Carolyn Kaster/AP Photo
Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division, joined by Attorney General Merrick Garland and Associate Attorney General Vanita Gupta, speaks at the Department of Justice in Washington, January 24, 2023.
The Biden administration’s executive order on competition policy from July 9, 2021, specifically called for a review and a plan on bank merger oversight within 180 days, conducted by the Justice Department in consultation with the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), the three leading banking regulators with the ability to review and approve mergers. Consulting the calendar, the bank merger plan is now roughly 540 days overdue.
So it was revealing when the point person at the Justice Department who would be leading that process, assistant attorney general for antitrust Jonathan Kanter, went on stage at the Brookings Institution last week and said publicly that he would act under the relevant laws to override the financial regulators’ approval of a bank merger, if he felt it violated the relevant antitrust laws.
Kanter was there to offer his views on bank mergers on the 60th anniversary of U.S. v. Philadelphia National Bank, an important antitrust case that blocked a combination between two large financial institutions and affirmed that the Clayton Antitrust Act applied to bank mergers, as well as other industries. He laid out how the Justice Department would approach bank mergers, eschewing behavioral remedies or conditions-based approvals for rigorous, evidence-based approaches to whether deals between banks will harm competition. And he called for new bank merger guidelines, 23 months after President Biden did the same thing.
This should properly be seen as a shot across the bow of the banking regulators who have failed to move on bank merger rules—and really, the shot is targeted at one person: Janet Yellen. During her time at the Treasury Department, she has shown no interest in this agenda, and an evident desire to return to the pro-consolidation status quo. Her influence over the regulators that have been slow-walking changes is palpable.
Federal action on bank mergers has been practically inert. From 2006 to 2021, the Federal Reserve approved over 3,500 bank mergers without a single denial; in the first half of 2022, the central bank managed to deny exactly one transaction, with 455 more approvals. There are fewer than half the banks in America that there were in 1990, and the largest six control more than half of total assets.
This has real-world impacts on any American who wants to do anything with money, which is a fairly thick stratum of the population. As Kanter said at Brookings, “Bank competition affects the interest you earn on your savings account, the monthly payment on your mortgage or car loan, the fees you pay to withdraw cash from an ATM, the variety of financial products you can choose from, and whether your business can get an affordable loan.”
The current fact that we’re experiencing notably high interest rates but most banks aren’t paying out practically any interest on checking or savings account deposits is a market power issue. The fact that consumers are paying more for mortgages and loans is a market power issue. As Shahid Naeem of the American Economic Liberties Project has pointed out, the fact that bank mergers often lead to branch closures and job loss is a market power issue.
This should properly be seen as a shot across the bow of the banking regulators who have failed to move on bank merger rules.
If Kanter is the leader of Team Action in bank competition policy, Yellen has been a pretty vocal supporter of Team Inertia. On CNBC earlier this month, she said, “Certainly in this environment, some banks are experiencing pressure on earnings and there is a motivation to see some consolidation.” She was talking in the context of the troubles at Silicon Valley Bank and others, and the past experience of securing shotgun weddings between troubled banks and bigger, more stable rivals; the takeover of First Republic by JPMorgan Chase is a good example.
In that deal, the OCC had to certify that the acquisition would not increase bank concentration or threaten systemic stability. Michael Hsu, the current comptroller, did so, and it should not be forgotten that he served as a bank supervisor at the Fed under Yellen. OCC is a Treasury Department agency, and Yellen chose Hsu to serve in an acting capacity. Hsu has talked about banks being “too big to manage,” but in that critical moment, he sided with Yellen.
That was a crisis point, and maybe understandable. But the CNBC sound bite was not the only time Yellen expressed support for more bank consolidation. In May, she said that regulators would be “open” to more mergers if they came through, and apparently reiterated this to a meeting of large-bank CEOs. Around the same time, Hsu promised to be “open-minded when considering merger proposals” in Senate testimony, which resulted in him getting his head taken off by Sen. Elizabeth Warren (D-MA).
This campaign from Yellen came just as TD Bank and First Horizon called off their proposed merger, amid scrutiny over TD’s anti–money laundering controls. But more mergers are expected by some analysts. The fact that Lazard, a boutique investment bank that specializes in mergers and acquisitions, just named Obama veteran Peter Orszag as CEO is one tell; Orszag was previously in charge of Lazard’s financial advisory division for four years, and has ties to the regulatory leadership in a Democratic administration.
Kanter, at least, isn’t fully on board with this alleged new openness. “The time is indeed ripe for us to re-examine how we assess bank mergers,” he said at Brookings, noting that the merger guidelines hadn’t been touched since 1995. He sidestepped the current interest rate environment and the strain on regional banks, but explained that while the banking regulators make the initial assessment on mergers, the Justice Department should issue reports on the “competitive factors” of a merger, and can challenge any merger that violates antitrust law in court.
In the speech, Kanter vowed to return to modernized and more comprehensive competitive factor reports, which had fallen out of use recently. He said that local market concentration would not be the only issue under scrutiny, citing high fees and interest rates and customer satisfaction. And when moderator Aaron Klein noted that in Philadelphia National Bank, the OCC actually approved the deal, and DOJ stepped in and won the case to block it, Kanter responded, “If that’s the appropriate action as a matter of law enforcement, that is the action we could pursue.”
That is essentially a warning: If the financial regulators don’t take mergers seriously, DOJ will. All that any regulator has said recently is that the merger guideline review is in process. But the circumstantial evidence is that the banking regulators and the Justice Department were making progress—Hsu was talking favorably about updating the guidelines, and big mergers were being shot down—and then Yellen stepped in to either water them down or just delay the whole thing.
Outside financial reform and competition policy groups have been agitating to get the merger guidelines done. As Economic Liberties’ Matt Stoller noted last week, “Yellen and [Fed chair Jerome] Powell, who pushed for J.P. Morgan’s acquisition of First Republic, believe that American strength comes from our capital markets, not the industrial and commercial sectors underwritten by local banks.”
But Kanter’s remarks bring this fight more into the open. There are essentially two factions within the Biden administration when it comes to these issues: a more aggressive, newer group that looks to the laws as written to get the best deal for the public, and a faction heavily influenced by Yellen and the Fed that is more concerned with bank stability than the potential side effects. I have no idea whether one side or the other will win this fight, or whether it will just continue on. But last week’s salvo makes it very real.
