Magazine article American Banker

Justice Department Is Reviewing Antitrust Rules in Bank Mergers

Magazine article American Banker

Justice Department Is Reviewing Antitrust Rules in Bank Mergers

Article excerpt

Justice Department Is Reviewing Antitrust Rules in Bank Mergers

The Justice Department is conducting a review of the criteria it uses to determine when a bank merger violates antitrust laws.

The agency currently bases its decision largely on the proportion of deposits that would be controlled by the merged institution.

Marketplace Has Changed

Now it has formed a task force of bank regulators to study whether that yardstick should be revised because of changes in the marketplace that have made banking customers less dependent on local institutions.

Among those changes: the proliferation of credit cards and automated teller machines, the growth of loan production offices, and the rise of nonbank competitors.

"We are trying to educate ourselves," Charles James, deputy assistant attorney general for antitrust, said in an interview on Wednesday.

The study comes at time when the industry is poised for massive consolidation. In just the past couple of weeks, mega-mergers were announced that would create the nation's second-largest and third-largest banks.

It also reflects renewed interest in antitrust enforcement by the Justice Department after a decade of dormancy. But most observers don't think the agency intends to slow the industry's consolidation.

Bringing the Law Up to Date

Regulators on the task force said the aim is to bring antitrust law into sync with a much-changed industry. Mr. James said the agency had not yet decided that any change was necessary, but he added that the task force's findings "very well could change how we think about the facts."

The conclusions will be sent to the attorney general, Treasury secretary, and banking agency heads by Oct. 31, regulators said.

Under current rules, if the Justice Department determines that a merged institution would be too dominant, it can block the deal or force the banks to divest some branches to dilute their market concentration.

Faulty Market Measures

Bank regulators, particularly the Federal Deposit Insurance Corp., have argued that the traditional focus on market concentration can be inaccurate, especially if one of the merging banks is failing. But the old rules remain in effect, creating some uncertainty in bankers' minds.

This year, the Justice Department has intervened in two bank merger cases, requiring divestitures before permitting the deals to go through.

"Justice is looking closely at in-market mergers," said a lawyer at one of the bank regulatory agencies. "They are not as loose about things as the Reagan Justice Department was."

Fleet Deal Delayed

The agency alarmed banking lawyers when it held up the third-largest bank bailout in government history -- Fleet/Norstar Financial Group's acquisition of the failed Bank of New England -- because of an alleged overconcentration in Maine. Rather than litigate over a mere $85 million in deposits at six branches, and despite enjoying support from the FDIC and Federal Reserve Board, Fleet complied by agreeing to divest the offices.

The Fleet case followed Justice's demands for divestitures last March when Hawaii's second- and fourth-largest banks combined.

"These two cases show that this is not a totally quiescent Justice Department, which is the picture everybody has in their minds," said Michael A. Greenspan, a lawyer with Thompson & Mitchell in Washington who represented Fleet in the BNE deal.

But Justice officials disagree.

"Those two enforcement actions cannot be seen as evidence of a general policy shift because I think they are very unique," Mr. …

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