Overview of Activity

The Federal Reserve reviewed 654 proposals in the first half of 2015, of which 582 were approved, 60 were withdrawn, 4 were mooted, and 8 were returned (table 1).² Total dispositions were nearly unchanged with 654 in the first half of 2015, compared with 645 in the first half of 2014. Similarly, the composition of proposals were consistent for both periods. The majority of proposals were merger and acquisition (M&A) proposals, FIRREA notices, branch applications, and CIBCA notices.

Table 1 also illustrates that the average number of days to approve a proposal was 43 days in the first half of 2015, compared with 46 days in the first half of 2014. The median processing time has remained steady at 30 days.

Nine percent of the proposals disposed of in the first half of 2015 were withdrawn, which is similar to the percentage in recent years. Proposals are withdrawn most often at the initiative of the applicant. However, proposals also may be withdrawn after the Federal Reserve informs the applicant that a significant issue exists that precludes an approval recommendation by staff based on staff's review of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; or there may be significant competitive issues.⁴

Of the 60 proposals withdrawn in the first half of 2015, 45 proposals were withdrawn at the initiative of the applicant without input by the Federal Reserve. Fifteen proposals raised significant issues regarding the statutory factors that must be considered by the Federal Reserve and were withdrawn after consultation with staff. Specifically, these proposals raised financial and managerial issues at the applicant (including two proposals that raised Bank Secrecy Act/anti-money-laundering compliance program issues), legal regulatory conformance issues, and CRA and fair lending issues.

Back to section top

Applications

Mergers and Acquisitions

In the first half of 2015, the volume of approved M&A proposals increased to 136, compared with 115 approved in the first half of 2014 (table 2).⁵ These types of proposals accounted for 23 percent of total approved proposals in the first half of 2015. In reviewing M&A proposals, the Federal Reserve considers the applicant's current and pro forma financial condition and future prospects, managerial resources, consumer compliance record and performance under the CRA and the Bank Secrecy Act/anti-money-laundering compliance programs, 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.

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 first half of 2015 were 63 and 41 days, respectively. In comparison, for the same period, the average and median number of days to approve all proposals were 43 and 30 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 on the CRA and the fair lending records of the applicant. Comments also may be directed at other considerations of a proposal. Proposals that involve an adverse public comment are required to be acted on by the Board as opposed to the Reserve Banks.⁷

Table 3 breaks down 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 greater than those M&A proposals not receiving such comments. In the first half of 2015, the average number of days to approve M&A proposals that did not receive adverse public comments was 53 days, compared with an average of 208 days for the eight M&A proposals that received adverse public comments.⁸

Back to section top

Pre-filing Process

Processing delays can be avoided by using the pre-filing process, which provides applicants the opportunity to work with Federal Reserve staff to receive feedback on potential issues related to acquisitions or other proposals before filing a formal application. The pre-filing process is described in the Federal Reserve's Supervisory and Regulation Letter SR 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 77 pre-filings in 2013, 72 in 2014, and 36 in the first half of 2015. The majority of pre-filings were related to potential M&A proposals and CIBCA notices. To a lesser degree, pre-filings were submitted by SLHCs that sought preliminary documentation review for dividend waiver requests. Pre-filings may or may not result in a formal filing.

Back to section top

Consumer Compliance and CRA

In evaluating M&A proposals, the Federal Reserve reviews the consumer compliance and CRA records of the acquiring and target organizations as part of its assessment of the managerial factor and convenience and needs factors. An organization's strong consumer compliance and CRA records can facilitate the review process. Conversely, unaddressed consumer compliance and 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 and CRA programs following consummation.

Back to section top

Other Analysis

Community Banking Organizations

Table 4 provides the volume and processing times of proposals most commonly submitted by community banking organizations (CBOs) according to their asset size. Small CBOs are those under $1 billion in assets, and large CBOs are those with $1 billion to $10 billion in assets. Noteworthy is that the number of state member bank branch applications submitted by small CBOs (stand-alone transactions, not related to an M&A proposal) increased to 44 in the first half of 2015, from 28 in the second half of 2014 and 37 in the first half of 2014. The increase in branch applications is due to six state member banks opening more than one branch in the first half of 2015.

Back to section top