U.S. Justice antitrust chief details renewed bank merger scrutiny

By Pete Schroeder

WASHINGTON (Reuters) -The U.S. Justice Department antitrust division plans to expand the scope of its bank merger review process, the department's chief said on Tuesday, in a sign the agency may get tougher when scrutinizing such deals.

Jonathan Kanter, the DOJ's assistant attorney general for antitrust, said the agency's guidelines, which were last updated in 1995, may be overly narrow given the technology-driven reach of financial services now.

“There are good reasons ... to question whether the 1995 guidance sufficiently reflects current market realities," he said in a speech at the Brookings Institution, a think tank.

The comments are likely to disappoint the industry, which had been hoping Democratic President Joe Biden's administration would be more open to allowing deals after a spate of bank failures since March.

Specifically, Kanter said any merger review for antitrust purposes must go beyond traditional factors like the impact on local depositors and branches, and consider a broader set of issues. For example, he noted that customers now have access to several types of banks that cater to different needs and clientele, and that customers must retain "meaningful choice."

"Bank competition affects the interest you earn on your savings account, the monthly payment on your mortgage or your car loan, or the fees you pay to withdraw cash from an ATM," he said.

"Market realities have shifted, and when we apply the law, we have an obligation to ensure we are addressing the world as it exists today," he added.

Progressive lawmakers and consumer advocates have long-argued against allowing large banks to grow larger, and in 2021 Biden signed an executive order directing the Justice Department to work with bank regulators to heighten scrutiny of deals.

But bankers had hoped recent rescue deals due to banking industry turmoil sparked by the failure of Silicon Valley Bank in March had shown the merits of allowing strategic deals that shore up weak lenders.

"The speech clearly signals that the [DOJ] will look at bank M&A with far greater skepticism," said Isaac Boltansky, policy director of the brokerage BTIG, in a note. "The Biden administration remains ideologically opposed to large bank M&A."

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Kanter also suggested credit unions and non-bank financial entities such as fintechs might merit closer consideration as well. That may offer a silver lining for bigger banks, as they increasingly have to compete with such tech players, said TD Cowen analyst Jaret Seiberg.

"We believe this policy change will not be as negative for bank mergers as it may first appear," he added.