OCC’s Comptroller Orders Staff to Review Bank Merger Framework

OCC, Michael Hsu, Office of the Comptroller of the Currency

Speaking at an event Monday (May 9), Acting Comptroller of the Currency Michael Hsu discussed the need to rethink bank merger assessment and directed his team to work with the Department of Justice (DOJ) and other banking regulators to review the merger frameworks. 

“From my perspective, the frameworks for analyzing bank mergers need updating. Without enhancements, there is an increased risk of approving mergers that diminish competition, hurt communities, or present systemic risk,” Hsu said in prepared remarks. 

Bank merger regulation has been in the spotlight since President Joe Biden issued an executive order in July 2021 ordering federal agencies to promote competition in different sectors of the economy, including how more concentration could affect the banking sector. 

To this end, federal agencies and lawmakers have proposed new rules and legislation. Last year, Senator Elizabeth Warren introduced the Bank Review Modernization Act of 2021, which establishes additional requirements for bank mergers and acquisitions.

The proposed bill, if approved, would require the Consumer Financial Protection Bureau (CFPB) to approve a merger when one of the companies offers consumer financial products. It would also require regulators to examine the anticompetitive effects of the deal. 

Read more: Regulators’ Tough Approach to Bank Mergers May Have a Silver Lining 

Just last week, on May 5, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), issued a proposal to strengthen the Community Reinvestment Act (CRA). This rule is used to consider CRA performance on bank applications, such as those for mergers and acquisitions.

The CRA regulations establish the framework and criteria by which the agencies assess a bank’s record of helping to meet the credit needs of its community, including low- and moderate-income neighborhoods. The proposed rules will affect large banks while they leave medium and small banks with the same status quo. The banking regulators are seeking public comments until Aug. 5. 

But perhaps one of the most important regulatory developments is the DOJ Antitrust Division’s review of the Banking Guidelines. While these guidelines are not legally binding, they will likely be used by other regulators like the FDIC, OCC or the CFPB when they assess the anticompetitive effects of a deal, in addition, of course, to the DOJ. 

See also: FTC, DOJ to Overhaul Merger Guidelines 

The DOJ closed the consultation on Feb. 15, receiving just 23 comments. It is assessing whether to include online banks and other non-traditional banks in its competitive analysis and, if so, how much weight should give to them. Some of the respondents to the DOJ’s request for comments suggested that online products should be considered in the competitive analysis.

The Federal Trade Commission (FTC), who also submitted comments, shares this view that non-traditional lending sources should be considered in the competition analysis. The agency also suggested the DOJ should take into consideration other elements, such as quality considerations in the competitive analysis, and to not rely only in the concentration levels measured by economic tools such as the Herfindahl-Hirschman Index (HHI).

Hsu also argued in his intervention that the HHI may not be the right tool to capture all the effects of a merger. 

Horizontal Merger Guidelines Review 

In contrast with the few comments received by the DOJ in its banking guidelines review, the public consultation to review the broader Horizontal Merger Guidelines, launched by the DOJ and FTC in January, has received 5,825 comments at the time of this publication. 

While these guidelines are not specific to banking, they are expected to also affect the analysis of mergers between banks, as some of the discussing points would need to show a coherent approach between both sets of guidelines to ensure consistent results. 

There isn’t a statutory deadline for the adoption of these guidelines, but FTC Chair Lina Khan has previously stated that they could be ready by the end of the year.