Top US bank overseer to unveil merger policy proposal

(Reuters) - The U.S. Federal Deposit Insurance Corporation on Thursday is set to become the latest American regulator to propose new policies for mergers among banks amid the instability that continues to rattle midsize lenders.

The FDIC's board of directors, comprising Democratic and Republican officials, is due to convene at 10 a.m. ET (1400 GMT) to discuss the proposal, details of which have not yet been published.

A separate bank oversight agency, the U.S. Office of the Comptroller of the Currency, in January proposed new guidance on merger reviews it would said would make the process more transparent.

After three of the largest-ever U.S. bank failures last year, lawmakers from both major parties have lambasted the FDIC's handling of subsequent mergers.

Financial reform advocates such as Democratic Senator Elizabeth Warren have expressed outrage that regulators allowed Wall Street giant JPMorgan Chase & CO, already the nation's largest bank, to acquire the failed First Republic Bank last year.

In the wake of the 2023 bank failures, FDIC Board Member Rohit Chopra, a Warren ally who heads the U.S. Consumer Financial Protection Bureau, pledged tougher scrutiny of merger applications.

Treasury Secretary Janet Yellen said meanwhile that officials were likely to be open to mergers of regional banks facing earnings pressure.

Bank executives on the other hand have complained that regulators' foot-dragging has helped depress merger activity among healthy banks to historic lows.

"It is hard for us to see how CFPB Director Rohit Chopra backs any merger policy that is not critical of large bank combinations," Jaret Seiberg, financial services policy analyst at TD Cowen, said in a note this week.

Given likely Republican opposition to the proposal on the FDIC board, Chopra's vote will be "critical," according to Seiberg.

Despite misgivings about New York Community Bank's exposure to commercial real estate and earlier concerns from FDIC officials, OCC in 2022 approved its merger with Flagstar Bank of Michigan.

FDIC then approved NYCB's takeover of the failed Signature Bank last year. The combined entity reported a surprise loss in January and received a $1 billion capital infusion this month as rescue from a group of investors, including former U.S. Treasury Secretary Steven Mnuchin.

(Reporting by Douglas Gillison and Pete Schroeder; Editing by Aurora Ellis)