US Regulator Proposes Tighter Scrutiny for Bank Mergers Over $100 Billion

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The U.S. Federal Deposit Insurance Corporation (FDIC) is proposing heightened scrutiny for bank mergers that could result in institutions with assets exceeding $100 billion, as part of an update to its merger guidance, marking the first revision in 16 years. The proposal, voted 3-2 by the FDIC’s board of directors, aims to prioritize maintaining stability in the banking sector, particularly in light of significant bank failures in 2023 that led to acquisitions and substantial losses for the FDIC’s insurance fund.

FDIC Chair Martin Gruenberg emphasized the potential risks posed by banks with assets surpassing $100 billion, highlighting the need for enhanced scrutiny to safeguard financial stability. However, Republican board members raised concerns, suggesting that the proposal might create unpredictability in the merger process and could reinforce biases against bank mergers. Jonathan McKernan expressed worry that imposing additional hurdles for mergers above the $100 billion threshold could deter competition against established Wall Street giants.

The Bank Policy Institute, a key trade group in Washington, criticized the proposal, noting its subjective standards and potential to discourage bank mergers and acquisitions, making the merger review process more uncertain. The proposed guidance, presenting a set of principles rather than specific procedures, also addresses broader financial stability concerns, including the complexity added to the financial system by merged banks and the extent of their cross-border activities.

These changes align with statutes enacted by Congress in 2010 as part of the Dodd-Frank Wall Street reform legislation. The proposal will undergo a 60-day period of public comment before finalization. Financial reform advocates, including Democratic Senator Elizabeth Warren, have criticized regulatory approvals of recent bank mergers, such as JPMorgan Chase’s acquisition of First Republic Bank and New York Community Bank’s takeover of Flagstar Bank and Signature Bank.

Despite regulatory concerns about risks associated with these mergers, approvals were granted, raising questions about the oversight of such transactions and their potential impact on the financial system.