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A top US banking regulator has proposed new rules that would make it harder to complete big bank mergers, after a clutch of lenders with more than $100bn in assets ran into difficulties.
The restrictions set out by the Federal Deposit Insurance Corporation on Thursday would apply to any takeover that created a bank with more than $50bn in assets, and increase for any deal above $100bn.
If the guidelines come into force, it will be the first time since the financial crisis that the watchdog has updated its rules governing takeovers. The board of the FDIC voted to approve the update on Thursday, but the proposals are still subject to a 60-day comment period.
The rules will for the first time make the size of the bank created by a merger a factor in determining which deals receive further scrutiny from the FDIC.
“Bank regulators have been shifting the goalposts for the types of deals that will meet their standards,” said Randy Benjenk, a partner at law firm Covington who specialises in bank regulations. He believed the FDIC and other regulators’ new merger rules would make it harder to do deals.
Regulators have become increasingly concerned about the risks to banks from rapid growth.
New York Community Bank, which raised more than $1bn this month to shore up its finances and after shedding two-thirds of its market value since the end of January, had previously more than doubled its assets to $120bn through acquisitions. Assets at Silicon Valley Bank almost tripled to $210bn in the two years before it failed.
Lenders with more than $50bn in assets would now face FDIC hearings examining whether a deal was in the public interest, under the proposed rules, while those with combined assets of more than $100bn would have to clear more stringent hurdles to ensure the enlarged institution did not pose a risk to the financial system.
Forty-seven banks in the US out of more than 4,300 currently have more than $50bn in assets, of which 32 have more than $100bn.
The FDIC rule change comes at a time when Joe Biden’s administration has been more heavily enforcing rules that seek to stop big corporate deals that risk throttling competition.
Most bank mergers need approval from all three of the US federal bank regulators: the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency. The Federal Reserve set the threshold at which it conducts a significant review at $100bn in 2017. Earlier this year, the OCC proposed updating its merger rules to set a $50bn threshold above which deals face increased scrutiny.
“The current FDIC statement of policy on bank merger transactions was last published for comment in 1997, and was subsequently revised in 2002 and 2008,” said the head of the FDIC Martin Gruenberg.
The new rules would “reflect regulatory, legislative, and industry changes that have occurred over the past 27 years”, he added.
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