Community, regional bank deals bolstered by merger policy shifts

Banks of all sizes can expect less stringent M&A reviews following policy changes by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp.

The repeal of 2024 merger policies bring back expedited application processes, which will lead to faster and cheaper deal reviews for community banks. Regional banks are also feeling encouraged by the policy shifts as additional scrutiny based on size thresholds was scrapped.

"Having the ability to get deals done more quickly and with greater certainty under the streamlined processes that the agencies have brought back is a boon for the banks who are looking at potential transactions," said Michael Lewis, a partner at Sidley Austin LLP who advises financial institutions on regulatory aspects of M&A.

Accelerated timeframes

With the new policies, banks again have the option for their merger applications to qualify for streamlined applications and expedited processing. At the OCC, merger applications between banks with clean bills of health and no public opposition can qualify for approval 15 days after the comment period closes. The FDIC's process is 45 days after the application is complete.

"The greatest beneficiary is likely smaller institutions," Robert Maddox, a partner at Bradley Arant Boult Cummings LLP and a bank deal adviser who represents clients before regulatory agencies, said in an interview. "If they can justify it, then they can use the streamlined application forms, if they're eligible. It reduces the administrative burdens — certainly reduces the cost."

Expedited processing works well for deals where there are no supervisory or antitrust concerns, according to Joseph Lynyak, a partner advising banks and other financial services companies at Dorsey & Whitney LLP.

"It saved a lot of time and effort and money not to have to go through a full-blown merger application," Lynyak said in an interview. "It's going to be a safe and sound institution, and we don't have to fill out all the paperwork."

As regulators reduce their staffing levels, some by as much as 20%, they could opt to use expedited processing more.

"In a world of limited resources and having to efficiently allocate them, using the streamlined or expedited processes for transactions that raise fewer or no regulatory concerns makes a lot of sense and could reduce the amount of time and effort, not only on the part of the parties to the transaction, but also on the part of the banking regulators," Sidley Austin's Lewis said in an interview.

Size matters

The policy changes stands to give regional banks more confidence to pursue deals. Under the now-rescinded policies, deals slated to create an institution with more than $50 billion in assets would garner additional scrutiny at the OCC while the FDIC said it would more closely examine deals between two banks with more than $100 billion in combined assets.

Eliminating those size hurdles opens up M&A possibilities for larger banks.

"The removal of those thresholds is helpful in the sense that if you're in that category of being between the threshold and a [global systemically important bank], you have a little bit more room to maneuver now, and it signals at least a potential willingness on the part of the agencies to more seriously entertain some of those kinds of transactions," Lewis said.

The regulatory shift will "marginally encourage transactions among midsize banks," Todd Baker, managing principal at Broadmoor Consulting and senior fellow at Columbia Business School's Richman Center, wrote in an email.

Large banks are already feeling encouraged by the signals from regulators. The approval process had "sand thrown into its gears" during the Biden administration and had "real dampening effect" on dealmaking, according to Citizens Financial Group Inc. Chairman and CEO Bruce Winfield Van Saun.

"The new regime coming in says, 'We're going to have hard rules. We're going to have shorter review thumbs up, thumbs down, decision-making,'" Van Saun said at May 30 industry conference. "That opens the possibilities up again."

Large bank M&A, however, might be slow to pick up as most are buyers and not sellers."

"When you get up into the kind of bigger-sized banks, I'll refer to Bill Demchak at [PNC Financial Services Group Inc.], who says 'Everybody seems to be a buyer again, and there's no sellers,'" Van Saun said. "It takes two to tango. So I'm not sure this will be a very active year kind of based on that dynamic."

For banks looking to gain scale, they should strike while the iron is hot, advisers said. Later this year and through 2026 is a window of good opportunities for M&A activity before a new president is elected in 2028 and potentially brings a different view, Maddox said.

"We're moving clearly from an antitrust, if you will, vantage point from one administration to a much more free market view in another," Maddox said.