Dive Brief:

• PNC CEO Bill Demchak has urged the Office of the Comptroller of the Currency to revise its proposed changes to the bank merger application process, saying its current form could create confusion and potentially fuel the dominance of the very largest banks.
• The OCC’s policy statement “would only serve to further accelerate the unhealthy consolidation at the very top of the banking industry by allowing the biggest banking organizations to continue to grow unchecked,” Demchak asserted in a comment letter Thursday.
• The OCC in January issued a proposed rulemaking and related policy statement aiming to clarify standards that factor into the agency’s review of proposed bank merger transactions and enhance scrutiny to proposed mergers and acquisitions. Changes include removing the expedited bank merger procedures and enhancing clarity and transparency with regard to bank mergers. 

Dive Insight:

Among the aspects of the OCC proposal Demchak took issue with: “non-statutory” approval indicators based on asset thresholds, which could be seen as suggesting a merger application won’t be approved, he said. The OCC’s proposal says the agency would view bank merger applications as consistent with approval if they result in a bank that has less than $50 billion in total assets, or the target’s assets are less than or equal to 50% of the acquirer’s assets.

In January, Acting Comptroller of the Currency Michael Hsu said merger applications exist along a spectrum; some have “significant deficiencies” and others are “straightforward because the acquiring bank is a model of safety and soundness and has earned the trust of the community and its supervisors.”

“The majority lie somewhere in between and require varying degrees of scrutiny and multiple rounds of inquiry,” Hsu said that month. In 2021, President Joe Biden issued an executive order encouraging federal agencies to step up scrutiny of bank mergers. Last month, the Federal Deposit Insurance Corp. issued a proposed policy statement aiming to bring more scrutiny to bank merger transactions.

Demchak also asked the OCC to revise its policy statement by clarifying that the majority of applications are in the middle category, which the statement doesn’t preclude from being approved even if they require different levels of scrutiny.

“We are concerned that listing indicators of ‘easy’ and ‘hard’ deals could be misconstrued as precluding healthy bank mergers that, while in the public interest, may require additional review,” Demchak wrote. “We understand that was not the OCC’s intent.”

Demchak also called for the agency to add “clear and timely” processing times for review or action on bank merger applications. “Industry participants are currently in the dark as to the OCC’s expectations for how long it will take to review and make a decision on an application,” he wrote. “Indeed, the regulatory process has, in recent transactions, taken well over a year.”

The bank’s CEO also asked that the OCC’s policy statement highlight not just risks but also financial stability benefits of a sound acquirer buying a “troubled target institution.” PNC submitted a bid last April for First Republic before JPMorgan Chase acquired it.     

During PNC’s first-quarter earnings conference call Tuesday, Demchak said the letter was meant to point out that if the OCC intends to “freeze M&A across the country” for banks with more than $50 billion in assets, “I think you could see the outcome that will have in this country, which is a massive consolidation with the giant national banks.”

“It’s just hard to ignore” the dominance of the largest banks in the country, Demchak said Tuesday. Over the past four years, JPMorgan Chase and Bank of America have grown larger than U.S. Bank, Truist and PNC put together, Demchak said. 

“I don’t know what the regulators think or don’t think about that,” he told analysts on the call. 

In the past three decades, PNC has executed at least 65 acquisitions of bank holding companies and their subsidiary banks as well as nonbank entities, Demchak noted in his letter.

“Economies of scale matter in banking more than ever before,” Demchak wrote, “and if the U.S. banking agencies do not adopt policies promoting healthy mergers across banks of all sizes, we fear the trend of organic growth of the few, largest U.S. banking organizations will only continue to accelerate until they will be the only ones left holding the dominant share of the U.S. banking market.”

Demchak urged the OCC to “provide clear guideposts to allow banks of all sizes to consider and design mergers” that will bolster competition and financial stability by promoting more competitive challengers to those big banks. 

The OCC’s policy statement should recognize that “healthy mergers,” including bigger deals and acquisitions of “troubled” institutions, are crucial to a competitive banking industry, Demchak said. “With over 8,000 banks and credit unions in the U.S., the vast majority of which are community banks … it is unlikely that mergers of those banks squeezed in the middle — ranging from midsize banks to the largest regional banks — would have an adverse impact on the banking system’s ability to support the U.S. economy,” Demchak argued.

What the ABA says

Roughly 20 comments on the proposed changes have been filed with the OCC as of Wednesday. The American Bankers Association, in a letter Monday, asked the OCC not to scrap the rule allowing for automatic approval of bank deals on the 15th day after the end of the comment period. The current exception to that rule: if the OCC removes the filing from expedited processing. 

The trade group also pushed for clarification on the criteria the agency will consider for or against an application and said there should be consistency between the OCC’s assessment of a proposed merger’s effect on a community and its evaluations of a bank’s performance under the Community Reinvestment Act.

In its comment letter, the Mid-Size Bank Coalition of America said business combinations play an important role for banks navigating a dynamic economic and competitive landscape, but the OCC’s proposal “would be an impediment to that consolidation, as it introduces such significant uncertainty about how merger proposals will be reviewed,” wrote Brent Tjarks, the trade group’s executive director, in a Monday letter.

Additionally, the views in the OCC’s proposed policy statement differ from the FDIC’s recent proposal, Tjarks said. He urged the agencies to take a coordinated approach that would result in a single set of standards for acting on a bank merger application.

Members of the House Financial Services Committee and the Small Business Administration’s Office of Advocacy have also filed comment letters. In their Feb. 28 letter, Rep. Maxine Waters of California and other Democratic members of the House committee urged Hsu and other bank regulators to “finalize robust merger review procedures soon,” although consumer advocates have noted the OCC’s reforms may be “too modest.” 

Last week, the OCC extended the comment deadline on its proposal to June 15. Comments had originally been due by Monday.