FDIC Proposes Faster Bank Merger Reviews

The Federal Deposit Insurance Corp. Board proposed changes on Thursday to accelerate bank merger reviews and modernize its application assessment framework. FDIC Chair Travis Hill stated the rule would establish specific timelines, including a 'rapid processing' framework for certain acquisitions that could be completed in as few as five days.

Hill has prioritized hastening the merger review process since January 2025. The new proposal aims to comprehensively reform the FDIC's framework and improve the speed and certainty of filings. Merger reviews have often taken far too long, creating uncertainty and increasing costs, Hill argued.

Modernizing the Review Framework

The proposed rule would revamp the analysis of competitive factors in a merger. It would now account for credit unions, thrifts, and centrally booked deposits-those not tied to a specific branch location-in the FDIC's review. This change aims to provide a more realistic view of market competition.

Other elements include placing limits on the FDIC's ability to remove an application from expedited processing. Filing requirements would be tailored based on the size and risk profile of a deal. The rule would also introduce a new before-and-after comparison to assess how a merger might affect financial stability.

Hill reported progress on review times. During his tenure, the average processing time has dropped significantly.

Industry Reaction and Regulatory Hurdles

For the banking industry, the proposal addresses long-standing requests. Randy Benjenk, a partner at law firm Covington and Burling, said it takes a 'realistic look at who actually competes with banks in local markets.' However, he noted a significant limitation: most bank-to-bank mergers also require approval from the Federal Reserve.

'Unless the Fed adopts parallel reforms, the FDIC’s changes will not shorten transaction times by that much,' Benjenk said in a Friday email. He suggested the changes might have a nearer-term payoff for internal corporate reorganizations, which often only need FDIC approval. A quicker turnaround for these 'could allow banks to do some housekeeping transactions that they may have been putting off for years.'

Addressing State Bank Parity

On the same day, the FDIC issued a separate proposed rule aimed at ensuring parity between state-chartered and national banks. Recent state legislation and litigation has created uncertainty about which state laws apply to out-of-state banks, potentially putting state-chartered banks at a disadvantage. The FDIC is the primary federal regulator for state-chartered banks.

The proposal states that when a state's laws do not apply to a national bank, those laws would also not apply to an out-of-state bank offering services in that state. This would hold true even if the state-chartered bank lacks a physical branch there. Hill said this recognizes the shift toward non-branch financial services enabled by technology.

Both proposed rules are part of a broader FDIC effort to modernize regulation to reflect the realities of modern banking. The agency will accept public comments on the proposals for 60 days after their publication in the Federal Register.