WASHINGTON – The Office of the Comptroller of the Currency said Friday that the agency’s key antitrust compliance metric may be increasingly unable to capture relevant measures of market competition due to the growth of online banking and non-banking services.
Speaking to a crowd at a bank mergers symposiumOCC Senior Deputy Controller and Principal Counsel Benjamin McDonough said the OCC believes it is worth assessing how the merger review process may need a restart, given growing concerns about anticompetitiveness, systemic risks and the potential harm to consumers.
In particular, he believes that the Herfindahl-Hirschman index, which uses bank deposit data to measure market concentration and therefore competition, may be ineffective as deposits are an increasingly poor proxy for measuring participation. market.
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“In some ways, HHI may have become less relevant since the bank merger guidelines were last updated in 1995,” McDonough said. “This is because a bank’s deposit base may have become less probative of its offering of other banking products. Furthermore, the size of the relevant markets for these products may have expanded exponentially with the rise of banking products and services. online, while non-bank competitors have grown to an extent unimaginable in 1995”.
Recent notable mergers have led industry insiders to question whether the current framework has kept pace with today’s changing banking landscape.
Banks believe that the merger evaluation framework used by antitrust and financial regulators, circa 1995, should be partially dismantled. They postulate that the framework puts them at a disadvantage compared to non-banks, with whom they increasingly compete for market share in deposits and services.
Progressive consumer advocates agree the rules are outdated, but instead want stricter standards for consolidation. They say the current state of runaway consolidation creates perverse incentives for banks to become too big to manage and may hurt consumers by producing low-yielding deposit rates, less banking access and increased macroeconomic instability.
Adding to the appetite for reform, President Biden strongly rebuked excessive corporate consolidation in his recent State of the Union address. Biden’s speech marked the first time antitrust was mentioned in the State of the Union since Jimmy Carter’s 1979 speech, suggesting that antitrust issues are likely to figure prominently in the administration’s ongoing talks. on bank merger reform.
Stephen Hall, legal director and securities specialist at pro-reform group Better Markets, wrote in a news release about the OCC symposium that bank mergers can cause systemic risk to the economy and provide perverse incentives for institutions.
“As banks achieve ‘too big to fail’ status, often through mergers, American taxpayers are bailing them out rather than allowing them to go bankrupt and fail like virtually every other business in America. This special exemption from the most basic rules of capitalism not only create indefensible moral hazard, but allow those banks to shift the costs of their reckless or illegal conduct onto the public. It is the worst example of privatization of profits and socialization of losses.” Hall pointed.
Sarah Miller, executive director and founder of the American Economic Liberties Project, said during the symposium that bank mergers, in addition to hurting economic competition, hurt American consumers in ways that can be hard to quantify.
“When banks merge, they close branches, limiting financial access for Americans and contributing to the rise in bank deserts,” Miller said. “These closures frequently cluster in poor communities and often push people out of the banking system and into the arms of predatory financial companies, such as check cashers and payday lenders.”
“In communities affected by bank mergers, research indicates that households are more likely to accumulate unpaid debt, have that debt go into collection, and even be evicted,” Miller continued. “Such consolidation has been credibly associated with an increase in theft and property crime. It has been shown to depress real estate values and inhibit local construction, thus strangling economic development, and is correlated with rising unemployment, declining median earnings and worsening income inequality.”
