Bank Merger Process Should Be Modernized and Simplified
GGD-82-53
Published: Aug 16, 1982. Publicly Released: Aug 16, 1982.
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Highlights
Because of recent increases in the number of bank mergers and the potential for further increases, GAO reviewed the federal laws and regulatory supervision for approving bank mergers.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress should amend the Bank Merger Act to provide that the banking agencies, to the extent practicable and within available data limitations, consider competing nonbank financial institutions in evaluating the competitive effects of a bank merger. |
Closed – Not Implemented
|
Merger procedures are being reevaluated in light of deteriorating industry conditions and the new competitive environment. |
| Congress should amend the Bank Holding Company Act to permit BHC to acquire, by an exchange of stock, total control of an operating national bank subject to approval of the Federal Reserve System and upon the affirmative vote of the shareholders owning at least two-thirds of that bank's outstanding capital voting stock. The amendment should provide that: (1) the appropriate BHC application be accompanied by a plan of acquisition; (2) the shareholders of the target bank voting against the acquisition could receive stock in the holding company; (3) the exchange of stock qualify as a tax-free exchange; (4) the acquired bank continue as a Federal Deposit Insurance Act-insured bank; (5) the plan of acquisition be in compliance with all applicable federal securities laws; and (6) for similar acquisitions of state-chartered banks, the BHC application be accompanied by a plan of acquisition, rather than a merger application. |
Closed – Not Implemented
|
The agencies have submitted proposed legislation that is now being considered by Congress. |
| Congress should amend the Bank Merger Act to exempt phantom mergers and corporate reorganizations from competitive effects assessments. This would remove the requirement that the responsible agency obtain reports on a proposed merger's competitive aspects from the Attorney General and the other two bank regulatory agencies. These types of mergers should also be exempted from the 30-day period for Attorney General review prior to consummation. |
Closed – Not Implemented
|
Congress is expected to take action during its next session when the agencies' proposed legislation is submitted. |
| Congress should delete the publication and comment requirement for phantom mergers and corporate reorganizations and reduce the publication period for regular mergers to a period more consistent with that of other types of corporate change applications. |
Closed – Not Implemented
|
Congress is expected to take action during its next session when the agencies' proposed legislation is submitted. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Justice | The three federal bank regulatory agencies should, with the advice of the Department of Justice, work together to formulate a useful and consistent method of analysis for considering what effect a proposed merger would have on future competition in the market area of the bank being acquired. |
Closed – Not Implemented
The competitive question may change during the current debate on the structure of the financial industry.
|
| Office of the Comptroller of the Currency | The three federal bank regulatory agencies should, with the advice of the Department of Justice, work together to formulate a useful and consistent method of analysis for considering what effect a proposed merger would have on future competition in the market area of the bank being acquired. |
Closed – Not Implemented
The Office of the Comptroller of the Currency (OCC) contends that total uniformity is not possible or desirable. Justice provided the uniformity needed.
|
| Federal Deposit Insurance Corporation | The three federal bank regulatory agencies should, with the advice of the Department of Justice, work together to formulate a useful and consistent method of analysis for considering what effect a proposed merger would have on future competition in the market area of the bank being acquired. |
Closed – Implemented
The Federal Deposit Insurance Corporation (FDIC) proposed a unilateral change for state-chartered nonfederal member banks. Adverse comments from the Justice Department and others forced withdrawal.
|
| Federal Reserve System | The three federal bank regulatory agencies should, with the advice of the Department of Justice, work together to formulate a useful and consistent method of analysis for considering what effect a proposed merger would have on future competition in the market area of the bank being acquired. |
Closed – Not Implemented
The merger question is related to larger legislative issues on industry competition now being debated.
|
| Office of the Comptroller of the Currency | The three federal bank regulatory agencies should jointly establish a more consistent method of analysis for defining the relevant market when evaluating the competitive aspects of a proposed merger. |
Closed – Not Implemented
Although OCC agreed with this recommendation, no action was initiated, and it is not known when any action will commence. It contends that difficult cases are few and, in those cases, consensus on market and competitive aspects is not possible or desirable.
|
| Federal Deposit Insurance Corporation | The three federal bank regulatory agencies should jointly establish a more consistent method of analysis for defining the relevant market when evaluating the competitive aspects of a proposed merger. |
Closed – Implemented
Although FDIC agreed with this recommendation, its proposed changes were not supported by Justice and other agencies.
|
| Federal Reserve System | The three federal bank regulatory agencies should jointly establish a more consistent method of analysis for defining the relevant market when evaluating the competitive aspects of a proposed merger. |
Closed – Implemented
Although no formal agreement was made, the Federal Reserve believes that the agencies are cooperating and consistently following Justice guidelines.
|
| Office of the Comptroller of the Currency | The federal regulators should take steps to ensure that competitive factor reports are furnished to the requesting agency within the required 30 days and that the requesting agency properly considers the comments received and reconciles major conflicting conclusions. |
Closed – Not Implemented
OCC considers advisory opinions on competitive factors unnecessary and suggests that they be eliminated.
|
| Federal Deposit Insurance Corporation | The federal regulators should take steps to ensure that competitive factor reports are furnished to the requesting agency within the required 30 days and that the requesting agency properly considers the comments received and reconciles major conflicting conclusions. |
Closed – Not Implemented
No changes have been made by the regulators.
|
| Federal Reserve System | The federal regulators should take steps to ensure that competitive factor reports are furnished to the requesting agency within the required 30 days and that the requesting agency properly considers the comments received and reconciles major conflicting conclusions. |
Closed – Implemented
The Federal Reserve System developed a procedural manual that requires meeting the 30-day period.
|
| Office of the Comptroller of the Currency | OCC and FDIC should delegate responsibility to their regional offices for approving less complicated mergers. |
Closed – Implemented
Please call 202/512-6100 for information.
|
| Federal Deposit Insurance Corporation | OCC and FDIC should delegate responsibility to their regional offices for approving less complicated mergers. |
Closed – Implemented
Please call 202/512-6100 for information.
|
| Federal Deposit Insurance Corporation | FDIC should permit regional offices to officially accept all merger applications and immediately begin their processing. |
Closed – Implemented
Please call 202/512-6100 for information.
|
| Federal Deposit Insurance Corporation | The Federal Reserve System and FDIC should jointly work with state bank regulators to: (1) coordinate the federal/state review of merger applications; and (2) develop common merger application forms. |
Closed – Not Implemented
Because of the limited extent to which the Federal Reserve System works with state applications, it suggested that the cost-effectiveness of this recommendation might not make implementation workable. GAO did not study this aspect of the recommendation in sufficient detail to dispute this. However, the Federal Reserve System agreed to cooperate with states to the greatest extent possible.
|
| Federal Reserve System | The Federal Reserve System and FDIC should jointly work with state bank regulators to: (1) coordinate the federal/state review of merger applications; and (2) develop common merger application forms. |
Closed – Not Implemented
Because of the limited extent to which the Federal Reserve System works with state applications, it suggested that the cost-effectiveness of this recommendation might not make implementation workable. GAO did not study this aspect of the recommendation in sufficient detail to dispute this. However, the Federal Reserve System agreed to cooperate with states to the greatest extent possible.
|
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Bank holding companiesBank managementBanking lawBanking regulationCompetitionRegulatory agenciesCorporate mergersBank mergersMortgage marketFinancial institutions