to approval encompasses transactions that take other forms, including 
purchase and assumption transactions that are mergers in substance. The 
Proposed SOP provides an example of a transaction that is a merger in 
substance, and is therefore subject to the BMA, such as when an IDI 
absorbs all (or substantially all) of a target entity's assets and the 
target entity dissolves or otherwise ceases engaging in the acquired 
lines of business.
    Questions:
    2. How can the FDIC increase clarity to interested parties 
regarding the applicability of the BMA to a merger in substance?
    3. What additional clarity should the FDIC provide regarding the 
circumstances in which a transaction is subject to FDIC approval under 
the BMA, including transactions involving an IDI and a non-insured 
entity that is not a traditional financial institution, such as a 
fintech firm, whose assets may be primarily intangible in nature?

Assumptions of Deposits by IDIs From Non-Insured Entities

    Section 18(c)(1)(B) of the BMA prohibits an IDI from assuming 
liability to pay any deposits made in, or similar liabilities of, any 
non-insured bank or entity.\17\ The scope of this provision depends on 
the meaning of deposit (or other similar liability) and on the 
interpretation of what constitutes an IDI's assumption of such a 
deposit (or other similar liability). Section 3(l) of the FDI Act 
defines ``deposit'' broadly. In addition to the definition generally 
encompassing unpaid balances of money, the definition expressly 
includes a variety of other instruments, including trust funds and 
escrow funds.\18\
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    \17\ 12 U.S.C. 1828(c)(1)(B) (emphasis added).
    \18\ See 12 U.S.C. 1813(l). Section 18(c)(1)(B) also includes 
liabilities that would be deposits except for the provision in 
Section 3(l)(5) of the FDI Act.
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    In addition to the breadth of the definition of ``deposit,'' the 
FDIC broadly interprets what it means to assume liability to pay such 
deposits for the purposes of Section 18(c)(1)(B) of the BMA in order to 
prevent circumvention of the provision. Specifically, the applicability 
of Section 18(c)(1)(B) does not depend on the existence of a formal 
written agreement between an IDI and a non-insured entity to transfer 
deposit liabilities. In cases where an IDI and a non-insured entity 
cooperate to arrange a transfer of deposits from a non-insured entity 
to an IDI, the FDIC will generally consider such an orchestration to 
constitute an assumption of deposits or other similar liabilities for 
the purposes of Section 18(c)(1)(B).\19\
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    \19\ See id.
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    Unlike the applicability of Section 18(c)(1)(A) of the BMA to asset 
acquisitions, which depends in part on the acquisition of ``all or 
substantially all'' of a non-insured entity's assets, the applicability 
of Section 18(c)(1)(B) does not depend on a finding that an IDI assumes 
all, or substantially all, of a non-insured entity's deposits or 
similar liabilities. The assumption of any deposits or other similar 
liabilities is sufficient to implicate Section 18(c)(1)(B).
    The FDIC takes the view that any expansion of an IDI's deposit base 
via acquisition would be subject to approval under the BMA. As 
discussed above, when an IDI assumes liability to pay a deposit or 
other similar liability from a non-insured entity, FDIC approval is 
required under Section 18(c)(1)(B). As discussed later in this section, 
when an FDIC-supervised IDI assumes liability to pay a deposit from 
another IDI, FDIC approval is required under Section 18(c)(2)(C). The 
FDIC clarifies that the BMA would not necessarily be implicated by an 
organic expansion of an IDI's deposit base, such as when a depositor or 
a nonaffiliated third party that acts as agent, custodian, or trustee 
for a depositor, elects--at their initiative--to establish a deposit 
relationship with the IDI or to place deposits with the IDI. However, 
in cases where the agent, custodian, or trustee itself serves as a 
depository, a transfer of deposits for which it has liability to pay to 
an IDI would be subject to FDIC approval under the BMA. Furthermore, if 
customers are solicited to transfer their deposits to an IDI in 
connection with, or in relation to, an arrangement or agreement to 
which that IDI is party, the IDI is expected to seek approval under the 
BMA in connection with the ultimate transfer of such deposits.
    The Proposed SOP seeks to capture and convey the broad 
applicability of Section 18(c)(1)(B) of the BMA by affirming that an 
FDIC-supervised IDI's assumption of a deposit from another IDI, or any 
IDI's assumption of a deposit from a non-FDIC insured entity, is 
likewise subject to FDIC approval even in the absence of an express 
agreement for a direct assumption. The Proposed SOP highlights the 
broad definition of ``deposit'' in Section 3(l) of the FDI Act, and 
notes that the definition extends beyond traditional demand deposits to 
include, among other things, trust funds, and escrow funds.

[[Page 29226]]

    Question:
    4. Does the Proposed SOP sufficiently alert interested parties to 
the range of transactions that could be subject to FDIC approval under 
Section 18(c)(1)(B) of the BMA? If not, please comment on how the range 
of transactions could be more clearly articulated.

Asset and Deposit Transfers From IDIs to Non-Insured Entities

    Section 18(c)(1)(C) of the BMA prohibits an IDI from transferring 
assets to any non-insured bank or entity in consideration of the 
assumption for any portion of the deposits made in such IDI. Generally, 
when an IDI transfers deposits to a non-insured entity, an application 
to the FDIC would be necessary under Section 18(c)(1)(C) since such 
transfers are typically accompanied by a transfer of assets, even if 
such assets consist only of cash. As with Section 18(c)(1)(B), the 
applicability of Section 18(c)(1)(C) is broad given the scope of the 
FDI Act's definition of deposit. Furthermore, similar to the FDIC's 
approach to Section 18(c)(1)(B), the FDIC generally views an 
orchestration of a transfer of deposits from an IDI to a non-insured 
entity to be subject to FDIC approval under Section 18(c)(1)(C), even 
in the absence of an express agreement.
    Although parties seeking to engage in transferring customer 
accounts that consist of both custodial and deposit relationships may 
characterize the transaction solely as a transfer of custodial 
relationships, such transactions implicate the BMA if they also result 
in a transfer of the deposit relationship. It has therefore been the 
view of the FDIC that the BMA is implicated if an IDI transfers deposit 
relationships concurrent with, or subsequent to, a transfer of the 
custodial relationship. Accordingly, where customers have both a 
custodial and depository relationship with an IDI, an IDI may not evade 
the BMA by transferring custodial rights to a third party that, in its 
newly acquired custodial capacity, causes the customer's depository 
relationship to be transferred either to itself or to another entity. 
This is true even if such transfer was ostensibly at the direction of a 
non-insured entity pursuant to custodial rights acquired from the IDI.
    The Proposed SOP communicates the FDIC's policy with regard to 
transfers of deposits from IDIs to non-insured entities by stating that 
a transfer of deposits from any IDI to a non-insured entity is subject 
to FDIC approval.
    Question:
    5. What additional clarity, if any, is needed to make interested 
parties aware of the circumstances in which FDIC approval would be 
required in connection with a transfer of deposits from an IDI to a 
non-insured entity?

Merger Transactions Solely Involving Insured Depository Institutions

    Section 18(c)(2)(C) of the BMA generally prohibits an IDI from 
merging or consolidating with any other IDI or, either directly or 
indirectly, acquiring the assets of, or assuming liability to pay any 
deposits made in, any other IDI except with the prior written approval 
of the FDIC if the acquiring, assuming, or resulting bank is a state 
nonmember bank or state savings association.\20\ If the acquiring, 
assuming, or resulting bank is a national bank or Federal savings 
association, the approval of the Office of the Comptroller of the 
Currency (OCC) is required, and if it is a state member bank, the 
approval of the Board of Governors of the Federal Reserve System (FRB) 
is required.\21\
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    \20\ 12 U.S.C. 1828(c)(2)(C).
    \21\ 12 U.S.C. 1828(c)(2)(A)-(B).
---------------------------------------------------------------------------

    As with transactions involving IDIs and non-insured entities, the 
FDIC considers that a transaction in which an IDI absorbs another IDI 
by acquiring all, or substantially all, of its assets would be subject 
to FDIC approval under Section 18(c)(2)(C) of the BMA. It is less 
common for the FDIC to evaluate whether a large-scale transaction 
exclusively among IDIs constitutes a merger in substance since such 
transactions typically include an assumption of deposits, which is 
itself a sufficient basis to implicate Section 18(c)(2). As previously 
stated, the breadth of the FDIC's definition of ``deposit'' causes 
Section 18(c)(2) to encompass a wide range of transactions, and the 
FDIC similarly takes a broad view as to what constitutes a direct or 
indirect assumption of liability to pay deposits.
    The foregoing discussion addresses the FDIC's policy with regard to 
the applicability of the BMA to a wide variety of transactions. 
However, the FDIC emphasizes that this is not an exhaustive overview of 
potential transactions that are subject to FDIC approval under the BMA. 
Interested parties should be alert to the FDIC's policies of 
emphasizing a transaction's substance over its form, its interest in 
preventing evasion of the BMA, and of the scope of the terms used in 
Sections 18(c)(1) and 18(c)(2) of the BMA.

Overview of the Application Process

    The Proposed SOP describes the FDIC's expectations for application 
processing, emphasizing the utility of the pre-filing process and the 
importance of filing a substantially complete application. The Proposed 
SOP alerts applicants to the FDIC's expectation that all submitted 
materials, including the financial projections and any related 
analyses, be well supported and sufficiently detailed. In addition, the 
Proposed SOP emphasizes the importance of the narrative supporting the 
rationale for the proposed transaction, and communicates the FDIC's 
expectation that the narrative be supported by studies, surveys, 
analyses and reports, including those prepared by or for officers, 
directors, or deal team leads.

Merger Application Adjudication

    Generally, if all statutory factors are favorably resolved, and all 
other regulatory requirements are satisfied, the FDIC will approve the 
merger application. Approvals will be subject to the standard 
conditions detailed in 12 CFR 303.2(bb) and any non-standard conditions 
deemed appropriate by the FDIC. However, the FDIC will not use 
conditions or written agreements that may be required as part of the 
conditions, as a means for favorably resolving any statutory factors 
that otherwise present material concerns. The Order and Basis for 
Approval (Order) will be posted to the FDIC's Decisions on Bank 
Applications page.
    The Order will address all statutory factors, as well as summarize 
information regarding any Community Reinvestment Act (CRA) protests. 
The FDIC will summarize the related analysis and conclusions and 
include any conditions imposed in conjunction with the approval. 
Finally, the SOP articulates certain elements that may result in 
unfavorable findings and would require action by the Board of Directors 
on the application. This commentary presents a general overview of the 
potential scenarios and fact patterns that would present significant 
challenges to favorable findings on the statutory factors. The FDIC may 
not be able to find favorably on any given statutory factor (or 
therefore approve the application) if there are unresolved 
deficiencies, issues, or concerns (including with respect to any public 
comments), or the lack of sustained performance under corrective 
programs particularly when the transaction implicates the areas that 
are the subject of the corrective program.

Merger Application Activity

    To provide some perspective on the volume and types of filings 
subject to FDIC review and action, the tables in

[[Page 29227]]

Appendix A to this preamble were developed regarding the volume, 
disposition, and size of merger transactions processed by the FDIC from 
January 1, 2004, through December 31, 2023. In total, the FDIC 
processed 2,497 merger applications that were either ``bank-to-bank'' 
merger applications solely involving IDIs where the resulting 
institution was an FDIC-supervised institution or that involved an IDI 
and a credit union or other non-insured institution.\22\ This does not 
include pending applications or applications for corporate 
reorganizations or interim mergers.\23\
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    \22\ As of December 31, 2023, there were 17 pending bank-to-bank 
merger applications and ten pending merger applications that involve 
a credit union or other non-insured institution. Data regarding 
FDIC-processed merger applications involving credit unions and other 
non-insured entities is provided as Tables 3-6 in Appendix A to this 
preamble. Table 7 in Appendix A provides data regarding the number 
of IDIs acquired by FDIC-supervised banks or savings associations, 
or by credit unions in purchase and assumption transactions.
    \23\ A corporate reorganization is a merger transaction that 
involves solely an IDI and one or more of its affiliates. Corporate 
reorganizations may include transactions where two IDIs merge 
immediately following a merger between two bank holding companies. 
An interim merger transaction is a merger transaction between an IDI 
and a newly formed IDI that is established solely to facilitate a 
corporate reorganization. From the beginning of 2004 through 
December 31, 2023, the FDIC processed 2,008 corporate 
reorganizations and 483 interim mergers. As of December 31, 2023, 
there were nine pending corporate reorganization applications and 
five pending interim merger applications.
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    As shown in Table 1, the volume of bank-to-bank merger applications 
processed by the FDIC has ranged between 49 and 152 annually from 2004 
through 2023. The annual average number of such applications processed 
during this period was 110. Of the 2,209 bank-to-bank applications 
processed over the referenced period, 92.9 percent (2,054) were 
approved, 5.4 percent (116) were withdrawn at the applicant's 
discretion, 1.7 percent (39) were returned due to insufficient 
information provided in the application submission, and none were 
denied. Applicants that choose to withdraw an application frequently do 
so before receiving a public denial. As described in the APM,\24\ when 
applications are recommended for denial, FDIC staff are directed to 
contact applicants, describe the concerns, and provide a final 
opportunity to provide additional information that might influence the 
decision. The APM also states that at its discretion, the FDIC may 
offer the applicants the opportunity to withdraw the application. If an 
applicant withdraws their filing, the FDIC Board of Directors may 
release a statement regarding the concerns with the transaction if such 
a statement is considered to be in the public interest for purposes of 
creating transparency for the public and future applicants.
---------------------------------------------------------------------------

    \24\ See APM, Section 1.3, ``Denials and Disapprovals.''
---------------------------------------------------------------------------

    Table 2 provides a breakdown of the bank-to-bank merger 
applications processed during this period by the size of the resulting 
IDI. Approximately 93.0 percent (2,055) of applications received and 
acted upon, and 95.0 percent of applications approved, were for IDIs 
that would be $10 billion or less in asset size following the proposed 
merger. Of the 2,054 approved applications, approximately 4.4 percent 
(91) involved resulting IDIs with an asset size between $10 billion and 
$100 billion in total assets, and 0.3 percent (seven) were in excess of 
$100 billion.

Statutory Factors

Monopolistic or Anticompetitive Effects

    The Federal banking agencies are prohibited from approving a merger 
that would result in a monopoly, or which would be in furtherance of 
any combination or conspiracy to monopolize or to attempt to monopolize 
the business of banking in the United States.\25\ There is no exception 
to this prohibition. Furthermore, the Federal banking agencies are 
prohibited from approving a merger that does not constitute a monopoly 
or conspiracy to monopolize, but that would nonetheless substantially 
lessen competition, tend to create a monopoly, or otherwise be in 
restraint of trade, unless the anticompetitive effects of the 
transaction are clearly outweighed in the public interest by the 
probable effect of the transaction in meeting the convenience and needs 
of the community to be served.\26\ For example, this public interest 
exception may apply where a transaction is necessary to prevent the 
probable failure of an IDI.
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 1828(c)(5)(A).
    \26\ 12 U.S.C. 1828(c)(5)(B).
---------------------------------------------------------------------------

    The FDIC conducts its own independent analysis to ensure compliance 
with the BMA's prohibition against the approval of any merger 
transaction that would result in a monopoly or be in furtherance of an 
attempt to monopolize the business of banking in any part of the 
U.S.\27\ In situations where a transaction would not result in a 
monopoly but where anticompetitive effects are nonetheless identified, 
the FDIC will evaluate whether the applicants have established that the 
benefits to the convenience and needs of the community will clearly 
outweigh any anticompetitive effects.
---------------------------------------------------------------------------

    \27\ 12 U.S.C. 1828(c)(5)(A). In addition to the BMA's 
prohibition against approving merger transactions that would result 
in a monopoly, the BMA generally prohibits the Federal banking 
agencies from approving an interstate merger that would result in an 
IDI (together with its affiliates) controlling more than 10 percent 
of the total amount of deposits of IDIs in the U.S. See 12 U.S.C. 
1828(c)(13).
---------------------------------------------------------------------------

    The way in which the convenience and needs of the community to be 
served is juxtaposed against the antitrust competitive standard is 
important. A non-monopolistic yet anticompetitive merger can only be 
approved in situations where the proponents to the transaction can 
establish that the advantage of the merger for the convenience and 
needs of the community clearly outweighs the anticompetitive effects. 
This creates a heavy burden for the proponents of a merger to support 
that the benefits to the community outweigh identified anticompetitive 
concerns. A favorable finding on the convenience and needs of the 
community to be served factor may not support approval of the 
application when anticompetitive effects are identified.
    In addition to its own independent analysis, the BMA requires the 
FDIC to request a competitive factors report from the Attorney General 
for any merger between an IDI and a non-affiliated entity, unless the 
FDIC finds that it must act immediately in order to prevent the 
probable failure of an IDI involved in the transaction.\28\ The FDIC 
may consult with the DOJ on mergers that may raise competitive 
concerns. In cases where the FDIC considers proposed divestitures of 
business lines, branches, or portions thereof to mitigate 
anticompetitive effects, the FDIC will generally expect such 
divestitures to be completed before allowing the merger to be 
consummated. Additionally, to promote the ongoing competitiveness of 
the divested business lines, branches, or portions thereof, the FDIC 
will generally require that the selling institution will neither enter 
into non-compete agreements with any employee of the divested entity 
nor enforce any existing non-compete agreements with any of those 
entities.
---------------------------------------------------------------------------

    \28\ 12 U.S.C. 1828(c)(4).
---------------------------------------------------------------------------

    The Proposed SOP does not include any bright lines or specific 
metrics for which it is presumed that the transaction would be 
considered anticompetitive. A few RFI commenters suggested that the 
FDIC develop a benchmark asset size at or below which there is no 
presumption of non-competitive effects. The Proposed SOP does not 
include such metrics or benchmarks, as it is important to

[[Page 29228]]

maintain flexibility to appropriately evaluate the facts and 
circumstances of each application filed.
    The Proposed SOP reaffirms the FDIC's commitment to undertaking a 
thorough review of the potential competitive effects of a proposed 
merger transaction. As described in the Proposed SOP, the FDIC will 
tailor its evaluation of competitive effects to consider all relevant 
market participants (local, regional, and national). The Proposed SOP 
establishes the relevant geographic markets as the areas where the 
merging entities have a physical presence in the form of an office 
(generally a main office or a branch). It also notes that the market 
may include areas where the merging entities do not have a physical 
presence, but may still provide products and services. The Proposed SOP 
outlines the FDIC's approach to considering product markets. The FDIC 
uses deposits as an initial proxy for commercial banking products and 
services, but it will tailor the product market definition to 
individual products as needed. In its analysis, the FDIC uses proxies 
that reasonably reflect the competitive dynamics of the market, 
including deposit and loan activity. However, the Proposed SOP notes 
that the FDIC will, if appropriate, utilize additional analytical 
methods, data sources, or geographic or product market definitions in 
order to assess the competitive effects of a proposed merger when 
practicable and relevant with consideration given to whether consumers 
retain meaningful choices.
    Consistent with the approach of the DOJ and the other Federal 
banking agencies, the FDIC uses deposits as reported in the SOD data 
submitted by IDIs (and compiled by the FDIC), as a general proxy for 
the product market and then calculates the resulting market 
concentration and change in market concentration in each relevant 
geographic market using the HHI calculation. The FDIC initially focuses 
on the respective shares of total deposits held by the merging IDIs and 
the various other participants with offices in the relevant geographic 
market(s) to measure market concentration. Multiple RFI commenters 
suggested that the analysis of competition should include the influence 
of thrifts, credit unions, fintech firms, Farm Credit System 
institutions, and other online entities that offer products and 
services in the relevant market. The Proposed SOP affirms that the FDIC 
considers the influence of these entities when evaluating competitive 
effects. Some RFI commenters suggested alternatives to the HHI 
calculation such as the Hall-Tideman Index (HTI) \29\ or the 
comprehensive industrial concentration index (CCI).\30\ The Proposed 
SOP indicates that the FDIC will consider other products in its 
competitive analysis, but does not incorporate any specific 
alternatives to the HHI calculation.
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    \29\ The HTI is used to measure the concentration (or unequal 
distribution) of n market participants, who each have a market share 
hi and a rank i (ordered according to decreasing market shares).
    \30\ The CCI is the sum of the proportional share of the leading 
IDI and the summation of the squares of the proportional sizes of 
each IDI, weighted by a multiplier reflecting the proportional size 
of the rest of the industry.
---------------------------------------------------------------------------

    Several RFI commenters requested changes to how the FDIC compiles 
SOD data, such as assigning online accounts to the account owner's 
residence, rather than the main office of the entity receiving the 
deposit. Additionally, RFI commenters requested that the FDIC amend 
both the methods and reporting standards for SOD data, and provide more 
guidance and instruction regarding how a reporting entity attributes 
deposits to branches to enhance geographic specificity. The Proposed 
SOP indicates that, as applicable, the FDIC will take into account any 
additional data sources, appropriate analytical approaches, or 
additional products beyond deposits to fully assess the competitive 
effects of the transaction. Further, to the extent that amendments or 
revisions to the SOD's reporting requirements, standards, and methods 
are considered, they will be published in a separate request for 
industry comment and feedback.
    The relevant geographic markets are the areas where the merging 
entities have overlapping branch footprints, and generally correspond 
with the geographic markets defined by the FRB. The Proposed SOP notes 
that on a case-by-case basis, the FDIC may consider alternative or 
additional geographic and product markets. A few RFI commenters 
suggested that the FDIC should conduct a separate analysis of the 
competitive impact in rural areas, minority markets, or low- to 
moderate-income communities when relevant. While the Proposed SOP does 
not specifically address analytics of rural, minority, or low- to 
moderate-income communities, it does affirm that the FDIC will use a 
geographic market with a scope that is suited to the products or 
services offered or planned.
    RFI commenters were split on changes to the HHI; some RFI 
commenters suggested that the overall threshold should be raised, while 
others suggested that the overall level should be lowered. Similar 
differences were also noted with respect to the change in the HHI 
calculation; some RFI commenters suggested that the current change 
threshold be increased, while others believed it should be lowered or 
reflect any point change. Some RFI commenters suggested that the HHI 
should be calculated for certain types of loans such as residential or 
small business loans, rather than (or in addition to) deposits. The 
Proposed SOP does not address the calculation of the HHI or the 
attendant thresholds. The Proposed SOP notes that the FDIC will 
consider additional methods of assessing the competitive nature of 
markets for relevant products or services, as necessary or appropriate. 
The FDIC plans to coordinate with other appropriate agencies regarding 
any potential changes to the calculation of, or thresholds for, HHI 
usage.
    Questions:
    6. To what extent is the FDIC's approach to analyzing the 
competitive effects of a proposed merger transaction appropriate?
    7. What changes to the current approach should the FDIC consider to 
better reflect present-day competitive conditions?
    8. Should the HHI be a definitive factor in making a determination? 
In other words, should the FDIC find favorably regarding competitive 
effects if the proposed merger does not exceed the defined banking-
specific HHI thresholds? If not, why not?
    9. How should the Proposed SOP specifically address the ways to 
calculate the competitive effects of mergers of IDIs with non-insured 
entities, whether credit unions, financial services entities, bank 
service corporations, or other entities?
    10. What additional information should the FDIC provide about the 
circumstances under which it will consider products other than deposits 
and loans for transparency and so that filers may provide a more 
complete initial submission?
    11. Is the geographic market definition outdated? If so, why? How 
should the definition be updated and why?
    12. Would it be appropriate to define relevant geographic markets 
by reference to markets in which the merging institutions have 
delineated CRA assessment areas, including both facility-based 
assessment areas and retail lending assessment areas?
    13. Would it be appropriate to define relevant geographic markets 
by reference to markets in which the merging institutions have 
delineated CRA assessment areas?

[[Page 29229]]

    14. Other than the HHI, what tools could be used to assess market 
concentration and why would such tools be appropriate?
    15. How should the Proposed SOP specifically address analytics for 
rural, minority, or low- to moderate-income communities? What type of 
analytical standards or criteria would be appropriate?
    16. How can the FDIC's review address competitive effects beyond 
geographic markets? For example, commenters are invited to provide 
their views on any concerns that might typically be associated with 
mergers that result in a large institution of a certain asset size, and 
are further invited to identify what asset size thresholds (e.g., $50 
billion, $100 billion, $250 billion, etc.) are most likely to present 
such concerns. In addition, commenters are invited to provide detailed 
views on the nature of competitive concerns that are associated with 
mergers that involve a large institution absorbing a community bank.

Financial Resources and Managerial Resources and Future Prospects

    The BMA requires the Federal banking agencies to take into account 
the financial and managerial resources and future prospects of the 
existing and proposed institutions involved in a merger transaction.

Financial Resources

    The FDIC assesses the financial history, condition, and performance 
of each entity involved in the merger transaction, as well as the 
combined financial resources of the resulting IDI. The assessment of 
financial resources includes an analysis of capital, asset quality, 
earnings, liquidity, and sensitivity to market risk. The FDIC will 
consider the liquidity risk of the resultant IDI, including the extent 
of its projected reliance on uninsured deposits and its contingency 
funding strategies. An IDI's overreliance on uninsured deposits or non-
core funding sources may not be consistent with a favorable finding on 
this statutory factor.
    Overall, the FDIC expects that the resulting IDI will reflect sound 
financial performance and condition consistent with the IDI's size, 
complexity, and risk profile. Generally, the FDIC will not find 
favorably on this factor if the merger would result in a larger, weaker 
IDI from an overall financial perspective.
    RFI commenters were split on whether bright lines or formally 
defined metrics should be developed and implemented for the evaluation 
of this factor. Several RFI commenters desired to have defined ratings 
and benchmarks formally articulated, and requested that merging 
entities meeting these defined standards should have a streamlined 
review or a presumption of approval. The Proposed SOP does not include 
specific requirements for a favorable finding on this factor, as the 
FDIC believes each transaction should be evaluated based on the facts 
and circumstances presented in the application, and any determination 
on the filing should be specific to that transaction. The incorporation 
or adoption of formal metrics restricts the FDIC's ability to 
effectively analyze the findings regarding the statutory factors and 
make informed determinations and recommendations based on those 
findings.
    If the proposed merger involves an operating non-insured entity, 
the FDIC will consider the entity's operational activities and 
performance record when evaluating financial resources. The FDIC will 
review audited financial statements (covering at least three years, 
unless the entity's operating history is shorter) including details 
regarding any deferred tax assets or liabilities, intangible assets, 
contingent liabilities, and any recent or pending legal or regulatory 
actions. The FDIC may also require an identification of, and accounting 
for, low quality assets, including independent appraisals or valuations 
to support the projected value of any businesses or assets expected to 
transfer to the resultant IDI upon consummation of the merger.
    The FDIC's evaluation of financial resources also will consider the 
current and projected financial impact of any related entities on the 
IDI, including the parent organization and any key affiliates. For each 
relevant entity, the FDIC will consider, among other items, the size 
and scope of operations, capital position, quality of assets, overall 
financial performance and condition, compliance and regulatory history, 
primary revenue and expense sources, and funding strategies.
    Depending on the anticipated risk profile of the resulting IDI, the 
FDIC may impose, as a non-standard condition, capital requirements that 
are higher than applicable capital standards. Further, as appropriate, 
the FDIC may impose a non-standard condition that requires the 
resulting IDI and other applicable parties (such as certain affiliates 
or investors) to enter into one or more written agreements that may 
address, as applicable, capital maintenance requirements, liquidity or 
funding support, affiliate transactions, and other relevant items.

Managerial Resources

    The FDIC assesses the managerial resources of the existing entities 
involved in a merger transaction, as well as the proposed management of 
the resulting IDI. The FDIC expects that the proposed directors, 
officers, and as appropriate, principal shareholders (collectively, 
management) possess the capabilities to administer the resultant IDI's 
affairs in a safe and sound manner. The background and experience of 
each member of the proposed management team will be reviewed relative 
to the size, complexity, and risk profile of the resulting IDI. The 
capability of management to identify, measure, monitor, and control 
risks and ensure an efficient operation in compliance with applicable 
laws and regulations are important facets of the evaluation of 
managerial resources.
    A few RFI commenters requested that specific performance standards 
(such as the management component rating) for small and mid-sized 
institutions should be publicly stated, and entities in compliance with 
these standards that meet certain other metrics (such as total asset 
size) would have a presumption of approval or streamlined review 
protocols. As previously stated, the Proposed SOP does not include 
specific performance metrics or bright lines for any of the statutory 
factors in order to maintain flexibility in the analysis and to ensure 
each proposed transaction is evaluated on its merits, facts, and 
circumstances.
    The FDIC will review supervisory assessments of management made by 
the relevant prudential regulators. This includes the current and 
historical management ratings for any IDI involved in the proposed 
merger, and the managerial performance and supervisory record of any 
subsidiaries and affiliates. The FDIC will evaluate the extent and 
effect of any organizational relationships on the IDI, while also 
considering the operating history, risk management, and control 
environment of the parent organization. Inherent in these 
considerations are the condition, performance, risk profile, and 
prospects of the organization as a whole, as well as the capacity of 
management to successfully implement the resulting IDI's strategic (or 
business) plan.
    The evaluation of managerial resources includes an assessment of 
each entity's record of compliance with respect to consumer protection, 
fair lending, and other relevant consumer laws and regulations. The 
FDIC will review supervisory assessments of management made by the 
relevant regulators. In addition, the FDIC will

[[Page 29230]]

analyze the record of compliance with consumer laws and regulations, 
the compliance management system for each of the IDIs, as well as the 
compliance management rating system for the resulting IDI, to ensure 
that there are appropriate controls to identify, monitor, and address 
consumer compliance risks. Consideration is also given to the consumer 
compliance rating pursuant to the Uniform Interagency Consumer 
Compliance Rating System and the CRA.\31\
---------------------------------------------------------------------------

    \31\ Uniform Interagency Consumer Compliance Rating System, 81 
FR 79473, (Nov. 14, 2016). Community Reinvestment Act ratings are 
defined in 12 CFR part 345, Appendix A.
---------------------------------------------------------------------------

    The FDIC expects management to develop and implement effective 
plans and strategies, and the resulting IDI to have sufficient 
managerial and operational capacity, to integrate the acquired entity. 
Effective integration includes, but is not limited to, human capital; 
products and services; operating systems, policies, and procedures; 
internal controls and audit coverage; physical locations; information 
technology; and risk management programs. In conjunction with the 
integration, the FDIC expects a resulting IDI to have the managerial 
and operational capacity, and to devote adequate resources, to ensure 
full and timely compliance with any outstanding corrective programs or 
supervisory recommendations.
    Various other matters are also pertinent to the evaluation of 
managerial resources. The FDIC will consider the breadth and depth of 
management, including the adequacy of succession planning; 
responsiveness to issues or supervisory recommendations raised by 
regulators or auditors; existing or pending formal or informal 
enforcement actions; management's performance with respect to 
information technology, consumer protection, and other specialty or 
functional areas; recent rapid growth and the record of management in 
overseeing and controlling risks associated with such growth; and the 
reasonableness of fees, expenses, and other payments made to insiders.

Future Prospects

    The FDIC evaluates the future prospects of the existing and 
proposed entities involved in a merger transaction. As part of this 
evaluation, the FDIC will review the submitted business (or strategic) 
plan, including pro-forma financial projections and related assumptions 
to assess whether the resulting IDI will be able to operate in a safe 
and sound manner on a sustained basis following consummation of the 
merger. Any accompanying valuations (such as those related to the 
target entity, goodwill, or other assets) will also be reviewed to 
ensure that the applicant adequately supports that the resulting IDI 
will maintain an acceptable risk profile.
    The FDIC will consider the economic environment, the competitive 
landscape, the acquiring IDI's history in integrating merger targets, 
the anticipated scope of the resulting IDI's operations and the quality 
of its supporting infrastructure, and any other relevant factors. Any 
significant planned changes to the resulting IDI's strategies, 
operations, products or services, activities, income or expense levels, 
or other key elements of its business will be closely assessed.
    Questions:
    17. To what extent is the FDIC's evaluation of financial resources 
appropriate, and what additional items, if any, should be considered?
    18. To what extent is the FDIC's evaluation of managerial resources 
appropriate, and what additional items, if any, should be considered?
    19. To what extent is the FDIC's evaluation of future prospects 
appropriate, and what additional items, if any, should be considered?

Convenience and Needs of the Community To Be Served

    The BMA requires the Federal banking agencies to take into account 
the convenience and needs of the community to be served when evaluating 
a merger transaction.\32\ One of the items considered in connection 
with this factor is each IDI's CRA performance evaluation record and 
any comments submitted by the public on the application. The FDIC 
provides the public the ability to search pending merger applications 
submitted to the FDIC and allows comments on merger applications to be 
submitted electronically during the comment period. A few RFI 
commenters suggested that the FDIC update its website to facilitate the 
public's ability to review and comment on applications; and that the 
FDIC should post any regulatory questions or information requests to 
the applicants, and any applicant responses to its website. The FDIC is 
considering enhancing the current website to include information 
regarding public comments received on applications.
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    \32\ 12 U.S.C. 1828(c)(5).
---------------------------------------------------------------------------

    Several RFI commenters requested that approval should be 
conditioned upon the fulfillment of a strategy to address the 
convenience and needs of the community, and that regulatory approval or 
non-objection should be sought when the resultant IDI deviates from the 
submitted plan. The Proposed SOP describes the analytical 
considerations, but does not require a separate strategy to address the 
convenience and needs of the community. However, the applicant is 
expected to provide forward-looking information to the FDIC for the 
purposes of evaluating the benefits of the merger on the community to 
be served. As appropriate, claims and commitments made by the applicant 
to the FDIC may be included in the Order and Basis for Approval, and 
the FDIC's ongoing supervisory efforts will evaluate the IDI's 
adherence to any such claims and commitments.
    Multiple RFI commenters raised concerns with reliance on only the 
most recent CRA evaluation. One RFI commenter noted that an Outstanding 
CRA rating on two out of the most recent three CRA evaluations should 
be a predicate to obtain regulatory approval for a merger; and another 
RFI commenter requested a three-year average score for the CRA rating 
as a benchmark. Some RFI commenters stated the CRA rating should be no 
less than Outstanding, with a minimum of Satisfactory ratings on 
component categories. A few RFI commenters requested that a presumptive 
denial should be established if the CRA rating is not currently (or 
over a recent, multi-year average period) at least Outstanding with 
Satisfactory component ratings. The Proposed SOP does not establish 
specific CRA rating benchmarks or bright lines in order to maintain 
flexibility in the analysis and to ensure each proposed transaction is 
evaluated on its merits, facts, and circumstances. However, a less than 
Satisfactory rating or significant deterioration in CRA performance may 
present significant concerns in resolving this factor. The FDIC's 
review is not limited to the CRA record of the institutions and will 
encompass a broad review of the institutions' existing products and 
services and whether the products and services proposed by the 
applicants will meet the convenience and needs of the community to be 
served.
    In addition, the FDIC will consider the record of each institution 
in complying with consumer protection requirements and maintaining a 
sound and effective compliance management system. This review will 
include consideration of any existing orders, ongoing enforcement 
actions, and pending reviews or investigations of

[[Page 29231]]

violations of consumer protection laws and regulations. A less than 
Satisfactory consumer compliance rating may present significant 
concerns in resolving this factor.
    The FDIC will evaluate the community to be served broadly, which 
will include the proposed assessment area(s), retail delivery systems, 
populations in affected communities, and identified needs for banking 
services. The FDIC expects that a merger between IDIs will enable the 
resulting IDI to better meet the convenience and the needs of the 
community to be served than would occur absent the merger. The FDIC 
expects applicants to demonstrate how the transaction will benefit the 
community such as through higher lending limits, greater access to 
existing products and services, introduction of new or expanded 
products or services, reduced prices and fees, increased convenience in 
utilizing the credit and banking services and facilities of the 
resulting IDI, or other means. Several RFI commenters suggested that a 
higher burden should be placed on the applicant to demonstrate the 
public benefits of the transaction. Multiple RFI commenters stated that 
the FDIC should focus the analysis on the additive benefits of the 
transaction for consumers, particularly those in low- to moderate-
income and minority communities. Numerous RFI commenters indicated that 
a community benefit plan should be required, as should mandatory public 
hearings to discuss the impact on the relevant communities. Further, 
several RFI commenters stated that a cost/benefit analysis of the 
proposed merger should be prepared and included in the publicly 
available application materials. The Proposed SOP outlines the FDIC 
Board's expectations with regard to the public benefits of the 
transaction, but does not require public benefit statements or plans to 
be established.
    In addition to the CRA and consumer compliance ratings and 
performance, the FDIC will also consider the resulting assessment 
area(s) and branch locations, as well as the impact of branch closings 
or consolidations, particularly on low- and moderate-income 
neighborhoods or designated areas. The application form solicits 
information regarding projected or anticipated branch expansions, 
closings, or consolidations. Generally, the FDIC considers a 
substantially complete merger application to include, among other 
items, at least three years of information regarding projected branch 
expansions, closings, or consolidations. Some RFI commenters suggested 
that the projected impact of prospective branch closings should be 
closely scrutinized, and that public meetings and community hearings 
should be conducted to discuss the impact of the proposed closings. The 
Proposed SOP states that any proposed or expected closures, including 
the timing of each closure, the effect on the availability of products 
and services, particularly to low- or moderate-income individuals or 
designated areas, any job losses or lost job opportunities from 
branching changes, and the broader effects on the convenience and needs 
of the community to be served will be closely evaluated. Applications 
that project material reductions in service to low- and moderate-income 
communities or consumers will generally result in unfavorable findings. 
A favorable finding on this factor may not necessarily be sufficient 
for approval of the application when anticompetitive effects are noted.
    Further, the Proposed SOP advises applicants to be prepared to make 
commitments regarding future retail banking services in the community 
to be served for at least three years following consummation of the 
merger. The Proposed SOP places an affirmative expectation on 
applicants to provide specific and forward-looking information to 
enable the FDIC to evaluate the expected impact of the merger on 
convenience and needs of the community to be served. In certain cases, 
the FDIC may hold hearings or other proceedings in connection with 
evaluating a merger application The Proposed SOP provides that the FDIC 
will generally consider it is in the public interest to hold a hearing 
for merger applications resulting in an IDI with greater than $50 
billion in assets or for which a significant number of CRA protests are 
received. The FDIC may also hold public or private meetings to receive 
input on the transaction. The decision to hold such meetings depends on 
issues raised during the comment period and the significance of the 
merger transaction to the public interest, the banking industry, and 
communities affected.
    Questions:
    20. How could the Proposed SOP more effectively describe the FDIC's 
expectations with regard to its review of the convenience and needs 
factor, and what notable considerations, if any, are overlooked?
    21. What are the pros and cons of providing forward-looking 
information? What are some specific challenges and difficulties that 
applicants might experience when providing information concerning 
projected or anticipated branch expansion, closings, or consolidations 
for the first three years following consummation of the merger?
    22. What are the pros and cons of holding a hearing for merger 
applications resulting in an IDI with greater than $50 billion in 
assets or for which a significant number of CRA protests are received? 
For what other situations, in addition to those described, would it 
generally be in the public interest to hold hearings?
    23. How can the FDIC best consider comments and feedback from the 
public in the context of evaluating the convenience and needs of the 
community to be served, consistent with the BMA's public notice 
requirements?
    24. What are the benefits of imposing a non-standard condition that 
captures the affirmative commitments an IDI has made to the FDIC to 
serve the needs of its community?
    25. In addition to the methods described, how should the FDIC 
consider an institution's CRA performance in the context of an 
application subject to the BMA?
    26. What additional information should be included in the 
application materials to enable a more comprehensive review of branch 
closings or consolidations? What additional information should be 
included in application materials related to retail delivery systems?
    27. What additional benefits to the community could be specified in 
the SOP beyond those already detailed?
    28. What other elements should be considered in the evaluation of 
the convenience and needs of the community with respect to mergers?
    29. What types of merger transactions may present unique factors 
that the FDIC should consider in its evaluation of the convenience and 
needs of the community to be served? For example, are there special 
considerations that should be considered in connection with 
transactions in which a community bank is absorbed by a larger 
institution?

Risk to the Stability of the United States Banking or Financial System

    The Dodd-Frank Act amended the BMA to require the responsible 
agency to consider the risk to the stability of the U.S. banking or 
financial system when evaluating a proposed bank merger.\33\ The FDIC 
expects that the resulting IDI will not materially increase the risk to 
the stability of the U.S. banking or financial system. Multiple RFI 
commenters noted the FDIC's Current SOP does not incorporate this 
statutory factor. Additionally, while some RFI commenters asked for 
more clarity and

[[Page 29232]]

transparency regarding the FDIC's financial stability analysis, others 
objected to changing the existing regulatory framework. Finally, some 
RFI commenters asserted that recent large mergers have increased 
concentration within the banking sector and have created more systemic 
risk, while others presented positions that attempt to refute this 
assertion. The Proposed SOP largely builds upon the financial stability 
criteria previously employed in practice by the FDIC, FRB, and OCC 
since passage of the Dodd-Frank Act, and clarifies the FDIC's 
perspective when conducting the analysis.\34\
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    \33\ 12 U.S.C. 1828(c)(5).
    \34\ See, e.g., Order and Basis for Corporation approval of 
BB&T's application for consent to merger with SunTrust Bank. Refer 
to FDIC Press Release PR-111-2019: https://www.fdic.gov/news/press-releases/2019/pr19111.html.
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    The Proposed SOP details the considerations that the FDIC uses to 
determine whether a resulting IDI's systemic footprint would be such 
that its financial distress or failure could compromise the stability 
of the U.S. banking or financial system. While many RFI commenters 
addressed entities other than a resulting IDI (e.g., bank holding 
companies and broker-dealer subsidiaries), the Proposed SOP considers 
financial stability influences primarily from the perspective of the 
resulting IDI. Where appropriate, the FDIC's analysis will take into 
account the facts and circumstances of parent companies and affiliates. 
Proposed transactions that solely involve affiliates that were related 
at the time a merger application is filed generally will not raise 
concerns with regard to this factor. However, each such proposal will 
be reviewed to ensure that the resulting IDI would not present any new 
or unforeseen stability risks that may not have existed when the 
merging entities operated on a standalone basis.
    In evaluating the risk to the stability of the U.S. banking or 
financial system, the Proposed SOP identifies the following: (i) the 
size of the entities involved in the transaction; (ii) the availability 
of substitute providers for any critical products and services to be 
offered by the resulting IDI; (iii) the resulting IDI's degree of 
interconnectedness with the U.S. banking or financial system; (iv) the 
extent to which the resulting IDI contributes to the U.S. banking or 
financial system's complexity; and (v) the extent of the resulting 
IDI's cross-border activities. These items are addressed in more detail 
below:
    Size. The distress or failure of an IDI is more likely to adversely 
impact the banking or financial system if the IDI's activities comprise 
a relatively large share of system-wide activities. Upon financial 
distress or failure, a larger IDI may present greater challenges to 
replacing or substituting the services and products it provides, as 
compared with smaller institutions, thereby potentially increasing the 
possibility for the IDI's distress or failure to disrupt the broader 
system. Additionally, the negative effects to the banking or financial 
system caused by stress at a single large institution may be greater 
than the impact of simultaneous stress at multiple smaller institutions 
engaged in business lines similar to those of their larger peer. The 
majority of comments regarding financial stability focused on the 
resulting IDI's asset size with many concerned about not creating 
institutions that are ``too big to fail.'' Numerous RFI commenters 
suggested the imposition of asset limits, thresholds, or other 
quantitative measures that would be applicable to IDIs of a certain 
size, and suggested that any analysis start with certain presumptions. 
Others stated that any limits or presumptions with respect to asset 
size would be contrary to the plain language of the BMA, have 
anticompetitive results, and could even serve to ``insulate'' the 
largest banks. Some RFI commenters suggested the imposition of enhanced 
capital requirements in lieu of size limitations.
    With respect to these suggestions, the FDIC believes that the asset 
size of a resulting IDI should not serve as the sole basis for 
evaluating this statutory factor. Rather, size is only one of several 
important considerations that needs to be evaluated in the context of 
the other criteria. However, transactions that result in a large IDI 
(e.g., in excess of $100 billion) are more likely to present potential 
financial stability concerns with respect to substitute providers, 
interconnectedness, complexity, and cross-border activities, and will 
be subject to added scrutiny. The FDIC takes the view that the failure 
of a larger IDI with a traditional community bank business model may 
pose significantly different resolvability and stability risks than a 
smaller IDI with one or more complex business lines, large derivative 
exposures, or extensive cross-border operations.
    Availability of substitute providers. The purpose of considering 
the availability of substitute providers is to understand whether an 
inability or unwillingness by a resulting IDI to continue providing 
specific products or services could be disruptive to the U.S. banking 
or financial system. The FDIC considers whether the resulting IDI 
provides critical products or services that may be difficult to replace 
or substitute, or conducts activities that comprise a relatively large 
share of the relevant activity in the banking or financial system. 
Concerns are heightened, and may preclude favorable resolution of this 
factor, in situations where there are limited readily available 
substitutes, as relied upon services may be disrupted or discontinued 
if the resulting IDI encounters financial distress or fails. Several 
RFI commenters recommended that specific risk factors be developed to 
address the availability of substitute providers; however, the Proposed 
SOP does not include specific targets or bright lines regarding the 
consideration and assessment of this factor.
    Interconnectedness. The purpose of considering interconnectedness 
is to assess the degree to which the resulting IDI may be engaged in 
transactions with other financial system participants and the risk that 
exposures to the resulting IDI of creditors, counterparties, investors, 
or other market participants could affect U.S. banking or financial 
system stability. The purpose of considering the effects of asset 
liquidation by the resulting IDI as a component of interconnectedness 
is to assess whether, following the proposed merger, the resulting IDI 
would hold assets that, if liquidated quickly, could significantly 
disrupt the operation of key markets or cause significant losses or 
funding problems for other firms with similar holdings. The analysis of 
interconnectedness specifically contemplates intra-financial system 
assets and liabilities; exposures to creditors and counterparties; the 
potential volatility of the resulting IDI's funding structure; and the 
potential results of rapid asset liquidation.
    A resulting IDI may present greater risk from a stability 
perspective if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other 
financial system participants. For example, securities contracts, 
commodity contracts, forward contracts, repurchase agreements, swap 
agreements, inter-affiliate guarantees, and other similar contracts 
which the FDI Act refers to collectively as ``qualified financial 
contracts'' \35\ are all examples of interconnected exposures within 
the U.S. banking or financial system. A high volume of such contracts 
may equate to a higher degree of potential systemic spillover effects 
if the resulting IDI, or its parent or affiliates, are unable to 
perform.
---------------------------------------------------------------------------

    \35\ 12 U.S.C. 1821(e)(8)(d)(i).
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    Increased Complexity. Under the Proposed SOP, evaluation of the

[[Page 29233]]

resulting IDI's contribution to the U.S banking or financial system's 
complexity would consider the full scope of the resulting IDI's 
operations. This includes the resulting IDI's business lines, products 
and services, on- and off-balance sheet activities, delivery channels, 
and any material affiliate or other third-party relationships. One RFI 
commenter stated that many large regional banks do not have complex 
operations and have recently reduced their level of complexity. The 
FDIC considers an important part of the complexity analysis to be the 
potential financial stability consequences of the resulting IDI failing 
and being placed into a receivership under Section 11 of the FDI Act. 
The FDIC is responsible for resolving the resulting IDI in a way least 
costly to the DIF.
    The FDIC has several options for carrying out the resolution of an 
IDI. First, the FDIC can sell some or most of the assets of the failed 
IDI to a healthy acquiring IDI, which would also generally assume all 
of the deposits or only the insured deposits of the failed IDI along 
with some or most of the remaining liabilities. This is generally 
called a ``purchase and assumption transaction.'' Second, a special 
type of purchase and assumption transaction used when additional time 
is needed to market a failed IDI is referred to as a ``bridge bank.'' A 
bridge bank is a bank chartered by the OCC and temporarily owned and 
operated by the FDIC to bridge the time between the date of failure and 
the date of sale to an acquiring IDI. Use of a bridge bank enhances the 
FDIC's ability to pursue options that could involve the sale to 
multiple acquirers, and/or spinning off some remaining streamlined 
operations as a restructured entity with ongoing viability depending on 
which strategy is most desirable. The final option is executing an 
insured deposit payout. However, in deciding which option to pursue, 
the FDIC must show how it would meet the least cost test set forth in 
Section 13(c)(4) of the FDI Act. Additionally, regardless of the 
strategy selected, the challenges associated with resolving a large 
bank would be significant, both operationally and financially.
    In addition to the resolution challenges presented based on size, 
many regional IDIs present complexities such as large branch networks, 
substantial information technology systems, millions of account 
holders, and heavy reliance on uninsured deposits. Further, cross-
border operations or key dependencies on non-affiliated entities can 
raise additional challenges to effecting an orderly and least costly 
resolution.
    The failure of a larger IDI with a traditional community bank 
business model may present significantly different resolvability and 
stability risks than a smaller IDI with a complex businesses model. 
Staff from the FDIC's Division of Resolutions and Receiverships and (if 
appropriate) the Division of Complex Institution Supervision and 
Resolution will identify potential purchasers for the resulting IDI or 
its component parts, and identify resolution impediments that could 
impact the stability of the U.S. banking or financial system. Some 
potential resolution impediments include the resulting IDI's 
organizational structure and the necessity and difficulty of: (i) 
continuing the IDI's operations and activities until they can be sold 
or wound down, (ii) marketing and selling key business lines and asset 
portfolios at the least cost to the DIF,\36\ and (iii) separating 
business lines and other assets to enable their sale or other 
disposition. While the FDIC would perform this analysis on the IDI, it 
would also take into account possible alternative resolution strategies 
and scenarios. This process could consider the presence of support 
agreements from the resulting IDI's ultimate parent company, 
strengthened risk governance procedures, and capital maintenance 
requirements for the IDI. Several RFI commenters suggested formal 
thresholds should be developed (such as total asset metrics) for when a 
resolution plan should be required. Such thresholds have not been 
incorporated into the Proposed SOP as each prospective resolution 
presents unique facts and circumstances, and the FDIC does not believe 
a one size fits all approach to the resolution process is appropriate.
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

    While the vast majority of IDIs that the FDIC has resolved have 
been relatively small in size (assets under $10 billion), experience 
has shown that the failure of a larger IDI can have a contagion effect. 
Two recent examples that illustrate the systemic risk associated with 
the failure of a large regional IDI are Silicon Valley Bank (SVB) and 
Signature Bank.
    SVB, with $209 billion in assets as of December 31, 2022, failed on 
March 10, 2023. SVP's depositors were primarily commercial and private 
banking clients, mostly linked to businesses financed through venture 
capital. Total assets grew rapidly, coinciding with rapid growth in the 
innovation economy and a significant increase in the valuation placed 
on public and private companies. The resulting influx of deposits was 
largely invested in medium- and long-term Treasury and Agency 
securities.
    On March 8, 2023, Silvergate Bank, with $11.3 billion in assets as 
of December 31, 2022, and a business model focused almost exclusively 
on providing services to digital asset firms, announced its self-
liquidation.\37\ On that same day, SVB announced that it had sold 
substantially its entire available-for-sale securities portfolio at a 
loss. Many of SVB's venture capital customers took to social media to 
urge companies to move their deposit accounts out of SVB. The deposit 
run, coupled with insufficient liquidity to meet the demands of 
depositors and other creditors, resulted in its failure.
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    \37\ Following the collapse of digital asset exchange FTX in 
November 2022, Silvergate Bank experienced a rapid loss of deposits, 
which necessitated the sale of debt securities to cover deposit 
withdrawals. The securities sales resulted in substantial losses. 
The troubles experienced by Silvergate Bank demonstrated the impact 
of a lack of diversification, aggressive growth, maturity mismatches 
in a rising interest rate environment, and inadequate management of 
liquidity risk. Many of these same risks were also present at SVB.
---------------------------------------------------------------------------

    On March 12, 2023, just two days after the failure of SVB, 
Signature Bank, with $110 billion in assets at year-end 2022, was 
closed and the FDIC was appointed as receiver. Signature Bank 
implemented an operating model that shared risk characteristics with 
SVB. Like SVB, Signature Bank grew rapidly, held deposit accounts for 
crypto-asset firms, and was heavily reliant on uninsured deposits for 
funding. As word of SVB's problems began to spread, Signature Bank 
began to experience contagion effects with deposit outflows. Signature 
Bank failed as withdrawal requests mounted beyond its ability to pay.
    Because of these failures, and the fact that other institutions 
were experiencing stress, serious concerns arose about a broader 
economic spillover. As such, the FDIC invoked the systemic risk 
exception under Section 13 of the FDI Act in winding down SVB and 
Signature Bank.\38\ These failures demonstrate the implications that 
IDIs with assets over $100 billion can have on financial stability. As 
of December 2023, the failures of SVB and Signature Bank have resulted 
in an estimated cost

[[Page 29234]]

of $21.8 billion and $1.8 billion, respectively, to the DIF.\39\
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    \38\ As a general rule, Section 13(c)(4) of the FDI Act requires 
the FDIC to resolve failed IDIs at the least cost to the DIF, but 
provides an exception for instances where the failure would have 
serious adverse effects on economic conditions or financial 
stability, and any action to be taken would avoid or mitigate such 
adverse effects.
    \39\ See 2023 FDIC Annual Report, at https://www.fdic.gov/about/financial-reports/reports/2023annualreport/2023-arfinal.pdf.
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    Additional examples that highlight the impact of a larger IDI 
failure on the DIF are the failures of Washington Mutual Bank and 
IndyMac Bank in 2008. Washington Mutual Bank (Washington Mutual), with 
over $300 billion in assets at the time of its failure in September 
2008, was the largest thrift institution in the United States and the 
sixth largest IDI. Its failure was the largest in the FDIC's history in 
terms of the IDI's asset size. Several factors made it possible for 
Washington Mutual to fail with no loss to the DIF and no loss imposed 
on its $45 billion of uninsured deposits, which approximated 24 percent 
of total deposits. First, there was an acquirer with the capacity to 
assume all the assets and all the deposits through a traditional 
purchase and assumption transaction. This acquirer could act quickly at 
the time of failure because it had previously performed due diligence 
on Washington Mutual for a potential open bank acquisition. Second, 
Washington Mutual had a substantial volume of unsecured debt--$13.8 
billion, or 4.5 percent of total assets--which was available to absorb 
losses in resolution. This loss absorbing capacity was essential to 
meeting the least cost test and for uninsured depositors to avoid 
taking a loss. Absent these factors, the FDIC likely would have had to 
establish a bridge bank and take over the operation of the failed 
institution. The failure of Washington Mutual in that scenario would 
have depleted the DIF, and uninsured depositors would likely have had 
to take a loss in order to meet the least cost test. Imposing losses on 
uninsured deposits could have had a significantly destabilizing effect, 
especially given the stressed economic and financial environment in 
September 2008. The only way to avoid that outcome would have been for 
the FDIC to exercise the systemic risk exception.
    When IndyMac Bank--a $30 billion thrift--failed in July 2008, it 
had no unsecured debt and there was no viable acquirer. The FDIC 
established a bridge bank and uninsured depositors realized losses.\40\ 
IndyMac Bank was the most costly failure in the FDIC's history up to 
that point, resulting in a $12.4 billion loss to the DIF. If these 
conditions were to repeat for an institution several times larger, the 
effects could be significant for U.S. financial stability.
---------------------------------------------------------------------------

    \40\ Uninsured deposits totaled $2.6 billion, which was almost 
14 percent of total deposits.
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    Cross-Border Activities. The purpose of considering cross-border 
activities is to assess the degree to which coordination of the 
resulting IDI's supervision and resolution could be complicated by 
different legal requirements, geopolitical events, and competing 
national interests, leading to increased potential for spillover 
effects. A high degree of cross-border activity by the resulting IDI 
presents significant challenges to supervising and examining the 
operations of IDIs and their subsidiaries. Historically, cross-border 
operations present significant challenges to supervision and 
examination, and cross-border proceedings can be slow, cumbersome, and 
require significant amounts of coordination between different 
resolution authorities with differing objectives and administrators. 
Accordingly, the FDIC would determine if the resulting IDI's cross-
border activities represent a significant component of operations; and 
if so, whether the activities present a high degree of cross-
jurisdictional claims, liabilities, and other impediments to effective 
supervision and resolution. The Proposed SOP affirms that such 
activities may present challenges from both supervisory and resolution 
perspectives given the potential exposure to differing legal 
requirements, geopolitical events, and competing national interests.

Other Financial Stability Considerations

    RFI commenters suggested that the FDIC impose various requirements 
upon large newly merged IDIs such as a requirement to submit resolution 
plans, a single-point-of entry resolution strategy, enhanced capital 
levels, total loss absorbing capacity standards, and other quantitative 
measures. With respect to these comments, the Proposed SOP does not 
include such requirements, in order to enable the FDIC to retain 
flexibility to review and evaluate the facts and circumstances 
appropriate to the application. For example, the FDIC may consider 
previously filed resolution plans (if any) \41\ relevant to any IDI 
that may be party to a bank merger application. Resolution plans 
submitted are highly relevant and those submitted by large IDIs are 
intended to enable the FDIC, as receiver, to provide customers prompt 
access to their insured deposits and maximize the return from the sale 
or disposition of the bank's assets. These resolution plans include 
information pertaining to the bank's organizational structure, core 
business lines, information technology, funding needs, and other data 
to assist in the sale or disposition of the bank's deposit franchise, 
business lines, and material assets.
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    \41\ This would include resolution plans filed under 12 CFR part 
381 (those filed under Section 165(d) of the Dodd-Frank Act), as 
well as those filed under 12 CFR 360.10 (IDI Plans). Section 165(d) 
resolution plans typically include details of the firm's structure, 
assets, and obligations; information on how the depository 
subsidiaries are protected from risks posed by its non-bank 
affiliates; and information on the firm's cross-guarantees, 
counterparties, and processes for determining to whom collateral has 
been pledged. IDI Plans typically include information and analysis 
on the IDI that better enable the FDIC to resolve the IDI under the 
FDI Act.
---------------------------------------------------------------------------

    The FDIC will closely assess the degree to which the resulting 
IDI's potential financial distress or failure could cause other IDIs 
with similar activities or business profiles to experience a loss of 
market confidence, falling asset values, or liquidity stress and 
decreased funding options. Further, the FDIC may consider the resulting 
IDI's regulatory framework post-merger; however, the resulting 
framework cannot solely ameliorate other identified financial stability 
concerns.
    In addition to the items previously noted, the FDIC will evaluate 
any additional elements that may affect the risk to the U.S. banking or 
financial system stability. This may include the resulting IDI's 
regulatory framework; however, the framework alone would not result in 
a favorable finding on this factor when other financial stability 
concerns exist. As appropriate, consideration may be given to the 
merging IDIs' records with respect to cybersecurity as well as their 
stress-testing results. For example, the FDIC evaluates the IDI's 
record of preventing data breaches and responding to and preventing 
cybersecurity threats.
    Questions:
    30. How could the FDIC enhance its approach to evaluating risk to 
the stability of the U.S. banking or financial system?
    31. Should the FDIC adopt size thresholds (other than the proposed 
$100 billion threshold) related to financial stability? If so, why, and 
what size thresholds would be appropriate to identify transactions that 
present concerns for this statutory factor?
    32. Should the FDIC consider a quantitative risk indicator for 
overall financial stability? If so, how should this indicator be 
calculated, and what historical data would support the validity of its 
usage?
    33. How should the FDIC measure the potential impact (e.g., 
financial, economic, or other) of a resulting IDI on the banking or 
financial system?

[[Page 29235]]

    34. When measuring the potential impact of a merger, what potential 
scenarios or assumptions regarding financial and economic conditions 
would be appropriate, regarding both the merger transaction parties and 
the overall banking and financial systems?
    35. What, if any, additional criteria should be included in the 
evaluation of the financial stability risk factor?
    36. How should the FDIC assess whether a change in the overall risk 
to financial stability is problematic? Should the FDIC place more 
emphasis on the creation of new risk to financial stability, an 
increase to existing risk, or both? If so, what emphasis should be 
placed and why?

Effectiveness in Combatting Money Laundering Activities

    In every case, the BMA directs the responsible agency to consider 
the effectiveness of any IDI involved in the proposed merger 
transaction in combatting money laundering activities, including in 
overseas branches.\42\ The FDIC expects that the resulting IDI will 
operate under a satisfactory anti-money laundering (AML)/countering the 
financing of terrorism (CFT) program commensurate with its risk profile 
and business (or strategic) plan.\43\
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    \42\ 12 U.S.C. 1828(c)(11).
    \43\ The Anti-Money Laundering Act of 2020 (the AML Act), 
amended subchapter II of chapter 53 of title 31 United States Code 
(the legislative framework commonly referred to as the Bank Secrecy 
Act or BSA). The AML Act requires the Financial Crimes Enforcement 
Network (FinCEN), in consultation with Federal functional 
regulators, to promulgate AML/CFT regulations. Due to the addition 
of the CFT, and for consistency with FinCEN, the FDIC will use the 
term AML/CFT (which includes BSA) when referring to, issuing, or 
amending regulations to address the requirements of the AML Act of 
2020.
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    As part of its evaluation of this factor, the FDIC will undertake a 
comprehensive analysis of each entity's record with regard to AML/CFT. 
Among other relevant items, the FDIC will consider each entity's 
overseas branch operations; policies, procedures, and processes; risk 
management programs; supervisory record, including compliance with the 
Bank Secrecy Act (BSA) and its implementing regulations; and 
remediation efforts pursuant to any outstanding corrective programs. 
Significant unresolved AML/CFT deficiencies, or an outstanding or 
proposed formal or informal enforcement action that includes provisions 
related to AML/CFT, is generally inconsistent with a favorable 
resolution of this factor. One RFI commenter suggested a bar on the 
approval of any mergers where an IDI ``has been found guilty of AML 
misconduct in the previous five years.'' No such bar has been included 
in the Proposed SOP to retain flexibility in evaluating the merits of 
each proposed transaction.
    Questions:
    37. What additional items should the FDIC evaluate as it relates to 
the respective merger parties' AML/CFT programs?
    38. If one party to the transaction has a less than satisfactory 
AML/CFT compliance program, how much emphasis should be placed on the 
resultant IDI's AML/CFT compliance program and its plan for integrating 
the target entity?

Other Matters and Considerations

    With regard to interstate mergers, the Proposed SOP states that the 
FDIC will ensure that the additional requirements and restrictions of 
Section 44 are satisfied.\44\
---------------------------------------------------------------------------

    \44\ See 12 U.S.C.1831u.
---------------------------------------------------------------------------

    The SOP highlights other matters and considerations, such as 
filings from non-banks \45\ or banks that are not traditional community 
bank \46\ applicants, as well as applications from operating non-
insured entities.
---------------------------------------------------------------------------

    \45\ A ``non-bank'' refers to an IDI that is a ``bank'' for 
purposes of the FDI Act, but not for purposes of the BHCA. Non-banks 
may be owned by parent companies that are not subject to the BHCA 
and therefore may not regulated or supervised by the FRB. Existing 
insured non-banks include IDIs that are controlled by parent 
organizations engaged in a variety of commercial activities. These 
include industrial banks and industrial loan companies, trust and 
credit card banks organized under the Competitive Equality Banking 
Act, and other IDIs, such as municipal deposit banks.
    \46\ In contrast to a traditional community bank, an IDI that is 
not a traditional community bank generally: (1) focuses on products, 
services, activities, market segments, funding, or delivery channels 
other than local lending and deposit taking; (2) pursues a broad 
geographic footprint (such as operating nationwide from a limited 
number of offices); (3) pursues a monoline, limited, or specialty 
business model; or (4) operates within an organizational structure 
that involves significant affiliate or other third-party 
relationships (other than common relationships such as audit, human 
resources, or core information technology processing services). A 
non-community bank may or may not operate under a non-bank charter. 
Specialty (sometimes referred to as ``niche'') IDIs are less-
diversified and usually considered ``non-community'' in nature given 
the concentrated business focus or emphasis on specialized 
activities.
---------------------------------------------------------------------------

    While the Proposed SOP is solely an FDIC issuance, the FDIC is 
working collaboratively with the relevant Federal agencies to review 
and evaluate existing merger--related regulations, guidance, and 
instruction. Several RFI commenters requested that any amendments to 
any new merger regulations, guidelines, and instructions should be 
applied on an interagency basis, and any changes should be made 
prospectively. Regarding the roles of the Federal banking agencies, 
several RFI commenters requested that the Consumer Financial Protection 
Bureau (CFPB) be consulted on all mergers, or at least all mergers for 
which the CFPB has an examination interest. A similar number of RFI 
commenters presented the opposite position and noted that the CFPB 
should not be consulted in any capacity, as that is not their 
congressional mandate. Several RFI commenters noted that state 
regulatory and supervisory authorities should be consulted, such as 
state financial regulators, state Attorney's General, and courts. The 
Proposed SOP does not specifically address the CFPB by name, but as 
previously stated, the FDIC works collaboratively with the other 
Federal regulators, as well as the relevant state authorities when 
processing merger applications.
    Finally, RFI commenters requested that the FDIC review, to the 
extent possible, the effects of past mergers to evaluate the 
appropriateness of merger guidelines; and make the results of the 
evaluation public and apply the results to future merger decisions. The 
FDIC is considering this recommendation.
    Question:
    39. Are there other elements of the Proposed SOP that would benefit 
from additional clarity? If so, please provide details and explain how 
the elements may be clarified.

IV. Administrative Law Matters

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA),\47\ the agencies may not conduct or sponsor, and the 
respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number.
---------------------------------------------------------------------------

    \47\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

    The proposed SOP does not create any new or revise any existing 
collections of information under the PRA. Therefore, no information 
collection request will be submitted to the OMB for review. The FDIC is 
separately requesting comment on proposed changes to the FDIC 
Supplement to the interagency Bank Merger Act application form.

[[Page 29236]]

Appendix A--Merger Application Activity \48\
---------------------------------------------------------------------------

    \48\ Source of data in Tables 1-7: FDIC.
    \49\ Merger applications may be returned if they are not 
substantially complete. At its discretion, the FDIC may offer an 
applicant an opportunity to withdraw an application. Applicants may 
withdraw an application at any time if they elect not to pursue the 
transaction. In some cases, in anticipation of a denial 
recommendation, applicants choose to withdraw their filing. The 
number of mergers that occur in a given year may differ from the 
number of mergers approved by the FDIC that same year, as a merger 
may not be consummated in the same year it is approved.
    A regular merger is generally a combination of the assets and 
liabilities of two or more unaffiliated IDIs under one IDI's charter 
with the extinguishment or cancellation of the charter(s) of the 
other IDI(s). For purposes of these tables, ``Bank to Bank'' refers 
to a merger when all of the parties involved are IDIs and the 
resulting IDI is a state nonmember bank or state savings 
association; ``Involving Credit Unions'' refers to a merger that 
involves the combination of any IDI with a credit union; and 
``Involving Uninsured Entities'' refers to a merger that involves 
the combination of any IDI with an uninsured entity.

                 Table 1--Number and Disposition Regular Merger Applications \49\ (Bank-to-Bank)
                                              [1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
                      Year                            Approve         Return         Withdraw         Totals
----------------------------------------------------------------------------------------------------------------
2004............................................             145               2               2             149
2005............................................             103               1               3             107
2006............................................             137               3               7             147
2007............................................             143               2               1             146
2008............................................              99  ..............              10             109
2009............................................              66               2              11              79
2010............................................              86               5               5              96
2011............................................              84               1              13              98
2012............................................             135               6              11             152
2013............................................             133               7              10             150
2014............................................             136  ..............              11             147
2015............................................             135  ..............               5             140
2016............................................             108  ..............               4             112
2017............................................              96               1               4             101
2018............................................             118               2               5             125
2019............................................              94               3  ..............              97
2020............................................              58               1               6              65
2021............................................              88               1  ..............              89
2022............................................              44  ..............               7              51
2023............................................              46               2               1              49
                                                 ---------------------------------------------------------------
    Totals......................................           2,054              39             116           2,209
----------------------------------------------------------------------------------------------------------------


    Table 2--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Bank-to-Bank)
                                              [1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
           Asset size of resultant IDI                Approve         Return         Withdraw         Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets..............................               3              13              34              50
Assets >$0 and <=$10 Billion....................           1,953              26              76           2,055
Assets >$10 Billion and <=$100 Billion..........              91  ..............               6              97
Assets >$100 Billion............................               7  ..............  ..............               7
                                                 ---------------------------------------------------------------
    Totals......................................           2,054              39             116           2,209
----------------------------------------------------------------------------------------------------------------


[[Page 29237]]


              Table 3--Number and Disposition Regular Merger Applications (Involving Credit Unions)
                                              [1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
                      Year                            Approve         Return         Withdraw         Totals
----------------------------------------------------------------------------------------------------------------
2004............................................               1  ..............  ..............               1
2005............................................               2  ..............  ..............               2
2006............................................               2  ..............               1               3
2007............................................               1  ..............  ..............               1
2008............................................  ..............  ..............  ..............               0
2009............................................  ..............  ..............  ..............               0
2010............................................               2  ..............  ..............               2
2011............................................               2  ..............  ..............               2
2012............................................               4  ..............  ..............               4
2013............................................               7  ..............  ..............               7
2014............................................               3  ..............               1               4
2015............................................               2  ..............  ..............               2
2016............................................               7  ..............  ..............               7
2017............................................               5  ..............               1               6
2018............................................              12  ..............               2              14
2019............................................              17  ..............  ..............              17
2020............................................              13  ..............               4              17
2021............................................               8               3               1              12
2022............................................              19  ..............               2              21
2023............................................              14  ..............  ..............              14
                                                 ---------------------------------------------------------------
    Totals......................................             121               3              12             136
----------------------------------------------------------------------------------------------------------------


  Table 4--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Involving Credit
                                                     Unions)
                                              [1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
       Asset size of resultant institution            Approve         Return         Withdraw         Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets..............................  ..............  ..............               2               2
Assets >$0 and <=$10 Billion....................             115               3              10             126
Assets >$10 Billion and <=$100 Billion..........               5  ..............  ..............               5
Assets >$100 Billion............................               1  ..............  ..............               1
                                                 ---------------------------------------------------------------
    Totals......................................             121               3              12             136
----------------------------------------------------------------------------------------------------------------


           Table 5--Number and Disposition Regular Merger Applications (Involving Uninsured Entities)
                                              [1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
                      Year                            Approve         Return         Withdraw         Totals
----------------------------------------------------------------------------------------------------------------
2004............................................               6               2               1               9
2005............................................               6  ..............  ..............               6
2006............................................              15  ..............               2              17
2007............................................               2  ..............               1               3
2008............................................               5  ..............               2               7
2009............................................               2               2               1               5
2010............................................               2  ..............               1               3
2011............................................  ..............  ..............  ..............               0
2012............................................               4  ..............               4               8
2013............................................               2  ..............               1               3
2014............................................               5  ..............               1               6
2015............................................               2  ..............               1               3
2016............................................              10               3               1              14
2017............................................               8               1               2              11
2018............................................              11  ..............               1              12
2019............................................              14               1  ..............              15
2020............................................               6  ..............               2               8
2021............................................              10  ..............               1              11
2022............................................               5  ..............               3               8
2023............................................               1               1               1               3
                                                 ---------------------------------------------------------------
    Totals......................................             116              10              26             152
----------------------------------------------------------------------------------------------------------------


[[Page 29238]]


 Table 6--Number and Disposition Regular Merger Applications by Asset Size of Resultant IDI (Involving Uninsured
                                                    Entities)
                                              [1/1/2004-12/31/2023]
----------------------------------------------------------------------------------------------------------------
           Asset size of resultant IDI                Approve         Return         Withdraw         Totals
----------------------------------------------------------------------------------------------------------------
No Reported Assets..............................               1               7               8              16
Assets >$0 and <=$10 Billion....................              92               2              15             109
Assets >$10 Billion and <=$100 Billion..........              20               1  ..............              21
Assets >$100 Billion............................               3  ..............               3               6
                                                 ---------------------------------------------------------------
    Totals......................................             116              10              26             152
----------------------------------------------------------------------------------------------------------------


Table 7--Number of IDIs Acquired Purchase & Assumption Transactions \50\
                          [1/1/2004-12/31/2023]
------------------------------------------------------------------------
                  Year                                 No.
------------------------------------------------------------------------
2004...................................  128
2005...................................  132
2006...................................  167
2007...................................  148
2008...................................  130
2009...................................  91
2010...................................  104
2011...................................  106
2012...................................  112
2013...................................  152
2014...................................  146
2015...................................  161
2016...................................  159
2017...................................  134
2018...................................  149
2019...................................  151
2020...................................  99
2021...................................  94
2022...................................  75
2023...................................  78
                                        --------------------------------
Total..................................  2,516
------------------------------------------------------------------------

V. Proposed Statement of Policy
---------------------------------------------------------------------------

    \50\ Only includes transactions in which the resulting 
institution was an FDIC-supervised state nonmember bank or state 
savings association, or in which an IDI sold substantially all of 
its assets to a credit union and ceased operation.
---------------------------------------------------------------------------

    The text of the proposed Statement of Policy follows:

FDIC Statement of Policy on Bank Merger Transactions

I. Introduction

    This Statement of Policy (SOP) communicates the FDIC Board of 
Directors' expectations and views regarding applications filed pursuant 
to Section 18(c) of the Federal Deposit Insurance Act (FDI Act), which 
is referred to herein as the Bank Merger Act (BMA). The SOP reflects 
the FDIC's interpretations of the BMA and its implementing regulations. 
The structure of the SOP follows the BMA's core statutory provisions, 
and its content highlights the principles that guide the FDIC's 
evaluation of the statutory factors for a merger application.
    The BMA prohibits an insured depository institution (IDI) from 
engaging in a merger transaction without regulatory approval. It 
identifies the types of undertakings that constitute ``merger 
transactions'' and outlines which of the three Federal banking agencies 
is the ``responsible agency'' for acting on a given merger 
application.\1\ In addition, the BMA sets forth advance public notice 
requirements \2\ and generally requires the responsible agency to 
request a report on the competitive factors for a merger transaction 
from the Attorney General.\3\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 1828(c)(1) and (2).
    \2\ 12 U.S.C. 1828(c)(3).
    \3\ 12 U.S.C. 1828(c)(4).
---------------------------------------------------------------------------

    The BMA generally prohibits the responsible agency from approving a 
monopolistic or otherwise anticompetitive merger transaction.\4\ In 
addition to competitive considerations, the BMA requires the relevant 
agency to evaluate a merger transaction in light of the financial and 
managerial resources and future prospects of the existing and proposed 
institutions, the convenience and needs of the community to be served, 
the risk to the stability of the United States (U.S.) banking or 
financial system,\5\ and the effectiveness of the IDIs involved in the 
merger transaction in combatting money laundering.\6\
---------------------------------------------------------------------------

    \4\ 12 U.S.C. 1828(c)(5).
    \5\ Ibid.
    \6\ See Financial Stability Board 2022 list of GSIBs available 
at https://www.fsb.org/wp-content/uploads/P211122.pdf.
---------------------------------------------------------------------------

II. Jurisdiction and Scope

    The FDIC is one of three Federal banking agencies with 
responsibility for evaluating transactions subject to the BMA. The FDIC 
has jurisdiction to act on merger applications that involve an IDI and 
any non-insured entity,\7\ and those that solely involve IDIs in which 
the acquiring, assuming, or resulting

[[Page 29239]]

institution is an FDIC-supervised institution.\8\
---------------------------------------------------------------------------

    \7\ 12 U.S.C. 1828(c)(1). A non-insured entity refers to any 
entity that is not FDIC insured.
    \8\ The Office of the Comptroller of the Currency has 
jurisdiction for any merger transaction between IDIs in which the 
acquiring, assuming, or resulting institution is a national bank or 
a Federal savings association. The Board of Governors of the Federal 
Reserve System (FRB) has jurisdiction for any merger transaction 
between IDIs in which the acquiring, assuming, or resulting 
institution is a state-chartered bank that is a member of the 
Federal Reserve System. The FRB also has approval authority under 
the Bank Holding Company Act for mergers involving bank holding 
companies and the Home Owners' Loan Act for mergers involving 
savings and loan holding companies. Merger transactions that are 
subject to the FDIC's review may also be subject to the review of 
state authorities.
---------------------------------------------------------------------------

    The BMA requires regulatory approval for any merger transaction 
involving an IDI.\9\ The applicability of the BMA will depend on the 
facts and circumstances of the proposed transaction. In addition to 
transactions that combine institutions into a single legal entity 
through merger or consolidation, the scope of merger transactions 
subject to approval under the BMA encompasses transactions that take 
other forms, including purchase and assumption transactions or other 
transactions that are mergers in substance, and assumptions of deposits 
or other similar liabilities.\10\
---------------------------------------------------------------------------

    \9\ 12 U.S.C. 1828(c).
    \10\ A merger that includes the establishment or relocation of 
branches is also subject to approval under 12 U.S.C. 1828(d).
---------------------------------------------------------------------------

    The FDIC considers transactions to be mergers in substance when a 
target would no longer compete in the market, regardless of whether the 
target plans to liquidate immediately after consummating the 
transaction. An example of a transaction that is a merger in substance, 
and therefore subject to the BMA, is when an IDI absorbs all (or 
substantially all) of a target entity's assets and the target entity 
dissolves (or otherwise ceases to engage in the acquired lines of 
business).
    An FDIC-supervised IDI's assumption of a deposit from another IDI, 
or any IDI's assumption of a deposit from a non-insured entity, is 
likewise subject to FDIC approval even in the absence of an express 
agreement for a direct assumption. Similarly, a transfer of deposits 
from any IDI to a non-insured entity is subject to FDIC approval.\11\ 
The definition of ``deposit'' per Section 3(l) of the FDI Act is broad 
and extends beyond traditional demand deposits to include trust funds 
and escrow funds, among other items.
---------------------------------------------------------------------------

    \11\ 12 U.S.C. 1828(c)(1)(C).
---------------------------------------------------------------------------

    Merger and other corporate transactions may be conducted through a 
single transaction or through a series of related transactions that 
each require an application, such as transactions effected through 
interim institutions. In all cases, the FDIC will evaluate the 
substance of all of the facts and circumstances of the transaction and 
any related transactions, identify which aspects of the transaction(s) 
are subject to FDIC approval, and fully evaluate the statutory factors 
applicable to each transaction.

Overview of the Application Process

    The FDIC encourages prospective applicants to engage in a pre-
filing process to discuss regulatory expectations. It is particularly 
important for the application to be substantially complete when 
initially filed.\12\ The quality and comprehensiveness of a filing are 
critical to the FDIC's evaluation of the application under the 
statutory factors and other regulatory requirements.\13\ The FDIC 
expects all submitted materials, including the financial projections 
and any related analyses, to be well supported and sufficiently 
detailed. The narrative describing the analysis and evaluation of the 
transaction should be supported by studies, surveys, analyses and 
reports, including those prepared by or for officers, directors, or 
deal team leads. Incomplete filings or non-responsiveness to additional 
information requests are substantial impediments to the FDIC's ability 
to fully evaluate and resolve the statutory factors.
---------------------------------------------------------------------------

    \12\ As noted in Section 1.1 of the Applications Procedures 
Manual, a filing that is not substantially complete lacks the 
substance necessary for the FDIC to evaluate the statutory factors.
    \13\ Regulatory requirements for merger applications are 
provided in 12 CFR part 303 (including Subparts A and D) and any 
other Federal or state regulations, statutes, or laws applicable to 
the filing.
---------------------------------------------------------------------------

    Public feedback is an important component of the FDIC's review of a 
merger application. Section 18(c)(3) of the FDI Act requires that 
public notice of the proposed merger transaction be published in an 
approved form and at appropriate intervals in a newspaper or newspapers 
of general circulation. A list of pending merger applications subject 
to the Community Reinvestment Act (CRA) is available on the FDIC's 
website using the Applications in Process Subject to the CRA Report 
Selection Options.\14\ In all cases, the FDIC will review and evaluate 
any public comments received regarding the merger application, and will 
provide the applicant an opportunity to respond to any comment that is 
determined to be a CRA protest.\15\ The FDIC will also consider the 
views of each relevant Federal and state agency. Generally, the FDIC 
will not approve a merger application if adverse CRA comments have not 
been resolved.\16\ In certain cases, the FDIC may hold hearings or 
other proceedings in connection with evaluating a merger 
application.\17\
---------------------------------------------------------------------------

    \14\ Applications In Process Subject to the CRA Report Selection 
Options, https://cra.fdic.gov/.
    \15\ 12 CFR 303.2(l) defines the term ``CRA protest'' to mean 
any adverse comment from the public related to a pending filing that 
raises a negative issue relative to the CRA, whether or not it is 
labeled a protest and whether or not a hearing is requested. An 
``adverse comment'' is defined in 12 CFR 303.2(c), as any objection, 
protest, or other adverse written statement submitted by an 
interested party relating to a filing.
    \16\ See 12 CFR 303.2(c) and 303.2(l).
    \17\ See 12 CFR 303.10.
---------------------------------------------------------------------------

    Section 18(c)(4) of the FDI Act requires the FDIC to request a 
competitive factors report from the Attorney General of the United 
States for any merger transaction between an IDI and a non-affiliated 
entity, unless the FDIC finds that it must act immediately in order to 
prevent the probable failure of an IDI involved in the transaction.\18\ 
As circumstances warrant, the Department of Justice (DOJ) and the FDIC 
will coordinate the review when there are concerns or questions 
regarding the competitive effects of the transaction. As described 
below, the FDIC undertakes an independent review consistent with the 
statutory factors of the BMA.
---------------------------------------------------------------------------

    \18\ 12 U.S.C. 1828(c)(4). In addition to acting to prevent the 
probable failure of an IDI, Section 18(c)(4)(C) of the FDI Act 
includes exceptions for merger transactions involving solely an IDI 
and one or more of its affiliates.
---------------------------------------------------------------------------

Merger Application Adjudication

    Generally, if all statutory factors are favorably resolved, and all 
other regulatory requirements are satisfied, the FDIC will approve the 
merger application. Approvals will be subject to the standard 
conditions detailed in 12 CFR 303.2(bb) and any non-standard conditions 
deemed appropriate by the FDIC. However, the FDIC will not use 
conditions as a means for favorably resolving any statutory factors 
that otherwise present material concerns. The Order and Basis for 
Approval (Order) will be posted to the FDIC's Decisions on Bank 
Applications web page.\19\ The Order will address all statutory 
factors, as well as summarize information regarding any CRA protests. 
The FDIC will summarize the related analysis and conclusions and 
include any conditions imposed in conjunction with the approval.
---------------------------------------------------------------------------

    \19\ Decisions on Bank Applications, https://www.fdic.gov/regulations/laws/bankdecisions/merger/.
---------------------------------------------------------------------------

    The FDIC's publicly available Delegations of Authority set forth 
criteria that must be satisfied in order for staff in the FDIC Regional 
Offices or

[[Page 29240]]

Washington Office to approve a merger application.\20\ Notably, the 
Board of Directors reserves the authority to deny any merger 
application or act on certain types of proposed transactions, including 
any transaction for which one or more statutory factors are unfavorably 
resolved.
---------------------------------------------------------------------------

    \20\ Refer to https://www.fdic.gov/regulations/laws/matrix/delegations-filings.pdf.
---------------------------------------------------------------------------

    Generally, applications will present significant concerns and will 
likely result in unfavorable findings with regard to one or more 
statutory factors if they include the following circumstances:
     Non-compliance with applicable Federal or state statutes, 
rules, or regulations (this includes, for example, transactions that 
would exceed the 10 percent nationwide deposit limit, as well as both 
issued and pending enforcement actions);
     Unsafe or unsound condition relating to the existing IDIs 
or the resulting IDI;
     Less than Satisfactory examination ratings, including for 
any specialty areas (i.e., information technology or trust 
examinations);
     Significant concerns regarding financial performance or 
condition, risk profile, or future prospects;
     Inadequate management, including significant turnover, 
weak or poor corporate governance, or lax oversight and administration; 
or
     Incomplete, unsustainable, unrealistic or unsupported 
projections, analyses, and/or assumptions.
    Additionally, the FDIC may not be able to find favorably on any 
given statutory factor (and the application as a whole) if there are 
unresolved deficiencies, issues, or concerns (including with respect to 
any public comments). A lack of sustained performance under corrective 
programs will also be inconsistent with a favorable finding on one or 
more statutory factors, particularly when the transaction implicates 
the areas that are the subject of the corrective program. Further, the 
inability or unwillingness of the applicant to agree to proposed 
conditions or execute written agreements, if deemed necessary, will 
result in unfavorable findings and would require action by the Board of 
Directors on the application.
    If FDIC staff finds unfavorably on one or more statutory factors 
based on the application review, staff generally will recommend denial 
of the application. At the FDIC's discretion, applicants may be offered 
the opportunity to withdraw the filing. If an applicant withdraws their 
filing, the Board of Directors may release a statement regarding the 
concerns with the transaction if such a statement is considered to be 
in the public interest for purposes of creating transparency for the 
public and future applicants.

III. Statutory Factors

    Merger applications are evaluated under the framework of statutory 
factors as described in the BMA. Generally, the BMA prohibits approval 
of monopolistic or otherwise anticompetitive transactions; and requires 
the responsible agency to consider specific statutory factors related 
to financial and managerial resources and future prospects, convenience 
and needs of the community to be served, combatting money laundering, 
and financial stability. The BMA also prohibits interstate mergers in 
which the resulting IDI would control more than 10 percent of the 
deposits of IDIs in the United States.\21\ Evaluations of each 
statutory factor consider the respective entities' supervisory record, 
potential risks and compensating controls, and any other available 
information deemed appropriate.
---------------------------------------------------------------------------

    \21\ 12 U.S.C. 1828(c)(5), 1828(c)(11), and 1828(c)(13).
---------------------------------------------------------------------------

Monopolistic or Anticompetitive Effects

    The FDIC strives to ensure that resulting institutions continue as 
participants in a competitive environment. Section 18(c)(5) of the BMA 
prohibits the FDIC from approving a merger transaction that would 
result in a monopoly or would be in furtherance of an attempt to 
monopolize the business of banking in any part of the U.S. The BMA also 
prohibits the FDIC from approving a merger transaction that may 
substantially lessen competition in any section of the country, unless 
the anticompetitive effects of the proposed transaction are clearly 
outweighed in the public interest by the probable effect of the 
transaction in meeting the convenience and needs of the community to be 
served.\22\ For example, such a circumstance may exist where a 
transaction is necessary to prevent the probable failure of an IDI.
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 1828(c)(5).
---------------------------------------------------------------------------

    The FDIC will evaluate the competitive effects of a proposed merger 
in a manner that is most relevant to each transaction. Consistent with 
the majority of merger transactions typically presented to the FDIC, 
the FDIC generally employs a framework for evaluating competitive 
effects involving a transaction between IDIs with traditional community 
banking operations within their local geographic markets. However, the 
FDIC will tailor its evaluation to consider the size and competitive 
effects of the resulting IDI. Additionally, the FDIC will consider all 
relevant market participants. For example, the FDIC may include any 
other financial service providers that the FDIC views as competitive 
with the merging entities, including providers located outside the 
geographic market when it is evident that such providers materially 
influence the market. Further, in cases involving merging entities with 
specialty lines of business or non-traditional products, services, or 
delivery methods, the FDIC will take into account any additional data 
sources or appropriate analytical approaches to fully assess the 
competitive effects of the transaction.
    In assessing competitive effects, the FDIC considers concentrations 
with respect to both geographic and product markets. The FDIC 
identifies all relevant geographic markets (local, regional, and 
national) based on the geographic areas in which the merging entities 
operate and in which customers may practically turn to competitors for 
alternative products and services.\23\ The FDIC uses deposits as an 
initial proxy for commercial banking products and services. The FDIC 
will initially measure the respective shares of total deposits held by 
the merging entities and the various other participants with offices in 
the geographic market. The FDIC evaluates the market concentration and 
change in market concentration in each geographic and product 
market.\24\
---------------------------------------------------------------------------

    \23\ See United States v. Philadelphia National Bank, 374 U.S. 
321 (1963).
    \24\ Indicators of market concentration and change in 
concentration include calculations using the Herfindahl-Hirschman 
Index (HHI).
---------------------------------------------------------------------------

    In addition, the FDIC will consider concentrations beyond those 
based on deposits. As appropriate, the FDIC may consider concentrations 
in any specific products or customer segments, such as, for example, 
the volume of small business or residential loan originations or 
activities requiring specialized expertise. Additionally, when 
relevant, the analysis may incorporate other products offered by the 
merging entities with consideration given to whether consumers retain 
meaningful choices. In its analysis, the FDIC will evaluate a market 
with a scope that is appropriate to the products or services offered or 
planned. Moreover, the FDIC will consider the emergence of new 
competitors for products or services in relevant markets; and the 
expansion of products and services offered by the merging entities and 
other market participants. Finally, as necessary or

[[Page 29241]]

appropriate, the FDIC will consider other products or services and 
additional methods of assessing the competitive nature of markets. In 
particular, the FDIC may consider information on the pricing of 
products and services to assess the competitive effects of a proposed 
merger when practicable and relevant.
    The FDIC may require divestitures of business lines, branches, or 
portions thereof as a means to mitigate competitive concerns before 
allowing the merger to be consummated. In such cases, the FDIC will 
generally require that the selling institution will not enter into non-
compete agreements with any employee of the divested entity nor enforce 
any existing non-compete agreements with any of those entities.
Nationwide Deposit Cap
    The BMA prohibits approval of an interstate merger that results in 
an IDI (and its affiliates) controlling more than 10 percent of the 
total deposits of IDIs in the U.S.\25\ This prohibition does not apply 
to transactions that involve one or more IDIs in default or in danger 
of default. Consistent with the competitive effects review, the FDIC 
will use the most current Summary of Deposits data to confirm the 
nationwide deposit share of the resulting IDI following the proposed 
transaction.
---------------------------------------------------------------------------

    \25\ 12 U.S.C. 1828(c)(13).
---------------------------------------------------------------------------

Financial Resources

    The BMA requires the responsible agency to consider the financial 
resources of the existing and proposed entities involved in a merger 
transaction.\26\ The FDIC expects that the resulting IDI will reflect 
sound financial performance and condition.\27\ Generally, the FDIC will 
not find favorably on the financial resources factor if the merger 
would result in a weaker IDI from an overall financial perspective.
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 1828(c)(5).
    \27\ This evaluation encompasses capital, asset quality, 
earnings, liquidity, and sensitivity to market risk, as described in 
the Uniform Financial Institution Rating System (UFIRS); see 61 FR 
67021 (December 19, 1996).
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    A critical component of the analysis of financial resources is the 
resultant IDI's ability to meet applicable capital standards (including 
maintenance of appropriate allowances for loan or credit losses). 
Depending on the anticipated risk profile of the resulting IDI, the 
FDIC may impose, as a non-standard condition, capital requirements that 
are higher than applicable capital standards.\28\ Further, as 
appropriate, the FDIC may impose a non-standard condition that requires 
the resulting IDI and other relevant parties (such as certain 
affiliates or investors) to enter into one or more written agreements 
that address, as applicable, capital maintenance requirements, 
liquidity or funding support, affiliate transactions, and other 
relevant provisions. The FDIC also expects the resulting IDI to 
maintain sufficient liquidity and appropriate funding strategies given 
its size, complexity, and risk profile.
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    \28\ Refer to the applicable capital regulations for the 
relevant parties. The minimum capital ratios for FDIC-supervised 
institutions are set forth at 12 CFR 324.10, and the capital 
measures and capital category definitions for the purposes of Prompt 
Corrective Action are set forth at 12 CFR 324.403 for FDIC-
supervised institutions.
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    The FDIC will also consider the current and projected financial 
impact of any related entities on the IDI, including the parent 
organization and any key affiliates. For each relevant entity, the FDIC 
will consider, among other items, the size and scope of operations, 
capital position, quality of assets, overall financial performance and 
condition, compliance and regulatory history, primary revenue and 
expense sources, and funding strategies.

Managerial Resources

    The BMA requires the responsible agency to consider the managerial 
resources of the existing and proposed entities involved in a merger 
transaction.\29\ The FDIC expects that the directors, officers, and as 
appropriate, principal shareholders (collectively, management) possess 
the capabilities to administer the resultant IDI's affairs in a safe 
and sound manner, and effectively implement post-merger integration 
plans and strategies.
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    \29\ 12 U.S.C. 1828(c)(5).
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    The capability of management to identify, measure, monitor, and 
control risks and ensure a safe and sound operation in compliance with 
applicable laws and regulations is included in the evaluation of 
managerial resources. The FDIC will consider the background and 
experience of each member of management relative to the size, 
complexity, and risk profile of the resulting IDI, including the 
managerial performance and supervisory record of affiliates and 
subsidiaries.
    The FDIC will review supervisory assessments of management made by 
the relevant regulatory authorities, as well as the nature and extent 
of organizational relationships. The FDIC will also evaluate the effect 
of such relationships on the IDI, as well as the operating history, 
risk management, and control environment of the parent organization. 
Inherent in these considerations are the condition, performance, risk 
profile, and prospects of the organization as a whole, as well as the 
consistency of the proposed merger with the resulting IDI's strategic 
(or business) plan.
    The FDIC will assess each IDI's record of compliance with respect 
to consumer protection, fair lending, and other relevant consumer laws 
and regulations. The FDIC will analyze the compliance management system 
of each of the IDIs, as well as the compliance management system for 
the resulting IDI to ensure that appropriate controls will be 
implemented to identify, monitor, and address consumer compliance 
risks. Consideration will also be given to the consumer compliance 
rating pursuant to the Uniform Interagency Consumer Compliance Rating 
System and the CRA rating.\30\
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    \30\ 81 FR 79473, (Nov. 14, 2016).
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    Additional managerial resource considerations include:
     The supervisory history of each entity involved in the 
proposed merger, including the management rating \31\ for any IDI 
involved in the transaction;
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    \31\ The management rating is defined in the UFIRS.
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     The breadth and depth of management, and adequacy of 
succession planning;
     Management's responsiveness to issues or supervisory 
recommendations raised by regulators or auditors;
     Any existing or pending enforcement actions;
     Any issues or concerns with regard to specialty areas 
including information technology, trust, consumer compliance, CRA, or 
Anti-Money Laundering (AML)/countering the financing of terrorist 
activities (CFT); \32\ and
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    \32\ The Anti-Money Laundering Act of 2020 (the AML Act), 
amended subchapter II of chapter 53 of title 31 United States Code 
(the legislative framework commonly referred to as the Bank Secrecy 
Act or BSA). The AML Act requires the Financial Crimes Enforcement 
Network (FinCEN), in consultation with Federal functional 
regulators, to promulgate AML/CFT regulations. Due to the addition 
of the CFT, and for consistency with FinCEN, the FDIC will use the 
term AML/CFT (which includes BSA) when referring to, issuing, or 
amending regulations to address the requirements of the AML Act of 
2020.
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     The reasonableness of fees, expenses, and other payments 
made to insiders.
     Recent rapid growth and the record of management in 
overseeing and controlling risks associated with such growth.
    The FDIC expects management to develop and implement effective 
plans and strategies, and the resulting IDI to have the managerial and 
operational capacity to integrate the acquired entity. Effective 
integration includes, but is not limited to, human capital; products 
and

[[Page 29242]]

services; operating systems, policies, and procedures; internal 
controls and audit coverage; physical locations; information 
technology; and risk management programs. In conjunction with the 
integration, the FDIC expects a resulting IDI to have the managerial 
and operational capacity, and to devote adequate resources, to ensure 
full and timely compliance with any outstanding corrective programs or 
supervisory recommendations.

Future Prospects

    The BMA requires the responsible agency to consider the future 
prospects of the existing and proposed entities involved in a merger 
transaction.\33\ The FDIC expects that the resulting IDI will operate 
in a safe and sound manner on a sustained basis following consummation 
of the merger. Among other items, the FDIC will consider the economic 
environment, the competitive landscape, the acquiring IDI's history in 
integrating merger targets and managing growth, the anticipated scope 
of the resulting IDI's operations, the quality of its supporting 
infrastructure, and other pertinent factors. Any significant planned 
changes to the resulting IDI's strategies, operations, products or 
services, activities, income or expense levels, or other key elements 
of its business will be closely assessed. The FDIC will review the pro 
forma financial projections, the underlying assumptions, and any 
accompanying valuations (such as those related to the target entity, 
goodwill, or other assets) to ensure they demonstrate and support that 
the resulting IDI will maintain an acceptable risk profile.
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    \33\ 12 U.S.C. 1828(c)(5).
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Convenience and Needs of the Community To Be Served

    The BMA requires the responsible agency to consider the convenience 
and needs of the community to be served when evaluating a merger 
transaction.\34\ The FDIC expects that a merger between IDIs will 
enable the resulting IDI to better meet the convenience and the needs 
of the community to be served than would occur absent the merger. 
Applicants are expected to demonstrate how the transaction will benefit 
the public through higher lending limits, greater access to existing 
products and services, introduction of new or expanded products or 
services, reduced prices and fees, increased convenience in utilizing 
the credit and banking services and facilities of the resulting IDI, or 
other means.
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    \34\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
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    The FDIC expects applicants to provide specific and forward-looking 
information to enable the FDIC to evaluate the expected benefits of the 
merger on the convenience and needs of the community to be served. As 
appropriate, claims and commitments made to the FDIC to support the 
FDIC's evaluation of the expected benefits of the merger may be 
included in the Order, and the FDIC's ongoing supervisory efforts will 
evaluate the IDI's adherence with any such claims and commitments. The 
FDIC will evaluate the community to be served broadly, which will 
include the proposed assessment area(s), retail delivery systems, 
populations in affected communities, and identified needs for banking 
services.
    As part of its evaluation, the FDIC will review the CRA record of 
the institutions. The CRA requires the FDIC to take into account each 
IDI's record of meeting the credit needs of its entire community, 
including low- and moderate-income neighborhoods, consistent with the 
safe and sound operation of such institution.\35\ As such, the FDIC 
will consider each institution's CRA performance evaluation record of 
helping to meet the credit needs of its assessment areas, including 
low- and moderate-income neighborhoods, and record of community 
development activity, as applicable. A less than Satisfactory 
historical rating or significant deterioration in CRA performance will 
generally result in unfavorable findings. The FDIC's review is not 
limited to the CRA record of the institutions and will encompass a 
broad review of the institutions' existing products and services and 
whether the products and services proposed by the applicants will meet 
the convenience and needs of the community to be served.
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    \35\ 12 U.S.C. 2902(3)(E) and 2903(a)(2).
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    In addition, the FDIC will consider the record of each institution 
in complying with consumer protection requirements and maintaining a 
sound and effective compliance management system. This review will 
include consideration of any existing or pending orders, ongoing 
enforcement actions, and pending reviews or investigations of 
violations of consumer protection laws and regulations. A less than 
Satisfactory consumer compliance rating \36\ may present significant 
concerns in resolving this factor.
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    \36\ Uniform Interagency Consumer Compliance Rating System, 81 
FR 79473 (Nov. 14, 2016).
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    The CRA assessment area(s) and branch locations resulting from the 
merger are evaluated as part of this factor. The assessment area(s) 
should be delineated in accordance with 12 CFR part 345 (or other 
appropriate regulations), and should not reflect illegal 
discrimination. The FDIC will evaluate all projected or anticipated 
branch expansion, closings, or consolidations for the first three years 
following consummation of the merger.\37\ Branch closings are subject 
to both Section 42 of the FDI Act and the Interagency Policy Statement 
Concerning Branch Closing Notices and Policies.\38\ Information 
regarding any proposed or expected closures, including the timing of 
each closure, the effect on the availability of products and services, 
particularly to low- or moderate-income individuals or designated 
areas, any job losses or lost job opportunities from branching changes, 
and the broader effects on the convenience and needs of the community 
to be served will be closely evaluated. Applications that project 
material reductions in service to low- and moderate-income communities 
or consumers will generally result in unfavorable findings.
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    \37\ Generally, the FDIC considers a substantially complete 
merger application to include, among other items, at least three 
years of information regarding projected branch expansions, 
closings, or consolidations. Short-distance consolidations that may 
not be subject to Section 42 outside of a merger context should be 
included in this information.
    \38\ 64 FR 34845 (June 29, 1999).
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    The FDIC will consider all substantive public comments received in 
accordance with 12 CFR 303.9, as well as the views of relevant state 
and Federal regulators regarding the ability of the applicant to meet 
the convenience and needs of the community to be served. Non-standard 
conditions may be imposed, as appropriate, in response to CRA 
weaknesses, relevant regulator input, bank commitments, or public 
comments. The FDIC will consider whether it is in the public interest 
to hold a hearing for merger applications, and generally expects to 
hold a hearing for any application resulting in an IDI with greater 
than $50 billion in assets or for which a significant number of CRA 
protests are received. The FDIC may also hold public or private 
meetings to receive input on the transaction. The decision to hold such 
meetings depend on issues raised during the comment period and the 
significance of the merger transaction to the public interest, to the 
banking industry, and communities affected.
    As noted above, the BMA prohibits the FDIC from approving a merger 
transaction that may substantially lessen competition in any section of 
the country, unless the anticompetitive

[[Page 29243]]

effects of the proposed transaction are clearly outweighed in the 
public interest by the probable effect of the transaction in meeting 
the convenience and needs of the community to be served.\39\ In 
situations where anticompetitive effects are identified, the FDIC will 
evaluate whether the applicant has established that the benefits to the 
convenience and needs of the community will clearly outweigh the 
anticompetitive effects. A favorable finding on the convenience and 
needs of the community to be served factor may not support approval of 
the application when anticompetitive effects are identified.
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    \39\ 12 U.S.C. 1828(c)(5).
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Risk to the Stability of the United States Banking or Financial System

    Section 604 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) amended the BMA to require the FDIC to 
consider the risk posed by a merger transaction to the stability of the 
U.S. banking or financial system. The FDIC expects that the resulting 
IDI (or consolidated company) will not materially increase the risk to 
the stability of the U.S. banking or financial system.\40\ Consistent 
with the other Federal banking agencies,\41\ the FDIC evaluates this 
factor with respect to the following:
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    \40\ 12 U.S.C. 1828(c)(5).
    \41\ The FDIC will consider data collected by the Federal 
Reserve to monitor the systemic risk profile of the institutions, 
which are subject to enhanced prudential standards under Section 165 
of the Dodd-Frank Act.
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     The size of the entities involved in the transaction;
     The availability of substitute providers for any critical 
products or services to be offered by the resulting IDI;
     The resulting IDI's degree of interconnectedness with the 
U.S. banking or financial system;
     The extent to which the resulting IDI contributes to the 
U.S. banking or financial system's complexity; and
     The extent of the resulting IDI's cross-border activities.
    Generally, the FDIC will not view the size of the entities involved 
in a proposed merger transaction as a sole basis for determining the 
risk to the U.S. banking or financial system's stability. However, 
transactions that result in a large IDI (e.g., in excess of $100 
billion) are more likely to present potential financial stability 
concerns with respect to substitute providers, interconnectedness, 
complexity, and cross border activities, and will be subject to added 
scrutiny. The FDIC will consider the nature and scope of operations of 
the target entity, the resulting IDI, and any other elements that may 
also influence the risk to the U.S. banking or financial system's 
stability.
    With regard to substitute providers, the FDIC will consider whether 
the resulting IDI provides critical products or services that may be 
difficult to replace, or conducts activities (including specific 
business lines) that comprise a relatively large share of system-wide 
activities. Concerns are heightened, and may preclude favorable 
resolution of this factor, in situations where there are limited 
readily available substitutes, as relied upon services may be disrupted 
or discontinued if the resulting IDI encounters financial distress or 
fails.
    In assessing the resulting IDI's interconnectedness, the FDIC will 
consider the degree to which the merging entities are engaged in 
transactions or relationships with IDIs, affiliates of banking 
organizations, or other financial service providers. Consideration will 
be given to whether any exposures with creditors, counterparties, 
investors, or other market participants could affect the U.S. banking 
or financial system. A resulting IDI may present financial stability 
concerns if key aspects of its business (including any on- or off-
balance sheet activities) are highly interconnected with other 
financial system participants.
    The FDIC's evaluation of the resulting IDI's contribution to the 
U.S banking or financial system's complexity will consider the full 
scope of the IDI's operations. This includes the IDI's business lines, 
products and services, on- and off-balance sheet activities, branch 
network and delivery channels, number of account holders (including the 
volume of uninsured deposits), extent of information technology 
systems, and any material affiliate or other third-party relationships. 
As part of evaluating the resulting IDI's impact on complexity, the 
FDIC will also consider its resolvability in a potential failure 
situation. The FDIC may not be able to find favorably on this factor 
when the resultant IDI's organizational and funding structure preclude 
its ability to: (i) continue operations and activities until they can 
be sold or wound down, (ii) sell key business lines or large asset 
portfolios, and (iii) be marketed for sale in a manner that limits the 
potential for losses to the Deposit Insurance Fund.\42\
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    \42\ In addition to considering the FDIC's potential role as 
receiver of the resulting IDI under Section 11 of the FDI Act, it 
will also take into account possible alternative resolution 
scenarios.
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    The extent of a resulting IDI's cross-border activities may also 
have implications with regard to a favorable finding on this factor. 
The FDIC will consider whether cross-border activities comprise a 
material component of the resulting IDI's operations and present a 
significant degree of cross-jurisdictional claims or liabilities. Such 
activities may present challenges from both supervisory and resolution 
perspectives given the potential exposure to differing legal 
requirements, geopolitical events, and competing national interests.
Other Stability Considerations
    The above list of items is not exhaustive. The FDIC will evaluate 
any additional elements that may affect the risk to the U.S. banking or 
financial system's stability. This may include the resulting IDI's 
regulatory framework; however, the framework alone would not result in 
a favorable finding on this factor when other financial stability 
concerns exist. As appropriate, consideration may be given to the 
merging IDIs' records with respect to cybersecurity and stress-testing 
results. The FDIC may also evaluate the degree to which the resultant 
IDI's potential financial distress or rapid liquidation could cause 
other market participants with similar activities or business profiles 
to experience a loss of market confidence, falling asset values, or 
decreased funding options.
    Proposed transactions that solely involve affiliates that were 
related at the time a merger application is filed generally will not 
raise concerns with regard to this factor. However, each proposal will 
be reviewed to ensure that the resulting IDI would not present any new 
or unforeseen financial stability risks that may not have existed when 
the merging entities operated as affiliates or on a standalone basis.

Effectiveness in Combatting Money Laundering Activities

    The BMA requires the responsible agency to consider the 
effectiveness of any IDI involved in a merger transaction in combatting 
money-laundering activities, including in overseas branches.\43\ The 
FDIC expects that approved merger transactions will result in 
institutions with effective programs to combat money laundering (Anti-
Money Laundering or AML) and counter the financing of terrorism (CFT). 
A favorable finding on this factor will be based on a comprehensive 
evaluation of each entity's AML/CFT program that includes overseas 
branches; policies, procedures, and processes; risk

[[Page 29244]]

management programs; the supervisory record of each participating 
entity, the entity's compliance with Bank Secrecy Act (BSA) and its 
implementing regulations; and remediation efforts pursuant to an 
outstanding corrective program.\44\ In all cases, the FDIC will 
consider whether the resulting IDI has developed an appropriate plan 
for the integration of the combined operations into a single, 
comprehensive, and effective program to combat money laundering and 
terrorist financing. Additionally, the FDIC expects the applicant to 
demonstrate how the resulting IDI will comply with the BSA and its 
implementing regulations following consummation of the merger.
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    \43\ 12 U.S.C. 1828(c)(11).
    \44\ An IDI under an outstanding formal enforcement action 
should make substantial progress to correct problem(s) addressed in 
the action. Progress should be sufficient to determine that the AML/
CFT program is now adequate.
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    Significant unresolved AML/CFT concerns or uncorrected problems, or 
an outstanding or proposed formal or informal enforcement action that 
includes provisions related to AML/CFT, will generally result in 
unfavorable findings on this factor. In limited cases, sufficient 
mitigating factors may support a favorable finding, such as when an 
acquirer with a strong AML/CFT program replaces a target entity's less 
than satisfactory program and presents an appropriate plan to address 
the target entity's deficiencies.

IV. Other Matters and Considerations

Interstate Merger Transactions

    In cases where Section 44 of the FDI Act applies to an interstate 
merger transaction, the FDIC will ensure that the additional 
requirements and restrictions of Section 44 are satisfied.\45\
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    \45\ See 12 U.S.C.1831u.
---------------------------------------------------------------------------

Applications Involving Non-Banks or Banks That Are Not Traditional 
Community Banks

    Historically, most merger transactions considered by the FDIC have 
involved traditional community banks. In general, traditional community 
banks focus on providing the banking services, including loans and core 
deposits, typically relied on by individuals and businesses in their 
local communities. However, merger applications may also involve non-
banks \46\ or banks that are not traditional community banks, which may 
involve more complexity than a traditional community bank in terms of 
its business model, products, services, activities, market segments, 
funding, delivery channels, geographic footprint, operations, or 
intercompany or other third-party relationships. Merger applications 
where the resulting IDI will be a non-bank or not a traditional 
community bank are subject to the same statutory factors as any other 
merger application. However, the FDIC will appropriately tailor its 
review to the nature, complexity, and scale of the entities involved in 
the transaction and the underlying business model. The FDIC's 
Washington Office or Board of Directors reserve authority to act on 
certain merger applications that do not involve traditional community 
banks.
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    \46\ A ``non-bank'' refers to an IDI that is a bank for purposes 
of the FDI Act, but that is not a bank for purposes of the Bank 
Holding Company Act (BHCA). Non-banks may be owned by parent 
companies that are not subject to the BHCA, and therefore may not 
regulated or supervised by the FRB.
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Applications Involving Operating Non-Insured Entities

    Applications may involve an existing IDI merging with an operating 
entity that is not FDIC-insured. Operating non-insured entities may 
vary widely in the type of business and activities conducted (e.g., 
credit unions, which typically offer products and services consistent 
with a traditional community bank, mortgage companies, financing 
companies, payment services firms, or other types of entities whose 
business model may have elements more consistent with that of a non-
community bank). Merger applications that involve an operating non-
insured entity are subject to the same statutory factors as any other 
merger application. However, in reviewing such applications, the FDIC 
will consider the nature and complexity of the non-insured entity, its 
scale relative to the existing IDI, its current condition and 
historical performance, and any other relevant information regarding 
the entity's operations or risk profile.
    The FDIC will review audited financial statements (covering at 
least three years, unless the entity's operating history is shorter) 
and assess any deferred tax assets or liabilities, intangible assets, 
contingent liabilities, and any recent or pending legal or regulatory 
actions. Further, independent appraisals or valuations may be necessary 
to support the projected value of any business (or assets) expected to 
be transferred from the operating non-insured entity to the resultant 
IDI through the merger transaction.

V. Resources

FDIC Bank Application Resource page, https://www.fdic.gov/
regulations/applications/resources/
FDIC Regional Offices, https://www.fdic.gov/about/contact/directory/region.html
FDIC Law, Regulations, Related Acts, https://www.fdic.gov/regulations/laws/rules/
Section 18(c) of the FDI Act, 12 U.S.C. 1828(c)
Section 42 of the FDI Act, 12 U.S.C. 1831r-1
Section 44 of the FDI Act, 12 U.S.C. 1831u
12 CFR part 303, subparts A and D
Interagency Policy Statement Concerning Branch Closing Notices and 
Policies, 64 FR. 34845 (June 29, 1999)
Applications Procedures Manual (APM), https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/index.html
Section 1 of the FDIC APM, https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-01-01-overview.pdf
Section 4 of the FDIC Application Procedures Manual, https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-04-mergers.pdf
FDIC Delegations of Authority--Filings, https://www.fdic.gov/regulations/laws/matrix/index.html
Interagency Bank Merger Act Form, https://www.fdic.gov/formsdocuments/f6220-01.pdf
Deposit Market Share Reports--Summary of Deposits, http://www.fdic.gov/sod
Federal Reserve Bank of St. Louis, Competitive Analysis and 
Structure Source Instrument for Depository Institutions, https://cassidi.stlouisfed.org/index


    Authority: 12 U.S.C. 1813, 1818, 1819, 1828, 1831u, 1831r-1, 
1835a, 2901-2908, 5412.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, March 21, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-08020 Filed 4-18-24; 8:45 am]
BILLING CODE 6714-01-P