The Department of Justice will expand the number of considerations in its bank merger review process, the department's top antitrust cop said Tuesday.
Under revised antitrust guidelines, branch overlaps and the share of local deposits held by the two merging banks will no longer be the main considerations in determining the competitive effects of a deal, Assistant Attorney General Jonathan Kanter said.
Instead, the Justice Department wants to look at a number of other factors in gauging the impact that mergers have on concentration and competition.
The speech was interpreted as a hint that banks seeking merger approvals could face tougher times ahead, and as a go-ahead signal for policymakers who have been eager to reform bank merger policy since the onset of the Biden administration.
Kanter did not provide a timeline for the release of the DOJ's revised guidelines. But he did offer a preview of the forthcoming changes in how the department analyzes proposed mergers.
"These analyses will include consideration of concentration levels across a wide range of appropriate metrics and not just local deposits and branch overlaps," Kanter, who heads the DOJ's antitrust division, said in a speech at the Brookings Institution.
"Indeed, the division and the federal banking agencies are working together to augment the data sources we use when calculating market concentration to ensure we are relying on the best data possible and using state-of-the-art tools to assess all relevant dimensions of competition," he added.
Kanter cited interest rates, fees, product variety, branch locations and customer service as examples — beyond the few metrics now considered — of the ways that competition could manifest in particular banking markets.
The DOJ's current guidelines were enacted 28 years ago, and they were designed for a much more insular and smaller-scale market than exists today, Kanter said. He argued that the guidelines should be updated to integrate the effects of interstate banking, online and mobile banking, and the digital transformation of the economy.
"The world today — including the banking system — is radically different than it was in 1995," Kanter said. "Against this backdrop, there are good reasons aside from the passage of time to question whether the 1995 guidelines sufficiently reflect current market realities."
Under federal law, banking regulators are the primary authorities in reviewing proposed bank mergers. But the DOJ also plays a role by preparing reports on competitive factors that are relevant to particular deals. Following those analyses,
Kanter's speech comes after the failures of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year. In the wake of that crisis, some industry groups hoped that the Biden administration would back down from its intention to toughen the bank merger review process.
Industry groups have also expressed concern that stricter regulatory scrutiny is likely to stymie merger activity. In May, when TD Bank's proposed acquisition of First Horizon Corp. was
During his speech Tuesday, Kanter punted on the question of whether concerns about the health of banks should impact merger policy, saying that he was limiting his comments to the issue of how antitrust law should be applied to competition in the banking industry.
"Broader considerations regarding bank merger regulation" are "better left to the expert bank regulators," he said.
In his first year in office, President Biden made antitrust policy a focus for his administration, asking the DOJ and banking agencies to
There's also an appetite to reform merger policy at the banking agencies, so much so that the issue set off a partisan squabble in the early days of the Biden administration that led to the resignation of former FDIC Chairman Jelena McWilliams.
The Federal Reserve, FDIC and Office of the Comptroller of the Currency are
Kanter highlighted two specific areas that the DOJ's antitrust division will focus on as it prepares reports on competitive factors in connection with specific deals.
First, he said the division will "examine the extent to which a transaction threatens to entrench power of the most dominant banks by excluding existing or potential disruptive threats or rivals." Those risks often arise from coordinated effects and multimarket contacts within the industry, he added.
Second, he said that the antitrust division will pay attention to mergers that stamp out competition between different customer segments.
"To protect competition, antitrust enforcers must ensure that customers retain a meaningful choice as to the type of bank with which they do business by recognizing that different segments of customers have different needs and that substitution across different types of banks may be limited," Kanter said.
During a panel discussion that followed Kanter's speech, longtime industry lawyer H. Rodgin Cohen expressed concern about the DOJ's approach, arguing that it could lead to unpredictable outcomes.
"What most concerns me about the presentation is that there seems to be potentially a vast array of factors, which will be behind a screen, where nobody can really know going in," said Cohen, senior chair at Sullivan & Cromwell. "Who is going to sell if you cannot predict whether the transaction will be challenged?"
