Payments Report: News from Washington, Brought to you by NEACH
VOLUME 2023-6 (AUG 23)
Overview: On June 20, 2023, the Assistant Attorney General in charge of the Antitrust Division of the Department of Justice (“DOJ”) delivered remarks outlining DOJ’s new approach to assessing the competitive effects of potential bank mergers. DOJ’s new approach will shift the focus of its merger analysis from purely local considerations to an expanded analysis of factors potentially impacting competition. In practice, this new approach will likely result in less predictability and a more complex bank merger process.
Background
Federal banking regulators and the DOJ have shared authority to evaluate potential bank mergers. Although the banking regulators have the primary responsibility to evaluate whether to approve bank mergers, DOJ also has jurisdiction to challenge potential mergers in court and has a statutory responsibility to provide the banking regulators with a report on the competitive factors in a bank merger. The DOJ’s analyses often lead to the regulators or DOJ imposing conditions banks must meet to secure regulatory approval for a merger, including potential divestiture of branches.
The agencies’ current analysis of bank mergers is based in large part on joint guidelines the DOJ, the Office of the Comptroller of the Currency (“OCC”), and the Federal Reserve Board (“FRB”) jointly issued in 1995 (the “1995 Guidelines”). The 1995 Guidelines rely primarily on an assessment of local branch deposit concentrations to assess the competitive impact of proposed bank mergers and have provided standardized benchmarks banks may use to assess the likelihood that the agencies will ultimately approve a given merger.
President Biden has made review of existing antitrust policy across industries a priority of his administration. In July 2021, the President issued a broad Executive Order on Promoting Competition in the American Economy that, among other things, directed DOJ to coordinate with the OCC, FRB, and the Federal Deposit Insurance Corporation (“FDIC”) to revisit current bank merger policy and adopt a new plan to assess bank mergers. The DOJ has now outlined a new approach to its bank merger analysis, and is continuing to work with the banking regulators to formally issue new joint bank merger guidelines.
The DOJ’s Revised Approach to Bank Merger Analysis
Assistant Attorney General Jonathan Kanter, the head of DOJ’s Antitrust Division, delivered remarks on June 20, 2023 outlining the Department’s revised approach to analyzing the impact on competition of proposed bank mergers. Assistant Attorney General Kanter maintained in his remarks that the agencies’ approach to analyzing bank mergers must be updated to reflect changes in the banking industry and the economy as a whole since 1995, including interstate banking, online banking, mobile banking, and the overall digital transformation of the U.S. economy. Kanter stated that, because banks now compete in many more geographic markets and business lines, the 1995 Guidelines’ focus on local market deposit concentration alone may no longer be sufficient to assess the complete competitive impact of a bank merger. Kanter also noted that the emergence of fintech and other nonbank financial services companies may be an appropriate factor to incorporate into the competition analysis.
Going forward, DOJ will expand its merger analysis beyond local market deposit concentration in several ways. For example, DOJ will also incorporate a review of a merger’s potential impact on fees, interest rates, product variety, and customer service. The Department will also specifically assess a potential merger’s competitive impact on different aspects of the banks’ business, including retail banking, small business banking, and large- and mid-sized business banking. The likely result of this expanded analysis is that DOJ will give less deference to pure market share metrics, and instead rely more on an analysis of qualitative and potentially more subjective effects.
Assistant Attorney General Kanter highlighted two key areas in which DOJ will focus its merger analysis. First, DOJ will closely examine the extent to which a potential merger may entrench the market power of the largest banks by potentially excluding existing and new competitors. This signifies that it is likely that mergers involving the largest banks will receive particular scrutiny. Second, DOJ will specifically analyze the impact of a proposed merger across different segments of a customer base, and the extent to which a merger would impact whether customers have access to a meaningful choice of the type of bank with which they do business.
DOJ and the Banking Regulators Work Toward Formal Updates to Merger Guidelines
DOJ and the banking regulators are continuing to work on formal updates to the 1995 Guidelines. Acting Comptroller of the Currency Hsu has also recently stated that it is a priority of the OCC to update its merger analysis to reflect the changes in the banking environment since 1995, and similarly noted that it may be appropriate to revisit the extent to which local market concentration drives merger analysis. In connection with collaborating on updated guidelines, DOJ and the banking regulators are also working on developing new data sources to supplement the current concentration metrics.
Outlook: DOJ’s revised analysis of the competitive effects of bank mergers is likely to make bank merger analysis more complex and less predictable. This new approach will also likely lead to heightened scrutiny of certain mergers, particularly those involving large banks and those that may reduce customers’ ability to choose among banks serving different customer needs.
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AUTHOR INFORMATION:
Craig Saperstein, a member of Nacha’s Government Relations Advisory Group, is a partner in the Public Policy practice of Pillsbury Winthrop Shaw Pittman LLP in Washington, D.C. In this capacity, he provides legal analysis for clients on legislative and regulatory developments and lobbies congressional and Executive Branch officials on behalf of companies in the payments industry. Deborah Thoren-Peden is a partner and member of the Financial Institutions Team at Pillsbury Winthrop Shaw Pittman LLP. She provides advice to financial institutions, bank and non-bank, and financial services companies. Daniel Wood is a Counsel and member of the Financial Services Regulatory Team. He provides analysis for financial institutions, technology companies, and clients that offer consumer financial products. Brian Montgomery is a Senior Counsel and member of the Financial Services Regulatory Team. He provides analysis for financial institutions, technology companies, and clients that offer consumer financial products. The information contained in this update does not constitute legal advice and no attorney-client relationship is formed based upon the provision thereof.