A forthcoming set of regulations for bank mergers and acquisitions (M&A) in the United States aims to enhance transparency in the process and prevent certain deals from bypassing scrutiny without adequate examination. The Office of the Comptroller of the Currency (OCC) is set to introduce these regulations on Monday, responding to concerns within the industry about the lack of clarity in regulatory procedures for bank transactions. The move is particularly relevant as analysts anticipate increased consolidation among smaller banks facing challenges related to shrinking margins.
The proposed regulations, as outlined by Michael Hsu, the acting comptroller, will outline the categories of deals likely to receive approval and the factors that could complicate or hinder transactions. Hsu emphasized the importance of transparency to facilitate smoother and more accurate transactions, acknowledging the risks associated with both approving too many and too few mergers. He believes that openly articulating the process could expedite favorable deals while helping banks steer clear of transactions likely to face regulatory obstacles.
The OCC currently evaluates mergers involving banks with federal charters, with additional regulators possibly participating in the assessment. Hsu highlighted that banks with strong supervision ratings and no unresolved enforcement issues are more likely to secure approval for mergers or acquisitions. This contrasts with lower-rated banks, where supervisory issues may pose challenges to certain mergers.
To formalize existing practices, Hsu emphasized the need to document these criteria, signaling a move towards increased clarity in the regulatory landscape. Simultaneously, the OCC plans to eliminate a 1996 regulation that automatically approves certain transactions if the OCC does not respond within a specified period.
Describing bank mergers as “significant corporate transactions,” Hsu stressed the necessity of obtaining clear regulatory permission or rejection for such deals. He is scheduled to discuss these proposed regulations in detail during a speech at the University of Michigan on Monday afternoon.
In the wake of the financial crisis last year, which prompted authorities to facilitate rescue deals, such as the sale of First Republic Bank to JPMorgan Chase, the largest U.S. lender, scrutiny of bank merger rules intensified. While more industry consolidation has been met with skepticism by the Biden administration, with the JPMorgan merger facing criticism from progressives, some officials argue that further consolidation may be necessary.
Hsu revealed that the OCC is engaged in a long-term project, collaborating with the Justice Department and other bank regulators, to overhaul the broader government framework for evaluating bank acquisitions. Additionally, the OCC plans to release a report and provide updated information on bank mergers that have undergone regulatory review.
