Many banking institutions, economists, lawyers, and investment bankers are using their personal computers and today's advanced merger analysis software to plan -- and win agency approval of -- bigger and more complex mergers. And some government agencies are using similar software to analyze these same transactions. These activities, unknown as recently as six months ago, rank among the most exciting new uses of personal computers in the banking field.
Before any merger transaction can be consummated, it must be approved by federal regulatory agencies. In almost every case, agency approval depends on a favorable evaluation of the level of competition in each of the merging banks' markets.
Just within the last few years it has become possible to program microcomputers to make them a powerful tool for preparing these competitive analyses and, ultimately, for winning approval of larger mergers. This has been made possible by the regulatory agencies' adoption of more precise and quantitative merger guidelines, on the one hand, and the rapid evolution of microcomputer hardware and software, on the other. A properly equipped microcomputer can greatly enhance the executive's or attorney's ability to deal with and gain approval of today's larger and more complex bank mergers. "Fudge Factors"
The Department of Justice's Merger Guidelines and the Federal Reserve Board's Potential Competition Guidelines provide quantitative standards a merger must meeting before it receives agency approval. Prior to these guidelines, the use of "fudge factors" and "guesstimates" was common in the approval process.
With the current guidelines, the merging institutions can determine with reasonable certainty whether their merger will be approved and, if not, how much of the merged entity would have to be divested to make it acceptable. For example, under the Department of Justice's Merger Guidelines, a transaction producing a postmerger Herfindahl-Hirschman Index (HHI) of 1470 and an HHI increase of 163 points cannot be approved unless the parties agree to divest at least 63 points of market share. The FRB's Potential Competition Guidelines often require even more complex calculations.
Another consideration that has recently become important in competitive analysis is the impact of thrift institutions in banking services markets. The deregulation of thrifts has led them to provide new services to businesses, and, in some areas, thrifts have become almost functionally equivalent to banks.
Various federal agencies have recognized this and have become willing to give some (but not full) competitive weight to thrifts in some market areas. The amount of weight given to thrifts can vary from case to case, state to state, and even from market to market. As a result, it has become necessary to calculate precisely the effect of including thrifts at various levels in a competitive analysis, say, at 20%, 30%, or 50% of their deposits. This variation increases the complexity of a competitive analysis still further. Complex Calculations
The complex and time-consuming calculations required for a competitive analysis can be done efficiently on a microcomputer; however, a microcomputer is useless without proper software -- the instructions that guide the machine in a particular application.
Years ago, when only programming languages such as BASIC and FOR-TRAN were available for microcomputers, learning one of these languages was necessary to do even the most rudimentary portion of a competitive analysis such as a market share table. Generally, executives and attorneys are not and do not aspire to become programmers. But the development of spreadsheet software gives these individuals increased access to the power and flexibility of the computer without the need to learn advanced programming skills. Using some simple BASIC programs and spreadsheet software, one can dramatically increase the accuracy of simple competitive analyses and decrease the time required to prepare them. …