FDIC Will Prioritize Board Review Of Merger And Deposit Insurance Applications Pending 270 Days Or More

During the meeting of the Board of Directors (Board) of the Federal Deposit Insurance Corporation (FDIC) in June, the Board unanimously adopted a resolution that requires FDIC staff to provide full Board briefings for merger and deposit insurance applications (each, a Covered Application) that have been outstanding for more than 270 days.

Under the resolution, a staff briefing on the Covered Application that has been outstanding for more than 270 days would be automatically placed on the agenda at the next regular Board meeting. In addition, the resolution requires quarterly follow-up briefings as long as the Covered Application remains pending.

Vice Chairman Travis Hill, who proposed the resolution, stated that the purpose of the resolution is to give the Board more regular and rigorous insight into the review process and, more fundamentally, motivate faster processing of Covered Applications. The resolution is a follow-up to the FDIC's Processing Timeframe Guidelines for Applications, Notices, and Other Requests published in December 2018, in which the FDIC suggests that most merger and deposit insurance applications will be acted on within 120 days and 60 days, respectively, of such applications being accepted as substantially complete. However, according to Vice Chairman Hill, notwithstanding these stated expectations, the FDIC has regularly exceeded its target timeframes, and the number of Covered Applications still under review after 270 days has steadily grown in recent years, with the number of such applications reaching double digits every year since 2022.

Overview of the Resolution

The resolution requires staff to:

• Brief the full Board in closed session at the next regular Board meeting on the status of each Covered Application that becomes pending for more than 270 days
• Provide quarterly follow-up briefings as long as the Covered Application remains pending

The resolution bases the briefing timeline from the date an application is received rather than when an application is accepted as substantially complete. The resolution requires each briefing of the Board to include the following:

• A description and analysis of the contents of the Covered Application and the resulting institution
• A detailed timeline describing the steps the FDIC has taken to process and consider the Covered Application
• A detailed description of the remaining steps that need to be taken to reach a final decision, accompanied by expected timeframes

The initial set of briefings would occur at the first regular Board meeting 90 days after adoption of the resolution (on or around September 18, 2024) to allow time to process pending applications before the briefing requirement is triggered.

Takeaways

The Board's vote on the resolution was unanimous, but Consumer Financial Protection Bureau Director Rohit Chopra had a different view from Vice Chairman Hill with respect to the intended effects of the resolution. Director Chopra stated during the public Board hearing that "[t]his is a way we can get applications processed and have those denials be public.... I do think hopefully this will get us to a place of a policy where we can swiftly deny applications that are facially deficient or not substantially complete." Director Chopra's statements suggest that the resolution may result in not only timely consideration of Covered Applications, but also more transparency on why Covered Applications are denied or withdrawn.

One day after the adoption of the resolution, the FDIC approved the deposit insurance and merger applications for Thrivent Bank, which is the agency's first approval of an industrial loan company (ILC) since 2020. The applications had been pending since 2021.¹ The adoption of the resolution and the approval for Thrivent Bank appear to demonstrate the FDIC's intention to process Covered Applications. On the other hand, the FDIC and the Office of the Comptroller of the Currency (OCC) each proposed a policy statement, on January 29, 2024 and March 21, 2024, respectively, focused on greater scrutiny of bank merger transactions.

The FDIC's proposed policy statement outlines the FDIC's expectations with respect to each statutory factor under the Bank Merger Act. Among other things, the policy statement suggests that merger transactions involving larger banks would face increased scrutiny on merger diligence and require more detailed merger applications, particularly with respect to the anticompetitive effects and the convenience and needs of the community they would serve. Similarly, the OCC's proposed policy statement outlines the principles used by the OCC in its review of merger applications, including indicators that raise supervisory or regulatory concerns and indicators that are consistent with approval. Notably, the OCC's proposed policy statement includes two procedural changes to the bank merger review: (1) elimination of the expedited bank merger review procedures and (2) elimination of the streamlined application. Two proposed policy statements from the FDIC and the OCC are part of a series of recent regulatory efforts to revise bank merger standards, including President Biden's Executive Order on Promoting Competition in the American Economy and Assistant Attorney General Jonathan Kantor's statement that the Department of Justice will expand its scrutiny of bank mergers. For more information about the recent policy statements on merger transactions, please see our March 2024 Advisory.

For more information about the FDIC's resolution on processing Covered Applications, or merger and deposit insurance applications more generally, please contact any of the authors of this Advisory or your usual Arnold & Porter contact. The firm's Financial Services team would be pleased to assist with any questions about this Advisory or merger and deposit insurance applications in general.

Footnote

1. On the other hand, a day after the Thrivent Bank applications were approved, another ILC applicant withdrew its charter application.

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