By Jesse M. Coleman and Eron Reid

Seyfarth Synopsis: On March 21, 2024, the Federal Deposit Insurance Corporation (“FDIC”) approved a Federal Register notice seeking public comment on its proposal to revise its current Statement of Policy on Bank Merger Transactions. Among the proposed revisions, the agency’s proposal will prohibit non-compete agreements in bank mergers in which the selling bank is required to divest all or a portion of its business lines or branches.

The FDIC is one of three federal banking agencies charged with responsibility for evaluating bank transactions subject to Section 18(c) of the Federal Deposit Insurance Act, also known as the Bank Merger Act (“BMA”). The Bank Merger Act requires regulatory approval for any merger transaction involving an FDIC-insured depository institution (“IDI”), including mergers involving an IDI and any non-insured entity. Under the BMA, the federal banking agencies are prohibited from approving bank mergers that would have monopolistic effects as well as mergers that “do not constitute a monopoly, but that would nonetheless substantially lessen competition, tend to create a monopoly, or otherwise be in restraint of trade.”

To mitigate the potential monopolistic or anticompetitive effects of a bank merger, the FDIC has the authority to mandate that an institution divest certain of its business lines, branches, or portions thereof before allowing the merger to be completed. The FDIC’s proposed revisions to its statement of policy will also prohibit the selling institution from entering into non-compete agreements with any employee of the divested entity or from enforcing any existing non-compete agreements with any of those entities. The proposal is intended to “promote the ongoing competitiveness of the divested business lines, branches, or portions thereof.”

The FDIC’s current statement of policy addressing its process for reviewing proposed bank mergers was last amended in 2008. Since its last revision, the FDIC states, amendments to the BMA and changes to the banking industry and financial system have led to continued growth and consolidation that has spurred a significant reduction in the number of smaller banking organizations in favor of large and systematically important (read: “too big to fail”) banking organizations  and contributing to the need for an updated review of the applicable regulatory framework. The agency cites to the statistic that, at the end of 2023, IDIs with total assets in excess of $100 billion comprise less than one percent of the total number of IDIs, yet they hold approximately 71 percent of total industry assets and 68 percent of American deposits.

The current proposal does not include any bright lines or specific metrics to determine which transactions may be presumed anticompetitive, stating that it did so to “maintain flexibility to appropriately evaluate the facts and circumstances of act application filed.” However, the FDIC notes that it may consult with the Department of Justice on mergers it believes may raise anti-competitive concerns.

The FDIC’s proposed rule is just the latest in the ongoing trend of state and federal agencies’ attempts to curtail or outright ban the use of non-compete agreements for employees. As noted here and here, both the FTC and NLRB’s general counsel have weighed in on this issue, promulgating proposed rules and legal opinions seeking to ban non-competes nationwide.

Public comment on the FDIC’s proposal will remain open for 60 days after its publication in the Federal Register.