Bank Mergers Face Fresh Antitrust Heat at US Justice Department

Top Justice Department antitrust lawyers are weighing a major revamp of how they scrutinize bank mergers, complicating further consolidation for an industry that’s facing some of its biggest challenges since the financial crisis.

(Bloomberg) — Top Justice Department antitrust lawyers are weighing a major revamp of how they scrutinize bank mergers, complicating further consolidation for an industry that’s facing some of its biggest challenges since the financial crisis.

Four banks have collapsed this year and regulators are seeking to thread a difficult needle. Although US officials have said they’re going to maintain a tough line, there has been significant consolidation — including the purchase of First Republic Bank by JPMorgan Chase & Co., which was already the biggest American lender.

President Joe Biden has made more competition a key policy priority of the administration, but banking has so far largely avoided antitrust scrutiny. The US last issued guidance on bank deals in 1995.

Biden’s Push for More Competition: What’s in the Executive Order

On Tuesday, the Justice Department’s antitrust chief Jonathan Kanter is expected to outline how the Justice Department plans to revamp bank merger reviews at an event in Washington on the 60th anniversary of a landmark case confirming the authority of antitrust lawyers to police bank deals.

The Justice Department and banking regulators, including the Federal Reserve, the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., all examine deals. The DOJ’s antitrust lawyers focus on competition, while the other agencies examine issues such as how a merger impacts the safety and soundness of the banking system.

Twenty-eight bank deals were announced in the first four months of 2023, less than half of the total announced in the same four months a year earlier, according to S&P Global Market Intelligence. But S&P and other banking analysts expect that to tick up in the coming months as small and medium-sized banks seek to repair their stock prices.

Treasury Secretary Janet Yellen and Acting Comptroller of the Currency Michael Hsu have both made public statements generally supportive of increased merger activity among banks. 

Regional Banks

Although the Fed already prevents Wall Street giants from combinations, Democratic lawmakers have been arguing that more scrutiny is needed for regional banks.

Concerns about a lax bank merger regime aren’t solely a product of the recent banking crisis. For the past several years, regulators have been thinking about how to modernize bank merger reviews. 

In late 2020, the Justice Department under former president Donald Trump sought public comments on the bank merger process with an eye toward taking a lighter approach. The DOJ under Biden again asked for public input in February 2022.

Critics argue that regulators focus too much on how a deal impacts the share of deposits and don’t consider how mergers affect other banking activities, like mortgages or small business loans. Nor, they say, has there been sufficient focus on how bank tie-ups impact consumers, where research has indicated that mergers tend to increase fees and lessen the availability of customer service.

FDIC Policies

Commissioners at the FDIC also have been trying to request public comment on the agency’s bank merger review policies since Biden’s July 2021 executive order directing agencies to seek ways to boost competition in industries they supervise.

The efforts initially sought to see regulators take a tougher stance on banks, reverse breaks dished out by regulators under Trump, boost competition, and tackle thorny issues including community lending rules, climate change and cryptocurrencies.

The push led to a power struggle that saw the former Republican FDIC chair resign from her post.

Now, the FDIC and other agencies seem to be changing their stance. 

The implosions earlier this year of crypto-friendly lender Silvergate Capital Corp. and regional banks Silicon Valley Bank and Signature Bank came on the heels of a bank-deal boom. The year 2021 marked a 15-year high in bank deals, according to advisory firm Deloitte LLP, as smaller banks sought to take advantage of a Trump-era regulatory rollback and bulk up to better position themselves to compete against the biggest banks.

Here’s the Fed’s Plan for Tighter Bank Oversight After SVB

Regulators are concerned that some of those deals may have contributed to weaknesses in the banking system. The Federal Reserve’s report on the SVB collapse, for example, noted that regulators okayed SVB’s $900 million merger with Boston Private Financial Holdings in 2021 and concluded the deal wouldn’t raise concerns about the financial stability of the US. But they didn’t ensure that SVB had a plan to comply with the more stringent requirements required of large banks, nor did the Fed have a strategy for greater supervision.

Michael Barr, the Fed’s vice chair for supervision, immediately signaled he would take a tough approach to mergers after taking office last year.

“Mergers are a feature of vibrant industries, but the advantages that firms seek to gain through mergers must be weighed against the risks that mergers can pose to competition, consumers and financial stability,” he said in his first major policy speech last September. Barr has said the regulator is considering new guidance on the issue.

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