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Reflections from AOBA 2022

Baker Tilly recently had the privilege of attending the 2022 Bank Director - Acquire or Be Acquired Conference. This marked one of the first in-person conferences Baker Tilly has attended since the pandemic, and Bank Director could not have put on a better event. From the location to the content to the quality of the speakers, it was a welcome change from two years of virtual events.

On the Sunday of the conference, Baker Tilly participated in a general session with an excellent pair of panelists to discuss “The Biden Effect: Changes Banks Should Expect in 2022.” The primary focus of the session was on the effect on mergers and acquisitions (M&A). However, we also had the opportunity to talk about potential changes to Build Back Better and the SAFE Act.

As with most aspects of government these days, the easy answer for the panel when asked about potential changes was to say, “we don’t know” or “we will have to wait and see.” But specific to the banking space, we are able to identify historical trends that potentially indicate which direction the winds are likely to blow.

For example, the Feb. 4 resignation of Chairwoman Jelena McWilliams (whose term was not set to expire until June 2023), eliminated the remaining Republican representative on the FDIC Board of Directors. That is simply a statement of fact, not necessarily a foregone conclusion as to what specific changes will come about as a result of the political makeup of the remaining board members.

However, there are additional indicators beyond political affiliation. The current board includes Martin Gruenberg serving as acting Chairman, an open position at Vice Chairman and three directors, including Chairman Gruenberg as well as Michael Hsu, acting Comptroller of the Currency and Rohit Chopra, Director of the CFPB. Chairman Gruenberg is serving is in a capacity for which his term expired three years ago. Director Hsu has not yet been formally appointed Comptroller, and Director Chopra, who some argue has a conflict of interest between his role with the CFPB and his ability to influence decisions regarding the business of banking as an FDIC director. Director Hsu has made public comments regarding promoting competition as a key focus of his role with the CFPB. Effectively, decisions regarding the future of banking are being made by two directors with temporary roles and a third with a potential conflict of interests.

When peeling back the onion of potential changes to the M&A landscape because of this current dynamic, one item stood out from the others given its public exposure in 2021. During 2021, an arbitrary threshold was set for additional regulatory oversight for potential M&A transactions in which total assets of the combined entity would exceed $100 billion. Above this threshold, indications are that the amount of scrutiny regarding the transaction will be considerably greater than what we saw in the past. Much of the rationale around this approach has been justified as consumer protection (see earlier note regarding Chairman Chopra’s comments). However, the unintended consequences of this approach are immense. The timing of transaction processing by the Federal Reserve are likely to move from the traditional 60-90 days to potentially six months or more with timing in excess of one year not considered an unreasonable expectation.

Other questions that have been raised by this bifurcated approach include how much influence the Federal Reserve and FDIC will be allowed in reviewing potential transactions. Using the Bank Merger Act of 1960 and the Bank Holding Company Act of 1956, many in the industry expect that proposed amendments could significantly increase their power and influence. How that translates into actual activities is unknown at this time, but concepts such as regulatory mandates for banks to obtain multiple offers to be considered by the regulators (effectively rendering the fiduciary responsibilities and activities of the boards of directors null), have not been considered far-fetched. Additionally, expanding the requirements for submission documents to include a heavier focus around the consumer impact of the transaction versus primarily financial implications for a safe and sound combined entity, could be on the horizon, as well.

At the end of the day, Baker Tilly’s panel discussion concluded with a general “we don’t know” or “we will have to wait and see” response rather than concrete answers regarding the effect on M&A activity in 2022 and beyond. However, change is bound to happen and the more prepared that banks, their boards of directors and executive management can be through development of appropriate M&A policies and procedures and proactive communication with their accountants, attorneys and investment bankers (to the extent utilized), the greater potential there is to mitigate the effects of this change.

Amid all the uncertainty, there was one definitive aspect from Baker Tilly’s attendance at the conference. The January weather in Phoenix was much better than what we left behind in Milwaukee.

Kevin Schalk
Partner, CPA
U.S. Capitol Building at sunset
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