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 in nonbank and online banking services.
In remarks to a crowd at a bank merger symposium, OCC Senior Deputy Comptroller and Chief Counsel Benjamin McDonough said the OCC believes it is worth evaluating how the merger review process may need a reboot, given rising concerns around anti-competitiveness, systemic risks, and potential harm to consumers.
In particular, he believes 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 market share.
“In some ways HHI might have become less relevant since the bank merger guidelines were last updated in 1995,” McDonough said. “This is so because a bank’s deposit base may have become less probative of its offering of other banking products. In addition, the size of the relevant markets for these products may have expanded exponentially with the rise of online banking products and services, while nonbank competitors have grown to an extent unimagined in 1995.”
Recent notable mergers have led industry experts to question whether the current framework has kept pace with today’s shifting banking landscape.
Banks believe that the merger evaluation framework used by both financial and antitrust regulators — circa 1995 — needs to be partially dismantled. They posit that the framework disadvantages them compared with nonbanks, with whom they increasingly compete for market share of deposits and services.
Progressive consumer advocates agree the rules are outdated, but instead want stricter standards for consolidation. They say today’s runaway state of consolidation creates perverse incentives for banks that become too-big-to-manage, and can harm consumers by producing low-yield deposit rates, less banking access, and greater 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 had been mentioned in the State of Union since Jimmy Carter’s address in 1979, suggesting that antitrust issues are likely to feature prominently in the administration’s ongoing conversations around bank merger reform.
Stephen Hall, legal director and securities specialist for the pro-reform group Better Markets, wrote that bank mergers can cause systemic risk to the economy, and provide perverse incentives for institutions, in a press release regarding the OCC’s symposium.
“As banks attain ‘too-big-to-fail’ status, often through mergers, they stand to be bailed out by U.S taxpayers rather than allowed to fail and go bankrupt like virtually every other business in America. This special carve-out from the most basic rules of capitalism not only creates indefensible moral hazard but allows those banks to shift the costs of their reckless or illegal conduct to the public. It is the worst example of privatizing gains and socializing losses.” Hall noted.
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 Americans’ financial access and contributing to the rise of banking deserts,” Miller said. “These closures are frequently clustered in poor communities and often push people out of the banking system and into the arms of predatory financial companies like check cashers and payday lenders.”
“In communities affected by bank mergers, research indicates that households are more likely to accrue unpaid debt, have that debt go to collections, and even be evicted,” Miller continued. “That consolidation has been credibly associated with a rise in burglary and property crime. It has been shown to depress real estate values and inhibit local construction throttling economic development, and correlated to rise in unemployment, declines in median income, and worsening income inequality.”