OCC’s acting comptroller discusses need to update bank merger frameworks

Saying it’s time to “rethink” how bank mergers are analyzed, the acting comptroller of the currency on Monday noted the key factors considered in evaluations of bank merger applications and said changes in the industry over the past 25 years warrant a revamp.

Michael J. Hsu, speaking before the Brookings Institution, noted that the Office of the Comptroller of the Currency (OCC) considers certain key factors in evaluating bank merger applications, as dictated in large part by the Bank Merger Act and, more recently the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank): competition, safety and soundness, convenience and needs of the served community, financial system stability, and other factors such as deposit concentration limit, effectiveness in combatting money laundering, and Community Reinvestment Act (CRA) performance. He said changes in the industry over the past 25 years – growth in industry assets, greater asset concentration in an increasingly smaller number of banks, growth in other institutions such as credit unions and nonbanks, the advent of digital banking, the rise of “neobanks” (Chime and the like), shifts in demographics and wealth distribution – point to a need to rethink the frameworks used to analyze bank merger applications.

“I do not think the statutory prongs of competitiveness, safety and soundness, meeting community needs, and financial stability need to be revisited,” Hsu said. “Rather, the modes of analysis used by regulators to apply these factors need to be improved.”

The Federal Deposit Insurance Corp. (FDIC) issued a request for information in March on the laws, rules, policies, guidance, and practices regarding bank mergers, including mergers between insured and noninsured depository institutions.

Hsu, in his remarks Monday, said the Department of Justice – which shares responsibility with banking agencies in assessing the competitiveness impact of a proposed merger – has also issued its own request for public comment on bank mergers.

In his concluding remarks, Hsu said he has directed senior staff to work with DOJ and the other federal banking agencies to review merger frameworks. “In the meantime, we will continue to review merger applications on a case-by-case basis and consistent with the statutory factors discussed above,” he said. “In our actions, we will take into account changes in the banking industry and apply our best judgment to approve only applications that would promote competition, would not threaten financial stability, and would facilitate the convenience and needs of all the communities served by the banks.”

Acting Comptroller of the Currency Michael J. Hsu Remarks at Brookings, “Bank Mergers and Industry Resiliency,” May 9, 2022

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