FDIC rescinds Biden-era merger policy, slew of pending rules

The board of the Federal Deposit Insurance Corp. Monday voted to issue a proposed rule to supersede a Biden-era statement of policy applying heightened scrutiny on bank mergers and withdrew several pending rules issued late last year. 

The proposed rule would nullify standards finalized in 2024, reinstating the prior bank merger standards — issued in 2008 — on an interim basis while the board charts a new course on bank mergers. The proposal will be open for public comment for 30 days following publication in the Federal Register.

“The proposal approved today seeks to address concerns the 2024 Statement added considerable uncertainty to the merger application process,” a release stated. “While the FDIC considers broader revisions to its merger policy, the FDIC is proposing to return to its historical approach, which is well-understood by market participants.”

The move is one of the first major deregulatory efforts undertaken by the Trump administration’s FDIC to undo policies finalized under the Biden administration. Former FDIC Chair Martin Gruenberg shepherded the merger policy through the board last year, proposing the rule in March 2024 and finalizing it in September. 

The Bank Merger Act of 1960 mandates that the primary federal regulator overseeing the post-merger bank must grant approval of the merger transaction. By law, the FDIC is required to consider any effects on competition, future prospects of the institutions, money laundering compliance, community needs and financial stability in evaluating each merger.

The 2024 final statement of policy subjects prospective mergers to greater scrutiny, with a particular emphasis on the financial stability of post-merger firms and community engagement. It also puts a greater emphasis on assessing the post-merger institution’s financial stability and capacity to adequately serve the needs of low- and moderate-income individuals in the areas where they operate.

While the board considered the proposal last year, FDIC Vice Chair Travis Hill — now the acting FDIC chair — voted against the 2024 measure, saying the proposal added unnecessary complexity and opaqueness to an already slow and arduous process. 

Capital Alpha Partners analyst Ian Katz said the move was inevitable, since the Trump administration has made it clear that it is taking a pro-business stance on regulation and M&A activity. 

“It was just a matter of time before the FDIC ripped up the Marty Gruenberg-led policy statement,” he said. “Under Hill, or whoever ends up leading the FDIC long-term under Trump, the bank merger process will become more flexible and almost certainly make it easier for deals to be approved.”

The 2024 SOP would have considered additional products other than deposits — which were historically the metric used to evaluate competitiveness — when considering the competitive effects of a transaction. Monday’s proposal, if finalized, would instruct the FDIC to rely on the Herfindahl-Hirschman Index — a longtime metric of market concentration — to gauge whether or not a proposed merger limits market competition.

Relatively few large banks fall directly under FDIC supervision for merger review purposes, and so the FDIC’s policy has a relatively limited impact on merger activity overall. The OCC also issued an updated merger review policy in the form of a final rule on bank mergers, which has also been criticized by bank industry allies. 

Banking experts note the OCC’s bank merger application standards — unlike the FDIC’s, which was technically a statement of policy — constitutes a final rule, and thus could be subject to the Congressional Review Act, a law allowing Congress to nullify executive agency regulations. The agency — now led by acting Comptroller Rodney Hood — could also move to deregulate itself, says Katz.

“We expect that the OCC, which has its own bank merger policy statement and rule from last September, will similarly start anew on its bank M&A process,” Katz said. “As we wrote at the time, the Biden-era FDIC and OCC policies created a lot of regulatory hoops for M&A applicants to jump through.”

The board also separately gave institutions more time to comply with a portion of a finalized rule regarding display of the FDIC logo on digital channels. The FDIC adopted a final rule in December 2023 that amended the FDIC’s signage and advertisement requirements for IDIs, including by requiring FDIC-insured depository institutions to display a new digital official FDIC sign near the name of their bank on all websites and mobile platforms by 2025.

While the rule’s compliance date was set for May 1, the agency has decided to extend the compliance deadline to March 1, 2026.

The remainder of the rule’s amendments — those governing FDIC logo’s display in physical branches and other bank locations — will still take effect as scheduled on May 1, 2025. The postponement of the digital signage rule, the agency said, allows time for potential further action to revise the proposal. 

“Consistent with Section 18 of the FDI Act, the FDIC will continue to promote proper disclosure of FDIC insurance,” the agency said in a release. “However, the new requirements to display the FDIC official digital sign continue to generate questions regarding implementation, and may result in consumer confusion.”

The FDIC board also withdrew four unfinished proposed rules from the Biden administration that were widely expected to be revoked under Trump.

One of the proposals withdrawn Monday would have expanded the definition of brokered deposits — sometimes known as “hot money” — and likely discourage banks from holding them. Bank advocates argued that the 2024 proposal was overly broad, punitive and unjustified.

The FDIC also withdrew a proposal that revised corporate governance requirements for bank boards that expanded the fiduciary responsibilities for bank boards and expanded the banks for which such standards applied. 

A third proposal withdrawn Monday relates to the Change in Bank Control Act. The proposal would have given the FDIC a more active role in reviewing acquisitions of shares in FDIC-supervised banks by large asset managers, eliminating their ability to self-certify control status and requiring direct regulatory scrutiny of their influence.

The FDIC also withdrew an executive compensation rule that would have required larger banks to defer executive incentive pay, implement clawbacks for misconduct and enhance risk management.