Credit unions looking to expand through bank acquisitions should be aware of important new guidance from the Federal Deposit Insurance Corporation (FDIC). This guidance, outlined in the FDIC's updated Statement of Policy on Bank Merger Transactions, provides clarity on how the FDIC will evaluate and process mergers between credit unions and banks. Here's what credit union leaders need to understand about this development:
FDIC Vice Chairman Travis Hill voted against this final rule for many reasons. He stated "I also continue to oppose imposing an affirmative burden on applicants to demonstrate the merger would better meet the convenience and needs of the community, and am unpersuaded by the preamble’s suggestion that Congress intended a mandate that the FDIC “take into consideration” the convenience and needs of the community to impose an affirmative burden on applicants. "
1. FDIC Approval Required
Any merger between a credit union and an FDIC-insured bank must be approved by the FDIC, regardless of whether the credit union is the acquirer or the target. This is because credit unions are considered "noninsured institutions" under the Bank Merger Act (BMA).
2. Same Statutory Factors Apply
Credit union acquisitions of banks will be evaluated using the same statutory factors as bank-to-bank mergers. These include:
- Effect on competition
- Financial and managerial resources
- Future prospects
- Convenience and needs of the community
- Risk to the stability of the U.S. banking system
- Effectiveness in combating money laundering
3. Additional Scrutiny on Community Impact
Since credit unions are not subject to the Community Reinvestment Act (CRA), the FDIC may require additional information to evaluate how the merger will affect the convenience and needs of the community. Be prepared to provide robust data on how your credit union will serve the bank's existing customers and communities.
4. Special Considerations for Member Transition
The FDIC will pay close attention to how bank customers will be transitioned to credit union membership. Expect to provide detailed plans addressing:
- Membership eligibility requirements
- Opt-in procedures for credit union membership
- Timelines for transferring ineligible accounts
- The overall account transfer process
- Changes in deposit insurance coverage
5. Regulatory Coordination Required
Credit unions should expect significant coordination between the FDIC, NCUA, and any relevant state regulators. This may include the execution of information-sharing agreements between agencies.
6. Deposit Insurance Termination Process
If your credit union is acquiring a bank, you'll need to work with the FDIC to properly terminate the bank's deposit insurance under Section 8(p) of the Federal Deposit Insurance Act.
What This Means for Credit Unions
While this guidance doesn't fundamentally change the ability of credit unions to acquire banks, it does formalize the FDIC's approach to these transactions. Credit unions considering bank acquisitions should:
1. Engage early with the FDIC and other relevant regulators
2. Prepare comprehensive plans for integrating bank operations and customers
3. Develop clear communication strategies for bank customers about the transition
4. Be ready to demonstrate how the acquisition will benefit the community
5. Work closely with legal counsel familiar with both credit union and bank regulatory frameworks
By understanding and proactively addressing these regulatory expectations, credit unions can navigate the bank acquisition process more smoothly. While these transactions remain complex, this guidance provides a clearer roadmap for credit unions looking to grow through this strategy.
Remember, each transaction is unique, so always consult with your regulatory and legal advisors when planning a bank acquisition.
Reach out to learn how we assist our clients with NCUA so they save time and money.
Comments