Headlines
- FDIC and OCC Announce Withdrawal of 2024 Changes to Bank Merger Policies
- U.S. Supreme Court Decision Strengthens the Federal Reserve's Independence
- OCC Issues Guidance on Bank Crypto-Asset Custody and Execution Activities
- Federal Watchdog Urges FDIC to Act on Bank Supervision and Tech Recommendations
- Other Development: Deposit Insurance Fund and Interstate Loan-to-Deposit Ratios
1. FDIC and OCC Announce Withdrawal of 2024 Changes to Bank Merger Policies
The FDIC and OCC have rescinded policy statements adopted in 2024 that changed the ways each agency considered bank merger transactions and have reinstated their prior procedures for evaluating bank mergers. The FDIC on May 20 approved the rescission of its 2024 Statement of Policy on Bank Merger Transactions and reinstated the Statement of Policy on Bank Merger Transactions that was in effect prior to 2024. The FDIC’s reinstated statement of policy will become effective 30 days after it is published in the Federal Register, which is expected shortly. The OCC on May 8 issued an issued an interim final rule to rescind its 2024 amendments to its regulations for business combinations involving national banks and federal savings associations and rescinded a related policy statement on bank mergers that was issued at the same time as the 2024 amendments. The interim final rule restores provisions in the OCC’s regulations related to expedited review and the use of the streamlined business combination application. Click for more information about the FDIC's bank merger policy. Click for the OCC's interim final rule about bank merger.
Nutter Notes: Both the FDIC and OCC announced that they will continue to consider comments from the public about changes to their respective approaches to their consideration of bank merger applications. The FDIC announced that it will review all aspects of the regulatory framework governing the evaluation of bank mergers, and that the agency expects to seek additional public comment in connection with its future review of bank merger policy. The OCC invited comments from the public on all aspects of its interim final rule, including comments the OCC should consider on any future policy statement about the evaluation of bank mergers.
2. U.S. Supreme Court Decision Strengthens the Federal Reserve’s Independence
A recent U.S. Supreme Court decision involving the President’s power to remove the leadership of certain government agencies may strengthen the Federal Reserve’s independence. The Supreme Court on May 22 in Trump v. Wilcox granted the government’s application for a stay of a lower court order that had enjoined the President’s removal of a member of the National Labor Relations Board and a member of the Merit Systems Protections Board. While the opinion issued is only temporary and will await further briefing and argument, the Supreme Court’s decision suggests that it is likely that the President’s executive power under Article II of the Constitution overrides any statutory for-cause removal protections for government bodies that exercise considerable executive power. More interestingly, the Supreme Court’s order also includes a note addressing the argument that such an opinion must also implicate the for-cause removal protections statutorily granted to members of the Board of Governors of the Federal Reserve System. The Supreme Court rejected that argument endorsing the constitutionality of the for-cause removal protections for Federal Reserve governors based on its reasoning that “[t]he Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” Click for a copy of the Supreme Court's opinion.
Nutter Notes: The decision by the U.S. Supreme Court suggests a constitutional protection for members of the Federal Reserve’s Board of Governors. Legal analysts are divided over the strength of the argument that the Federal Reserve’s unique structure and history is enough to withstand challenges over time to its structure, some saying that it is only a matter of time before there is a successful challenge to its structure while others say the structure is truly unique among federal agencies. As for banks, while this decision provides more certainty from a monetary policy perspective moving forward, the impact on the Federal Reserve’s bank regulatory authority has changed very little. Over the last decade, the OCC and FDIC’s bank regulatory policies have been more likely to fluctuate with changes in administration, while the Federal Reserve has been slower to change. This gradual change at the Federal Reserve can in part be explained by its independence. For example, the OCC and FDIC adopted new bank merger policies in 2025 only to rescind them this month and return to the pre-existing bank merger policies, while the Federal Reserve’s merger policy never changed. In addition, the OCC and FDIC this year took quick action on issues like reputational risk and digital assets while the Federal Reserve has moved slower. This trend is likely to continue given this month’s signal by the Supreme Court.
3. OCC Issues Guidance on Bank Crypto-Asset Custody and Execution Activities
The OCC has released new guidance clarifying permissible bank activities related to crypto-asset custody and execution services. The OCC published Interpretive Letter no. 1184 on May 7, which confirms that national banks and federal savings associations may buy and sell assets held in custody at their customer’s direction. The guidance also confirms that national banks and federal savings associations are permitted to outsource to third parties bank-permissible crypto-asset activities, including custody and execution services, subject to appropriate third-party risk management practices. The OCC also reminded national banks and federal savings associations that they must conduct crypto-asset custody activities, including activities conducted through a sub-custodian, in a safe and sound manner and in compliance with applicable law. Click for a copy of the OCC's new guidance.
Nutter Notes: As discussed in OCC Interpretive Letter no. 1184, if a national bank or federal savings association acts in a fiduciary capacity, including with respect to crypto-asset custody and execution services, the institution must comply with 12 C.F.R. part 9 or 150, as applicable. Prior OCC guidance has addressed the authority of national banks and federal savings associations to provide crypto-asset custody services. The OCC has previously clarified that national banks and federal savings associations may provide crypto-asset custody services in either a fiduciary or non-fiduciary capacity under applicable statutory authority. The OCC concluded that providing crypto-asset custody services is a modern form of traditional bank custody activities. While the OCC’s guidance only applies to national banks and federal savings associations, state law authorizes Massachusetts banks to engage in an activity that is permissible for a national bank or federal savings association if that the activity is not otherwise prohibited by applicable law. The exercise of such authority by a Massachusetts bank is subject to prior notice to, and non-objection from, the Massachusetts Commissioner of Banks and requires that the activity be subject to the same limitations and restrictions that are applicable to a national bank or federal savings association.
4. Federal Watchdog Urges FDIC to Act on Bank Supervision and Tech Recommendations
The U.S. Government Accountability Office (GAO) sent a letter to FDIC Acting Chairman Travis Hill calling attention to previous GAO recommendations on which the FDIC has not yet acted. The GAO’s letter dated May 19 urges Acting Chairman Hill to act on a 2023 GAO recommendation for the FDIC to establish procedures—such as vetting meetings—to ensure that FDIC management formally consult with the examination team and relevant stakeholders before making substantive changes to examination findings for certain banks. The letter also urges the FDIC to act on a 2023 GAO recommendation to establish an ongoing coordination mechanism for addressing crypto-asset risks in a timely manner. The GAO stated that such a mechanism, if established jointly with the other federal banking agencies, would help bank regulators “collectively identify risks and develop and implement a regulatory response in a timely manner.” Click for a copy of the GAO's letter.
Nutter Notes: The GAO explained that its recommendations addressing bank supervisory procedures also include periodic assignment rotations for certain case managers. The bank supervisory recommendations were made in response to high-profile bank failures in 2023 that were reviewed by the GAO. The GAO indicated that implementing its recommendations could better ensure that FDIC examination escalation decisions “are independent and evidence-based.” The GAO’s letter also addressed a number of other outstanding policy recommendations that have been made to the FDIC, including a recommendation that the federal banking agencies communicate in writing to banks that engage in third-party relationships with fintech lenders on the appropriate use of alternative data in the underwriting process. The GAO suggested that the FDIC and other agencies should clarify the issues banks should consider when selecting types of alternative data that may be used by their fintech lending partners.
5. Other Developments: Deposit Insurance Fund and Interstate Loan-to-Deposit Ratios
- FDIC Issues Update on Deposit Insurance Fund Restoration Plan
The FDIC on May 20 released a semiannual update on the Restoration Plan for the agency’s Deposit Insurance Fund (DIF), projecting that the reserve ratio remains on track to reach the statutory minimum of 1.35% ahead of the statutory deadline of September 30, 2028.
Nutter Notes: The FDIC announced that the DIF reserve ratio has increased by 6 basis points—from 1.22% as of June 30, 2024, to 1.28% as of December 31, 2024—due to growth in the DIF balance and slower-than-average insured deposit growth. Click for a copy of Acting Chairman Hill's statement on the Deposit Insurance Fund Restoration Plan.
- Federal Bank Regulators Update Host State Loan-to-Deposit Ratios
The federal banking agencies on May 12 jointly issued an update to the host state loan-to-deposit ratios that the agencies use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which generally prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. Click for a copy of the updated loan-to-deposit ratios.
Nutter Notes: To determine compliance with the law, a federal banking agency first compares a bank’s estimated statewide loan-to-deposit ratio to the estimated host state loan-to-deposit ratio for a particular state. If the bank’s statewide loan-to-deposit ratio is at least ½ of the published host state loan-to-deposit ratio, the bank is in compliance the law. Otherwise, a second step is conducted to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.
