Federal regulators must reassess whether the prevailing approach to bank merger enforcement is a fit for modern market realities, given that the guidance they use to review proposed mergers was drafted nearly three decades ago, the Department of Justice’s top antitrust enforcement official said today.
In a speech at the Brookings Institution, Jonathan Kanter, assistant attorney general for the DOJ’s antitrust division, said the 1995 interagency guidance places great significance on market shares based on local deposits, using those deposits as a proxy for concentration and competition. Since then, the number of community banks that focus on lending in their local neighborhoods has dropped by more than half, and the six largest bank holding companies have as many assets as all other bank holding companies combined, he said. “Against this backdrop, there are good reasons—aside just from the passage of time—to question whether the 1995 guidance sufficiently reflects current market realities,” Kanter said.
The DOJ last year took public comments on possible updates to the guidance, and Kanter said the agency was still reviewing those comments. In the meantime, the antitrust division is modernizing its approach to the competitive factors reports it is required by law to provide to banking regulators, he said. First, the division will scope closely scrutinized mergers that increase the risk of coordination and multimarket contacts with other banks. It will also examine the extent to which a transaction threatens to entrench the power of the most dominant banks by excluding existing or potential disruptive threats or rivals, he said.
Second, the antitrust division will carefully consider how a proposed merger may affect competition in different customer segments, Kanter said. The modern banking system features a wide variety of types of banks that serve different customer needs, he added. “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.”
DOJ reconsidering remedies
The antitrust division is rethinking how it approaches remedies for proposed bank mergers that raise antitrust concerns, Kanter said. Bank branch divestitures, for instance, may not always be adequate to address the broader range of competitive and antitrust concerns raised, he said. At the same time, it is not within the division’s statutory mandate to consider how a merger might affect the needs of a community, as that is the role of banking regulators.
“We are in the process of reorienting the antitrust division’s role to focus on providing our advisory opinion as required by the statute and not remedies agreements with parties, as has become custom over the last many years,” he said. “The goal is for this revised procedure to faithfully effectuate the department’s limited but essential statutory role in bank antitrust enforcement and facilitate the banking agencies’ analysis of competition and other factors as part of their broader bank merger review framework and statutory approval authorities.”
In a Q&A after his speech, Kanter was asked whether the DOJ would also scrutinize mergers involving credit unions or financial technology firms. He said whether the reviews happen will depend on the specifics of the case. “If a transaction can deepen a moat or entrench power by somehow removing a disruptive impact, that has the potential to violate the antitrust laws, just like a horizontal merger of two direct competitors that look exactly alike,” he said. “Again, these are all very fact-specific questions that we have to evaluate in the context of any specific deal.”