At least in the D.C. area, in front of most schools there are speed cameras, and about 100 yards in front of each is a sign posting the speed limit and noting “Photo Enforced.” As a result, drivers slow down as they approach the school. Most would consider this outcome a success. But it is possible that someone could argue that the goal is not for people to drive slower in front of schools but rather for the government to write tickets.
That same logic is being used by some policymakers to
So, basically, the opposite of a rubber stamp.
More specifically, bank mergers are initially analyzed for anti-competitive effect under preset quantitative metrics established by the Justice Department to determine whether the merger would trigger department review in any relevant geographic market. If a merger would trigger such review in multiple markets, it is not consummated, and no application is ever filed. If it triggers review in some markets, the merger might proceed with the applicants proposing, or the Justice Department or a banking agency demanding, certain divestitures as a condition of approval. No bank is likely to refuse to conduct those demanded divestitures and risk a denial.
Similarly, mergers are evaluated by the federal banking agencies based on compliance with the Community Reinvestment Act, but banks know their CRA ratings; they simply do not apply if their ratings are deficient. Analysis shows no significant merger in recent times (and to the best of our knowledge, no merger at all) has been approved when the acquirer had anything but an “outstanding” or “satisfactory” rating.
The story is much the same with the other statutory factors. The banking agencies have made quite clear that a bank subject to an anti-money-laundering order or even significant criticism should not expect regulatory approval; the same has been true with respect to banks with poor supervisory records. Financial stability is a factor, but the Federal Reserve has established a detailed, public framework for evaluating systemic importance, and no recent mergers have come close to triggering concern under that framework.
Even then, if some bank does not get the message and considers applying for a merger or acquisition, it generally holds a pre-filing meeting with the relevant banking agencies, where it might be informed that its chances are poor and urged not to apply.
And then, if a bank does decide to file, and the agency uncovers a problem, it will often urge the bank to withdraw the application — and may incentivize it to do so by asking a long series of questions that, like clock chimes, serve to toll the statutory processing times. According to the Fed, over the past 10 years, 10% of M&A applications have been withdrawn. (Hint: Banks don’t withdraw applications that are on a path toward speedy, rubber-stamp approval.)
Consider a related provision of the law, which since 1999 has prohibited any bank from making any acquisition that would leave it with more than 10% of U.S. insured deposits. Over the past 20-plus years, not a single merger application has been denied on this basis. “Dereliction of duty!” some would say. Others might observe that no applications for mergers that would breach the limit have been filed, so there was none to deny.
For the politicians among us, perhaps another analogy might resonate. Imagine a president who went a year without vetoing a bill. Would we conclude that the president was a rubber stamp of the Congress, a weakling, shirking his constitutional duty? Or might we conclude that veto threats issued by the president or his senior advisors were taken seriously by the Congress, and that they were therefore disinclined to pass legislation that he or she would veto? Would we want to know if in fact the legislation signed by the president was actually negotiated with his or her administration, to their ultimate satisfaction?
As some of the facts above show, there are problems with the merger process, as regulators have extraordinary, subjective authority to block mergers and acquisitions without having to document the reasons, and with the banks having no effective right of appeal. Furthermore, the Justice Department merger guidelines are decades out of date, as they do not acknowledge the existence of nonbank competition in most products, or the existence of online banking and the resulting national markets in most products. It’s a system in dire need of modernization, transparency and accountability, and regulators should apply the law and pay no heed to politically driven calls to ignore it.
