The Regulatory Approval Process for Bank Mergers

Introduction

The regulatory approval process is what makes bank M&A fundamentally different from corporate M&A. In a typical corporate acquisition, antitrust clearance (HSR filing) is often the only regulatory hurdle, resolved in 30-60 days. In bank M&A, every deal routes through multiple federal agencies (each applying its own statutory factors), the DOJ (conducting independent antitrust analysis using deposit market concentration), and state banking regulators (sometimes in multiple states simultaneously). The process can take as little as four months under favorable conditions or stretch beyond 15 months for complex transactions. Under the current administration, approval timelines have collapsed to their shortest levels in 35 years, creating a historically favorable window for bank consolidation. For FIG bankers, understanding the approval process is not optional; it determines deal timing, structure, and ultimately whether a transaction is feasible.

The precise combination of regulators reviewing a bank merger depends on the charter type of the resulting institution, but most large deals require approvals from three or more federal agencies plus state regulators.

Federal Reserve Board: The Fed's authority derives from the Bank Holding Company Act of 1956. Any time a bank holding company acquires a bank or merges with another BHC, the Fed is the lead federal regulator. The Fed evaluates financial condition, managerial resources, competitive effects, CRA compliance, financial stability, and AML effectiveness. For large deals, the Fed solicits competitive-effects opinions from other banking agencies and the DOJ.

Office of the Comptroller of the Currency: The OCC's jurisdiction covers national banks and federal savings associations under the Bank Merger Act. When the resulting institution will be a national bank, the OCC is the primary bank-level regulator, conducting its own independent review of capital, liquidity, earnings, compliance, and managerial capacity.

Federal Deposit Insurance Corporation: The FDIC's Bank Merger Act authority applies when the resulting institution is a state nonmember bank or state savings association. The FDIC also has jurisdiction over any merger involving an insured depository institution and a noninsured institution.

Department of Justice: The DOJ receives notice of every bank merger application and conducts independent antitrust review. Unlike the banking agencies, the DOJ uses deposit market concentration as its primary competitive lens and can seek to block deals in federal court, though it has not formally done so in decades.

State regulators: Each state where the resulting institution is chartered or operates significant branches requires separate state-level approval. Delaware's State Bank Commissioner approved Capital One-Discover because Discover Bank is chartered in Delaware. Texas's Department of Banking approved Fifth Third-Comerica because Comerica is chartered in Texas.

Bank Merger Act vs. Bank Holding Company Act

Most large bank mergers require applications under both statutes simultaneously. The Bank Holding Company Act (BHC Act) applies at the holding company level whenever one BHC acquires control of another BHC or bank; the Federal Reserve is always the reviewing agency. The Bank Merger Act (BMA) applies at the bank level for mergers between insured depository institutions; the reviewing agency depends on the charter of the resulting bank (OCC for national banks, FDIC for state nonmember banks, Fed for state member banks). Capital One's acquisition of Discover required both a BHC Act application to the Fed and a BMA application to the OCC, since Capital One National Association is a national bank. This dual-filing requirement means large deals have two parallel federal review tracks running simultaneously, each with its own timeline and potential conditions.

Under both the BMA and BHC Act, regulators evaluate six factors when reviewing merger applications.

Financial resources and prospects: The resulting institution must be well-capitalized. Regulators scrutinize pro forma CET1 ratios, liquidity positions, and earnings trajectories. Acquirers with thin capital buffers or that would fall near their SCB-inclusive requirements post-deal face intensive scrutiny.

Managerial resources: Regulators assess management depth, compliance infrastructure, and the acquiring institution's supervisory track record. Unresolved consent orders or enforcement actions are, in practice, bright-line disqualifiers. TD Bank's AML/BSA deficiencies prevented the approval of its $13.4 billion acquisition of First Horizon for 15 months before the deal was terminated.

Convenience and needs of the communities: Regulators evaluate whether the combined institution will serve affected communities effectively: branch access, deposit products, small business lending, and retail credit availability.

CRA record of performance: Banks rated "Outstanding" or "Satisfactory" face no CRA barrier. Banks rated "Needs to Improve" or "Substantial Noncompliance" face presumptive denial or onerous conditions. Approximately 97-98% of banks earn Satisfactory or Outstanding ratings, so CRA is rarely the dispositive factor but remains a meaningful lever for imposing conditions.

Financial stability (added by Dodd-Frank): The Fed evaluates whether the combined institution would pose heightened systemic risk. This factor receives the most weight for deals resulting in institutions above $100 billion in assets, assessing interconnectedness, complexity, cross-border activity, and reliance on short-term funding.

AML/BSA effectiveness: Regulators explicitly evaluate whether the applicant has adequate policies, procedures, and internal controls to detect and report suspicious activity. Deficiencies here are fatal to a pending application, as TD Bank demonstrated.

The approval timeline for bank mergers has swung dramatically with the political cycle.

Under the Biden administration (2021-January 2025): The median time from announcement to approval peaked at approximately 265 days. The administration issued a July 2021 executive order directing agencies to take a harder look at financial sector consolidation. Columbia Banking System's merger with Umpqua Holdings took 504 days. NYCB's acquisition of Flagstar Bancorp took approximately 19 months (the parties eventually restructured the transaction to route through the OCC rather than the FDIC to break the logjam). TD Bank's $13.4 billion acquisition of First Horizon was terminated after 15 months with no approval date in sight, functioning as de facto denial without a formal order.

Under the current administration (2025 forward): Average deal timelines collapsed to roughly four months, the shortest in at least 35 years. Fifth Third-Comerica was announced in October 2025 and received Fed approval just 99 days later. The FDIC rescinded its tightened 2024 merger policy and reinstated the 1998 framework in July 2025. The OCC reinstated the 15-day expedited approval pathway for qualifying smaller transactions in May 2025. Congress passed a Congressional Review Act resolution nullifying the OCC's 2024 bank merger rule.

Capital One's $35.3 billion acquisition of Discover is the most significant bank merger approval of the current cycle. Announced February 19, 2024, applications were filed with the OCC and Fed in March 2024. Delaware's State Bank Commissioner approved in December 2024. The Fed held a public hearing on July 19, 2024. The OCC and Fed issued final approvals on April 18, 2025. The deal closed May 18, 2025, approximately 15 months from announcement.

The OCC's conditional approval required Capital One National Association to submit, within 120 days of closing, a supervisory plan detailing corrective action timelines for all outstanding enforcement actions against Discover Bank. Those actions included a $100 million Fed fine for merchant pricing misclassification, a $150 million FDIC fine, and an FDIC order requiring Discover to pay at least $1.225 billion in restitution to overcharged customers related to merchant interchange fee errors spanning 2007 to 2023.

The deal's approval demonstrates that even a $35 billion+ acquisition with significant pre-existing enforcement actions against the target can be approved when the regulatory environment is favorable. Conditions (not denial) are the preferred enforcement tool. The DOJ did not object to the transaction despite the deal creating the largest US credit card issuer.

The DOJ evaluates competitive effects using deposit market concentration measured by the Herfindahl-Hirschman Index (HHI). HHI is calculated as the sum of the squares of each competitor's deposit market share in a defined geographic market.

The 1995 Bank Merger Guidelines (in force until September 2024) flagged transactions that increased HHI by more than 200 points in a market where post-merger HHI exceeded 1,800. In September 2024, the DOJ withdrew from the 1995 guidelines and applied its 2023 Merger Guidelines supplemented by a Banking Addendum. Under the new standard, a presumption of competitive harm arose if HHI increased by more than 100 points (not 200) in a market exceeding 1,800 post-merger, or if the resulting institution's deposit share exceeded 30% in any relevant market. The 2024 Addendum also expanded review beyond deposit share to include payment networks, platform effects, and branch overlap analysis.

Under the current administration, the DOJ has not formally rescinded the 2023 guidelines or the 2024 Banking Addendum, but enforcement posture has shifted to non-objection. Where deposit concentration raises concerns, the standard remedy is requiring branch divestitures in overlapping markets. US Bancorp was required to divest three Union Bank branches in San Bernardino County, California, as a condition of its acquisition of MUFG Union Bank in 2022.

The regulatory approval process is the execution risk that separates bank M&A from corporate M&A. In corporate deals, the question is "will the deal close?" In bank deals, the question is "when will the deal close, and under what conditions?" The current environment, with approval timelines at multi-decade lows and the regulatory framework explicitly favoring consolidation, creates a historically favorable window for bank M&A. FIG bankers who understand the approval mechanics can advise clients on timing, structuring deals to minimize regulatory friction, and anticipating the conditions that agencies are likely to impose.