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U.S. Federal Reserve changes policy on bank mergers

Residents of Louisiana keeping track of the banking industry may have been surprised to hear that the U.S. Federal Reserve recently approved the acquisition of Suffolk Bancorp by People's United Financial, given that the resulting financial institution would have approximately $43 billion in assets. This move was announced alongside a policy change that could make it more likely to see such mergers and acquisitions in the future.

The U.S. Federal Reserve has issued a policy change that will ultimately allow larger lenders to enter into mergers. The agency has stated that mergers of financial institutions that would result in a bank with under $100 billion in assets do not pose a threat to our nation's financial system and thus would not necessitate the extensive regulatory review larger bank mergers do. Since 2012, that number had sat at $25 billion, making this a quadruple increase in such a threshold.

According to industry officials, this is a good move, as it allows for the quicker approval of bank mergers. On average, it takes half-a-year for the Federal Reserve to approve a bank merger. Moreover, according to some professionals, the 2008 financial crisis which resulted in the previously stringent regulatory threshold was keeping banks from being able to merge. Since 2008 there have not been very many bank mergers, and some potential mergers eventually had to be discontinued when the necessary regulatory approval could not be achieved.

Any merger or acquisition involving financial institutions can be complex. Large mergers or acquisitions that require extensive regulatory review can often stymie the merger process, and sometimes cause the merger to fail altogether. On the other hand, it is important to ensure that mergers of financial institutions do not pose a danger to America's financial system. It is a delicate balance, but it will be interesting to see what the future will be for bank mergers under this new policy.

Source: CNBC, "Fed eases bank merger rules by lifting size threshold for review," March 17, 2017

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