Antitrust Analysis of Bank Mergers: A Survey of Recent Developments

In Antitrust Analysis of Bank Mergers: Recent Developments, Terry Calvani and W. Todd Miller reviewed dramatic changes in the antitrust treatment of bank mergers for this journal.1 At that time the banking sector of the financial services industry was experiencing substantial consolidation. Concomitantly, the Antitrust Division of the Department of Justice ("DOJ") had become much more attentive to bank mergers than previously. Indeed, DOJ's method of analysis experienced radical change--a change not always shared by the bank regulatory agencies. On a more local level, the state attorneys general were just beginning to open their own investigations of bank mergers. Confusion sometimes resulted.

The consolidation continues. However, antitrust review of bank mergers has matured in several important ways. First, there is more consistency today among the federal reviewing agencies than previously. Second, state attorneys general have become de facto partners in DOJ's bank merger investigations. Third, rather than testing DOJ's (and sometimes state attorneys general's) market definition and concentration measurement, devising acceptable divestiture packages has become the main event of bank merger review. This maturation is the subject of this note.


A. The Process

The competitive consequences of any transactions are first assessed by the appropriate bank regulatory agency: for national banks--the OCC; for state member banks and holding company transactions--the Federal Reserve Board; and for nonmember insured banks--the FDIC. These respective agencies undertake to assess the competitive consequences of a transaction under their jurisdiction. However, before reaching a conclusion, these regulators will ask DOJ to provide them an independent antitrust evaluation of the transaction. Thus there are two federal antitrust reviews of any bank merger or acquisition: one by the appropriate bank regulatory agency and the other by DOJ.2

Private parties, including the state attorneys general, may also bring suit challenging bank mergers.3 Only the federal government, however, is entitled to the automatic stay.4

B. The Substantive Merger Standard

The Bank Merger Act prohibits mergers or acquisitions that "would result in a monopoly ... or whose effect ... may be to substantially ... lessen competition ..."5 This standard is identical to that applied to non-bank mergers under section 7 of the Clayton Act, 15 U.S.C. §18.6 Put differently: Will the merged entity (post-merger) be able to raise prices? Generally, only horizontal transactions--transactions between competitors--are likely to be subjected to an in-depth review on antitrust grounds.7

Concentration is regarded as an important indicator of competitiveness within an industry. The more concentrated, the less competitive; the more atomistic, the more competitive. In order to measure concentration, it is necessary to define a relevant market. This has both a product and geographic component. Since 1982, the government has employed an economic construct called the Herfindahl-Hirschman Index (sometimes referred to as the "HHI") to measure concentration.8


U.S. banks remain small compared to the international competition. Recently, of the 20 largest banking companies, ten were in Japan, four in France, two in Germany, one in the United Kingdom, one in Switzerland, one in the Netherlands, and one in the U.S.9 There are some 3000 financial institutions in the European Community and 150 in Japan. In the United States, there are still some 8,000 banking companies and 2,000 thrift institutions10 in addition to over 12,000 credit unions.11

The process of bank consolidation in this country continues. Deregulation, competition, the desire to improve bank capital ratios, the S&L crisis, a growing perception that we have too many banks--all are contributing to this consolidation.

A. Setting the Stage

Calvani and Miller noted three significant changes in bank antitrust review.12 First, DOJ's approach to the definition of the relevant product market experienced dramatic change. Second, DOJ's mode of investigation became much more intrusive, costly and time-consuming. Third, the state attorneys general had become players in the antitrust analysis of bank mergers.

1. DOJ's Definition of the Relevant Product Market

In 1990, DOJ filed suit challenging the First Hawaiian/First Interstate Bank of Hawaii transaction13 after the merger had been approved by the Federal Reserve Board.14 In First Hawaiian, DOJ separately examined all of the products and services sold by banks. The case set the stage for dramatic changes in policy by applying a method of analysis quite different from that employed by the Federal Reserve Board. Indeed, DOJ appeared to depart from the traditional market definition of the "cluster of bank services" articulated by the Supreme Court in Philadelphia National Bank.15

First Hawaiian was followed by the government's challenge to the Fleet/Norstar Financial Group transaction.16 Once again approval by the Federal Reserve Board17 was followed by opposition from DOJ. The "adverse competitive factors" letter filed by DOJ with the Federal Reserve Board in the Society/Ameritrust transaction18 confirmed that the rules had changed.

This approach to product market definition is consistent with the approach taken by DOJ and the Federal Trade Commission in their examination of other types of mergers. Indeed, it is the position employed in the Horizontal Merger Guidelines.19 Thus, for example, In re Owens Illinois20 (a merger between two competing glass companies), the FTC staff conceded that the transaction was not anticompetitive in an "all-glass container" market since any effort to increase price post-merger would cause buyers to use other packaging materials. However, they alleged that there were certain types of users for whom there were no other acceptable substitutes. Thus, glass jars used for packing prepared spaghetti sauces was alleged to be a separate market.21

Applying that approach to the First Hawaiian transaction, DOJ isolated a market for commercial loans to small business and middle market as its object of concern. A similar approach was used in Fleet. And in Society/Ameritrust, DOJ again focused on small business loans, but with an even narrower focus specifying loans for working capital as an area of concern.22 Using this general approach, commercial loans to small business may be an object of concern. Cash management services may be another.23

This method of defining the market has important ramifications for the geographic market component since the geographic market will vary, depending on our product market focus. The geographic market for loans to the "Fortune 500" may well be international, while the market for safety deposit boxes may be intensely local. Indeed, there may be a good many geographic markets for the same transaction.24

2. Change on the Mode of Investigation

Traditionally, the appropriate bank regulator, e.g., the Federal Reserve Board, would notify DOJ of a pending transaction, and DOJ would then conduct its assessment largely on the basis of the bank regulatory application. That no longer reflects reality. Just as in other merger investigations, DOJ today can and does conduct its examination using compulsory process (demands for documents, interrogatories, depositions, and so on).25 Indeed, this discovery is even directed at third parties, e.g., bank customers.

None of this should come as a surprise, since the government will need access to a great deal of data in order to construct a market analysis for each of the markets it is likely to examine. This change in process is the logical outgrowth of the change in the method of analysis. Parties to bank mergers that involve horizontal overlaps--that is to say, mergers between banks that compete--should anticipate the possibility of a comprehensive investigation by DOJ.

During the early 1990s when DOJ was refining its Merger Guidelines approach to bank mergers, its discovery was very aggressive. Doubtless this was a function of its need to understand the financial services market. The earlier reliance on demand deposit data was acceptable using the "cluster of bank services" approach to market definition. It was of very limited utility under the new approach.26 As DOJ learned more about the industry and the limited availability of data, its approach to this problem matured. From the perspective of merging parties, it is more reasonable today.

3. The Advent of the State Attorneys General

The states did not play an active role in merger law enforcement until the 1980s. During the Reagan Administration, the trade association of the state attorneys general--the National Association of Attorneys General ("NAAG")--began to assert itself. With the Supreme Court's decision in the American Stores case,27 which held that the state attorneys general have standing to challenge mergers and acquisitions generally, it was only a matter of time before banking came under the watchful eye of the states. That time arrived when the Maine Attorney General intervened in the Key Bank transaction.28 Since then various attorneys general have intervened in several bank merger transactions.29

Unfortunately, the states have their own merger guidelines, which are different from those employed by either DOJ or the bank regulators.30 This has been the source of additional confusion.31 Furthermore, the different standards do not produce similar results.32

B. Further Developments in the Mid-1990s

The confusing and sometimes contradictory situation described by Calvani and Miller has matured in the past couple of years. While the bank regulatory agencies have not officially endorsed DOJ's segmented "Horizontal Merger Guidelines Approach" to market definition, it has captured the day. Moreover, by jointly adopting the Bank Merger Screening Guidelines, both DOJ and the regulatory agencies have adopted a method of approach that minimizes conflict. The centerpiece is the method of defining the relevant product market and measuring concentration.

1. The Bank Merger Screening Guidelines

One of the most significant recent developments in the antitrust analysis of bank mergers has been the joint adoption of the Bank Merger Screening Guidelines33 by DOJ, the Federal Reserve Board and the Office of the Comptroller of the Currency. For the first time, at least in theory and as an initial matter, all the responsible agencies "begin" their analysis by using the same guidelines. However, as noted by Assistant Attorney General Bingaman, the joint adoption of the Bank Merger Screening Guidelines did not produce "a single agency method of analysis."34 Rather, these Guidelines represent accommodation of each agency's own method of analysis as a legitimate, but not the only way to assess bank mergers. Nonetheless, the other differences--product market and geographic market definition, and inclusion of thrifts as market participants--have been more clearly articulated in the Bank Merger Screening Guidelines.

It could be argued that the Bank Merger Screening Guidelines represent the banking regulatory agencies' acquiescence in (or acknowledgement of) DOJ's mode of merger analysis. In the past, DOJ has challenged transactions, e.g., First Hawaiian, that have received regulatory approval. The joint adoption of the Bank Merger Screening Guidelines is an acknowledgment that differing modes of analysis are legitimate. Operationally, the Bank Merger Screening Guidelines significantly reduce the likelihood of divergent decisions by various agencies. Indeed, after the adoption of the Bank Merger Screening Guidelines, DOJ's Bingaman publicly stated that "the Federal Reserve now generally awaits the completion of [DOJ's] investigation before reaching its decisions,"35 whereas in the past the Fed might have announced its formal decisions without waiting for DOJ's input.

The Bank Merger Screening Guidelines describe the overall bank merger review process employed by the banking agencies and DOJ. In Section 1, the Bank Merger Screening Guidelines describe the use of "quantitative" information and two separate screens, Screens A and B. In Section 2, the Guidelines list the types of "qualitative" information that may be relevant to the banking agencies and DOJ when the quantitative results from Screen A and/or B signal potential antitrust concerns.

Screen A embodies what has essentially been the Federal Reserve Board's mode of analysis. Merger applicants first list all the geographic overlaps using three separate geographic definitions: FRB market; RMA market; and county. Then, for each geographic overlap, the merger applicants must complete a Screen A HHI calculation chart. More importantly for purposes of completing Screen A charts, 50% of all thrifts' deposits is accounted for in calculating HHI's. At first blush, this could be viewed as a compromise by DOJ.36 However, in Screen B of the Joint Bank Merger Screening Guidelines, DOJ primarily focuses on the business of small/medium commercial lending, and initially attributes none of thrifts' deposits to the competitiveness of the marketplace.37 Thus, in reality, DOJ has not deviated from its previous focus on the lending to small to medium-sized businesses.

Screen B essentially represents DOJ's pre-Bank Merger Screening Guidelines period analysis that focused on the competitive effect on the market for small to medium commercial lending. Screen B excludes all thrifts from HHI calculation. Moreover, consistent with DOJ's pre-Banking Merger Screening Guidelines era practice, Screen B uses RMA and county, but not FRB markets, as two provisional geographic markets.

The bank regulatory agencies will use only Screen A. If the post-merger HHI is over 1800 and the increase is over 200, then the merging parties should be prepared to provide qualitative information listed in Section 2 of the Bank Merger Screening Guidelines.38

DOJ uses both Screen A and Screen B.39 If the post-merger HHI and the increase in HHI under Screen A exceed 1800 and 200 respectively, then the merging banks need to complete Screen B. More importantly, even when the post-merger HHI and the change do not meet the 1800/200 threshold, for all practical purposes, the merging banks should have HHI figures under Screen B.

In practice, potential bank merger partners ought to complete both Screen A and Screen B, and may also have to provide "qualitative" information listed in Section 2. This is particularly so when the HHI numbers signal border line cases or when there are any area of banking services where the merging firms are especially close competitors.

Often times, low concentration figures under Screen B calculation will satisfy DOJ that there are no serious antitrust problems. However, even when the results of Screen A and Screen B HHI calculations do not indicate highly concentrated markets, DOJ may further investigate the proposed transaction. In particular, DOJ lists two categories of situations that warrant further investigation despite low HHI figures. First, DOJ will continue its investigation if the geographic market definition in a particular transaction is flawed. For example, if the merging banks are located in different, but adjacent counties, none of the three provisional geographic markets under Screen A may capture the existence of competition between the two banks. Second, DOJ's product market definition, albeit already narrower than the banking agencies' definition, may be too broad in some situations. For instance, DOJ will continue its investigation if it believes that the merging banks offer a specialized product and very few other banks also offer the same product.40

When the bank regulatory agencies and/or DOJ do not close their respective investigation after assessing the quantitative factors (as suggested by the results of Screen A and/or Screen B), then they are likely to focus on qualitative factors such as those listed in Section 2 of the Bank Merger Screening Guidelines.41 These qualitative factors are similar to those factors that DOJ would normally look at under the DOJ/FTC Horizontal Merger Guidelines.

In addition, when Screen B signals a potentially anticompetitive bank merger with respect to the market for small/medium commercial lending, DOJ may also calculate HHI's using, instead of deposits, data from the relevant FDIC Reports of Condition on commercial and industrial (C&I) loans below $250,000, and also separately between $250,000 and $1,000,000. DOJ will also look at whether thrift institutions and/or credit unions constrain the merging banks' small/medium business lending business in a given geographic market.42

2. Closer Cooperation between DOJ and State Attorneys General

Although there is still room for different conclusions between DOJ and a particular state attorney general, the past few years have seen closer cooperation between DOJ and state attorneys general. Assistant Attorney General Bingaman remarked that DOJ had established "a policy of cooperating with state antitrust officials in bank merger investigations in an effort to develop a consistent law enforcement approach to bank mergers."43 DOJ views its improved working relationship with the bank regulatory agencies as well as with the various state attorneys general as one of the most important achievements in DOJ's bank merger enforcement.44 Specifically, in recent years, DOJ conducted "joint" investigations with various state attorneys general, and negotiated divestitures with merging banks that satisfied both the federal and state agencies.45 In announcing negotiated divestitures, DOJ press releases make clear that the divestitures "exemplified the close cooperation between federal and state antitrust enforcement agencies which this administration has emphasized."46

Whereas the adoption of Joint Bank Merger Screening Guidelines should significantly help coordinate concurrent (rather than joint) investigations by various federal agencies, the improved cooperation between DOJ and State Attorneys General is still much more fragile. As noted in Calvani & Miller, state attorneys general often have different incentives and interests, and may even have non-antitrust, non-banking agenda when they intervene.47

3. Focus on Crafting Divestiture Packages

In the past few years, all potentially anticompetitive bank mergers have resulted in restructuring of the transactions with necessary divestitures.48 DOJ reports that the success of its bank merger enforcement program "is reflected in the fact that our goal of preventing anticompetitive mergers has been reached without litigation and without the need to use compulsory process to obtain information. Instead, we have been able to enter into constructive dialogue in the context of clearly articulated standards."49 In addition, rather than entering into separate consent agreements with DOJ that are subject to public comment and federal court approval for reasonableness, the merging banks in the recent transactions have restructured their transactions before the bank regulatory agency's formal approval. This is somewhat akin to DOJ's preference for the so-called "fix-it-first" approach to its general merger enforcement.

In other words, in recent years no merger party has challenged DOJ's product market definition or the method of measuring concentration. Rather, once DOJ (and other reviewing agencies) identified potential antitrust questions, the task was to negotiate a divestiture package.50 This is more understandable in the bank merger context than in other general mergers and acquisitions context. Because of the automatic stay of consummation, DOJ's formal challenge could practically derail the merger discussion.51 Moreover, as DOJ lets state attorneys general to become "partners" in their joint investigations, there is a real possibility that the merging banks would have to fend off simultaneous and formidable challenges by DOJ and state attorneys general should the merging banks adopt a hard line strategy.

Thus, there has been a heavy emphasis on devising acceptable divestiture packages. Indeed, DOJ "unabashedly" states in the Introduction and Overview Section of the Bank Merger Screening Guidelines that: "Where a proposed merger causes a significant anticompetitive problem, it is often possible to resolve the problem by agreeing to make an appropriate divestiture." Interestingly, the 1992 DOJ/FTC Horizontal Merger Guidelines do not contain such a statement. Perhaps because DOJ almost exclusively focuses its attention on a very local aspect of the banking business, i.e., commercial lending to small/medium businesses, divestiture of overlapping branches may solve local geographic market problems more easily in the bank merger context than in other general merger contexts.

In devising an appropriate divestiture package, DOJ "will look beyond the amount of assets to be divested to the quality and location of the branches that are included in the divestiture package."52 DOJ also considers "the viability and overall effectiveness of branch networks proposed for divestiture in a market."53

This focus on divestitures presents an opportunity for federal-state conflict. State attorneys general often pursue populist objectives alien to modern antitrust.54 It remains to be seen how DOJ and state attorneys general will resolve their philosophical differences in the future "joint" investigations. Thus, inclusion of the state authorities in the process probably reduces the tendency for divergent outcomes.


The recent years have seen the joint adoption of the Bank Merger Screening Guidelines and closer cooperation between DOJ and state attorneys general.55 Therefore, merging banks are unlikely to find a situation where one agency objects to a proposed bank merger transaction after other agencies have formally approved the transaction. To the extent the proposed transaction has significant antitrust issues, the merging banks will have to address all the interested agencies' concerns simultaneously. Short of risking a formal challenge, and undoubtedly lengthy proceedings, in federal court, the merging banks will have to agree to a divestiture package that satisfies all the interested parties.

The next few years will likely force the agencies--bank regulatory agencies, DOJ, and state attorneys general alike--to address the unresolved questions. Particularly in light of the changing regulatory environment, further development of electronic banking, and increasingly global marketplace, the banking industry will certainly face new questions, and so will the agencies' antitrust analysis of "bank" mergers.

There will be substantial consolidation in the financial services industry in the coming years. More bank mergers will be reviewed. These mergers will present new and old but unresolved questions. It remains to be seen how the reviewing agencies will continue to coordinate their merger enforcement in the new environment from a procedural point of view, and more importantly, come to resolve substantive questions such as proper product and geographic market definition and measurement of concentration.


*Mr. Calvani, formerly Commissioner of the U.S. Federal Trade Commission, is a partner of Pillsbury Madison & Sutro LLP in its Washington, D.C. and San Francisco offices. Mr. Chung, formerly Staff Attorney, Bureau of Competition, U.S. Federal Trade Commission, is an associate of Pillsbury Madison & Sutro LLP in its Washington, D.C. office.

  1. Terry Calvani & W. Todd Miller, Antitrust Analysis of Bank Mergers: Recent Developments, Vol. 9, No. 13 The Review of Banking & Financial Services at 127, (July 1993) (hereinafter "Calvani & Miller").
  2. Following bank regulatory agency review, the merger or acquisition cannot be consummated for 30 days in order to permit a challenge by DOJ.
  3. There are two significant differences between bank merger law and the Clayton Act, which applies to mergers generally. First, the government confronts a 30-day statute of limitations in challenging bank mergers. Bank Merger Act of 1966, 12 U.S.C. §1828(c)(7)(C) (1988). There is no similar limitation to merger actions generally. Indeed, under the Time of Suit Doctrine, there may be no effective statute of limitations for federal government prosecution of mergers under the Clayton Act. See United Statesv. E.I. duPont de Nemours & Co., 351 U.S. 377 (1956). See generally Areeda & Turner, Antitrust Law 61205. Second, when the government seeks to block a merger in other contexts, it must convince a court of the merits of its suit before it is entitled to an order enjoining the consummation of the transaction. However, if DOJ files suit challenging a bank transaction, it is entitled to an "automatic stay" enjoining consummation of the deal until after there has been a trial on the merits. 12 U.S.C. §1828(c)(7)(A). Obviously, this is a very powerful weapon since it may mean months or years of delay pending trial and appeals. For many bank mergers--probably most large ones--that is tantamount to a death sentence; a transaction will not hang together for that period of time. Moreover, the case law seems to suggest that the government is entitled to the automatic stay simply upon its application, unless the merging banks can demonstrate to the court's satisfaction that the government's concerns are frivolous. See, e.g., United States v. First City Nat'l Bank, 366 U.S. 361 (1967).

    It might be argued that there is a third difference between the treatment of bank mergers and mergers generally. The Bank Merger Act of 1966 added language to the law providing that agencies may approve transactions, even if they are anticompetitive, if the agencies find that the anticompetitive effects of the proposed transactions are clearly outweighed in the public interest by the probable effect of the transaction in meeting the "convenience and needs" of the community to be served. 12 U.S.C. §1828(c)(5)(A) and 12 U.S.C. §1842(c)(2). The merging banks have the burden of proving the defense. United States v. First City Nat'l Bank, 386 U.S. 361 (1967). See also Fleet/Norstar Fin. Group, Inc., 77 Fed. Res. Bull. 750 (1991). The "convenience and needs" test has been little more than the banking equivalent of the efficiencies defense normally considered by the agencies in the evaluation of non-bank mergers. Cf. United States v. Third Nat. Bank in Nashville, 390 U.S. 171, 182 (1968). Indeed, even if the bank regulatory agency finds that the convenience and needs of the community outweigh the anticompetitive effects of a proposed transaction, DOJ can still challenge the merger. See United States v. First Nat'l state Bancorporation, 479 F. Supp. 1339 (D. N.J. 1979); United States v. First Nat'l Bank of Maryland, 310 F. Supp. 157 (D. Md. 1970); United States v. Provident Nat'l Bank, 280 F. Supp. 1 (E.D. Pa. 1968). See generally United States v. Citizens and Southern Nat'l Bank, 422 U.S. 86, 102-7 (1975). If DOJ commences a challenge, the federal court must review the merger de novo and use the same evaluation standards as the federal bank regulatory agency which originally approved the merger. 12 U.S.C. §§1828(c)(7)(b), 1849. The merging banks have the burden of proving that the convenience and needs of the community clearly outweigh the anticompetitive effects of the merger. See United States v. First Nat'l Bancorporation, 499 F.Supp. 793, 816-17 (D. N.J. 1980).

  4. 12 U.S.C. § 1848. The propriety of actions brought by private parties or state attorneys general is beyond the scope of this article. See generally Robert F. Roach, Bank Mergers and the Antitrust Laws: The Case for Dual State and Federal Enforcement, 36 Wm. & Mary L. Rev. 95 (1994) (arguing for aggressive bank merger enforcement by state attorneys general). But see Jonathan Rose, State Antitrust Enforcement, Mergers, and Politics, 41 Wayne L. Rev. 71 (1994) (advocating a limited role for state attorneys general in merger enforcement generally).
  5. See n. 2 supra for a description of the automatic stay provision. See, e.g., Vial v. First Commerce Corp., 564 F.Supp. 650 (E.D. La. 1983). See also State of Washington v. Heimann, Civ. Act. No. 79-1415 (W.D. Wash. 1979); First Midland Bank & Trustv. Chem Finan. Corp., 441 F.Supp. 414 (W.D. Mich. 1977); Blount v. State Bank & Trust Co., Civ. Act. No. 695 (E.D. N.C. 1969).
  6. 12 U.S.C. § 1828(c)(5)(A)-(B).
  7. See Third Nat. Bank, n. 2 supra at 181-82 (finding that 1966 Act was not intended to change Clayton Act §7 standard).
  8. Mergers, including bank mergers, also have been examined from the perspective of potential competition. Indeed, the Fed recently considered potential entrants as one factor in approving mergers in highly concentrated markets. Mid Am, Inc., 79 Fed. Res. Bull. 640 (1993); Worthen Banking Corp., 79 Fed. Res. Bull. 514 (1993); Old Nat'l Bancorp., 79 Fed. Res. Bull. 124 (1993). Potential competition embodies two related, but different theories.
  9. The first is when, but for the merger, the acquiring (or acquired) firm would likely have entered a concentrated market, thereby increasing competition and decreasing concentration (the "actual potential entrant" theory). The second is when the acquiring firm was perceived by competitors in a concentrated market as a likely potential entrant, and this perception exerted a procompetitive effect on their behavior (the "perceived potential entrant" theory).

    ABA Antitrust Section, Antitrust Law Developments 322 (3d ed. 1992). The Supreme Court has expressly accepted the perceived potential entrant theory in a bank case. See United States v. Marine Bancorporation, 418 U.S. 602 (1974).

  10. See Antitrust Div., U.S. Dept. of Justice, Merger Guidelines (1984), 4 Trade Reg. Rep. (CCH) 613,103 (1984). One calculates the HHI by summing the square of each competitor's market share. For a description of the underlying rationale and computation of the HHI, see Scherer, Concentration in Particular Markets, in Calvani & Siegfried, eds., Economic Analysis and Antitrust Law 78 (2d ed. 1988). Prior to 1982, the government used concentration ratios as the measurement device--for example, what share of the market was held by the four largest firms.
  11. The American Banker, p. 18 (July 17, 1996). Calvani and Miller explained that:
  12. The relatively small size of U.S. banks is not fortuitous; our state and national legislators have made a conscious decision to impede the emergence of large banking institutions within the United States. The proscription against holding equity positions, interstate banking, the Glass-Steagall Act, state branch banking laws, and so forth, all dictate a particular result. Our banks are small because we have wanted them that way.

    Calvani & Miller, n. 1 supra at 127.

  13. See Trends in the Structure of Federally Insured Depository Institutions, 1984-1994, 82 Fed. Res. Bull. at 5 (1996).
  14. See The American Banker, April 3, 1995.
  15. Section II.A. of this note is a brief summary of the significant developments in the early '90s discussed in Calvani & Miller, n. 1 supra.
  16. United States v. First Hawaiian Inc., 1991-1 Trade Cas. (CCH) 669,457 (D. Haw. 1991). See also Letter from James F. Rill, Assistant Attorney General, to Alan Greenspan, Federal Reserve Board Chairman (Oct. 5, 1990).
  17. First Hawaiian, Inc., 77 Fed. Res. Bull. 52 (1991).
  18. United States v. Philadelphia National Bank, 374 U.S. 321 (1963). In this case, the United States Supreme Court held that "cluster of bank services" was the relevant product market in commercial bank transactions.
  19. United States v. Fleet/Norstar Financial Group, Inc., Civ. No. 91-0021-P (D. Me., Dec. 3, 1991) (consent decree).
  20. Fleet/Norstar Financial Group, Inc., 77 Fed. Res. Bull. 750 (1991).
  21. Letter from James F. Rill, Assistant Attorney General, to Alan Greenspan, Federal Reserve Board Chairman (Feb. 6, 1992). See also United States v. Society Corp., 6 Trade Reg. Rep. 650,737 (N.D. Ohio, Mar. 13, 1992) (proposed consent decree).
  22. DOJ/FTC Horizontal Merger Guidelines of 1992, 4 Trade Reg. Rep. (CCH) 6 13,104 (1992).
  23. 5 Trade Reg. Rep. (CCH) 623,162 (1992), at 22,812.
  24. Id. at 22,817. While the Commission did not ultimately find that glass jars for prepared spaghetti sauces was a separate product market, it did hold that glass jam and jelly jars (id. at 22,818), glass mayonnaise jars (id. at 22,819), pickle jars (id.), glass bottles for wine coolers (id. at 22,820), glass bottles for premium wine (id. at 22,821), and glass jars for baby food (id.) were separate markets. The Commission dismissed the complaint, however, on the ground that producers of glass jars in other markets could quickly (i.e., within five to eighthours) and effectively begin production of jars in each defined market and thereby prevent any anticompetitive price increase in the defined market (id. at 22,823).
  25. This was the approach of DOJ in its comments to the Federal Reserve Board in First Bank System, 79 Fed. Res. Bull. 50 (1993). DOJ analyzed the bank merger by considering competition in the retail banking products market, the business banking market and the medium-size business banking market, and found that the merger had no significant adverse effect. The Federal Reserve Board characterized DOJ's analysis as an "alternative analysis" but reached the same conclusion as DOJ. See also United Statesv. Texas Commerce Bancshares, Inc., 1993-2 Trade Cas. (CCH) 6 70,326 (N.D. Tex. 1993) (consent decree), where DOJ focused on transaction accounts and commercial operating loans to small and medium-sized businesses. Thus, DOJ appears to identify each product sold by the merging banks, and undertake a separate analysis for that product.
  26. During the early 1990s when this transition was first taking place, DOJ staff suggested even more narrowly defined markets. Specific type of small business loan (e.g., an agricultural loan) might constitute a separate relevant product market. Thus a merger that is otherwise unobjectionable might pose problems simply because the merging banks have a high market share of loans to the commercial fishing industry. Indeed, it was suggested that a specific type of cash management service (e.g., lock boxes) may be an antitrust market.
  27. See, e.g., Letter from JamesF. Rill, Assistant Attorney General, Antitrust Div., to Alan Greenspan, Federal Reserve System Board Chairman (Feb.6, 1992) (in announcing opposition to Society/Ameritrust merger, it was noted that the relevant geographic market for loans to small businesses was a single county, while the geographic market for retail and other products appeared to be broader).
  28. The authors are aware of transactions that involved the production of literally millions of documents, answers to lengthy interrogatories, and the deposition of dozens of executives. Frequently, before resorting to compulsory process, DOJ will demand that the merging banks "voluntarily" provide information.
  29. When first applying the Merger Guidelines approach to bank mergers, DOJ took exceedingly expansive discovery in some matters. As the staff compared overlaps between parties, it desired to measure market shares in each segment. While demand deposit data was readily available it said little about the respective market shares in cash management services or loans to the "middle market." The staff hoped that its discovery would provide that type of information.

This approach has matured. First, DOJ's experience has permitted it to more clearly focus on areas that may pose competitive concerns. Second, DOJ has also learned from the limitations of data availability.

  1. California v. American Stores, Co., 495 U.S. 271 (1990).
  2. See e.g. Maine v. Key Bank of Maine, No. 91-0380-P-H (D. Me., Dec. 3, 1991).
  3. For example, Fleet Bank's plans to acquire certain branch offices of Chemical Bank were modified to resolve concerns raised by the New York Attorney General's Office. See Antitrust & Trade Reg. Daily (BNA) Vol. 64 at 430 (Apr. 15, 1993).

The attorneys general of New York, Washington, Florida, California, and Arizona have investigated other transactions. See Zuckerman, State Attorney General's Office Threatens Court Action, Am. Banker, Feb. 11, 1992, at 2; Letter from Robert Butterworth, Attorney General of Florida to Allen Lastinger, Jr., President, Barnett Banks, Inc. (Nov. 19, 1992); California Clears BankAmerica, Security Pacific Merger, Reuter Business report, Mar. 11, 1992; and Arizona Senate Panel Passes Bill To Block BankAmerica--Sec Pac Merger,, [Jan-June] Banking Report (BNA), Vol. 58 No. 8, at 288 (Feb. 24, 1992).

  1. National Association of Attorneys General, NAAG 1993 Horizontal Merger Guidelines, Trade Reg. Rep. (CCH) No. 256 (Supplement) (Mar. 30, 1993).
  2. See Antitrust Implications of Bank Mergers and the Role of Several States in Evaluating Recent Mergers, Hearing Before the House Committee on Banking, Finance, and Urban Affairs, 102nd Cong., 2nd Sess. (Apr. 1, 1992) where Stephen L. Wessler, Deputy Attorney General for the State of Maine, testified that "in analyzing bank mergers our office generally has applied the 1984 Department of Justice Merger Guidelines (or, in the alternative, the National Association of Attorneys General Merger Guidelines)." Subsequent to Mr. Wessler's testimony, the National Association of Attorneys General promulgated revised NAAG Horizontal Merger Guidelines, n. 30 supra. These Guidelines make clear that, for example, the methodology used in defining markets under the DOJ Merger Guidelines can be used as an alternative.
  3. For example, in the BankAmerica/Security Pacific transaction, California and Arizona disagreed with the conclusions reached by the federal antitrust authority, and demanded additional divestitures. BankAmerica Corp., 78 Fed. Res. Bull. 5 (1992). States have also caused modifications to bank acquisitions even before the federal government has had an opportunity to review the transaction. In Fleet Bank's planned acquisition of 32 Chemical Bank branch offices, New York forced Fleet to divest a branch office by threatening to file an objection with the Fed. Fleet Resolves New York's Concerns about Acquisition, Antitrust and Trade Reg. Rep. (BNA), Vol. 64, at 430 (Apr. 15, 1993). The differences are real.
  4. This informal statement entitled "Bank Merger Competitive Review" was first issued in March 1995, and has been commonly referred to as the "Bank Merger Screening Guidelines."
  5. Antitrust and Banking, Remarks of Anne K. Bingaman, Assistant Attorney General, Antitrust Division, U.S. Department of Justice, before the Comptroller of the Currency's Conference on Antitrust and Banking, Washington, D.C. (November 16, 1995) (hereinafter "Bingaman Remarks").
  6. See Bingaman Remarks.
  7. See Antitrust Assessment of Bank Merger, Remarks of Robert E. Litan, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justices, before the Antitrust Section of the ABA (April 6, 1994). In this pre-Bank Merger Screening Guidelines era speech, Mr. Litan defended DOJ's position by explaining that:
  8. We use a different approach to product market definition (although as I discuss later, this difference in approach rarely generates a different assessment of the competitive impact of a merger). Whereas the Fed looks at deposit data as an adequate proxy for the 'cluster' of services that banks often provide (loans, deposits, and various fee-based services), we at DOJ have long treated banks as multi-product firms and, accordingly, have assessed the competitive impact of mergers in each relevant product or service (deposits, various types of loans, and so on). As it turns out, although thrifts compete with banks on an equal basis in many services, that is not true with respect to one very important product line--commercial loans, especially to small and mid-sized businesses.


  9. However, Section B of the Bank Merger Screening Guidelines clearly state that if the merging banks can offer evidence of competition from institutions such as thrifts or credit unions in the provision of commercial loans for business startup or working capital, and cash management services, then DOJ may include those non-bank institutions in measuring concentration to the extent appropriate. Thus, depending on the circumstances, 0% to 100% of thrifts' total deposits (or any other appropriate measure) may be included.
  10. Even when a proposed transaction does not meet the 1800/200 threshold, the Federal Reserve is likely to continue its review if the post-merger acquirer would have more than a 35% market share. Bank Merger Screening Guidelines.
  11. See the appended flow chart that captures DOJ's bank merger review process under the Bank Merger Screening Guidelines.
  12. Bank Merger Screening Guidelines, Section 1.
  13. These factors include, but not limited to, evidence that: (1) the merging banks do not significantly compete with each other; (2) rapid economic change; (3) expansion plans by other banks in the market; (4) entry conditions; and (5) evidence that non-bank institutions offer meaningful competition in the provision of commercial loans, cash management, and the like. If these "qualitative" factors raise valid questions about the reliability and usefulness of the "quantitative" results from Screen A and/or Screen B concentration figures, then DOJ may re-calculate HHI's or otherwise take the qualitative factors into account in assessing the competitive effects of a given bank merger.
  14. Bank Merger Screening Guidelines, Section 2. See also n. 37 supra. Again, this approach is consistent with the DOJ/FTC Horizontal Merger Guidelines of 1992, which generally define a relevant product market as "the smallest group of products" that a hypothetical monopolist over that group of products could profitably impose at least a 'small but significant and nontransitory' increase in price. DOJ/FTC Horizontal Merger Guidelines of 1992, n. 17 supra at § 1.11. Moreover, the hypothetical monopolist would be able to identify and "price discriminate" a group of customers that desires a certain type of banking service, e.g., lock boxes or small to medium size commercial loans as opposed to home mortgages. When price discrimination is possible, the DOJ/FTC Horizontal Merger Guidelines allow the agency to "consider additional relevant product markets consisting of a particular use or uses by groups of buyers of the product for which a hypothetical monopolist would profitably and separately impose at least a 'small but significant and nontransitory' increase in price." Id. § 1.12.
  15. Bingaman Remarks.
  16. See Consolidation in the Banking Industry: An Antitrust Perspective, Remarks of Anthony V. Nanni, Chief, Litigation I Section, Antitrust Division, U.S. Department of Justice, before the Federal Reserve Bank of Chicago, 32nd Annual Conference on Bank Structure and Competition, Chicago (May 2, 1996) (hereinafter "Nanni Remarks"). See also Bingaman Remarks.
  17. See DOJ Press Release of June 18, 1996 (Bank of Boston/BayBanks; divestiture of 20 branches with $860 million in deposits; joint investigation with the Massachusetts Attorney General's Office); DOJ Press Release of February 28, 1996 (Wells Fargo/First Interstate Bancorp; divestiture of 61 branches with $2.54 billion in deposits; joint investigation with the California Attorney General's Office); DOJ Press Release of October 31, 1995 (Fleet Financial Group/Shawmut National; divestiture of 64 branches with $3 billion in deposits; joint investigation with the Offices of Massachusetts and Connecticut Attorneys General). DOJ also conducted a joint investigation with Attorneys General of Washington and Oregon (U.S. Bancorp/West One, divestiture of 27 branches with $614 million in deposits); with Attorney General of Maine (KeyCorp/Casco, divestiture of 11 branches with $250 million in deposits).
  18. See n. 45 supra for examples.
  19. Calvani and Miller made a following observation:
  20. The merger policies employed by the state attorneys general are a mixed bag of 1960s antitrust, the new economics, and plain old-fashioned election politics. If the state approach to bank mergers is to resemble their approach to merges in general, then populist values, broadly defined, will be the key. For example, in a merger involving textile companies, three states agreed not to sue the parties if the acquiring company promised

    not to close plants for two years and to make good faith efforts not to reduce employment levels; to provide preferential consideration to the [acquired party's] former managers, and to use and maintain...contracts with local vendors.

    Stevens, Financial News (AP wire)(May 5, 1988).

    The parties also had to promise to maintain levels of charitable contributions. Such concessions are already being sought by states in banking mergers. Indeed, in the Barnett Bank/First Florida merger, the Attorney General of Florida forced Barnett to protect the jobs of certain First Florida employees. In addition, Barnett promised to make additional commercial and industrial loans to qualified small business borrowers. In return for Barnett's promises, Florida agreed not to challenge the merger. Letter from Robert Butterworth, Attorney General of Florida, to Allen Lastinger, Jr., President, Barnett Banks, Inc. (Nov. 19, 1992). Obviously, these objectives have little to do with antitrust.

    Calvani & Miller, n. 1 supra at 135.

    See also Jonathan Rose, n. 3 supra. After analyzing the revised NAAG Horizontal Merger Guidelines, n. 30 supra, Professor Rose concludes that:

    State merger enforcement causes numerous problems and costs and may be unwise from a policy standpoint. . . Having achieved a measure of success, perhaps NAAG should take the politically symbolic step of repealing the Guidelines . . . Then, state antitrust officials could focus all their important antitrust interests and limited resources on price fixing and other cartel activity.

    Jonathan Rose, n. 3 supra at 127-128.

  21. See n. 45 supra.
  22. Nanni Remarks. Mr. Nanni further reported that for a 12-month period ending April 1996, DOJ reviewed 1,874 bank mergers, seven of which were restructured to address antitrust concerns. Id.
  23. See n. 45 supra for examples of recent bank mergers that resulted in negotiated divestitures.
  24. See n. 2 and 4 supra.
  25. Nanni Remarks.
  26. Id.
  27. See n. 47 supra. See also Robert F. Roach, n. 3 supra.
  28. In their earlier article, Calvani and Miller inquired "whether an effort will be made to fashion a unitary mode of antitrust analysis" of bank mergers, particularly in light of the fact that the Europeans had centralized their merger review process. Calvani & Miller, n. 1 supra, at 136. At least on the surface, we now have the joint Bank Merger Screening Guidelines. We have also seen much closer cooperation between DOJ and state attorneys general conducting "joint" rather than "separate" investigations. It still remains to be seen how the Bank Merger Screening Guidelines will change over time.