March 21, 2017
Bank M&A: Fed Expands Financial Stability Safe Harbor
This Simpson Thacher memo reports that a recent Fed order approving a proposed acquisition by Peoples United Financial contains good news for many future bank deals. That’s because the order expanded the presumptive safe harbors that the Fed applies when reviewing bank M&A proposals for risks to U.S. financial stability. Here’s an excerpt:
Since 2012, the Federal Reserve has presumed that a proposal that involves an acquisition of less than $2 billion in assets or that results in a firm with less than $25 billion in total assets does not raise material financial stability concerns, absent evidence that the transaction would result in a significant increase in interconnectedness, complexity, cross -border activities, or other factors.
In the People’s United Order, the Federal Reserve said that its “experience has shown that proposals involving an acquisition of less than $10 billion in assets, or that result in a firm with less than $100 billion in total assets, are generally not likely to create institutions that pose systemic risks.”
Accordingly, the Federal Reserve will now presume that a proposal does not raise material financial stability concerns if it involves the acquisition of less than $10 billion in assets or results in a firm with less than $100 billion in total assets, absent evidence that the transaction would result in a significant increase in interconnectedness, complexity, cross-border activities, or other factors.
For deals that qualify under the revised safe harbor, this change will substantially reduce the need to provide information relating to financial stability risk & may accelerate the Fed approval process.
– John Jenkins