The Biden administration's recent order targeting M&A activity is likely to delay the deal-making process for smaller banks and halt deals in certain situations, according to lawyers and other M&A experts.
President Joe Biden's executive order "encouraged" the attorney general to review practices and adopt a plan within 180 days "for the revitalization of merger oversight," in consultation with the chairpersons of the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency.
Richard Kim, a partner at Wachtell, Lipton, Rosen & Katz and a former attorney with the Federal Reserve, said in an interview that community banks that might want to engage in M&A could still do so, but perhaps not as quickly.
"It's going to be a slower process, a more thorough process," Kim said. "I think ultimately the deals still get done."
After the 2008 financial crisis, the application process was "slow and analytical," but companies could still have deals approved, Kim added. He said it has been easier over the past couple of years, and now the pendulum is starting to swing the other way.
A veteran bank M&A lawyer, who spoke on the condition of anonymity, said community banks will probably be less affected by the order than larger ones, except if the Department of Justice decides to change its set of antitrust standards used for both regional deals and community bank deals. The lawyer hoped the DOJ would not try to radically upend merger analysis, saying that would hurt community banks most.
Meanwhile, Chip MacDonald, of counsel at Jones Day's financial markets practice, said small banks could feel an impact from the order, depending on the market. As an example, he said if two banks in a small town or county merged and took up the whole market, that would raise a problem.
"The bigger the market and the more competitors and the more attractive for entry that market is because it's growing, the easier it is to prove your competitive case," MacDonald said in an interview.
The competitive landscape
Though the executive order aims to promote more competition, lawyers said that, from the industry's vantage point, there is already substantial competition.
"The overwhelming sentiment in the industry is that the banking industry has never been more competitive," Kim said. Large fintech companies, such as payment processors PayPal Holdings Inc. and Square Inc., compete with banks, he added.
MacDonald said current standards might not formally consider all the competition, though companies might reflect it in their merger applications, and the DOJ and regulators might take it into account.
"Overall, I think you could make a good case that there is more competition than ever for consumers and their banking-type businesses," MacDonald added.
However, one progressive nonprofit organization that advocates for financial reform said that regulators have been too lax on bank M&A oversight in recent years, to the detriment of consumers.
"Under the Trump administration, financial regulators were far too deferential in greenlighting mergers, including mergers that either built or expanded super-regional banks," said Erik Gerding, senior fellow at Americans for Financial Reform. "These mergers concentrated market power at the same time that many communities are struggling with access to basic banking services.
"The wave of mergers also concentrates and consolidates political power, since big banks become big financiers in American politics," Gerding said.
The DOJ declined to comment on what action it plans to take, though Attorney General Merrick Garland said in a statement July 9 that the department would "immediately begin implementing the interagency collaborations called for." The statement did not mention banking.
The regulators have not said how they might respond to the executive order, either.
Fed Chairman Jerome Powell said during a House hearing July 15 that the Fed will coordinate closely with the DOJ. He also said the Fed has not decided yet to change its merger standards but will monitor the issue and "act appropriately."
"The OCC is acting consistently with the Executive Order," OCC spokesperson Bryan Hubbard said in an email.
The FDIC declined to comment.
