On June 20, 2023, Assistant Attorney General Jonathan Kanter (AAG Kanter) provided new details during his speech at the Brookings Institution1 on the ongoing efforts of the Antitrust Division of the Department of Justice (the Antitrust Division) to revise and revamp the 1995 Bank Merger Guidelines. These efforts are intended to be consistent with President Biden's July 9, 2021 Executive Order on Promoting Competition in the American Economy (the Executive Order on Competition). AAG Kanter's remarks were made against the backdrop of broader efforts to reform the framework for evaluating bank mergers and acquisitions under the federal banking laws and regulations. This most recent articulation by the Antitrust Division will help to advance understanding regarding the Antitrust Division's approach to investigating bank mergers and how it advises the federal banking agencies on the competitive effects of proposed bank mergers. Consideration of potential anticompetitive effects of a bank merger or acquisition is one of several statutory factors that the federal banking agencies must consider under the Bank Merger Act, the Bank Holding Company Act, the Home Owners Loan Act and the regulations and agency guidance promulgated thereunder. See our Advisory on the review of the framework for approving bank mergers here.
This Advisory identifies key insights presented in AAG Kanter's speech on how the Antitrust Division will be revising its analysis of competitive effects (and aligning the agency's role to be consistent with its statutory authority and obligations) in the bank merger review context. While AAG Kanter noted the need to revamp the 1995 Bank Merger Guidelines, including by communicating necessary areas for improvement, no timeframe or clear guidance was provided on when a new set of guidelines should be expected. This Advisory provides several takeaways for industry participants as they navigate this rapidly changing regulatory environment.
Potential Changes to the Antitrust Division's Approach to Analyzing Competitive Factors as Related to Banking Services
AAG Kanter's speech identified several significant likely changes to the Antitrust Division's involvement in the bank merger review process:
- The new Guidelines will reflect a broader analysis of
competitive effects. Although under the 1995 Guidelines
the Antitrust Division has historically relied primarily on deposit
concentrations within a particular geographic region in determining
the competitive effects of a bank merger, AAG Kanter outlined how
the Antitrust Division is considering a more expansive,
context-specific method of analysis to evaluate competitive
effects. The particular factors that the Antitrust Division
considers in its analysis, which will be reflected in the new Bank
Merger Guidelines, will vary depending on the particular facts and
circumstances of each proposed bank merger or acquisition. AAG
Kanter made clear that a one-size-fits-all analysis will not be
used by the Antitrust Division. Rather, the Antitrust Division will
employ a flexible, data-driven analysis that takes into account the
current market realities affecting each unique bank merger. For
example, in addition to evaluating deposits to assess the market
concentration of traditional banks, the Antitrust Division will
consider other factors that could impact competition, such as
account fees, interest rates, branch locations, particular
financial products, network effects, interoperability, and customer
service. However, AAG Kanter provided no details as to how these
factors would be evaluated, the types of transactions they would be
applied to, or the type of data that would be useful to the
analysis.
During Q&A, when asked whether the Division will also take into account the competitive effects of credit unions, financial technology companies, and other financial entities that are not traditionally evaluated in the Antitrust Division's competitive effects analysis, AAG Kanter noted that the Division will take into account all factors that are relevant to competition when completing its analysis of the competitive factors related to a particular merger. This expanded focus beyond bank deposits may have the effect of reducing the predictability of the Division's competitive analysis. Also, implied in AAG Kanter's response is that the Antitrust Division would no longer differentiate among traditional banks, thrift institutions and credit unions in its deposit concentration analysis.
- The Antitrust Division is segmenting its analysis to
reflect differences among banks and differences among
customers. AAG Kanter noted the Antitrust Division will
break down its analysis of banking business into three distinct
segments in order to better capture the particular competitive
effects of mergers on different aspects of the banking business:
retail banking, small business banking, and large-to-midsize
commercial banking. The Antitrust Division will evaluate
competitive effects in each particular segment in order to capture
the full range of effects of a bank merger or acquisition.
Similarly, the Antitrust Division will analyze how a bank merger or acquisition might affect competition across distinct segments of a customer base. According to AAG Kanter, distinct groups of customers may have distinct needs and experience different outcomes from a given bank merger. As with the broader competitive effects analysis, evaluation of the needs of customers will be tailored based on the particular merger at issue and the particular segments of customers affected.
- The Antitrust Division will move away from entering
into branch divestiture remedy agreements with parties, while
preserving its authority to challenge bank mergers under the
antitrust laws. AAG Kanter stated that the Antitrust
Division has a statutorily-prescribed role in the bank merger
review process: the Antitrust Division is required to provide an
analysis of competitive factors to the federal banking agencies and
to enforce the federal antitrust laws. Accordingly, AAG Kanter
explained that the Antitrust Division will be stepping away from
entering into branch divestiture agreements with parties,
cautioning that "[w]e owe it to the public to maintain a high
bar for the divestitures we will accept . . . and to evaluate fully
the risks associated with carve-out divestitures, in
particular." AAG Kanter's comments make clear that the
Antitrust Division will leave it to the federal banking agencies to
take onto account the Division's advisory memorandum on
competitive effects for each merger application and to work
directly with the applicants to craft the appropriate remedy where
anticompetitive effects are noted by the Division, reserving the
authority of the Division to challenge any merger approval in court
that the Division believes results in a transaction that violates
the federal antitrust laws.
AAG Kanter noted that "micromanaging or regulating the private sector" is not the role of the Antitrust Division and that issues such as how a merger might affect the convenience and needs of affected communities, should be left to the responsible federal banking regulators who can draw upon their unique supervisory experience and powers to best evaluate these regulatory issues.
- The Antitrust Division will consider risks associated with coordinated effects and multi-market contacts. AAG Kanter reiterated the commitment of the Antitrust Division to enforcing antitrust law with respect to scrutinizing mergers and acquisitions involving the largest financial institutions. AAG Kanter noted that these mergers may pose heightened risks to competition by entrenching power of the most dominant banks or by excluding existing or potential disruptive threats or rivals. While the Antitrust Division will be affording particular scrutiny to complex, large mergers involving coordinated effects and multi-market contacts, the Antitrust Division will continue to scrutinize the effects of all kinds of bank mergers on competition, including mergers between small, community banks. However, it was clear from AAG Kanter's remarks that combinations among community banks are generally less likely to result in the anticompetitive effects the Division is focused on, other than perhaps for combinations in more rural areas where there are fewer competitors.
Takeaways from AAG Kanter's Speech
AAG Kanter's speech reveals several key takeaways that we want to highlight.
- It appears that the Antitrust Division's analysis of competitive effects of proposed bank mergers and acquisitions will become more complex for all kinds of banking institutions based on the plans to differentiate among products, services, fees, institution business models and customer bases, and take into consideration other factors that could impact competition.
- The industry should continue to expect a prolonged review process for bank mergers and acquisitions involving mid-size and large banks. As has been the case since the issuance of the Executive Order on Competition, bank mergers and acquisitions involving large and mid-size banking organizations, and particularly those that involve or would result in a banking organization with $100 billion or more in assets, should continue to expect heightened scrutiny and an extended review and processing period for any applications.
- The increased complexity of the competitive effects analysis the Antitrust Division seems likely to employ is likely to cause merger applications to be more costly and time consuming to produce and to cause the regulatory review process to take longer, particularly for larger merger participants.
- It is also likely that, except in the limited case where an acute threat to competition emerges from a proposed merger, such as when a merger would result in a competitor being removed in a rural area, oversight of mergers between community banks is likely to continue in the same manner as it has in the recent past.
- As the Antitrust Division seeks to enhance its analysis of competitive effects with robust, particularized data, conferences with the federal banking agencies prior to the initial application filing will become essential to in order to be sure the competitive analysis data submitted is consistent with the Division's and banking regulators' expectations. Further, in order to better evaluate whether a proposed bank merger or acquisition would pose any significant competitive issues and potential regulatory objection, pre-signing meetings with the federal banking agencies may also become essential for any deal involving a midsize or large bank.
- Consideration of competitive effects is only one of several statutory factors that must be considered by the federal banking agencies in evaluating bank mergers and acquisitions, and as urged by the Biden Administration and Congress, the federal banking agencies are considering an overhaul of the Bank Merger Review framework, including consideration of the convenience and needs and financial stability factors. The agencies have proposed rulemakings that are independent of but will impact bank merger review, including changes to regulations under the Community Reinvestment Act, resolution-related rules such as long-term debt and total loss absorbing capital requirements, but changes to the overall bank merger review framework are still in the formative phase.
Financial institutions interested in how changes to the bank merger review process may impact their businesses may contact any of the authors of this Advisory or their usual Arnold & Porter contact. The firm's Financial Services and Antitrust teams would be pleased to assist with any questions about AAG Kanter's recent comments or the bank merger review process more broadly.
Footnote
1. Assistant Attorney General Jonathan Kanter communicated these new details in a speech at the Brookings Institution marking the 60th anniversary of United States v. Philadelphia National Bank, 374 U.S. 321 (1963), a foundational antitrust case addressing the applicability of federal antitrust laws to bank mergers. United States Department of Justice, Assistant Attorney General Jonathan Kanter Delivers Keynote Address at the Brookings Institution's Center on Regulation and Markets Event "Promoting Competition in Banking," (June 20, 2023).
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