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class="button text search-button" aria-label="Search"> <span class="fas fa-search"></span> </button> <button class="button text mobile-menu-button" aria-label="Menu"> <span class="fas fa-bars"></span> </button> </div> <div id="search-bar"> <algolia-search-cta index-prefix="prod_"/> </div> </header> <main id="main"> <div id="search-cta"> <algolia-search-cta index-prefix="prod_"/> </div> <article> <section class="breadcrumbs"> <div class="breadcrumbs-holder"> <a href="/" title="Bank Policy Institute Homepage" class="breadcrumb-item"> Home </a><span class="separator">/</span> <a href="/category/mergers-and-acquisitions" title="Mergers and Acquisitions" class="breadcrumb-item">Mergers and Acquisitions</a><span class="separator">/</span> <a href="/blog" title="Blog" class="breadcrumb-item">Blog</a> </div> </section> <ul class="post-topics topics-list"> <li> <a href="https://bpi.com/category/activities-structure/">Bank Activities and Structure</a> </li> <li> <a href="https://bpi.com/category/activities-structure/mergers-and-acquisitions/">Mergers and Acquisitions</a> </li> <li> <a href="https://bpi.com/category/systemic-risk-and-tbtf/">Systemic Risk & TBTF</a> </li> </ul> <div class="post-top-container container-1000"> <h1 class="post-title">Regional Bank Mergers Would Increase Competition without Increasing Systemic Risk</h1> <div class="post-meta"> <address> <span class="fal fa-user-circle"></span> <a href="https://bpi.com/people/francisco-covas/">Francisco Covas</a> , <a href="https://bpi.com/people/sarah-flowers/">Sarah Flowers</a> and <a href="https://bpi.com/people/benjamin-gross/">Benjamin Gross</a> </address> <time datetime="2024-07-22T13:30:00-04:00"> <span class="fal fa-clock"></span> July 22, 2024 </time> <a class="button small purple ghost pill icon print" href="https://bpi.com/wp-content/uploads/2024/07/Regional-Bank-Mergers-Would-Increase-Competition-without-Increasing-Systemic-Risk_-1.pdf" target="_blank"><span class="fal fa-print"></span>Print</a> </div> </div> <div class="container"> <div class="post-content wysiwyg container-1000"> <p>An effective regulatory strategy for bank mergers would allow institutions to achieve the scale necessary to compete nationally. As noted in our <a href="https://bpi.com/mergers-involving-gsibs-do-not-inherently-increase-financial-stability-risk/" target="_blank" rel="noreferrer noopener">prior blog</a>, mergers play a vital role in promoting competition and stability within the banking industry. They often enable banks to achieve economies of scale, reduce funding costs and lower bank risk through greater geographic diversification of funding sources.<a id="_ftnref1" href="#_ftn1"><sup>[1]</sup></a> This is perhaps most critical when considering the competitive landscape faced by large regional banks. These institutions require significant scale and geographic funding diversification to compete in a market that is national in scope.</p> <p>However, the OCC’s recently proposed merger policy framework would effectively hobble the ability of large regional banks to compete by stating that approved mergers generally should result in institutions under $50 billion in total assets—a feature “consistent with approval” that could easily be misconstrued as prohibition against combinations that would exceed this arbitrary threshold. Similarly, the FDIC proposes “heightened scrutiny” for mergers that result in a combined entity of over $100 billion in assets. There is no statutory nor analytical basis for these thresholds, and they contravene the policy objectives of Congress in enacting statutory size limits on bank acquisitions including a prohibition on transactions where the combined entity exceeds 10 percent of insured deposits or financial system liabilities by imposing far more severe size limits.</p> <p>This post provides examples of potential combinations of large regional banks that could create institutions benefiting from greater geographic deposit diversification, while maintaining a low systemic risk profile. Indeed, the methodology that banking regulators use to identify global systemically important banks (GSIBs) indicates that even mergers among some of the largest regional banks in the U.S. would not create a new GSIB. However, such mergers would increase competition and provide greater funding stability to those banks by accessing nationwide deposit funding. </p> <p>Two years ago, Acting Comptroller Mike Hsu made a speech on bank merger policy in which he noted that imposing a “moratorium” on bank mergers would “lock in the status quo and prevent mergers that could increase competition, serve communities better, and enhance industry resiliency.”<a id="_ftnref2" href="#_ftn2"><sup>[2]</sup></a> Banking regulators need to hold that thought. Not only would such a moratorium be plainly illegal,<a id="_ftnref3" href="#_ftn3"><sup>[3]</sup></a> such a merger policy would prohibit combinations that allow additional institutions to achieve the scale necessary to compete nationally and thereby promote competition, better serve communities and enhance resiliency.<a id="_ftnref4" href="#_ftn4"><sup>[4]</sup></a></p> <h2 class="wp-block-heading">Beneficial Combinations</h2> <p>In that same 2022 speech, the Acting Comptroller endorsed former Federal Reserve Governor Daniel Tarullo’s approach to competition. Tarullo stated that “realizing public benefits from a retooled approach to bank mergers requires more than just an instinct to get tougher.”<a id="_ftnref5" href="#_ftn5"><sup>[5]</sup></a> Many large regional banks are, as Tarullo points out, “caught between, on the one hand, GSIBs with their scale advantages and, on the other, the smaller regionals and community banks…” This problematic scenario risks “the combination of tough merger policy and tough regulation . . .redounding to the benefit of the largest institutions and thus increasing overall industry concentration.”<a id="_ftnref6" href="#_ftn6"><sup>[6]</sup></a></p> <p>Reflecting on this reality, Tarullo noted that a world with more super-regional banks “might on balance be the most competitive environment we could hope for” where “the odds of there being real competition in most local markets, <strong>not to mention nationally</strong>, increases quite a bit . . . this is the kind of assessment that the agencies and the Justice Department need to be making as they formulate merger policy.”<a id="_ftnref7" href="#_ftn7"><sup>[7]</sup></a></p> <p>Banks with geographically diverse branch networks and deposit bases enjoy greater funding stability. This diversification reduces their exposure to localized deposit withdrawals at individual branch locations. As a result, these banks experience less volatile deposit growth and more stable funding over time, which in turn lowers their funding costs and overall risk. Moreover, greater geographic diversification enables banks to expand their lending capabilities, particularly for small business loans, and more safely engage in liquidity transformation.<a id="_ftnref8" href="#_ftn8"><sup>[8]</sup></a></p> <p>To promote real national competition with the largest banks serving banking retail clients nationally, we can consider the geographic deposit overlap of hypothetical regional bank combinations with the largest U.S. GSIBs serving retail customers as a rough proxy for comparable deposit funding diversity.  <strong>Figure 1</strong> illustrates the geographic coverage of JPMorgan Chase & Co., Bank of America Corporation and Wells Fargo & Company, demonstrating their truly national scope in banking services and ability to draw stable deposits from across the country.</p> <p class="has-text-align-center"><strong><em>Figure 1:</em></strong><em> Geographic Diversification of Large Bank Deposit Funding</em></p> <div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><a href="https://bpi.com/wp-content/uploads/2024/07/Interactive-map_banks_July23.htm" target="_blank" rel="noreferrer noopener"><img loading="lazy" decoding="async" width="1274" height="895" src="https://bpi.com/wp-content/uploads/2024/07/Fig-1_.png" alt="Figure 1: Geographic Diversification of Large Bank Deposit Funding" class="wp-image-48770" style="width:882px" srcset="https://bpi.com/wp-content/uploads/2024/07/Fig-1_.png 1274w, https://bpi.com/wp-content/uploads/2024/07/Fig-1_-300x211.png 300w, https://bpi.com/wp-content/uploads/2024/07/Fig-1_-1024x719.png 1024w, https://bpi.com/wp-content/uploads/2024/07/Fig-1_-768x540.png 768w, https://bpi.com/wp-content/uploads/2024/07/Fig-1_-600x422.png 600w" sizes="auto, (max-width: 1274px) 100vw, 1274px" /></a></figure></div> <p class="has-text-align-center"><em>Source: FDIC, Summary of Deposits.</em></p> <p><strong>Figures 2</strong> and <strong>3</strong> below demonstrate that to replicate the nationwide dominance of the largest U.S. banks in both scale and funding stability, multiple banks in Category III and IV<a id="_ftnref9" href="#_ftn9"><sup>[9]</sup></a> would need to combine. To more accurately assess the geographic diversification of bank branch deposits, several steps were taken to filter and clean the deposit source data to include only deposits of physical, active bank branches.<a id="_ftnref10" href="#_ftn10"><sup>[10]</sup></a> This approach serves as a useful proxy for geographic diversification but does not take into account the added diversification facilitated by online deposits that are not associated with a particular branch.<a id="_ftnref11" href="#_ftn11"><sup>[11]</sup></a></p> <p><strong>Figure 2</strong> illustrates a hypothetical combination of five Category IV banks: Citizens Financial Group, Inc., Fifth Third Bancorp, First Citizens Bancshares, Inc., Keycorp and Regions Financial Corporation. This combination demonstrates the dramatic expansion needed to replicate the scale and geographic diversification of the largest U.S. banks. </p> <p class="has-text-align-center"><strong><em>Figure 2:</em></strong><em> Geographic Diversification of CFG, FITB, FCNCA, KEY and RF’s Combined Deposit Funding</em></p> <div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><a href="https://bpi.com/wp-content/uploads/2024/07/Interactive-map_banks_July23.htm" target="_blank" rel="noreferrer noopener"><img loading="lazy" decoding="async" width="1436" height="882" src="https://bpi.com/wp-content/uploads/2024/07/Fig-2_.png" alt="Figure 2: Geographic Diversification of CFG, FITB, FCNCA, KEY and RF’s Combined Deposit Funding" class="wp-image-48771" style="width:888px" srcset="https://bpi.com/wp-content/uploads/2024/07/Fig-2_.png 1436w, https://bpi.com/wp-content/uploads/2024/07/Fig-2_-300x184.png 300w, https://bpi.com/wp-content/uploads/2024/07/Fig-2_-1024x629.png 1024w, https://bpi.com/wp-content/uploads/2024/07/Fig-2_-768x472.png 768w, https://bpi.com/wp-content/uploads/2024/07/Fig-2_-600x369.png 600w, https://bpi.com/wp-content/uploads/2024/07/Fig-2_-206x128.png 206w" sizes="auto, (max-width: 1436px) 100vw, 1436px" /></a></figure></div> <p class="has-text-align-center"><em>Source: FDIC, Summary of Deposits.</em></p> <p>The resulting entity from this merger would have a geographic deposit market covering 77.1 percent of the United States. Only this extreme example, involving five Category IV regional bank institutions, would create an entity with a geographic deposit market that could match the coverage of JPMorgan Chase and Co. (76.5 percent), Wells Fargo & Company (69.1 percent) and Bank of America Corporation (72.3 percent).<a id="_ftnref12" href="#_ftn12"><sup>[12]</sup></a></p> <p>This hypothetical scenario serves a crucial purpose: it dramatically illustrates the overly restrictive nature of current<a id="_ftnref13" href="#_ftn13"><sup>[13]</sup></a> and proposed<a id="_ftnref14" href="#_ftn14"><sup>[14]</sup></a> regulatory constraints on mergers between large regional banks. By demonstrating that it takes a combination of five Category IV banks to achieve the geographic diversification of the largest U.S. banks, we highlight the extreme hurdles faced by regional banks seeking to compete on a national scale.</p> <p>It’s important to note that we are not advocating a merger of five Category IV banks – such a merger would be unrealistic and likely counterproductive. Rather, this example underscores the need for a more balanced regulatory approach. Current constraints on mergers between just two regional banks place these institutions at a severe competitive disadvantage against their largest competitors.</p> <p><strong>Figure 3</strong> illustrates the hypothetical combination of the three largest Category III banks—U.S. Bancorp, PNC Financial Services Group, Inc. and Truist Financial Corporation—into a single resulting entity. This theoretical combined entity could potentially replicate the national market dominance of the largest U.S. GSIBs and benefit from substantial funding stability. Again, only in the most extreme case—shown here—of combining the three next largest non-GSIB institutions would the resulting entity from this three-bank combination have a geographic deposit market that covers more (82.5 percent) of United States (when weighing county coverage by population), exceeding the coverage of JPMorgan Chase and Co. (76.5 percent), Wells Fargo & Company (69.1 percent) and Bank of America Corporation (72.3 percent). Although a merger of any two of the largest regional banks in a merger of equals is more realistic, it would still not create a bank able to compete with the scale advantages—including geographic diversification—of their largest competitors. </p> <p class="has-text-align-center"><strong><em>Figure 3:</em></strong><em> Geographic Diversification of USB, PNC and TFC’s Combined Deposit Funding</em></p> <div class="wp-block-image"> <figure class="aligncenter size-full is-resized"><a href="https://bpi.com/wp-content/uploads/2024/07/Interactive-map_banks_July23.htm" target="_blank" rel="noreferrer noopener"><img loading="lazy" decoding="async" width="1261" height="890" src="https://bpi.com/wp-content/uploads/2024/07/Fig-3_.png" alt="Figure 3: Geographic Diversification of USB, PNC and TFC's Combined Deposit Funding" class="wp-image-48772" style="width:882px" srcset="https://bpi.com/wp-content/uploads/2024/07/Fig-3_.png 1261w, https://bpi.com/wp-content/uploads/2024/07/Fig-3_-300x212.png 300w, https://bpi.com/wp-content/uploads/2024/07/Fig-3_-1024x723.png 1024w, https://bpi.com/wp-content/uploads/2024/07/Fig-3_-768x542.png 768w, https://bpi.com/wp-content/uploads/2024/07/Fig-3_-600x423.png 600w" sizes="auto, (max-width: 1261px) 100vw, 1261px" /></a></figure></div> <p class="has-text-align-center"><em>Source: FDIC, Summary of Deposits.</em></p> <p>There are other examples of beneficial combinations among Category III and IV banks that could achieve similar results—an interactive map showing all potential combinations is available <a href="https://bpi.com/wp-content/uploads/2024/07/Interactive-map_banks_July23.htm" target="_blank" rel="noreferrer noopener">here.</a></p> <p>Again, to be clear, we are not advocating for a merger of the three largest Category III banks into a single entity. This second example is intended only to illustrate the challenges of competing against the largest U.S. banks. These challenges are exacerbated when regulatory agencies allow their desire to demonstrate their toughness to take priority over taking steps that actually promote competition in the banking industry.</p> <p>An effective regulatory strategy would allow larger institutions to achieve the scale necessary to compete nationally. Any concerns about competition in local markets not addressed by an already stringent competitive review process could likely be addressed by the agencies granting more <em>de novo</em> charters, thereby encouraging new entrants into the market, and raising HHI thresholds that in practice are often more restrictive in markets where community banks wish to combine to achieve greater scale regionally. This approach would foster a more dynamic and competitive banking landscape, benefiting both consumers and the overall stability of the financial system.<a id="_ftnref15" href="#_ftn15"><sup>[15]</sup></a></p> <h2 class="wp-block-heading">Systemic Risk Implications</h2> <p>Each of these hypothetical multi-bank combinations illustrates that for large regional banks to establish more geographically diverse branch networks and access to nationwide deposit funding comparable to those of the largest U.S. banks competing in retail banking, mergers involving the largest regional banks would be necessary.</p> <p>While these combinations would improve funding stability through geographic diversification and create effective competitors to the largest banks on a national scale, according to the methodology employed by U.S. banking regulators to identify U.S. GSIBs, none of these combinations would result in the creation of new GSIB. This holds true even though each hypothetical above involves the merger of multiple (three or <strong>more</strong>) banks. The Federal Reserve utilizes a framework—based on the Basel framework—known in the U.S. as Method 1 to identify whether a U.S. top-tier bank holding company with total consolidated assets over $100 billion is a GSIB.<a id="_ftnref16" href="#_ftn16"><sup>[16]</sup></a> The Method 1 framework assesses a bank holding company’s systemic risk profile using five components: (1) total exposures of the bank (size), (2) interconnectedness with other financial institutions, (3) substitutability for critical functions, (4) involvement in complex financial products and (5) the bank’s global footprint and cross-border claims and liabilities. All these measures are reported by firms on the Systemic Risk Report (FR Y-15).</p> <p>Although the GSIB indicator score framework is an imperfect measure of systemic risk, it is an objective measure that is useful for determining the relative systemic risk presented by these hypothetical merger transactions. Indeed, using any measure of systemic risk, any resulting institution from these hypothetical combinations of large—but noncomplex—regional banks would inherently present far less systemic risk than that presented by the existing U.S. GSIBs, as demonstrated in <strong>Figure 4</strong> below. And of course, more realistic combinations involving any two regional banks would present even less systemic risk than these hypothetical multi-bank mergers.</p> <p>Using the most recent FR Y-15 data for each firm, we looked at hypothetical multibank combinations among regional banks in Categories III and IV, including the examples identified above, that would provide more stable funding through geographic diversification and create an effective national competitor institution to the largest banks to determine the impact of a hypothetical merger on the combined entity’s Method 1 score. As shown in <strong>Figure 4</strong>, each of these illustrative combinations among multiple regional banks could roughly replicate the geographic diversification of the largest banks and still result in a firm with a relatively low systemic risk profile (shown in descending order). None of these hypothetical multi-bank combinations would result in a new U.S. GSIB (for which the indicator score would need to exceed the cutoff score of 130)—indeed, even combining the three largest non-GSIB banks (all Category III banks) or the next seven largest Category IV banks would not create a new GSIB, as illustrated in <strong>Figure 4</strong> below. Note that the results for the hypothetical combinations illustrated in Figures 2 and 3 above are shown below in fourth and first lines, respectively, below the “M1 Score Cutoff for GSIB Status.”</p> <div class="wp-block-image"> <figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="1003" height="922" src="https://bpi.com/wp-content/uploads/2024/07/Figure-4-M1-Scores.png" alt="Table showing financial institutions and their combined M1 scores." class="wp-image-48739" srcset="https://bpi.com/wp-content/uploads/2024/07/Figure-4-M1-Scores.png 1003w, https://bpi.com/wp-content/uploads/2024/07/Figure-4-M1-Scores-300x276.png 300w, https://bpi.com/wp-content/uploads/2024/07/Figure-4-M1-Scores-768x706.png 768w, https://bpi.com/wp-content/uploads/2024/07/Figure-4-M1-Scores-600x552.png 600w" sizes="auto, (max-width: 1003px) 100vw, 1003px" /></figure></div> <p>Given the important policy goal of not preventing mergers that improve the competitive landscape in the banking industry while balancing financial stability considerations, Method 1 scores for combined entities can serve as a valuable proxy for identifying potentially beneficial combinations. These combinations would support an even more competitive landscape while also improving stable funding diversification by enabling the creation of new large banks that are assessed to present low levels of systemic risk both as an absolute matter as well as relative to the existing U.S. GSIBs. For many decades, the merger policy framework in the U.S.—which was designed to properly consider all statutory factors—has contributed to a banking system that is healthy, competitive and strong by historically enabling combinations that support scale advantages for banks that wish to compete nationally with the largest banks.<a id="_ftnref17" href="#_ftn17"><sup>[17]</sup></a> Any policy proposals should seek to further promote and facilitate the competitive landscape, including by addressing significant delays in the merger review process; the OCC and FDIC proposals threaten to do the opposite.</p> <h2 class="wp-block-heading">Regional Mergers of Equals</h2> <p>The OCC’s proposed policy requiring any merged entity to have “combined total assets that are less than or equal to 50% of the acquirer’s total assets” at best would strongly discourage and at worst would effectively prohibit “mergers of equals” even among smaller institutions seeking to combine to compete more effectively. Regional banks of all sizes face intense competition requiring mergers to achieve the scale necessary to compete with larger banks and nonbank rivals. Yet, the OCC provides no data or empirical analysis supporting this policy discouraging even small or mid-size regional bank mergers. </p> <p>A prudent merger policy would, as Tarullo suggests, take “a high-level view of industry dynamics” combined with “a case-specific inquiry into such issues as . . . precisely what economies would be realized” by a given merger, rather than arbitrary size thresholds.<a id="_ftnref18" href="#_ftn18"><sup>[18]</sup></a> There is no statutory basis for this presumption against mergers of equals, which can enhance the ability of banks of all sizes to seek the economies of scale and geographic stable funding diversity that will allow them to compete more effectively. </p> <p>Every merger deserves review under the statutory framework, evaluated on a case-by-case basis; the banking agencies should not arbitrarily erect extra-statutory hurdles benefiting some banks over others.<a id="_ftnref19" href="#_ftn19"><sup>[19]</sup></a> As shown above, even combining many similar Category IV banks would produce a firm better positioned to compete with larger banks while maintaining a low systemic risk profile.</p> <h2 class="wp-block-heading">Final Thoughts</h2> <p>The analysis presented in this post demonstrates that mergers among regional banks can create institutions with the scale and geographic diversification necessary to compete effectively with the largest U.S. banks, without inherently increasing systemic risk. Even hypothetical combinations of multiple large regional banks would not result in new GSIBs, according to the regulatory framework used to identify systemically important institutions.</p> <p>Proposed regulatory policies that discourage or effectively prohibit such mergers, including arbitrary asset thresholds, are misguided. These policies risk stifling competition and innovation in the banking sector, ultimately protecting only the status quo.</p> <p>A more effective regulatory approach would allow beneficial combinations that enhance competition, improve funding stability through geographic diversification, and better serve communities. This approach should be based on case-by-case evaluations of proposed mergers, considering their potential benefits and risks within the context of the evolving financial landscape.</p> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <div data-wp-interactive="core/file" class="wp-block-file aligncenter"><object data-wp-bind--hidden="!state.hasPdfPreview" hidden class="wp-block-file__embed" data="https://bpi.com/wp-content/uploads/2024/07/Regional-Bank-Mergers-Would-Increase-Competition-without-Increasing-Systemic-Risk_-2.pdf" type="application/pdf" style="width:100%;height:600px" aria-label="Embed of Regional-Bank-Mergers-Would-Increase-Competition-without-Increasing-Systemic-Risk_-2."></object><a id="wp-block-file--media-7fb75265-7a43-4c78-8286-08edf14dc40d" href="https://bpi.com/wp-content/uploads/2024/07/Regional-Bank-Mergers-Would-Increase-Competition-without-Increasing-Systemic-Risk_-2.pdf">Regional-Bank-Mergers-Would-Increase-Competition-without-Increasing-Systemic-Risk_-2</a><a href="https://bpi.com/wp-content/uploads/2024/07/Regional-Bank-Mergers-Would-Increase-Competition-without-Increasing-Systemic-Risk_-2.pdf" class="wp-block-file__button wp-element-button" download aria-describedby="wp-block-file--media-7fb75265-7a43-4c78-8286-08edf14dc40d">Download</a></div> <div style="height:50px" aria-hidden="true" class="wp-block-spacer"></div> <hr class="wp-block-separator has-alpha-channel-opacity"/> <div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div> <p><a id="_ftn1" href="#_ftnref1">[1]</a> See Greg Baer, Banks’ Ability to Scale is a Benefit, Not an Inherent Problem (Oct. 13, 2022), available at <a href="https://bpi.com/banks-ability-to-scale-is-a-benefit-not-an-inherent-problem/" target="_blank" rel="noreferrer noopener">https://bpi.com/banks-ability-to-scale-is-a-benefit-not-an-inherent-problem/</a>.</p> <p><a id="_ftn2" href="#_ftnref2">[2]</a> Acting Comptroller of the Currency Michael Hsu, Remarks at Brookings, “Bank Mergers and Industry Resiliency,” (May 9, 2022), available at <a href="https://www.occ.gov/news-issuances/speeches/2022/pub-speech-2022-49.pdf" target="_blank" rel="noreferrer noopener">https://www.occ.gov/news-issuances/speeches/2022/pub-speech-2022-49.pdf</a>.</p> <p><a id="_ftn3" href="#_ftnref3">[3]</a> Baer, Greg, “A Bank-merger Moratorium Isn’t Just Bad Policy.  It’s Illegal.” American Banker (Jan. 5, 2022) available at <a href="https://www.americanbanker.com/opinion/a-bank-merger-moratorium-isnt-just-bad-policy-its-illegal" target="_blank" rel="noreferrer noopener">https://www.americanbanker.com/opinion/a-bank-merger-moratorium-isnt-just-bad-policy-its-illegal</a>.</p> <p><a id="_ftn4" href="#_ftnref4">[4]</a> See Greg Baer, To Serve Communities, Bank Need the Ability to Grow (Jun. 144, 2022), available at <a href="https://bpi.com/bankthink-to-serve-communities-banks-need-the-ability-to-grow/" target="_blank" rel="noreferrer noopener">https://bpi.com/bankthink-to-serve-communities-banks-need-the-ability-to-grow/</a>.</p> <p><a id="_ftn5" href="#_ftnref5">[5]</a> Daniel Tarullo, “Regulators should rethink the way they assess bank mergers,” (Mar. 16, 2022), available at <a href="https://www.brookings.edu/articles/regulators-should-rethink-the-way-they-assess-bank-mergers/" target="_blank" rel="noreferrer noopener">https://www.brookings.edu/articles/regulators-should-rethink-the-way-they-assess-bank-mergers/</a>.</p> <p><a id="_ftn6" href="#_ftnref6">[6]</a> David Wessel, “Talking to Dan Tarullo about bank mergers, stress tests, and supervision,” (Aug. 10, 2023), available at <a href="https://www.brookings.edu/wp-content/uploads/2023/08/Talking-to-Dan-Tarullo-about-bank-mergers-stress-tests-and-supervision.pdf" target="_blank" rel="noreferrer noopener">https://www.brookings.edu/wp-content/uploads/2023/08/Talking-to-Dan-Tarullo-about-bank-mergers-stress-tests-and-supervision.pdf</a>.</p> <p><a href="#_ftnref7" id="_ftn7">[7]</a> See footnote 3 (emphasis added).</p> <p><a href="#_ftnref8" id="_ftn8">[8]</a> Sebastian Doerr, “Bank geographic diversification and funding stability,” (May 30, 2024) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4788627.</p> <p><a href="#_ftnref9" id="_ftn9">[9]</a> Under the regulatory framework put in place by the federal banking agencies in 2019 under the Economic Growth, Regulatory Relief, and Consumer Protection Act, U.S. bank holding companies (BHCs) (and U.S. intermediate holding companies (IHCs) of foreign banking organizations (FBOs)) with $100 billion or more in average total consolidated assets are assigned to “categories” I through IV:  Category I includes BHCs that have been identified as U.S. GSIBs; Category II generally includes BHCs/IHCs that have (i) $700 billion or more in average total consolidated assets or (ii) $75 billion or more in average cross-jurisdictional activity; Category III generally includes BHCs/IHCs that have (i) $250 billion or more in average total consolidated assets or (ii) $100 billion or more in average total consolidated assets and at least $75 billion in (a) total nonbank assets, (b) average weighted short-term wholesale funding, or (c) average off-balance sheet exposure; Category IV generally includes BHCs/IHCs that have $100 billion or more in average total consolidated assets and do not meet the criteria for Categories I, II or III. 12 C.F.R. § 252.5.</p> <p><a href="#_ftnref10" id="_ftn10">[10]</a> Data imported from S&P Capital IQ Pro’s ‘Branches (U.S.)’ portal was filtered to include only branches of Commercial Banks and Savings Banks (excluding Savings & Loan Associations and Credit Unions), and only branches with a branch status of Active (removing Closed, Proposed, De Novo and Withdrawn branches). The resulting sample of branches was used to pull the Summary of Deposits and the Bank Branch Service Key of each branch (each from the FDIC Branch Office Deposits dataset) as well as the physical location of each branch. Branches with no values for either deposits or latitude/longitude were removed. Finally, only branches marked as Full Service were included in the sample. We believe that the resulting filtered sample of physical branches provides an accurate estimation of the geographic diversification of branches across the United States. </p> <p><a href="#_ftnref11" id="_ftn11">[11]</a> In these examples we focus on domestic banks in Categories III and IV serving retail customers with physical branch locations. While mergers between banks outside these limitations are also important for competitive reasons, in our analysis we focus on the location of physical branches.</p> <p><a href="#_ftnref12" id="_ftn12">[12]</a> We calculate the population-weighted deposit coverage for each bank or potential bank merger using a combination of our cleaned branch deposit data and county population data. This involves computing the population share for each county by dividing its population by the total population of all counties. We consider a bank or merged entity to be servicing a county’s population if it maintains an active branch with deposits in that county. Therefore, a bank’s or merger’s market share is determined by summing the population shares of all the counties where it operates an active, full-service bank branch with deposits.</p> <p><a href="#_ftnref13" id="_ftn13">[13]</a> Recent proposals from the OCC and FDIC are completely silent on how the agencies plan to address what remains a critical component of the bank merger application process—the ever-increasing timing delays that plague the existing application review process. These delays are unpredictable and often extensive, and they routinely diverge, often significantly, from the agencies’ own stated expected review timelines of 60 days.  See OCC, Comptroller’s Licensing Manual on Business Combinations at 31, https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-licensingmanual/files/pub-lm-business-combinations.pdf; see also OCC, 2023 Annual Report at 37 (indicating the standard “target time” for processing applications for mergers is 60 days),https://www.occ.gov/publications-and-resources/publications/annual-report/files/2023-annual-report.pdf; see Applications Procedures Manual, FDIC 4-23, https://www.fdic.gov/regulations/applications/resources/apps-proc-manual/section-04-mergers.pdf.</p> <p><a id="_ftn14" href="#_ftnref14">[14]</a> BPI, FDIC, OCC M&A Proposals Reject a Transparent Merger Process and the Law, (Jun. 17, 2024) available at <a href="https://bpi.com/fdic-occ-ma-proposals-reject-a-transparent-merger-process-and-the-law/" target="_blank" rel="noreferrer noopener">https://bpi.com/fdic-occ-ma-proposals-reject-a-transparent-merger-process-and-the-law/</a> (referencing and summarizing the two BPI comment letters on the respective merger policy proposals).</p> <p><a id="_ftn15" href="#_ftnref15">[15]</a> Increased regulatory costs, including higher capital requirements and more stringent compliance measures introduced by the Dodd-Frank Act, have made it more expensive to start a new bank. The FDIC extended its supervision period for new banks from three to seven years, imposing higher capital requirements and more frequent examinations during this time. New banks must also submit detailed business plans and seek approval for any changes during the supervision period. For additional details see Adams, Robert and Jacob Gramlich, “Where are All the New Banks? The Role of Regulatory Burden in New Charter Creation,” FEDS Working Paper No. 2014-113r, available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2544677" target="_blank" rel="noreferrer noopener">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2544677</a>.</p> <p><a href="#_ftnref16" id="_ftn16">[16]</a> A firm identified as a GSIB would then calculate its GSIB surcharge under two methods and would be subject to the higher of the two.</p> <p><a id="_ftn17" href="#_ftnref17">[17]</a> BPI, On Bank Mergers, the Benefits of Competitive Industry are Clear and the Regulatory Standards are Appropriately Stringent (Jun. 1, 2022) available at <a href="https://bpi.com/on-bank-mergers-the-benefits-of-a-competitive-industry-are-clear-and-the-regulatory-standards-are-appropriately-stringent/" target="_blank" rel="noreferrer noopener">https://bpi.com/on-bank-mergers-the-benefits-of-a-competitive-industry-are-clear-and-the-regulatory-standards-are-appropriately-stringent/</a>.</p> <p><a id="_ftn18" href="#_ftnref18">[18]</a> Daniel Tarullo, “Regulators should rethink the way they assess bank mergers,” (Mar. 16, 2022), available at <a href="https://www.brookings.edu/articles/regulators-should-rethink-the-way-they-assess-bank-mergers/" target="_blank" rel="noreferrer noopener">https://www.brookings.edu/articles/regulators-should-rethink-the-way-they-assess-bank-mergers/</a>.</p> <p><a id="_ftn19" href="#_ftnref19">[19]</a> FDIC Vice Chairman Travis Hill, <em>Statement on the FDIC’s Proposed Statement of Policy on Bank Merger Transactions</em> (Mar. 21, 2024), <a href="https://www.fdic.gov/news/speeches/2024/spmar2124c.html" target="_blank" rel="noreferrer noopener">https://www.fdic.gov/news/speeches/2024/spmar2124c.html</a>.</p> <div style="height:50px" aria-hidden="true" class="wp-block-spacer"></div> </div> 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