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Chaos at the FDIC—What Portends for Banks in 2022

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The Palace Coup

Recent events at the FDIC leading up to the resignation of Chairman Jelena McWilliams foreshadow a challenging year for banks in 2022. The unprecedented power struggle at the FDIC whereby a majority of the Board initiated a public comment process on the agency’s bank merger process reflects the current political climate in Washington, D.C. I believe this is just the beginning and is an outgrowth of the Biden administration’s recent edict about mergers in general and related antitrust and competitive aspects. Much of this is being fueled by Senator Elizabeth Warren.

What This Means for Banks

On the M&A front, there will undoubtedly be closer scrutiny and longer processing periods as the federal banking agencies come up with new guidelines and processes to satisfy the Biden edict. I would plan for all deals to have an elongated review process, with the larger mergers, or those involving branch closures and significant layoffs, to experience major hurdles. Merger agreements will need to address this timing issue with extended “end” dates. In addition, my sense is that non-compete agreements as part of a merger will not be permitted. This will clearly open the door for community groups to extract deals from banks as a quid pro quo to allow the merger to go forward. Further, I can see the government making banks their agent in enforcing climate change practices through lending restrictions. This will parallel banks’ efforts on the money-laundering front, where they effectively do the government’s job.

Other Likely Developments

Fintech and cryptocurrency activities also will likely receive enhanced scrutiny—as any expansionary actions (including new products and services) will be viewed under a microscope. While rising interest rates could improve banks’ margins, those improvements could be offset by a slowing economy due to inflation and the continuing ravages of COVID.

In Summary

I sense overall that 2022 will be a challenging year for banks from a regulatory perspective as we go through the metamorphosis of changes in the way banks expand through acquisitions and their products and services.