Regulatory Approval for Bank Acquisitions
Every bank acquisition in the United States requires approval from one or more federal and state banking regulators. This is a meaningful source of both timeline risk and deal risk that doesn't exist in most other industries.
Which Regulators Are Involved
The primary regulator depends on the acquirer's charter type. National banks file with the Office of the Comptroller of the Currency (OCC). State-chartered banks that are Federal Reserve members file with the Fed. State-chartered banks that are not Fed members file with the FDIC. If the acquirer is a bank holding company, the Federal Reserve reviews the deal at the holding company level regardless of the bank's charter. State banking departments also have approval authority over state-chartered targets.
In practice, most deals require approval from at least two regulators, and larger deals may involve three or four.
What Regulators Evaluate
The review covers several areas:
- Competitive effects: whether the combined bank would control too large a share of deposits in any local market. The Department of Justice also screens bank deals using deposit concentration thresholds.
- Financial condition: whether the acquirer has sufficient capital and earnings capacity to absorb the target and any integration costs.
- Management capability: whether the acquirer's management team can run the larger combined institution effectively.
- Community Reinvestment Act (CRA) record: both banks' track records of lending to and investing in the communities they serve. A poor CRA rating on either side can delay or complicate approval.
- Financial stability: for larger deals, whether the combination would increase systemic risk.
Typical Timelines
Routine deals between healthy banks with no competitive overlap issues typically take four to six months from application to approval. More complex deals, particularly those involving larger banks, competitive overlap in concentrated markets, or banks with outstanding regulatory concerns, can take eight to twelve months or longer.
Public comment periods add to the timeline. Community groups or other stakeholders can submit comments opposing a deal, and regulators must address these before issuing a decision. High-profile deals sometimes attract organized opposition campaigns that extend the review period.
What Can Block a Deal
Outright deal denials are rare but not unprecedented. More commonly, regulators signal concerns during the review process that lead the parties to modify or withdraw the application. Excessive deposit concentration in a local market is the most common obstacle, and acquirers sometimes resolve this by agreeing to divest branches in the overlapping area.
Outstanding enforcement actions against either bank can also stall a deal. A bank operating under a consent order or memorandum of understanding may need to resolve those issues before regulators will approve an acquisition, whether that bank is the buyer or the target.
Related Articles
- Bank M&A Deal Structures — Deal structure affects the regulatory capital analysis during approval review
- Value Creation and Destruction in Bank M&A — Regulatory delays and conditions can affect the economics of a deal
Related Metrics
- Tangible Common Equity (TCE) Ratio — Post-deal capital adequacy is a key regulatory evaluation factor
- CET1 Capital Ratio — Regulators assess whether the acquirer maintains adequate CET1 after the deal closes