#justice department

30 09, 2024

Karen Petrou: How DOJ’s Case Against Visa Could Make Debit-Card Markets Still More Concentrated

2024-09-30T11:29:16-04:00September 30th, 2024|The Vault|

In our recent paper on bank-merger policy, we noted that over-stringent merger policy is likely to lead to unintended and perverse consequences.  This emphatically is not to say that all bank mergers are good mergers, but rather to emphasize that blocking all mergers based on arbitrary criteria may well backfire and lead to still-greater concentration in a market defined as much by regulatory-arbitrage opportunities as competitiveness.  Case in point:  Justice may rightly want to bring Visa to heel, but its bank-merger policy could simultaneously block the kinds of bank consortia that would otherwise be able to continue market-critical card processing and also bring it under the regulatory umbrella.  If DOJ successfully sues Visa, its bank-merger policy is likely to replace one disgraced omnipotent network-effect competitor with another omnipotent network-effect competitor rather than one or more regulated networks comprised of regulated, competing banks.

One of the often-overlooked – but very important – aspects of new merger policy from the Department of Justice is its dark view of financial networks and platforms.  These are of course most pertinent in the payment system where, as one payment executive recently put it, “payment is a matter of volumes.  If you don’t have volumes, you don’t have the capacity to be competitive.”  Put another way, payment systems are network-effect entities and, unless Justice understands this, the only bank payment-system providers will be one or more of the very biggest banks that don’t need third-party networks to generate scale.  Existing bank consortia of different-sized …

25 09, 2024

FedFin on: DOJ Bank-Merger Policy

2024-09-25T15:37:45-04:00September 25th, 2024|The Vault|

In conjunction with final merger-policy statements from the FDIC and OCC, the Department of Justice (DOJ) released “commentary” expanding on how the 2023 guidelines it issued along with the Federal Trade Commission expressly apply to bank mergers.  The DOJ’s commentary and that from the other banking agencies revise merger policy last set in 1995.  However, the Fed has yet to do so or even clarify how all of these actions affect its approach beyond a statement earlier this year that the FRB was working with other agencies and a more recent answer from Vice Chair Barr that he is content with Fed policy as it stands…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

9 09, 2024

Karen Petrou: Workers’ Rights and Merger Wrongs

2024-09-09T13:28:07-04:00September 9th, 2024|The Vault|

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 …

25 07, 2023

FedFin Analysis: U.S. Merger Policy

2023-07-25T17:18:51-04:00July 25th, 2023|The Vault|

Building on a request for comment, the Department of Justice (DOJ) and Federal Trade Commission (FTC) have now proposed specific revisions to U.S. merger policy that significantly redirect the manner in which M&A transactions – even if only for minority positions – will be considered.  Although this is only a draft statement, it tracks much of what President Biden laid out in his 2021 executive order on U.S. competition policy and actions since then by the DOJ and the FTC.  As a result, the guidelines are more of a roadmap providing clarity than a new approach unless the final version differs substantively in any major way or future Administrations adopt a different policy.  Near-term U.S. merger policy makes it considerably more difficult to finalize horizontal, vertical, and even minority holdings, a challenge likely to be particularly acute in U.S. financial services where government agencies believe there is …

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

10 07, 2023

Karen Petrou: The Bankruptcy of Bank-Merger Policy

2023-07-10T14:18:07-04:00July 10th, 2023|The Vault|

On Wednesday, a Senate Banking subcommittee will consider bank-merger policy, surely providing a platform for its chair, Sen. Warren’s pronounced views opposing all but the smallest bank mergers and maybe not even those.  Many other senators are not as adamant, but even pro-business Republicans – see J.D. Vance – think bank mergers beyond the itty-bitty are at best problematic.  The politics of this debate is obvious; the substance not so much.  As with many other questions, bank-merger policy is best set with a keen understanding of recent, objective research and what it actually says about concentration as it occurs outside the gaze of those fearful only of still bigger big banks.

That there is undue market power in a financialized economy that brings a raft of woes is all too clear.  I thus hoped that Assistant Attorney General Kanter’s remarks last month would be a meaningful update of the Department of Justice’s anachronistic 1995 policy.  It helped, but only a bit because Mr. Kanter focused principally on enforcement, leaving “broader” questions solely to the banking agencies.

They in turn have long promised a transparent merger policy, but it’s still deal-by-deal, case-by-case, crisis-by-crisis.  More than a few mid-sized banks will wither away as deliberations continue because the sheer uncertainty and delays of most bank mergers undermine their economic value, particularly at a time of high interest rates, slow or no growth, tough new rules, and withering competition.

Recent antitrust research does not substantiate easy, blanket assertions about the benefits or …

22 03, 2023

FedFin Assessment: GSIB Rules Set For Post-CS Rewrite

2023-03-22T16:34:58-04:00March 22nd, 2023|The Vault|

In this report, we assess the implications of recent events on two assumptions underlying current U.S. and global policy affecting GSIBs and those considered domestic SIBs:  first, all are likely to be well insulated from illiquidity and/or insolvency and, when this is not the case, then orderly resolution without taxpayer bailout can be readily deployed.  Credit Suisse’s failure and subsequent, subsidized acquisition is just one of the “Minsky moments” rattling regulators and other policy-makers, with the conclusions drawn from all of them surely to lead to significant reevaluation of each of these assumptions.  To be sure, CS was an outlier in terms of idiosyncratic culture-and-control problems, but the Swiss regulatory and resolution system is considered reasonably robust, thus making the bank’s failure…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.

 …

21 12, 2022

FedFin on: Nonbank Enforcement-Order Registry

2022-12-21T16:54:37-05:00December 21st, 2022|The Vault|

The CFPB is proposing to create a public registry of certain enforcement actions that would initially cover nonbanks (including BHCs) with a goal of drawing public and enforcement-agency attention to what the Bureau’s director calls “serial offenders.” …

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

26 09, 2022

Karen Petrou: Nonbanks Win Big

2022-09-27T10:49:12-04:00September 26th, 2022|The Vault|

As our in-depth reports detailed, Treasury took the President’s policy edicts to heart when crafting a new digital-finance policy for the U.S.  Treasury could have ducked some hard decisions via laudatory rhetoric, but it chose instead to recommend specific policies that cut a new path to a U.S. CBDC and crypto regulation.  Our reports detail key policy decisions and what’s soon to be done with them, but one warrants even more immediate attention:  Treasury’s decision to adhere not just to the President’s executive order on crypto-finance, but also to another on increasing financial sector competition.  This puts banks on notice that not all have yet taken.

Overlooked in much analysis of Treasury’s sweeping reports is its call to break up what Treasury clearly sees as the monopoly banks have long enjoyed over payment-system access.  Treasury for example argues that many banks have exited retail remittances even though these are critical to financial inclusion and leaves the market ill-served.  Indeed, it wants nonbanks to obtain overall instant-payment access, saying:

Network effects support the adoption of instant payment systems: Widespread use makes it more likely that a payor can use an instant payment system to make a payment to a payee, increasing the system’s value. …  Broadening the range of financial institutions that are eligible to participate in instant payment systems, as certain foreign jurisdictions have done, could help to enhance speed and efficiency, competition, and inclusion in payments, including for cross-border payments.

The problem with Treasury’s call for payment-system …

16 12, 2021

FedFin: Bank Merger Policy

2023-05-22T16:11:59-04:00December 16th, 2021|The Vault|

Released in a highly-controversial fashion (see below) by two Democrats on the FDIC’s board, this RFI posits the need for a significant review of mergers involving insured depository institutions (IDIs) due to many changes in the financial industry and, so it says, the lack of substantive competitive analysis over past decades even of the largest transactions.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

8 10, 2021

FedFin on: Bank Merger Restrictions

2023-06-20T15:33:46-04:00October 8th, 2021|The Vault|

Progressive Democrats in the House and Senate have introduced legislation demanding an array of new decision factors governing bank M&A transactions and new or even revised BHC activities.  President Biden’s executive order demanding more competitive U.S. markets includes numerous bank-related provisions, but does so largely through requests of independent agencies such as the Federal Reserve to work with the Department of Justice to reduce bank consolidation and enhance community service.  This legislation backs up these goals with binding requirements that dramatically alter the public-interest, financial, and competitive analyses on which M&A or BHC activities have long been assessed.  Many more acquisitions, especially by or among large banks, would almost surely be rejected and the process might also become so public as to undermine the confidentiality essential to initial M&A agreement.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

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