Bank M&A rules could get even tougher under Biden

WASHINGTON — In the final months of the Trump administration, the Department of Justice launched a plan to consider changes to its bank-merger review process, raising industry hopes that the outdated regime would be overhauled.

But that was before the November election. With the Biden administration now calling the shots and the department led by Attorney General Merrick Garland, progressives are now urging the DOJ to institute a tougher review process to address branch closures and other potential economic harms for lower-income consumers posed by consolidation.

“The general direction of merger review has turned 180 degrees since the 2020 election,” said Jeremy Kress, a business law professor at the University of Michigan and a former attorney at the Federal Reserve, where he advised the agency on bank merger approvals. “When the Trump administration started reviewing the bank merger standards, it was telegraphing that it was planning to loosen the standards to make them easier to pass. I do not expect that the Biden administration will follow through in that direction.”

In September, the DOJ invited public comment on a plan to update reviews of bank mergers for antitrust concerns. The department released more than a dozen questions including whether the process should scrutinize online lenders more closely and whether rural areas should have different market-concentration thresholds than urban areas. The comment period ended Oct. 16.

Many in the industry saw the effort as potentially benefiting smaller banks. Some also hoped the department would consider competition from fintechs and other nonbanks before determining that a merger affords an acquirer too much dominance over a financial services market.

In a February speech, Federal Reserve Gov. Michelle Bowman argued it was time for the agency to update its own review process of bank holding company mergers to better reflect the competition smaller banks face from tech companies.

Brad Bolton, president and CEO of Community Spirit Bank in Red Bay, Ala., said regulators’ thresholds for market concentration have a stronger effect on the country’s smallest banks, particularly in areas with already-limited bank presence.

“Two $150 million institutions in one county who are both locally owned and operated — if they came together, they could gain economies of scale while still being locally owned and operated by local people,” Bolton said.

But progressives who submitted comment letters have urged the DOJ’s Antitrust Division to strengthen — not weaken — the competitive thresholds and standards regulators consider before approving bank mergers.

“Rather than taking actions that would weaken this analysis or allow mergers to pass the screening criteria with looser concentration thresholds than those that currently exist, the Division should instead strengthen these thresholds and use more specific market definitions to ensure that [low-to-moderate-income] communities are not left without access to banking services,” wrote Sen. Elizabeth Warren, D-Mass., in a comment letter.

Some argue that the DOJ’s review process should more effectively weigh the impact of branch closures on LMI consumers. They cite data from the Federal Deposit Insurance Corp. showing that total branches operated by commercial banks declined by nearly 7.5% between 2012 and 2019, though a significant proportion of that was due to institutions expanding mobile banking options instead of consolidation.

“The almost sole emphasis on antitrust considerations in the existing DOJ merger review analysis is insufficient in attaining the objectives of public benefits required by banking law,” wrote the National…