What Recent Deals Say about the Federal Reserve’s Focus on Fair Lending
Moreover, many of the institutions that obtained Federal Reserve approval for an acquisition during this period demonstrated a commitment to fair lending compliance beyond receipt of a satisfactory or outstanding Community Reinvestment Act (CRA) rating. Nearly all approved applicants had a designated CRA officer and/or CRA committee, and several applicants described detailed plans for improving community lending in particular assessment areas.
Community Benefit Plans Emerge as Important Factor for Regulatory Approval
The 2016 and 2017 M&A approvals also revealed the role of formal community benefit plans, as most clearly demonstrated in KeyCorp's acquisition of First Niagara Financial Group, and Huntington Bancshares' acquisition of FirstMerit Corporation. These two transactions received a considerable number of public comments focused on CRA and fair lending, and these large financial institutions used community benefit plans as an effective tool to demonstrate their commitment to fair lending compliance.
KeyCorp worked closely with various community organizations to develop a community benefit plan that was announced in March 2016, prior to KeyCorp's receipt of regulatory approval for its merger. Under the KeyCorp plan, KeyCorp committed to lending $16.5 billion to low- and moderate-income communities over a five-year period, with up to 35 percent of the total commitment targeted at the areas where KeyCorp and First Niagara overlapped in New York, and to maintaining a vital branch and administrative footprint in western New York. Similarly, after submitting its merger application, Huntington adopted a community benefit plan committing to invest $16.1 billion in its communities, including low- and moderate-income communities, over a five-year period.
Notwithstanding the Federal Reserve's reliance on the KeyCorp and Huntington community benefit plans in concluding that the relevant institutions are meeting the credit needs of the communities they serve, the Federal Reserve noted in the Huntington approval order that "neither the CRA nor the federal banking agencies' CRA regulations require banks to make pledges or enter into commitments or agreements with any organization." Accordingly, the Federal Reserve likely will not require a bank to make any community investment pledge to any organization in the absence of significant negative comments or, more importantly, adverse examination findings or a pending enforcement action. Nevertheless, given their apparent benefits, both for Federal Reserve applications and for general community and regulator relations, community benefit plans likely will remain a factor in the approval process for bank mergers that attract community groups' attention—and likely will help expedite the approval process in the face of adverse community group comments.
The 2016 and early 2017 merger approvals make clear that a comprehensive fair lending strategy, which may or may not include a community benefit plan, is likely to be well received by the regulators and considered in applicable approval analyses. We expect the regulatory staff of each of the federal banking regulators to continue to focus on fair lending compliance and that community groups will continue to comment actively on the fair lending compliance issues of bank M&A acquirers and attempt to influence their activities.