Dive Brief:

• The Federal Deposit Insurance Corp. board on Thursday proposed changes aimed at speeding up bank merger reviews and modernizing the framework for assessing applications.
• Among other changes, the rule would establish review timelines for various types of merger applications, including a “rapid processing” framework for acquisitions of “extremely small targets or certain types of operating subsidiaries” that would be processed in as few as five days, FDIC Chair Travis Hill said in a statement.
• The proposed rule would also revamp analysis of competitive factors, accounting for credit unions, thrifts and centrally booked deposits – those not attributed to branches based on the location of the depositor – in the FDIC’s review, Hill said.

Dive Insight:

Hastening the merger review process has been a goal of Hill’s since January 2025, when it was mentioned among his 15 priorities for the agency. 

Thursday’s proposal is intended to “comprehensively reform” the FDIC’s framework for assessing and processing bank merger applications and “improve the speed and certainty” of the filing process.

Merger reviews have “often taken far too long,” Hill said in Thursday’s statement. “A long process is damaging in many ways – it creates uncertainty for employees and customers, it constrains long-term planning and investment, it makes post-merger integration more challenging and costly, and it potentially leaves the merging entities (particularly the seller) in a vulnerable position if the merger is not approved, among other downsides.”  

During Hill’s tenure as chair, the FDIC has taken steps to shorten the application review process: Where the regulator averaged 107 days from receipt to final action in 2023 and 2024, that number stands at 64 so far this year, he said.  

Other elements of Thursday’s proposal would put limits around the FDIC’s ability to remove a merger application from expedited processing, and tailor some merger filing requirements based on the size and risk profile of a proposed merger or the buyer’s attributes. And it would add a before-and-after comparison considering the extent to which a bank deal might improve financial stability.  

“Placing artificial constraints on merger activity is the wrong answer to address industry consolidation,” Hill said. “Instead, we should continue our efforts to, one, reinvigorate the pipeline for new bank entrants and two, streamline excess regulation and supervision so that small banks can remain competitive in today’s environment.”

For the industry, the proposal is encouraging and addresses things bankers have repeatedly requested, such as “a realistic look at who actually competes with banks in local markets,” said Randy Benjenk, a Washington, D.C.-based partner at law firm Covington and Burling. 

However, the FDIC is just one regulator involved in merger reviews.

“Most bank-to-bank mergers also need Federal Reserve approval, and that review usually takes the longest – particularly when the application goes to the Board in Washington,” he said in a Friday email. “Unless the Fed adopts parallel reforms, the FDIC's changes will not shorten transaction times by that much.”

There may be nearer-term payoff when it comes to internal corporate reorganizations, he said, since those transactions often need FDIC approval even if the agency is not a bank's primary regulator. The FDIC proposing a quick turnaround for those “could allow banks to do some housekeeping transactions that they may have been putting off for years,” Benjenk said.

On Thursday, the FDIC also issued a proposed rule related to parity between state-chartered and national banks. Recent state legislation and litigation “has created uncertainty as to the applicability of state laws to out-of-state banks, creating a potential competitive imbalance between state-chartered and national banks,” Hill said. The FDIC is the primary federal regulator of state-chartered banks. 

Under the proposal, when a state’s laws don’t apply to a national bank, those laws also wouldn’t apply to an out-of-state bank offering services in the state in question, regardless of whether the state-chartered bank has a physical retail presence in that state. 

“Non-branch financial services have proliferated, as technological innovations dramatically altered the banking landscape, and today state-chartered banks commonly serve customers in host states without establishing branches in those states,” Hill said in a separate statement. The proposal would “recognize this shift.”

It’s one of several rulemakings the agency is pursuing to modernize regulation “to reflect the realities of modern banking,” Hill said.

Similarly, the proposed rule related to merger reviews notes that “many aspects of the FDIC’s current framework for evaluating merger transactions are outdated, and the proposed rule would align the FDIC’s approach with the current market environment.” 

The FDIC will accept comments on the proposals for 60 days after publication in the Federal Register.