In all the fuss and fury over banking-agency merger policy, many have missed a consequential late-August announcement from other U.S. antitrust authorities laying out how workers’ rights will drive merger approvals. This follows 2023 guidelines from the Department of Justice and Federal Trade Commission retracting the old price criterion by which consumer welfare has long been judged in favor of policies taken factors such as network effects and “soft” market power fully into account. The guidelines addressed workers’ rights, but the new agreement adds sharp, sharp teeth. Thus, it’s clear that Administration policy is focused on economic justice along with its tough stand on monopolization. Bankers take warning: operational-integration rationales now cut two ways when it comes to merger approval.
To be sure, bankers are used to one economic-justice criterion when it comes to merger approval: those requiring consideration of customer “convenience and needs” based in large part on how this is demanded of them under the Community Reinvestment Act. Banks planning an acquisition thus typically accompany an offer with a massive CRA pledge promising more loans to low-and-moderate individuals and communities, affordable-housing investments, and the like.
This won’t cut it under the pending merger-policy rewrites from the OCC and FDIC, but these proposals generally do not replace CRA-style approval criteria. Instead, they beef them up, with the FDIC’s policy most notably (and dubiously) requiring acquirers to prove that communities not only will be better served, but also better served than if each bank remained independent.
However, the FDIC also joins DOJ and the FTC in the new, additional economic-justice requirement that mergers advance workers’ rights and wage opportunities. The OCC did not do so and the Fed’s stand is unknown, but DOJ’s position settles matters since DOJ reviews every bank merger it’s a mind to scrutinize.
When it does so for banks, DOJ now will look hard at workers’ rights and, under its new MOU, also go as far as asking workers to comment on a pending transaction. The DOJ/FTC guidelines stipulate a disapproval criterion if a transaction would combine entities with employees in similar places or with like-kind expertise. In such cases, the guidelines say that reduced competition could adversely affect the ability of workers to bargain for wages, benefits, and better working conditions and the deal may thus warrant disapproval.
But one of the most important bank-merger rationales is enhanced operational efficiency, with a key and necessary criterion added by the OCC and FDIC looking at an acquirer’s ability actually to achieve the operational integration necessary for a successful, low-risk bank.
Can operational integration be achieved without damaging an acquirer’s ability to eliminate redundant workforces? Reduced branches are already a major CRA headache from a convenience-and-needs perspective. Now, they are also a serious problem when it comes to bank employees, some of whom are surely to be let go after whatever branch consolidation the successor bank undertakes to achieve its earnings objectives. Operational integration accomplished without technology consolidation is at the least hard to accomplish, but technology consolidation surely leads to employee reductions.
In fact, banks can’t achieve the economies of scale and scope essential for survival without mergers that result in operational integration. Hard-nosed DOJ policies on workers’ rights run headlong into these essential economies and could consign all but the very largest banks to a slow, painful fade-out as competitors – especially those outside regulated banking – make better and better use of their already-formidable network effects without the need ever to ask DOJ or the FTC for much of anything.