Board of Governors of the Federal Reserve System

This report provides information regarding the applications filed by banking organizations and reviewed by the Federal Reserve as of the most recent reporting period ending on June 30 and December 31 of each calendar year.

The Federal Reserve, in its role as a primary federal regulator, reviews applications submitted by bank holding companies (BHCs), state member banks, savings and loan holding companies (SLHCs), foreign banking organizations, and other entities and individuals for approval to undertake various transactions, including mergers and acquisitions, and to engage in new activities.

The Federal Reserve reviews and acts on proposals filed under the Bank Holding Company Act; the Bank Merger Act; the Change in Bank Control Act (CIBCA); the Federal Reserve Act; section 914 of the Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA); section 10 of the Home Owners' Loan Act (HOLA); the International Banking Act; and other provisions of law.¹

Overview of Activity

The Federal Reserve reviewed 567 proposals in the second half of 2017, of which 533 were approved, 28 were withdrawn, 6 were mooted, and zero were returned (table 1). Total
dispositions declined from 1,223 in 2016 to 1,121 in 2017. The composition of proposals was consistent with prior periods. The majority of proposals were merger and acquisition (M&A) proposals, branch applications, and CIBCA notices.

Table 1. Dispositions and processing times of approved proposals, 2014-17 and 2016:H2 and 2017:H2

Table 1 illustrates that the average number of days to approve a proposal was 49 days in the second half of 2017, compared with 45 days in the second half of 2016.² The median processing time rose slightly to 36 days in the second half of 2017 from 35 days in the prior period. Despite the year-over-year increase, processing times for the second half of 2017 were broadly consistent with prior periods.

Five percent of total dispositions in the second half of 2017 were withdrawn. Proposals are withdrawn most often at the initiative of the applicant. However, proposals also may be withdrawn after the Federal Reserve informs the applicant that a significant issue exists that precludes an approval recommendation by staff based on staff's review of the statutory standards for approval.³ For example, the applicant or resulting banking organization's financial or managerial condition may be less than satisfactory; the Community Reinvestment Act (CRA) or consumer compliance record, including fair lending (see the section on Consumer Compliance and CRA), may be less than satisfactory; or there may be other significant consumer compliance issues.⁴

Of the 28 proposals withdrawn in the second half of 2017, 7 proposals were withdrawn at the initiative of the applicant. The remainder were withdrawn after consultation with staff for technical or procedural reasons or because the proposals raised issues regarding the statutory factors that must be considered by the Federal Reserve. Specifically, 16 of these proposals raised significant financial, managerial, control, or competitive issues. This reflects, in part, the Board's general expectation that an application will not be allowed to pend if a supervisory issue arises during processing.

Applications

Mergers and Acquisitions

In the second half of 2017, 121 M&A proposals were approved, compared with 118 approved in the second half of 2016 (table 2).⁵ These types of proposals accounted for 23 percent of total approved proposals in the second half of 2017, in line with prior periods. In reviewing M&A proposals, the Federal Reserve considers the applicant's current and pro forma financial condition and future prospects, managerial resources, the convenience and needs of the communities to be served (including consumer compliance and fair lending records and the record of performance under the CRA), record of compliance with the Bank Secrecy Act/anti-money-laundering requirements, public benefits, and the competitive and financial stability effects of the proposal. Other considerations may include a review of ownership changes of the resultant banking organization or policy questions.

Table 2. Merger and acquisition proposals, dispositions and processing times of approved proposals, 2014-17 and 2016:H2 and 2017:H2

M&A proposals generally are more complex than other proposals because they typically require review of several organizations under multiple statutory factors. As table 2 illustrates, the average and median number of days to approve an M&A proposal in the second half of 2017 were 62 and 42 days, respectively. In comparison, for the same period, the average and median number of days to approve all proposals were 49 and 36 days, respectively (table 1).

The Federal Reserve may receive adverse comments on a proposal from the public.⁶ Such proposals typically require additional time to allow the applicant the opportunity to respond to the comments and for the Federal Reserve to evaluate the comments. The majority of public comments received by the Federal Reserve are based upon the CRA and fair lending records of the applicant. Comments also may be directed at other aspects of a proposal, such as competition. Proposals that receive a substantive adverse public comment are required to be acted on by the Board.⁷ Applicants are encouraged to respond in the event that public comments are received.

Table 3 details or illustrates M&A processing times for proposals that did and did not receive adverse public comments. Although M&A proposals receiving adverse public comments represent a small proportion of total M&A proposals approved by the Federal Reserve, processing times for these proposals are considerably longer than those M&A proposals not receiving such comments. In the second half of 2017, the average number of days to approve M&A proposals that did not receive adverse public comments was 57 days, compared with an average of 142 days for the seven M&A proposals that received adverse public comments.⁸

Table 3. Merger and acquisition approved proposals, volume and processing times by proposals that did not receive adverse public comments and those that received adverse public comments, 2014-17 and 2016:H2 and 2017:H2

Pre-filing Process

The Federal Reserve has established a pre-filing process to provide potential applicants with information about the procedural requirements, such as timing and the applicable forms associated with a proposal. This process also helps to identify information that may be needed in connection with issues that the Board typically considers in connection with a particular type of application or notice, such as competition or financial stability. The pre-filing process is not used to resolve or predetermine the outcome of any substantive issues. Processing delays can be avoided by using the pre-filing process. The pre-filing process is described in the Federal Reserve's Supervision and Regulation Letter 12-12/CA 12-11 titled "Implementation of a New Process for Requesting Guidance from the Federal Reserve Regarding Bank and Nonbank Acquisitions and Other Proposals."

The Federal Reserve reviewed 39 pre-filings in 2017. The majority of pre-filings were related to potential M&A proposals and CIBCA notices. Pre-filings may or may not result in a formal filing.

Consumer Compliance and CRA

In evaluating M&A proposals, the Federal Reserve reviews the consumer compliance, fair lending, and CRA records of the acquiring and target organizations as part of its assessment of the managerial resources factor and the convenience and needs factor. An organization's strong consumer compliance, fair lending, and CRA records can facilitate the review process. Conversely, unaddressed consumer compliance, fair lending, or CRA weaknesses in an organization can cause significant delays in the review process and may pose barriers to approval. With respect to M&A proposals, an applicant should ensure that its consumer compliance program, policies, and procedures are adequate to ensure successful integration of the target and that the combined organization would maintain satisfactory consumer compliance, fair lending, and CRA programs following consummation.

Other Analysis

Community Banking Organizations

Table 4 provides the volume and processing times of proposals most commonly submitted by small and large community banking organizations (CBOs).⁹ Small CBOs are those under $1 billion in assets, and large CBOs are those with $1 billion to $10 billion in assets. Processing times for M&A applications by small and large CBOs were 54 days and 66 days, respectively. This is consistent with the overall average of 65 days for all M&A transactions. While the overall volume of filings was broadly unchanged in most categories, FIRREA and CIBCA notices and M&A applications submitted by small CBOs declined over the previous year while applications for branch establishment grew. This reflects a general improvement in the banking environment for small CBOs. M&A activity among large CBOs also grew, reflecting further consolidation in the industry.

Table 4. Proposals from CBOs, volume and processing times (days) of approved proposals, for the full years 2016 and 2017

Current Initiatives to Enhance Efficiency in Applications Processing

In its review of all applications, the Federal Reserve is cognizant of the impact extended processing times may have on filers and target firms. Accordingly, the Federal Reserve makes every effort to act on applications in a timely manner. Notwithstanding, certain applications raise issues that require additional time for the Federal Reserve to complete its review and analysis. The Federal Reserve is pursuing several initiatives designed to improve the efficiency, effectiveness, and transparency of the applications process. These initiatives, which are expected to reduce processing times for certain types of proposals, broadly relate to various factors, including the processing of certain cases raising competitive issues, the public comment process, delays associated with other regulators, and past practices regarding presumptions of control.¹⁰ To the extent that any of these initiatives require a rulemaking, the Board will publish a proposed rule and seek public comment.

For further reference, please consult the following:

www.federalreserve.gov/bankinforeg/afi/afi.htm

www.federalreserve.gov/bankinforeg/semiannual-reports-banking-applications-activity.htm

www.federalreserve.gov/bankinforeg/srletters/sr1402.htm

www.federalreserve.gov/bankinforeg/srletters/sr1307.htm

www.federalreserve.gov/bankinforeg/srletters/sr1212.htm

Footnotes