DealLawyers.com Blog

In a speech delivered earlier this week, DOJ Antitrust chief Jonathan Kanter announced that the DOJ will consider a wider range of potential competitive harms in its analysis of bank mergers than those set forth in its 1995 bank merger guidelines. Kanter indicated that the move is prompted by significant changes in the competitive environment for banking and in the needs of consumers for financial services.  This excerpt provides an overview of the DOJ’s new approach:

The division is modernizing its approach to investigating and reporting on the full range of competitive factors involved in a bank merger to ensure that we are taking into account today’s market realities and the many dimensions of competition in the modern banking sector.

In preparing the competitive factors reports that we are required by law to submit to the banking agencies, the DOJ will assess the relevant competition in retail banking, small business banking, and large- and mid-size business banking in any given transaction. These analyses will include consideration of concentration levels across a wide range of appropriate metrics and not just local deposits and branch overlaps. Indeed, the division and the federal banking agencies are working together to augment the data sources we use when calculating market concentration to ensure we are relying on the best data possible and using state-of-the art tools to assess all relevant dimension of competition.

However, our competitive factors reports will not be limited to measuring concentration of bank deposits and branch overlaps. Rather, a competitive factors report should evaluate the many ways in which competition manifests itself in a particular banking market—including through fees, interest rates, branch locations, product variety, network effects, interoperability, and customer service. Our competitive factors reports will increasingly address these dimensions of competition that may not be observable simply by measuring market concentration based on deposits alone.

Simpson Thacher’s memo on the policy change notes that the DOJ’s updated approach represents a “significant shift” away from its approach under the 1995 guidelines, which assesses the competitive impact of a proposed deal at the local level and relies heavily on branch network overlaps and deposit shares.

The memo also points out that Kanter announced that the DOJ will be less willing to accept branch divestitures as a solution to competitive concerns and will no longer provide negotiated divestiture agreements to banking agencies – opting instead for non-binding advisory opinions. The memo says that this change in approach will increase the DOJ’s leverage:

DOJ’s revised approach of no longer providing negotiated divestiture agreements in advance of banking agency approval may also have significant timing implications. Unlike in other industries where to prevent a merger from closing DOJ must obtain a court ordered injunction, in the bank merger context the banking statutes provide that DOJ simply filing a complaint will stay the effectiveness of the bank regulatory approval indefinitely. This gives DOJ additional timing leverage and DOJ may have no incentive to move quickly in the litigation process.

– John Jenkins