March 21 (Reuters) - Mergers that could result in banks

with more than $100 billion in assets should expect heightened

scrutiny from the U.S. Federal Deposit Insurance Corporation,

according to a policy statement the top bank regulator proposed

on Thursday.

The FDIC's board of directors voted 3-2 to issue the

proposal, which would update the agency's merger guidance for

the first time in 16 years. The new guidance puts special

emphasis on maintaining the stability of the banking sector,

agency officials said in advance of the vote.

Bank mergers and industry consolidation have come under

intense scrutiny since last year, when three of the largest-ever

U.S. bank failures resulted in acquisitions and billions in

losses for the FDIC's insurance fund.

"The bank failures of 2023 underscore the risks that banks

with assets over $100 billion can have for financial stability,"

FDIC Chair Martin Gruenberg said at a public meeting ahead of

the vote.

Republican board members, however, opposed the proposal

saying it would make the process less predictable and entrench

what they called institutional bias against bank mergers.

Jonathan McKernan, a Republican member of the board, said

adding hurdles to mergers resulting in banks above $100 billion

could discourage the creation of new competitors to established

Wall Street giants.

"One of the potential unintended consequences...is that we

continue to enhance this moat of regulatory protection around

our largest banks," he said.

In a statement, the Bank Policy Institute, a major trade

group in Washington, said the new guidance continued "an

alarming trend" among regulators of discouraging bank mergers

and acquisitions and that its "subjective" standards would make

the merger review process more uncertain.

The draft proposal, which offers a statement of principles

rather than set procedures, says officials would also focus on

other financial stability concerns, such as whether a merged

bank would add complexity to the financial system and the extent

of its cross-border activities.

The changes reflect statutes adopted by Congress in 2010

under the Dodd-Frank Wall Street reform legislation, according

to the proposal, which is now subject to a 60-day period of

public comment.

Financial reform advocates such as Democratic Senator

Elizabeth Warren have expressed outrage that regulators allowed

Wall Street giant JPMorgan Chase & CO ( JPM ), already the

nation's largest bank, to acquire the failed First Republic Bank ( FRCB )

last year.

Despite misgivings about New York Community Bank's

exposure to commercial real estate and earlier concerns from

FDIC officials, the U.S. Office of the Comptroller of the

Currency, another banking regulator, in 2022 approved its merger

with Flagstar Bank of Michigan.

Regulators then approved NYCB's takeover of the failed

Signature Bank ( SBNY ) last year. The combined entity reported

a surprise loss in January and received a $1 billion capital

infusion this month a group of investors, including former U.S.

Treasury Secretary Steven Mnuchin.