FDIC Issues New Draft Guidance for Bank Merger Scrutiny

This week, the Federal Deposit Insurance Corporation issued draft guidance that would increase bank merger scrutiny. According to Reuters, the proposed guidance would be the first change to the FDIC’s merger principles in 16 years. The regulators’ board of directors approved the proposal’s issuance in a vote on Thursday.

Why the FDIC believes increased bank merger scrutiny is warranted

Reportedly, officials at the FDIC defended the proposed changes by citing a need to provide greater stability for the banking sector. The FDIC has drawn its own share of scrutiny after a wave of bank failures in early 2023. That banking crisis saw Signature Bank, Silicon Valley Bank, and First Republic Bank collapse in fairly rapid succession.

After regulators took control of each failed bank, other banks were allowed to acquire them. However, some elected officials expressed concern when banking giant JPMorgan Chase was allowed to take ownership of First Republic. In response, there were growing calls for regulators to modify their policies on those kinds of bank mergers and acquisitions.

A new approach to scrutiny of mergers

According to reports, the proposal offers little in terms of changes to existing procedures. Instead, it provides a new declaration of principles to guide regulators as they review proposed mergers in the banking sector. These principles would apparently increase the FDIC’s focus on maintaining banking sector stability.

Notably, regulators would increase scrutiny of mergers involving banks with assets of more than $100 billion. The FDIC would evaluate any proposed merger’s impact on financial stability. Additionally, the agency would consider how a merger might increase the complexity of the existing financial system.

Not surprisingly, many bank officials have been lambasting federal regulators for depressing healthy merger activity in recent years. Accordingly, any new move to implement increased bank merger scrutiny is likely to be met with even greater resistance from the sector.

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