Top Five Takeaways From the Regulatory Orders Approving the U.S. Bank/Union Bank Combination

Financial Services Law

On October 14, 2022, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB) both approved the acquisition of MUFG Union Bank, National Association, by U.S. Bancorp and its subsidiary U.S. Bank National Association. The approvals were eagerly anticipated not only by the constituent parties to the acquisition but also by many observers of the bank M&A market who were also curious whether President Biden’s 2021 executive order (the “Executive Merger Order”) encouraging bank regulatory agencies to provide more robust scrutiny of mergers would affect this sizable transaction.

The approval orders from the OCC and the FRB, respectively, highlight key considerations that bankers and their advisors should consider when contemplating an acquisition. Here is our top five:

1. Meeting the Needs of the Community Remains Front and Center

Responding to the vast number of written comments and oral observations and testimony about the transaction and its effect on the resulting bank once the merger is completed (the “Resulting Bank”), the OCC and FRB devote the majority of their approval orders to how the proposed transaction will affect the convenience and needs of the communities these banks serve. Recognizing the three prongs financial supervisors apply to evaluate how well a financial institution meets the credit needs of its entire community (the lending test, service test and investment test), both the OCC and FRB provide a detailed evaluation of each institution’s performance in multiple jurisdictions, which should provide caution to other prospective acquirers to remain vigilant in their CRA performance across their platforms.

While both regulatory agencies remain focused on the physical branch presence of the Resulting Bank (particularly in low-to-moderate-income (LMI) communities), the OCC did tip its hat in recognition of hybrid physical and digital delivery of banking services and that U.S. Bank’s commitment to investing in digital channels to improve customer experience is valuable. Of note, both U.S. Bank and Union Bank had received “Outstanding” CRA ratings at their most recent CRA exams, though both exams significantly trailed the filing of the merger applications,1 and U.S. Bank has made significant ongoing commitments (including financial) to maintain a robust physical branch presence, including in LMI areas.

2. Certain Types of Regulatory Orders Are Not Automatic Disqualifiers to Mergers

Union Bank entered into a 2021 consent order with the OCC addressing outstanding safety and soundness concerns related to its technology and operational risk management and noncompliance with certain interagency guidelines relating to information security. U.S. Bank entered into a 2022 consent order with the Consumer Financial Protection Bureau (CFPB) relating to acts or practices that violated federal consumer laws and including practices which the CFPB concluded led consumers to open banking products without their consent. Both the OCC and the FRB acknowledge the existence of the consent orders and, based on the language set forth in the approval letters, have consulted amongst themselves and with the CFPB regarding these orders. Of note is that the OCC approval requires U.S. Bank as the surviving bank to continue to abide by the terms of the disappearing bank’s consent order. While certain regulatory orders in areas such as CRA may be nonstarters for strategic combinations, we believe that the approval of this transaction demonstrates some regulatory flexibility when parties to a merger have implemented demonstrable corrective actions which address regulatory concerns.

3. Moving Down the Ladder for Systemic Importance

While the Resulting Bank from this merger will remain substantially smaller than the four globally systemic important banks (GSIBs) in our financial system, the regulatory agencies acknowledge that failure of the Resulting Bank could result in some damage to our financial system. Accordingly, the regulators have reached down the ladder of large institutions to impose additional requirements on the Resulting Bank to “…develop a list of business lines and/or portfolios that could be sold quickly in the event of stress, and…prepare a plan to effectuate such separability, including through the establishment of a ‘data room’ that includes or could be quickly populated with information pertinent to a potential divestiture…” While these financial stability conditions may not arise in future merger transactions involving smaller community or regional banks, we believe the regulatory imposition of these conditions on the Resulting Bank could presage similar conditions on other larger transactions.2

4. CFPB Views Are Important

Although the CFPB does not have direct regulatory approval authority over the combination of Union Bank and U.S. Bank, the CFPB played both a direct and indirect role in the approval of this transaction, whether through its comments on progress U.S. Bank had made under its consent order or insights it provided regarding the merger partners’ consumer compliance and fair lending records. We anticipate that the CFPB’s influence on smaller transactions will continue to rise through the next merger cycle as it has the opportunity to examine with increasing frequency more financial institutions for their adherence to consumer compliance regulations.

5. What Is the Impact of the Executive Merger Order Following This Transaction?

Included within the Executive Merger Order was a recommendation that the Attorney General, in consultation with the heads of the various bank regulatory agencies, review current practices and adopt a plan for the “revitalization” of bank merger oversight to provide more extensive scrutiny of mergers.

In his companion comments to the Executive Merger Order, President Biden noted that the United States has lost, over the last four decades, 70% of the banks that once populated the country and that federal agencies have not formally denied a bank merger application in more than 15 years. In addition, he cited increased costs for consumers, restrictions on credit access and harm to lower-income communities as direct byproducts of bank consolidation.

The impact of the Executive Merger Order on this banking combination is unclear. While U.S. Bank has agreed to divest three branches as part of the transaction to another independent institution, the regulators appear to be relying on the tried-and-true competitive factors that they have always used to evaluate the suitability of a bank merger. It remains to be seen when and if the impact of the Executive Merger Order will be felt in future business combinations.

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While the market for bank merger activity has substantially waned in 2022 compared with prior years, the approval of the U.S. Bank/Union Bank transaction is a positive sign for future merger transactions, both large and small. Should you have any questions about this newsletter, do not hesitate to contact Manatt’s Financial Services group.


1 U.S. Bank’s most recent CRA performance evaluation by the OCC was in 2017, and Union Bank’s most recent CRA performance evaluation by the OCC was in 2019.

2 In conjunction with this merger approval, the FRB and Federal Deposit Insurance Corporation asked for comment on a joint Advance Notice of Proposed Rulemaking relating to new requirements and resources for the orderly resolution of larger institutions.

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