DOJ to broaden review of bank mergers

The US Department of Justice (DOJ) has announced an expansion of its scrutiny of bank mergers, with a focus on broader criteria and increased involvement of independent regulators. Jonathan Kanter, Assistant Attorney General for Antitrust, stated that the DOJ’s review will go beyond traditional measures like branch overlap and deposit concentration, and consider factors such as fees, interest rates, and customer service. The department will also move away from negotiating branch divestitures with merging banks as a condition for approval.

The banking sector is expected to be on high alert as the DOJ’s new approach could have significant implications. The industry has experienced rapid consolidation in recent years, prompting calls from progressives for action from the White House and Congress. President Joe Biden has made competition policy a priority, issuing an executive order emphasising the need for increased competition in banking. The DOJ, along with the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), is currently updating bank merger guidelines that have been in place since 1995.

Kanter argued that the previous focus on local market deposit concentration was insufficient and could disproportionately impact small banks while underestimating concerns related to large national and multinational banks. He proposed a revival of the DOJ’s issuance of competitive factors reports, which provide guidance specific to each deal. The department would retain the ability to challenge mergers approved by banking regulators under antitrust laws. Kanter emphasised the importance of bank competition for customers, affecting areas such as interest rates, fees, financial product choices, and loan accessibility.

One of the DOJ’s key objectives will be preventing coordinated effects with other dominant banks, aiming to avoid the entrenchment of power and exclusion of potential disruptive threats or rivals. Additionally, the department will assess the impact of proposed mergers on competition among different customer segments, including multinational corporations, the wealthy, small businesses, and blue-collar workers. Kanter cited the landmark 1963 US Supreme Court decision, Philadelphia National Bank, as a guiding principle in evaluating bank deals. The ruling established that the banking sector is subject to federal antitrust law and that mergers with over 30% market share should be presumed unlawful.

The DOJ’s enhanced scrutiny and expanded criteria for evaluating bank mergers reflect a shift in approach towards ensuring a competitive and consumer-friendly banking sector. By considering a wider range of factors and involving independent regulators, the department aims to address concerns of market concentration and protect the interests of various customer segments.

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