The Federal Deposit Insurance Corp.’s (FDIC) newly updated bank merger guidelines represent an important turning in US labor market competition. For the first time these guidelines aim to prohibit noncompete clauses in employee contracts in the context of bank operations. Such a development underscores the Biden administration’s commitment towards fostering greater competition within the labor market.
Bank transactions which would result in the acquisition of assets exceeding $100 billion would now face a higher level of FDIC scrutiny in line with the banking regulator’s revised approach to bank merger policies unveiled last week. The improved guidelines also prohibit the enforcement of noncompete agreements among employees at banks of any size in particular contexts. Experts in antitrust and employment law see this as an additional step in the authorities’ broader projects to handle work agreements that limit employee mobility.
The FDIC is currently the sole among the three US federal banking regulators that has proposed that banks applying for mergers must not subject affected employees to noncompete agreements. The Office of the Comptroller of the Currency and the Federal Reserve, overseeing mainly larger banks and bank holding companies respectively, do not have such prohibitions.
This new stance on noncompetes comes at a time when the Federal Trade Commission is speculated to vote in a few weeks to finalize its proposal to ban nationwide noncompete clauses.
Given that noncompete agreements effectively inhibit employees from transferring to competitors post their quitting jobs, some critics have pointed out that they reduce competition for talent and have far-reaching damaging effects that go beyond the individual employees bound by such contracts.
However, there are some who express unease about the approach taken by the FDIC. They worry that the blanket prohibition on noncompete agreements could harm banks by providing opportunities for well-connected lenders to take business over to competitors.
The FDIC’s proposed ban on noncompete clauses is specific to a particular setting: employees of entities divested in the process of bank mergers won’t be allowed to adhere to noncompete agreements. This is done for the purpose of maintaining competitiveness of the businesses divested.
Despite its relatively limited scope, some industry insiders predict that FDIC’s decision to single out noncompetes might have wider implications. That being said, the original article offers a thorough dive into the topic for those interested.