The FDIC’s proposed overhaul of bank merger review: what financial institutions need to know

On September 22, 2026, the Federal Deposit Insurance Corporation (the FDIC) published a notice of proposed rulemaking (the Proposed Rule) that would reform how the agency reviews bank merger transactions under the Bank Merger Act (the BMA). Comments on the Proposed Rule are due by November 23, 2026.

Defining the scope of merger transactions

The Proposed Rule would define “merger transaction” to encompass six types of transactions and define “interstate merger transaction” to mean a merger that would result in a state nonmember bank operating a branch in a state other than its home state or in which it does not currently have a branch. The Proposed Rule would also define “merger in substance” to mean any transaction or series of transactions over a rolling 12-month period in which an insured depository institution directly or indirectly acquires 80% or more of the assets of another institution. This test measures the assets of the transferor, not the acquirer, and would not exempt statutory mergers or deposit-liability assumptions that independently require BMA approval. Separately, the Proposed Rule would introduce the concept of “significant asset transfers;” which are a transaction or a series of transactions with the same counterparty or its affiliates that would increase the acquiring FDIC-supervised institution’s assets by 25% or more over a rolling 12-month period. This definition excludes asset changes otherwise subject to FDIC approval or filing requirements.¹

Streamlining application review and setting standard processing timelines

​The Proposed Rule would create clear processing timelines for various types of merger transaction. These timelines would generally reduce merger application processing times, in most cases substantially compared to historical averages.

Substantially Complete Determination. The Proposed Rule would formalize when a filing is “substantially complete,” which generally starts the applicable processing period. The FDIC would have 21 days to notify an applicant that a filing is incomplete and explain what additional information is required. Otherwise, the filing would be deemed substantially complete as of the date of receipt. If the FDIC identifies deficiencies, the applicant generally would have 30 days to supply the requested information.

Rapid processing. The Proposed Rule establishes a new class of “de minimis” merger transactions, including acquisitions involving assets below both 5% of the acquirer’s assets and the annually adjusted lower Hart-Scott-Rodino Act threshold, and qualifying operating-subsidiary reorganizations that leave the institution’s legal and financial risk profile unchanged. Applicable supervisory-rating, Community Reinvestment Act (CRA), capitalization, and enforcement-status conditions must also be satisfied. Qualifying transactions would require only a streamlined letter filing and would be deemed approved within five business days after receipt of a substantially complete filing.

Expedited processing for corporate reorganizations. A qualifying corporate reorganization that is not de minimis generally would receive a decision by the later of 30 days after receipt of a substantially complete filing or, for an applicable interstate merger, five business days after the FDIC receives the required host-state confirmation. The affiliation must exist at filing and cannot arise through a related contemporaneous control transaction. An acquisition followed by a downstream bank merger therefore would not automatically qualify as a corporate reorganization.

Expedited processing for eligible institutions. The Proposed Rule would also update expedited processing currently provided for eligible institutions to apply to transactions where the total assets to be transferred do not exceed 25%, instead of 10%, of an acquiring institution’s total assets. As amended, for eligible transactions that are neither a corporate reorganization nor a de minimis transaction, the FDIC would be required to act within 45 days of receiving a substantially complete filing, or later where needed to allow for notice publication, the Attorney General’s competitive review, or host-state confirmation for interstate mergers.

Standard processing. The FDIC would act within 90 days after receipt of a substantially complete filing where the resulting institution has less than $50 billion in assets, the matter is not reserved to the FDIC Board, and consummation of the merger transaction is not dependent upon action by another federal regulator. The FDIC would act within 150 days for all other transactions. Each timeline could be extended once, by a maximum of 90 days and 120 days, respectively, for extenuating circumstances, with written notice and specific justification.

Significant asset transfers. Under the Proposed Rule, significant asset transfers would become subject to a new supervisory notice and non-objection process requiring advance written notice. and a streamlined 30-day review that can be extended up to 60 days for extenuating circumstances. If the FDIC fails to act within the applicable window, the notice would be deemed approved. Significant asset transfer transactions would not be subject to public notice, comment, or hearing requirements.

Notice publication and public hearing. The Proposed Rule would reduce the required public newspaper publications from three to two for most transactions and to one publication for corporate reorganizations. The comment period for corporate reorganizations that are not de minimis would be shortened to 15 days and eliminated entirely for de minimis transactions. The FDIC’s discretionary hearing authority would remain. The Proposed Rule would also codify a strong presumption against removing a filing from expedited processing based on adverse public comments or CRA protests, providing that such removal would be “rare” and permitted only where specific criteria are met. Removal on those grounds would require support in the supervisory record or other available information and issues sufficiently severe to affect the statutory-factor analysis. These changes would apply not only to merger filings but to all filings submitted under Part 303 of the FDIC’s rules.

Modernizing the analysis of competitive effects

The FDIC currently uses the Herfindahl-Hirschman Index (HHI) as an initial screen for competitive effects, with thrift deposits generally weighted at 50% and credit unions and centrally-booked deposits excluded. The FDIC noted that this measure of competitiveness does not take into account modern competition banks face from credit unions, fintechs and other non-bank providers of financial services. The Proposed Rule seeks to address this by (1) giving thrift deposits full weight, (2) including shares (deposits) of credit unions with branches in the relevant market (in whole or as a representative portion based on branch count), and (3) including a representative portion of centrally-booked deposits using a proposed population-based allocation. The Proposed Rule also adopts the banking market definitions defined by the Board of Governors of the Federal Reserve System (Federal Reserve) with an adjusted county-based fallback where the Federal Reserve has not defined a market. Practically, the proposed changes would reduce measured concentration for most mergers.

The Proposed Rule would also establish a competitive effects safe harbor. Absent objection from the Attorney General, the FDIC would not deny a merger on competition grounds where, in each relevant geographic market, the post-transaction HHI is 1,800 points or less, or where the HHI exceeds 1,800 but the increase in HHI is less than 200 points. A transaction that qualifies as a corporate reorganization would satisfy the safe harbor regardless of HHI levels. For transactions that exceed the safe harbor, the FDIC would consider mitigating factors, including alternative market definitions and procompetitive effects. The FDIC is also seeking comment on whether a separate, more tailored approach to competitive analysis is needed for rural markets.

The FDIC’s proposed measure of deposit market share differs from that used by the Federal Reserve and the Office of the Comptroller of the Currency (the OCC). The new FDIC measure would utilize data that is only available in the regulator version of CASSIDI, the Federal Reserve’s system for HHI analysis. Thus, financial institutions would not be able to run the same competitive screen analysis as the FDIC without significant effort and compiling of data from sources such as credit union call reports. Identifying and replicating the allocation processes for credit union and centrally-booked deposits may be difficult for applicants or potential merger partners. The FDIC acknowledges this challenge with the public-facing version of CASSIDI and states that the public-facing CASSIDI analysis should be used as a baseline “ceiling” for merger analysis.

The FDIC is seeking comment on whether the allocation of centrally-booked deposits as a representative proportion based on the relative proportion of the relevant geographic area to the total U.S. population is the best-calibrated measure to incorporate such competition for deposits.

This approach is a step in the right direction compared to the current competitive analysis which does not factor in such competitors at all. However, such an approach may still not capture all technological innovation, such as capturing potential deposit competition that may arise from new financial products such as stablecoins.

Review of other statutory factors of the BMA

In addition to the revisions to the review of competitive factors, the Proposed Rule would codify an approach to evaluating the BMA’s statutory factors, currently set out in a statement of policy that would be rescinded upon issuance of a final rule.

The Proposed Rule introduces three cross-cutting principles that would reshape the FDIC’s approach across all statutory factors. The FDIC would conduct a tailored review of each merger filing, calibrated to the transaction’s structure, scale, and materiality. The FDIC would also formally consider remediation plans that could result in a favorable finding on a statutory factor despite identified weaknesses at the acquiring institution or target. Further, the Proposed Rule would emphasize the resulting institution as the focal point of the analysis, allowing the FDIC to look beyond legacy deficiencies of the constituent institutions and consider the cumulative benefits of the merger, while continuing to consider the parties’ supervisory records. For transaction planning, applicants should prepare credible remediation plans with identified costs, responsible personnel, milestones, and integration dependencies. A general commitment to fix deficiencies after closing would not assure a favorable finding.

For the financial and managerial resources factor, the Proposed Rule would apply the focus on the resulting institution and formal consideration of remediation plans in its review. The FDIC would assess whether capital resources would be sufficient beyond the initial consummation of the merger transaction, including to cover integration costs; whether the resulting institution’s liquidity would be sufficient during and for purposes of integration; and whether remediation management has relevant qualifying expertise to operate the resulting institution, rather than focusing on operating deficiencies of the institution to be acquired. It would also review the future prospects reflected in a business plan, pro formas, and the integration plan, analyzing the future plans against the resulting institution’s risk profile, the state of its balance sheet under multiple scenarios, and its ability to integrate under a range of scenarios. Additionally, under the Proposed Rule, the FDIC would factor into its review of managerial resources the composite ratings of the acquiring institution. A composite or management rating of 1 or 2 would carry a very high probability of a favorable finding, a rating of 3 could still support approval depending on the circumstances, and a rating of 4 or 5 would be less likely to be favorable, but could still be possible depending on an effective remediation plan and other mitigating factors.

The FDIC would continue to consider CRA and compliance records and changes to branches, products, services, customer reach, and pricing. For transactions resulting in an institution with more than $50 billion in assets, the FDIC also would consider whether either party treated existing or potential customers less favorably based on political, social, cultural or religious considerations rather than on an individualized, objective and risk-based analysis. Unlike the other revisions in the Proposed Rule, this introduces an potentially subjective analysis to the FDIC’s review of merger applications, for which there is little existing precedent as to how the agency would weigh such considerations. Commenters may wish to seek additional guidance on the scope and application of this standard before it is finalized. For affected transactions, diligence should therefore cover customer-acceptance, restriction and account-closure policies and the documentation supporting risk-based decisions.

The FDIC would continue to consider the effectiveness of each participating insured depository institution in combating money laundering, including through overseas branches. Applicants should therefore identify material BSA/AML issues and associated integration or remediation requirements early in diligence.

The Proposed Rule would provide a financial-stability safe harbor if the resulting institution falls outside specified large-bank categories, the target has less than $20 billion in consolidated assets, or the transaction is a qualifying corporate reorganization or de minimis merger. Otherwise, the FDIC would assess the resulting institution’s systemic importance, changes from the applicant’s pre-merger position, and potential stability benefits, including averting the target’s failure.

What does this mean?

The FDIC has taken substantial steps to reduce merger application processing times and, in some cases, greatly streamline the application review process. Given that this only applies to transactions in which the FDIC must approve the BMA application, it raises questions regarding how this approach to merger application processing differs from those of the Federal Reserve and the OCC, including the OCC’s 2025 restoration of its expedited review and streamlined applications. Relative ease of application processing may be a factor for acquisitive state-chartered financial institutions in deciding whether or not to be a member of the Federal Reserve System. In transactions with potential competitive analysis hurdles under the current HHI analysis, the FDIC’s modernized approach could be a factor in determining which charter is the legal survivor of a merger between a state non-member bank and a state member bank or federally-chartered institution. Given that the Comptroller of the Currency sits on the FDIC board and voted to approve this Proposed Rule, it begs the question of whether the OCC may come out with a similar proposal with respect to its processing of merger applications. In summation, this should be viewed overall as a constructive proposal to align FDIC practices with the current realities facing the banking industry.

The Proposed Rule would make processing eligibility and preparation of the regulatory record important early workstreams in transaction planning. Prospective acquirers should identify the applicable processing route before signing, assess competitive effects under each relevant regulator’s approach, and prepare the capital, remediation, and integration support needed for a substantially complete filing. Merger agreements should continue to use outside dates and regulatory covenants calibrated to the entire approval path, not merely the headline FDIC decision period. Transactions involving significant asset purchases also should be tested against the new 25% rolling 12-month notice threshold. For transactions with meaningful market overlap, parties should run at least two competition analyses before signing: the proposed FDIC screen and the methodology likely to be applied by DOJ and any other responsible banking agency. For larger combinations, diligence should expressly cover fair-banking documentation, supervisory remediation and integration governance, not merely traditional CRA and branch rationalization issues.

The views in this Alert are those of Reed Smith and this Alert was not written on behalf of the Federal Deposit Insurance Corporation.
 
1. Proposed 12 C.F.R. § 303.61(f)–(j); 91 Fed. Reg. 60228–29. The 80% test concerns the transferor’s assets; the significant-asset-transfer test concerns growth of the acquiring FDIC-supervised institution.

Client Alert 2026-196