On 29 January, the Office of the Comptroller of the Currency (OCC) issued a request for comment on a notice of proposed rulemaking (NPR) to update its rules on bank mergers. The proposal would make two amendments to the OCC’s implementing regulation (12 CFR 5.33) of the Bank Merger Act (BMA) and would add a policy statement as an appendix to 12 CFR part 5, subpart C. The OCC’s stated intent is to enhance transparency around its process for reviewing bank merger transactions. However, in aggregate, the proposed amendments and policy statement would ultimately increase the burden on banks and do little to enhance transparency of the process. If finalized, market participants will be discouraged from engaging in business combinations and more bank mergers will be delayed by special interest groups.

Summary of the rulemaking

Regulatory Amendments

The NPR makes two key regulatory amendments.

  1. Remove the expedited review procedure in 5.33(i).
  2. Eliminate the streamlined business combination application option provided in § 5.33(j).

The expedited review procedure in § 5.33(i) currently provides that a filing that qualifies as a business reorganization or a streamlined application is deemed approved as of the 15th day after the close of the comment period, unless the OCC notifies the applicant that the transaction is not eligible for an expedited review, or otherwise extends the review process. The NPR states that “[t]he OCC believes that any business combination subject to a filing under § 5.33 is a significant corporate transaction requiring OCC decisioning, which should not be deemed approved solely due to the passage of time,” thus making the case that the expedited review procedure, and associated “business reorganization” definition, are not appropriate or necessary.

Section 5.33(j) currently specifies four situations in which an applicant may use the streamlined business combination application instead of the full Interagency Bank Merger Act Application. Transactions that qualify for the streamlined application also receive an expedited review under the current regulations. The NPR argues that “the fuller record provided through the Interagency Bank Merger Act Application provides the appropriate basis for the OCC to review a business combination application.”

Taken together, these amendments remove any allowances for streamlined or expedited applications or reviews for bank mergers, thereby subjecting all bank merger transactions to the full extent of the Interagency Bank Merger Act review process. Bank merger applications are likely to face notably deeper regulatory reviews and an overall lengthier approval period than under current regulations.

Policy Statement

In addition to the regulatory amendments, the proposed rulemaking would add a policy statement as an appendix to the OCC’s regulations to implement the BMA. The proposed policy statement includes six sections that detail how the OCC reviews bank merger applications and identifies factors of an application that align with certain decision outcomes or enhanced review. The NPR states that the appendix is intended to provide “a better understanding of how the OCC reviews applications” and “provide transparency.”

The General Principles of OCC Review section of the appendix identifies 13 indicators of a BMA application that are generally consistent with approval and six indicators that “raise supervisory or regulatory concerns” and thus, if present, deem the application unlikely to be approved without adequate remediation.

The indicators consistent with approval include that the resulting institution will have total assets less than $50 billion. Other indicators consistent with approval include that the acquirer is well capitalized and the resulting institution will be well capitalized, the acquirer has a Community Reinvestment Act (CRA) rating of ‘Outstanding’ or ‘Satisfactory’, the acquirer has no open formal or informal enforcement actions, the acquirer has no open or pending fair lending actions (including referrals or notifications to other agencies), and that “no adverse comment has raised a significant CRA or consumer compliance concern.” Notably, the proposal states that applications that feature all 13 indicators are generally consistent with approval.

The factors identified that raise concern, and are generally inconsistent with approval, include if the acquirer:

  1. Has a CRA rating of ‘Needs to Improve’ or ‘Substantial Noncompliance’;
  2. Has a consumer compliance rating of 3 or worse;
  3. Has a Uniform Financial Institutions Ratings System (UFIRS) or ROCA composite or management ratings of 3 or worse or the most recent report of examination otherwise indicates that the acquirer is not financially sound or well managed;
  4. Is a global systemically important banking organization (GSIB), or subsidiary thereof;
  5. Has an open or pending Bank Secrecy Act/Anti-money Laundering enforcement or fair lending actions, including referrals or notifications to other agencies; and
  6. Failed to adopt, implement, and adhere to all the corrective actions required by a formal enforcement action in a timely manner; or multiple enforcement actions against the acquirer executed or outstanding during a three-year period.

The Financial Stability section of the appendix details the factors the OCC considers in its evaluation of the risk posed to the stability of the financial system by the proposed transaction and the OCC’s approach to “balancing” such factors with the potential financial stability risk posed by the denial of the transaction if it involves a troubled target. It notes that the financial stability review may result in a decision to approve the transaction subject to enhanced prudential standards as a result of the transaction.

Finally, the proposed policy statement covers the OCC’s review of the financial and managerial resources and future prospects of a transaction and convenience and needs considerations. It also details the OCC’s process for public comments on a proposed transaction and for determining whether to hold a public meeting on an application.

Impact on the bank marketplace

In recent years, the industry has sought transparency and specificity from the OCC on the process used to evaluate bank mergers. Last year saw one major transaction called off after over 15 months of extended review by the OCC as well as a series of mergers approved very quickly in response to bank failures, thus demonstrating the apparent inconsistency in the OCC’s approach. In this sense, the NPR is a welcome development to provide better clarity in the industry and standardize the review and approval process. However, the details of the proposal indicate a much more rigorous approach to merger review with both clearly stated deterrents and subjective assessments guiding the rigor.

The removal of the expedited review and streamlined application procedures signals the likelihood of much deeper regulatory reviews that may require lengthy interagency interactions, resulting in notably extended approval periods. Removal of these expedited processes is especially impactful for smaller institutions involved in a proposed merger, even in light of the other proposed changes.

The principles identified as consistent with approval indicate a significantly more rigorous review approach compared to the current framework, especially considering the condition that all 13 indicators be in place for an application to receive likely approval. Additionally, the indicators create clear hurdles for regional banks. The stipulation that the resulting institution must have less than $50 billion in total assets for the application to be consistent with approval indicates that regional banks will face a difficult route to obtain regulatory approval for merger activity.

The six indicators of concern that result in the OCC being unlikely to find an application consistent with approval further restrict the potential market for bank mergers. The proposal as written clearly restricts GSIBs from pursuing merger activity, stating that if an acquirer is a GSIB, the OCC is unlikely to approve the transaction.

Finally, the financial stability factors detailed in the proposal are highly subjective and allow the OCC significant discretion to offer preferential treatment to favored institutions acquiring troubled target banks.


The proposal as written will increase the burden on banks and do little to improve regulatory transparency around bank mergers. Under the proposed framework, deals are likely to be held hostage by special interest groups and extended regulatory reviews. Fewer market participants will be interested in pursuing business combination transactions and market forces will no longer drive the bank marketplace. Instead, regional and mid-size banks will be discouraged from market participation while the largest institutions will wait for a troubled institution to fail, allowing them to purchase the resulting institution at a discount and with significantly fewer regulatory hurdles.

The OCC is accepting comments on all aspects of the NPR until the 60th day after the proposal appears in the Federal Register. Interested parties, especially banks and investors, should review the proposal and provide feedback on elements that are supportable, as well as elements that may be problematic.

Put Patomak’s Expertise to Work

Patomak has deep experience in advising clients considering mergers and acquisitions regarding the regulatory hurdles they may face. Market participants should be prepared for much greater scrutiny, longer approval processes, and regulatory actions that could include public hearings as well as significantly more disclosure. If you would like to learn more about how Patomak can partner with you, please reach out to Keith Noreika, Executive VP & Chairman of the Banking, Supervision, and Regulation Group, at knoreika@patomak.com, or John Vivian, Managing Director, at jvivian@patomak.com.