BPI Responds to DoJ Review of Competitive Effects of Bank Mergers

Dear Assistant Attorney General Kanter:

The Bank Policy Institute (BPI)[1] and the Mid-Size Bank Coalition of America (MBCA)[2] submit this letter in response to the December 17, 2021, request of the Department of Justice’s Antitrust Division (DoJ) for comments on the policies for assessing the competitive effects of bank mergers.[3] Because President Biden called upon “DOJ and the agencies responsible for banking (the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency) to update guidelines on banking mergers to provide more robust scrutiny of mergers”[4] in the July 2021 Executive Order on Promoting Competition in the American Economy,[5] we also address the procedural steps that will be necessary to ensure the availability of judicial review of any changes to the various bank regulations reflecting those policies. Judicial review will be particularly important to ensure that any changes are consistent with the underlying laws, the relevant provisions of which Congress has not changed since 1966.[6]

The existing approach to assessing the legality of bank mergers was developed incrementally over decades at the DoJ and the Federal Bank Regulators under the leadership of individuals nominated by both Democratic and Republican Administrations and based upon analyses conducted by highly professional and expert career staff. Consistent with the underlying statutes and the case law, the current approach focuses on the risk of harm in local geographic markets and divestiture of branches in any local markets in which competition would be harmed. DoJ and the Federal Bank Regulators have had the opportunity to refine their approach over the course of hundreds of mergers, over decades, as banks responded to Congress’s passage of laws designed to deal with the nation’s previously highly fragmented banking system and enable the formation of branch networks that customers value.

We present below a summary of evidence illustrating the fruit of the DoJ’s and the Federal Bank Regulators’ approach to assessing competitive effects: (1) a banking industry that is unconcentrated at the national level, (2) a banking industry that is less concentrated in the United States than other economies, and, of most importance, (3) essentially unchanged concentration levels in local banking markets across the United States for at least the past 25 years. These facts help illustrate that current policy is fundamentally sound. Indeed, those measures of competition materially understate the competitiveness in the U.S. marketplace for banking services because they ignore the technological advancements that have increased the ease with which both financial institutions without a banking license and bank competitors without a local branch can and do compete for the business of customers in local communities across the country.

Although antitrust analysis is not static, any change in that analysis that would depart from long existing and widely accepted standards should only reflect actual changes in the competitive environment. This approach is essential if antitrust analysis is to be governed by the rule of law and not the individual views of those who, at any particular point in time, head the relevant agencies. It is also crucial to support a vibrant economy, which requires a consistent, predictable government approach.

It is also worth prominent consideration that most bank mergers involve community and mid-size banks, and the majority of those mergers involve two such banks (as opposed to a larger bank acquiring a community or mid-size bank).[7] Many factors drive mergers of community and mid-size banks, including the need for scale, diversification of risk through geographic or product expansion, and generational change in ownership. Any change in antitrust policy making bank mergers more difficult risks disproportionately impacting community and mid-size banks.

Part I of this letter provides an overview of the development of bank merger policy at DoJ and the Federal Bank Regulators in view of judicial interpretations of the competition portions of the relevant statutes (which, as noted above, have not changed since 1966). Part II describes how the long-standing approach to assessing the competitive effects of bank mergers has effectively preserved and enhanced competition. Part III addresses a question DoJ raised in its request for comments and outlines why the DoJ may not broaden the scope of its bank-merger review to encompass systemic risk, an issue which Congress has tasked the Federal Bank Regulators, not DoJ, with assessing as a matter of financial stability.[8]

As described further herein, we urge the DoJ and the Federal Bank Regulators to (1) continue to adhere to the basic approach that has successfully governed bank-merger policy for over 40 years, (2) take into account more comprehensively the sharply increased competition for banking services from nonbank financial institutions and banks that do not have physical branches in the relevant geographic market, (3) provide notice, public comment, and an opportunity for judicial review of any new bank-merger policy, and (4) apply any changes to bank-merger policy prospectively.

The analysis in this letter is based on facts about market conditions and the rigorous analytical work about market conditions conducted by skilled professionals both within and outside the government over decades. We respectfully submit that this should not be replaced by philosophies or narratives that are untethered to an equally validated approach. The benefits of competition can be stifled by both an overly relaxed and an overly rigorous competitive approach.

To read the full comment letter, please click here. 

[1] BPI is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks. BPI’s members include universal banks, regional banks, and major foreign banks doing business in the United States.

[2] MBCA is a business, economic, and financial policy alliance comprised of America’s mid-size banks.

[3] Press Release, U.S. Dep’t of Justice, Antitrust Division Seeks Additional Public Comments on Bank Merger Competitive Analysis (Dec. 17, 2021), https://www.justice.gov/opa/pr/antitrust-division-seeks-additional-public-comments-bank-merger-competitive-analysis.

[4] Press Release, The White House, FACT SHEET: Executive Order on Promoting Competition in the American Economy (July 9, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/ (White House Fact Sheet). In this submission, we refer to the Board of Governors of the Federal Reserve System as the FRB, the Federal Deposit Insurance Corporation as the FDIC, and the Office of the Comptroller of the Currency as the OCC. We collectively refer to the FRB, the FDIC, and the OCC as the Federal Bank Regulators herein.

[5] Exec. Order 14036, 86 Fed. Reg. 36987, 36992 (July 14, 2021) (Executive Order on Competition).

[6] See Pub. L. No. 89-356, 80 Stat. 7, 8 (1966); Pub. L. No. 89-485, § 7(c), 80 Stat. 236, 237-38 (1966). Both banking statutes contemplate DoJ’s concurrent review of (and comment on) the same competitive factors that the Federal Bank Regulators are also tasked with reviewing. 12 U.S.C. §§ 1828(c)(4); 1849. DoJ authority to review proposed bank mergers arises under Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 1 of the Sherman Act, 15 U.S.C. § 1.

[7] Stephen A. Rhoades, Bank mergers and banking structure in the United States, 1980-98, 174 FRB Staff Studies (2000), https://www.federalreserve.gov/pubs/staffstudies/174/default.htm; Robert M. Adams, Consolidation and Merger Activity in the United States Banking Industry from 2000 Through 2010, FEDS Working Paper No. 2012-51 (2012), https://ssrn.com/abstract= 2193886. Appendix B provides additional details.

[8] Moreover, we are aware of no evidence that mergers involving larger banks inherently create increased competitive risk if they fail. Indeed, they may actually create less risk because they are required to develop, and have approved by the Federal Bank Regulators, comprehensive resolution plans. In any event, any suggestion that a merger would produce a bank that would fail and that such a failure would cause increased competitive harm as a result of the merger is so highly speculative as to be far removed from rational antitrust analysis.