FDIC's bank merger policy threatens local banks, CSBS said

Group urges FDIC to simplify bank merger rules

FDIC's bank merger policy threatens local banks, CSBS said

The proposed bank merger policy from the Federal Deposit Insurance Corporation (FDIC) could create unnecessary challenges and uncertainty for the banking industry, state bank regulators said.

In a comment letter to the FDIC, the Conference of State Bank Supervisors (CSBS) criticized the FDIC's plan as overly vague and subjective, potentially prolonging an already complex merger review process.

“The FDIC should get back to basics – the specific requirements of the Bank Merger Act – and establish an unbiased and objective policy that promotes healthy mergers,” said CSBS president and CEO Brandon Milhorn. “Sound merger policy and additional support for de novo charter activity are essential for consumers and a vibrant financial system.”

The regulator group argues the proposal “would result in a less predictable, more costly, and lengthier process for all types of potential bank mergers.”

The CSBS letter outlines several key concerns with the FDIC’s proposed merger guidelines:

  • Market uncertainty: The proposal could perpetuate uncertainty in the banking market by introducing subjective evaluative criteria that would make the merger application process more unpredictable and burdensome.
  • Regulatory misalignment: State regulators argue that the FDIC's approach is misaligned with other federal banking agencies, which complicates the regulatory environment and may encourage regulatory arbitrage.
  • Impact on rural banks: There is a need for a de minimis exception for mergers involving local banks in rural markets to ensure these institutions can continue to serve their communities effectively.

“The FDIC has proposed a host of new, subjective considerations it would use to evaluate merger applications,” the letter read. “Unfortunately, the proposed changes would result in a less predictable, more costly, and lengthier process for all types of potential bank mergers. State regulators request that the FDIC significantly revise the proposed SOP.”

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CSBS said mergers play a critical role in helping banks expand into new markets, invest in technology, and adapt to evolving economic conditions. Discouraging mergers, they argue, could destabilize individual banks and the broader financial system, especially given the rising costs and regulatory burdens.

“For some community banks, particularly in rural and underserved areas, a merger may be the key to survival,” the letter read.

The group recommended the FDIC collaborate with other federal agencies to develop a more aligned, clear, and objective framework for merger reviews.

“To avoid a longer, costlier, and more burdensome review process, the FDIC should work with its fellow federal agencies to increase regulatory alignment, establish clear and objective standards for merger reviews, and develop a de minimis exception for transactions that preserve local banks in rural markets,” it said.

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