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FDIC opens comment period on proposed Statement of Policy regarding bank merger transactions, highlights “added scrutiny” for $100+ billion mergers
On March 21, the FDIC issued a request for comment on its proposed Statement of Policy (SOP) on bank merger transactions, which will aim to update, strengthen, and clarify the FDIC’s approach to bank merger evaluation. The proposed SOP does note that transactions in excess of $100 billion are more likely to present financial stability concerns and will be “subject to added scrutiny.” The new SOP will replace the FDIC’s current SOP on its responsibilities under the Bank Merger Act (BMA) or Section 18(c) of the FDI Act. Both the heads of the CFPB and OCC issued statements on this review, with the Acting Comptroller of the Currency offering his explicit support.
Broadly speaking, the proposed SOP aims to make the process more principles based, communicate the FDIC’s expectations in its evaluation of merger applications, and describe which merger transactions are under the FDIC’s domain. The proposed SOP will include separate discussions for each statutory factor as set forth in the BMA, including the effects on competition, financial resources, future prospects, CRA, financial and banking stability risk, and AML considerations. Further, this will not be an exhaustive list, as the FDIC will claim jurisdiction over any other elements that could present a risk to financial stability. Of note, the proposed SOP will not include any “bright lines or specific metrics” on what transaction would be considered anti-competitive, as the FDIC wishes to maintain its flexibility to appropriately evaluate the circumstances of each merger application.
This new comment period will begin after the FDIC reviewed 33 comment letters received during the previous comment period, about three-fourths of which were in favor of at least some changes to the FDIC’s merger review process. Six commenters were against such changes and two commenters were neither in favor of nor against the changes. The comments against argued that the current framework was “sound,” and any revisions could harm the sector by making the bank merger process more difficult and disproportionally impacting community, mid-size, and regional banks. Comments must be received by 60 days from the date of the SOP’s publication in the Federal Register.
FTC, DOJ convene with G7 on AI policy future
On November 8, the FTC and DOJ met with the G7 Competition Authorities and Policymakers’ Summit on how to better regulate AI while addressing its competitive concerns. The Summit took place in Tokyo, Japan, and both the FTC’s and the DOJ’s Antitrust Division participated with the international group. The G7 issued a statement on how generative AI can pose not only anti-competitive risks, but also risks in “privacy, intellectual property rights, transparency and other concerns.” All policymakers shared concerns on how to best enforce fair competition laws with AI, iterating that “existing competition law applies to [AI]” and that they were “prepared to confront abuses if AI becomes dominated by a few players with market power.” The G7 stated a need to enforce competition laws and “develop policies necessary to ensure that principles of fair competition are applied to digital markets.”
The G7’s report outlines its initiatives to promote and protect competition in digital markets, its commitment to address competition concerns, and its recognition of the need for internal cooperation on digital competition.
FTC looks to Section 5 in enforcing “unfair” competition
On November 10, the FTC issued a policy statement announcing that it would “rigorously enforc[e] the federal ban on unfair methods of competition.” According to the announcement, the FTC intends to make wider use of the FTC Act to police companies that use unfair tactics to try to gain a competitive advantage. “When Congress created the FTC, it clearly commanded us to crack down on unfair methods of competition,” FTC Chair Lina M. Khan said. “Enforcers have to use discretion, but that doesn’t give us the right to ignore a central part of our mandate. Today’s policy statement reactivates Section 5 and puts us on track to faithfully enforce the law as Congress designed.” In enacting Section 5, Congress purposely introduced the phrase “unfair methods of competition” in the statute to distinguish the FTC’s authority from the definition of “unfair competition” at common law, the policy explained, adding that Section 5 was designed to extend beyond the reach of antitrust laws. However, recognizing that a static definition would become outdated, Congress afforded the FTC flexibility to adapt to changing circumstances. The policy statement lays out the FTC’s approach for policing unfair methods of competition, and will allow the Commission to, among other things, sue companies under its mandate to protect consumers from fraudulent practices, price discrimination, exclusive deals and loyalty rebates, and misleading business practices such as commercial bribery and false or deceptive advertising.
DOJ solicits additional comments on bank mergers
On December 17, the DOJ announced that its Antitrust Division is soliciting additional public comments regarding the potential revision of the 1995 Bank Merger Competitive Review Guidelines (Banking Guidelines) as part of a continuing effort by the federal agencies responsible for banking regulation and supervision. According to the announcement, the division will utilize “additional comments to ensure that the Banking Guidelines reflect current economic realities and empirical learning, ensure Americans have choices among financial institutions, and guard against the accumulation of market power.” The division had previously announced in September 2020 that it was soliciting comments regarding the Banking Guidelines’ potential revision. The call for public comment contained specific questions, including whether: (i) any new guidance should be bank-specific; (ii) any new bank merger guidance should be jointly issued; (iii) the 1800/200 Herfindahl-Hirschman Index screen should be updated; and (iv) there should be a de minimis exception. The announcement also noted that “[b]uilding on the responses, the updated call for comment focuses on whether bank merger review is currently sufficient to prevent harmful mergers and whether it accounts for the full range of competitive factors appropriate under the laws.” The announcement further noted that the division will continue working with the Federal Reserve, OCC, and the FDIC, and will consider comments from the public.
Supreme Court upholds credit card company’s anti-steering provisions
On June 25, the U.S. Supreme Court in a 5-4 vote held that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by preventing merchants from steering customers to other credit cards. As previously covered by InfoBytes, in September 2016, the U.S. Court of Appeals for the 2nd Circuit considered the non-steering protections included in the credit card company’s agreements with merchants and concluded that such provisions protect the card company’s rewards program and prestige and preserve the company’s market share based on cardholder satisfaction. Accordingly, the 2nd Circuit concluded that “there is no reason to intervene and disturb the present functioning of the payment‐card industry.” In June 2017, a coalition of states, led by Ohio, petitioned the Supreme Court to review the 2nd Circuit decision, arguing the credit card industry’s services to merchants and cardholders are not interchangeable and therefore, the credit card market should be viewed as a two-sided market, not a single market. The Supreme Court disagreed with the petitioners’ arguments, finding that the credit card industry is best viewed as one market. The court reasoned that while there are two sides to the credit card transaction, credit card platforms “cannot make a sale unless both sides of the platform simultaneously agree to use their services,” resulting in “more pronounced indirect network effects and interconnected pricing and demand.” Accordingly, the two-sided transaction should be viewed as a whole for purposes of assessing competition. The court further concluded that the higher merchant fees the credit card company charges result in a “robust rewards program” for cardholders, causing the company’s anti-steering provisions to not be inherently anticompetitive, but in fact to have “spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions.”