By Ray Birch
WASHINGTON—Will credit unions need to provide additional information when applying to acquire an FDIC-insured institution?
According to a report from the ABA Banking Journal, that might be required.
Citing a new bank merger policy statement approved by the FDIC last week, the publication stated, “the agency said that credit unions may need to provide additional information when applying to acquire an FDIC-insured institution, as credit unions are not subject to the Community Reinvestment Act.”
The FDIC last week approved a final Statement of Policy on Bank Merger Transactions. The final SOP addresses the scope of transactions subject to FDIC approval, the FDIC’s process for evaluating merger applications and the principles that guide the FDIC’s consideration of the applicable statutory factors as set forth in the Bank Merger Act, the FDIC stated in a release.
“The Final Statement of Policy on Bank Merger Transactions approved … by the FDIC board, updates, strengthens, and clarifies the FDIC’s approach to evaluating transactions subject to its approval under the Bank Merger Act,” FDIC Chairman Martin Gruenberg said in a statement.
Martin Gruenberg
The updates, the FDIC said, “Account for the significant changes that have occurred in the banking industry and financial system over the last several decades. The final SOP refines and, in some cases, broadens the description of the analytical considerations for each statutory factor.”
The FDIC release states that with respect to the statutory factors, the Final SOP, among other points, "Elaborates on the FDIC’s expectation that a merger will enable the resulting institution to better meet the convenience and needs of the community to be served."
Scrutinize Applications
As CUToday.info has extensively reported, the bank trade groups have advocated for more scrutiny of credit union acquisitions of banks. They have cited reasons such as the potential tax losses and effects on local communities.
“FDIC should scrutinize bank merger applications involving credit unions to the highest extent possible,” the ABA noted in a June letter to the agency, ABA Banking Journal said. “Without further analysis, the benefits these transactions provide bank customers, credit union members and the communities in which they operate remain yet to be determined.”
“In the policy statement, the FDIC acknowledged that several commentators raised the issue. The agency rejected a request for a special analysis of the competitive effects of bank acquisitions by credit unions. However, it included language to consider the effects of nonbank competitors like credit unions when weighing merger applications,” ABA Banking Journal said.
According to the ABA Banking Journal, the FDIC also noted that the CRA requires it to evaluate the credit needs of the communities the institutions serve when considering merger applications.
“Given credit unions are not subject to the CRA, ‘transactions involving a credit union may require additional information to evaluate the convenience and needs statutory factor,’ the agency said,” the ABA Banking Journal reported.
CUToday.info reached out to the FDIC for comment on the SOP requiring additional information from credit unions, but the agency did not respond by press time.
Michael Bell
‘Laborious Process’
The pioneer of credit union purchases of banks, Michael Bell, contended the policy addition does not change anything.
“The FDIC already vigorously reviews these transactions, and I cannot fathom how they could add to the already laborious and intrusive process,” said Bell, a partner and chair of the Financial Institutions Practice Group at Honigman, LLP. “FDIC already asks for detailed information as if CRA applies. They already ask for service and product comparisons and a host of related items. I simply cannot see what additional they could ask for.”
Bell added the policy statement suggests there could be ill effects from CU purchases of banks.
“I would challenge anyone to find one example of an ill effect in the 15 years these deal have been happening,” said Bell, who has been part of more than 60 whole-bank agreements, plus additional bank branch purchases. “Credit Unions are net branch openers, community banks are not. Far more staff are retained when a credit union buys a bank than when two banks merge. And, far more products are offered to the community after closing. Service to Main Street America gets better, not worse, with these deals.”
Bell added that it is “disheartening and insincere” to see lobbying groups advocating for less regulation, and then "celebrate a victory" that involves increased regulation.
“This will not serve our industries in the long run,” Bell said. “Nobody listens to those who speak out of both sides of their mouth. Nobody wants to listen to someone that cheers for the opponent to fail so they can succeed. This approach that suggests it’s a zero-sum game is misplaced and unfortunate.”