DOJ Provides Guidance on Factors That Will Influence Future Bank Merger Reviews

Financial Services Law

In remarks before the Brookings Institution on June 20, 2023, Assistant United States Attorney General (AAG) Jonathan Kanter provided detailed insights into the work by the Department of Justice’s (DOJ) Antitrust Division to implement President Biden’s 2021 Executive Order on Promoting Competition in the American Economy in the banking sector. In particular, AAG Kanter highlighted his Division’s response to the executive directive to “revitalize” bank merger oversight for the 21st century.

Recognizing that the current 1995 Bank Merger Guidelines were written for an industry that no longer exists in the same form because of their overweighted focus on local branch deposit market share, the Antitrust Division intends to identify and investigate a current and much broader range of factors that impact competition in the banking sector. To fulfill its responsibility to advise federal banking agencies on the competitive effects of a proposed merger by analyzing current factors, the DOJ will assess relevant competition in “retail banking, small business banking, and large-and-mid-size business banking in any given transaction.” These factors will include, in addition to branch overlaps and deposit concentration, product variety, network effects, interoperability, customer service, fees, interest rates, and all ways and manners in which consumers and companies effectuate financial transactions.

AAG Kanter amplified two particular areas: (i) mergers that increase risks associated with coordinated effects and multi-market contacts; and (ii) how a proposed merger may affect competition for different customer segments. The Antitrust Division will closely scrutinize transactions that concentrate power in dominant banks at the expense of disruptive threats to rivals as well as transactions that limit or restrict a customer’s ability to make a meaningful choice about the type of bank to engage. In a cautionary warning, AAG Kanter notes that branch divestitures may not always—and likely will never—adequately address anticompetitive concerns.

The Antitrust Division will not only continue to facilitate the banking agencies’ own analysis of competitive and other factors germane to a merger review, AAG Kanter remarked, but will also update their bank merger guidelines to provide clear guidance to the public regarding the type of analysis the Division will use in analyzing a merger’s likelihood of creating competitive harm.

Once the Division has finalized its regulatory guidance, we believe the Antitrust Division and the federal banking agencies will apply greatly enhanced scrutiny to large (greater than $100 billion in pro forma combined asset size) transactions than previously with minimal focus on branch overlap and local deposit concentration and great focus on the impact of a transaction on the convenience and needs of bank customers through a variety of different lenses focused on the modern financial marketplace.

Potential merger partners will be well advised to thoroughly understand the new anticompetitive factors prior to signing—and assigning transaction risk—in a definitive acquisition agreement. Conversely, smaller bank mergers in less populated areas that lead to a higher deposit concentration for the institution surviving a business combination may not pose a true impact on overall competition and, accordingly, may have an easier time migrating regulatory scrutiny than in prior years. The details will be in the “fine print.” We intend to explore these details as the various banking regulatory agencies promulgate additional guidance.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved