President's Message: How Impartial is the Fed's Review of Bank Mergers?

Thomas C. Melzer

The Fed's review of banking merger and acquisition applications has drawn fire from both sides of the fence recently. Bankers say the review process is too cumbersome. Others—such as community groups—say the Fed approves the transactions too quickly and gives short shrift to public comments about them.

The reality is that every merger or acquisition proposal we receive gets an appropriately thorough review, one that is conducted by Reserve Bank staff members who have a broad range of expertise:

  • Fed financial analysts review the financial and managerial aspects of the proposal. Will the resulting organization have sound asset quality, sustained profitability and remain well capitalized? Is the proposed management capable of handling the challenges that come with a larger organization?
  • Fed economists review the proposal's competitive aspects. Will competition between depository institutions decline significantly in any market served by the larger organization? Are there likely to be increases in efficiency or other public benefits?
  • Fed attorneys review the transaction for compliance with federal and state banking laws and regulations. Does the proposal, for example, violate restrictions on interstate acquisitions?

Feedback from other federal supervisory agencies, as well as the public, is also taken into account. When the comments allege discrimination or deficiencies in a bank's lending, investment or other services to low- and moderate-income borrowers, our Community Affairs officer will arrange meetings between the banks and interested parties to discuss the issues and possible solutions. At times, our approval of the transaction may hinge on the institution's commitment to improve its lending record.

Similarly, if our review identifies other significant problems, we may impose certain commitments on the organization—for example, temporary restrictions on the future dividends it can offer—to ensure that its proposal meets the proper standards. In some cases, these restrictions have caused an institution to withdraw its proposal.

All of this analysis occurs in what I consider to be a reasonable time frame. Most applications are accepted as "complete"—that is, all pertinent information has been submitted for review—about 30 days after the initial filing. Many applications are approved by the local Reserve Bank within 30 days thereafter. Applications involving protests or key policy matters are forwarded to Washington for further review by the Federal Reserve's Board of Governors.

In sum, our goal is to ensure that the banking industry evolves in a way that both preserves the benefits of competition for consumers, businesses and the public and ensures a safe, sound banking system. I believe our process achieves that goal.


Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.

Subscription Options

Additional Fed Publications

Fed in Print: An index of the economic research conducted by the Fed.