In a December 23, 2011
approval order in connection with the proposed acquisition of RBC Bank (USA), a North Carolina based unit of Royal Bank of Canada, by The PNC Financial Services Group, Inc. includes the FRB's first ever Dodd-Frank financial stability analysis. This analysis may serve as a model for how the FRB will determine going forward “the extent to which a proposed acquisition, merger, or consolidation would result in greater or more concentrated risks to the stability of the United States banking or financial system” now required under Dodd-Frank.
Section 3 of the Bank Holding Company Act, as amended by Dodd-Frank, prohibits the FRB from approving a merger, acquisition, or consolidation proposal that would result in a monopoly or would be in furtherance of any attempt to monopolize the business of banking in any relevant banking market. The Bank Holding Company Act also prohibits the FRB from approving a proposal that would substantially lessen competition in any relevant banking market, unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served.
Among the primary factors considered by the FRB in this first financial stability analysis were:
- Size - whether the proposal combination would create a material increase in risks to financial stability due to the increased size of the resulting entity.
- Substitute Providers - would the combination result in a reduction in the availability of substitute providers for the services offered by the merging entities?
- Interconnectedness - how would the combination affect interconnectedness among the combining entities and the rest of the financial system.
- Complexity - would the combination increase the complexity of the financial system.
- Cross-border Activities - the size and extent of cross-border activities of the combining entities.
- Financial Stability - if need be, how difficult would it be to resolve the combined entities?
The RBC and PNC combination passed the FRB's inaugural financial stability analysis. But the approval order makes clear that each proposed combination would receive individual scrutiny and other factors not present in this case may affect future outcomes. Regardless, this first FRB financial stability analysis sets down basic guidelines, and may serve as a model for the industry.