As Interstate Nears, Justice Assesses Bank Merger Picture

Article excerpt

Two contradictory trends in bank mergers are going to come head to head once, as appears likely, interstate banking restrictions fall by the wayside.

In a speech before the Antitrust Section of the American Bar Association, Deputy Assistant Attorney General Robert E. Litan of the Justice Department's Antitrust Division traced these trends.

"With branching restrictions removed, many regional and potential national banks will be seeking to widen their geographical coverage," said Litan. "With perhaps rare exceptions--where the geographic markets of the two banks may overlap to some degree--these market-extension mergers are not likely to pose antitrust dangers."

"On the other hand," Latin continued, "it is possible that interstate branching will encourage a larger number of smaller banks completing in the same markets to merge in order to realize sufficient economies of scale to complete against the regional and national giants. Almost by definition these within-market mergers are more likely to pose antitrust risks than market-extension mergers."

Just how the mix of mergers will change once interstate branching becomes a reality, Litan couldn't say. "So I cannot predict whether the [Antitrust] Division will be more or less active than it has in the past in challenging mergers."

Over the last five years the Antitrust Division has reviewed about 9,000 merger involving banks, but only 43 of them have warranted full-scale antitrust evaluations and only a few have been challenged.

Response to criticisms

Litan took the opportunity of his speech to fire back at critics who find the division's means of evaluating the competitive impact of bank mergers lacking. The criticisms, and Litan's response, were as follows:

1. Justice doesn't adequately count nonbank competition, particularly from finance companies and credit unions.

The Antitrust Division uses an index for measuring competitive concentrations that is based on the sum of the squares of the market shares of the competitors in a market. …