Bank Merger Reform Takes an Extended Philadelphia National Bank Holiday

Fordham Journal of Corporate & Financial Law, Apr 2018

Edward Pekarek, Michela Huth

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Bank Merger Reform Takes an Extended Philadelphia National Bank Holiday

Fordham Journal of Corporate & Financial Law Copyright c 2008 by the authors. Fordham Journal of Corporate & Financial Law is produced by The Berkeley Electronic Press (bepress). Michela Huthy - 2008 Article 6 Bank Merger Reform Takes an Extended Philadelphia National Bank Holiday y By Edward Pekarek and Michela Huth* * Edward Pekarek holds an LL.M. degree in Corporate, Banking and Finance Law from Fordham University School of Law, a J.D., Cleveland Marshall College of Law, and a B.A. from the College of Wooster. Michela Huth holds a J.D., Cleveland Marshall College of Law and a B.A. from the College of Wooster. The Authors wish to thank Fordham University School of Law Banking Professor Carl Felsenfeld, for his kind support and sage guidance. The foregoing opinions, conclusions, and perhaps errors and omissions, are solely those of the Authors. Comments and questions should be directed to the Authors at . II. AN OVERVIEW OF RELEVANT BANK CONSOLIDATION AND III. ORIGINS OF U.S. BANKING AND ANTITRUST LAW—BRIEF IV. U.S. BANKS ARE NO LONGER “UNIQUE” NOR “INSULATED” ......... 631 V. HAS THE COMPETITIVE ANALYSIS EVOLVED SINCE PHILADELPHIA NATIONAL BANK? WHAT’S IN YOUR WALLET? ........................... 637 ANTICOMPETITIVE EFFECTS ........................................................ 688 VIII. SUBPRIME MELTDOWNS AND CREDIT MARKET BEATDOWNS IX. CONCLUSION .................................................................................. 699 It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.1 I. INTRODUCTION The landscape of the United States dual banking system2 changed dramatically in recent decades. The extent of this change, and the consolidation trend in the financial services industry, challenge the assumption that commercial banks provide services which are unique and insulated from non-bank competition.3 Today, commercial banks face increasing competition from various industries, and much of that new competition recognizes no geographic boundaries. Those charged with overseeing this industry in turmoil must move beyond old assumptions about banking products, services, and markets, as embodied within outdated merger review methodologies. This Article addresses the past, present, and future of banking consolidation with an aim to propose modern reforms to the multi-agency approach to banking antitrust analysis. “The market increasingly is being taken by non-banking entities, both on the credit and deposit side,” accordi ng to a banking consultant in 1993 .4 Customers are taking their business to non-traditional institutions (brokerages, mortgage lenders, and insurers) for their online banking services.5 The advent of “pure Internet banks” presents additional borderless competition with traditional banking institutions, sans the “brick and mortar” overhead.6 Moreover, non-traditional banks, though not regulated in the same manner as traditional banks,7 have increasingly ventured into service areas previously dominated by commercial banks.8 Yet, the erstwhile separation of commerce and banking has less to do with tradition, however, than it is attributable to regulatory restrictions.9 In short, administrative standards differ for banks and non-bank competitors, which in turn inhibits the competitiveness of the banks “in areas where the two intersect.”10 According to the Department of Justice (“DOJ”), the repeal of interstate banking prohibitions over the last three decades has “erode[ed] banks’ monopoly power in ‘traditional’ products.”11 Only a vestige of the traditional regulatory opposition remains to what now appears to be an almost inevitable trend12 “toward a greater blending of banking and commerce.”13 Geographic variables must also be prominent on the regulatory agenda. Purveyors of banking products now include numerous nontraditional entities, and the markets for bank products and services and the firms offering them are no longer just locally situated. Increases in the locations and diversity of a market’s participants can influence the competitive landscape. Bank mergers enable companies that do not traditionally provide commercial banking services to compete at the local level with commercial banks. For example, consolidations have expanded the geographic scope of credit card giants—which have expansive reach into almost all communities in the nation. When these credit card giants acquire regional banks, such transactions facilitate a broader market for both the targeted bank and the acquirer. Consolidation in any industry inevitably leads to a discussion that contemplates competitive fairness. The United States Supreme Court took up the issue in 1963. United States v. Philadelphia National Bank, the seminal banking antitrust case, is such a result, applying the Sherman Act of 1890 and the Clayton Act of 191414 to commercial harmed when banks cannot respond to competitive tying and bundling of products offered by non-banks.”). 11. Id. 12. See Blair, supra note 9, at 97. 13. Id. at 99, 101. [D]espite the regulations and prohibitions on certain activities and forms of control, . . . certain charter types—including limited purpose consumer banks and ILCs—permit a mixing of banking and commerce. These charter types do not fit the definition of a bank under the BHCA and technically are not banks; in certain states, they can be owned by commercial firms. These firms, in turn, are not subject to the BHCA and are not required to become bank holding companies. Id. at 99 (citations omitted). 14. See Thomas A. Piraino, Jr., Reconciling the Harvard and Chicago Schools: A New Antitrust Approach for the 21st Century, 82 IND. L.J. 345, 346 n.1 (2007). Section 1 of the Sherman Act prohibits ‘every contract, combination . . . or conspiracy, in restraint of trade,’ 15 U.S.C. § 1 (2004); section 2 of the Sherman Act makes it illegal for a firm to ‘monopolize, or attempt to monopolize’ interstate commerce, Id. § 2; and section 7 of the Clayton Act prohibits any mergers the effect of which ‘may be substantially to lessen competition, or to tend to create a monopoly.’ Id. § 18. Because of the broad wording of these statutes, ‘[p]erhaps uniquely, American antitrust law is a creature of judicial, as opposed to legislative, creation.’ banks. The Philadelphia National Bank Court established a longstanding common law bank merger competition analysis, and introduced to the banking antitrust competitive analysis key analytical concepts such as “product or services market” and “relevant geographical market,” which became commonplace in the evaluation of probable competitive effects of a proposed merger.15 The seminal banking antitrust case continues to considerably influence the regulatory review paradigm for bank merger analysis. The anticompetitive test minted by Philadelphia National Bank was designed to determine whether the proposed bank merger might lessen competition in any line of commerce in any section of the country.16 The Court defined “line of commerce” as a cluster of products and services17 which banks specially provide to customers, also referred to as “commercial banking.”18 The Court noted that “[i]ndividuals and corporations typically confer the bulk of their patronage on banks in their local community; they find it impractical to conduct their banking business at a distance.”19 Thus, the analysis created nearly half-century ago construed a section of the country, or relevant geographic market, as being the local community of the bank’s customers.20 Philadelphia National Bank is not without its critics. Former Assistant Attorney General for Antitrust, Lee Loevinger, the attorney who argued the case for the government in Philadelphia National Bank, observed: ‘[F]rom the viewpoint of economic or antitrust analysis, the [cluster approach] has become virtually meaningless.’ Because of state and federal regulations on the lending activities of financial institutions, it is now necessary to measure possible price discrimination by commercial banks by delineating narrow submarkets, which consist of available substitutes to consumers who have limited alternatives.21 Eugene A. Ludwig, former Comptroller of the Currency,22 criticized Philadelphia National Bank for its failure to anticipate the increasing nonbank competition that banks would face: “Unlike [thirty-five] years ago, there are now [1995 ] nonbank competitors for nearly all commercial bank services.”23 Ludwig questioned whether it was even possible for a bank to gain a monopoly over financial services in any given market in the face of modern technology, the disappearance of interstate banking barriers, and an “explosion” of financial services offered by nonbanks.24 Another former Comptroller of the Currency, Robert Clarke, observed that “commercial banks no longer perform a unique function, which was the critical factor in the Supreme Court’s adoption of the cluster approach in Philadelphia National Bank.”25 Clarke emphasized that “‘[w]hile banking functions continue to be essential to our economy, [commercial] banks themselves are not.’”26 William Baxter, President Reagan’s first nominee to head the DOJ’s Antitrust Division, was a vocal proponent of a new antitrust enforcement paradigm.27 He believed that a continuing process was necessary in order to accurately appraise “how our economy works, [and] how enterprises in different kinds of markets interact with one another,” and appropriate antitrust policy should be “based on whatever it is we know at any particular moment about the economics of industrial organization.”28 In practicality, some of the government agencies which review bank merger proposals do not conform their antitrust competitive banking analysis to the dictates mandated by Philadelphia National Bank. However, adherence to the traditional geographic market and product market definitions mandated by that decision has endured. The Federal Trade Commission recognizes that antitrust policy and laws are works in progress.29 The Board of Governors of the Federal Reserve System has acknowledged that since the 1970s many changes have occurred in banking technology, market dynamics, regulations and the economy, and these changes “have raised questions regarding the traditional definition of locally limited commercial banking.”30 The Board has also noted that large firms have access to national and sometimes international markets for their financial services, and that some U.S. banks compete with foreign banks (and the domestic and foreign capital market) for large business customers.31 The Supreme Court has not “repudiated the pillars of its merger jurisprudence of the 1960s.”32 The Court recognized, in a 1986 case, the changing dynamics of the domestic banking markets and the interrelationship between commerce and banking,33 but has not yet exercised jurisdiction over any cases that would permit the Court to begin fashioning an updated analytical framework for bank merger regulatory review. The competitive analysis conducted by the federal banking agencies and the DOJ should not be based upon the outdated localized geographic concept that was mandated by Philadelphia National Bank almost a half-century ago, nor should the regulatory analysis proceed under the presumption that commercial banks remain unique because of their cluster of products and services. Courts and banking regulator should craft a competitive effect analysis that accounts for the changing financial environment, considers the realistic geographic competition, and considers the range of services and traditional definition of locally limited commercial banking. The most notable changes are: [ ] thrift institutions are now permitted to offer the majority of banking products, including transaction accounts and commercial loans, [ ] nondepository institutions offer various financial services, [ ] securitization and loan sales have increased, and [ ] electronic technology has increased the potential for very quick delivery of financial services to final users, including small businesses and consumers. Id. at 2. 31. See id. 32. William E. Kovacic, Gen. Counsel, Fed. Trade Comm’n, Toward a Domestic Competition Network, Address Before the American Enterprise Institute Conference on “The New Antitrust Paradox: Policy, Proliferation in the Global Economy” (Apr. 21, 2003), at 4, available at 33. See Bd. of Governors v. Dimension Fin. Corp., 474 U.S. 361, 363-64 (1986). This case is about so-called ‘nonbank banks’- institutions that offer services similar to those of banks but which until recently were not under Board regulation because they conducted their business so as to place themselves arguably outside the narrow definition of ‘bank’ found in § 2(c) of the Act. Many nonbank banks, for example, offer customers NOW (negotiable order of withdrawal) accounts which function like conventional checking accounts but because of prior notice provisions do not technically give the depositor a ‘legal right to withdraw on demand.’ Others offer conventional checking accounts, but avoid classification as ‘banks’ by limiting their extension of commercial credit to the purchase of money market instruments such as certificates of deposit and commercial paper. Id. (citations omitted). products offered by competitors in the context of the state of the domestic economy at the time of the proposed banking combination. The authors contend that the local market analysis established by Philadelphia National Bank is no longer an appropriate measure of anticompetitive effects of proposed banking combinations. While it remains among the worthy metrics for the evaluation of market concentration, its exclusive use is no longer reliable. Moreover, the cluster of services and products once delineated as the “line of commerce” do not accurately determine the competitive effects of a bank merger in today’s market for financial products and services. The authors believe that U.S. courts and regulatory agencies should consider the utilization of a competitive effect analysis which takes into account the changing financial environment, realistically contemplates geographic competition, and accounts for the growing range of service and products offered by competitors, from bank and non-bank entities alike. II. AN OVERVIEW OF RELEVANT BANK CONSOLIDATION AND STATISTICS The United States has “more banks per capita . . . than in any other developed economy,” and a majority of these banks are community banks.34 Between 1980 and 2003 , the number of banks was halved, from 16,000 to approximately 8000.35 During the 1990 s, an average of over 500 bank mergers occurred annually, up from roughly 345 per year during the 1980s.36 The number of operating banks in the U.S. declined by some 30% since 1990 during this consolidation period.37 As of 2006, there were some “7900 separately insured banking entities operating in the United States.”38 Domestic banks remain relatively small compared to their overseas competitors. For example, only one of the twenty largest banking companies is located in the United States, with the others dispersed in Japan (10), France (4), Germany (2), United Kingdom (1), and Switzerland (1).39 However, Chairman and CEO of JPMorgan Chase, Jamie Dimon, “expects the current market turmoil to unleash a wave of bank mergers” and that these mergers will be “big.”40 This prediction is based upon the necessity for companies to reorganize and the need for more capital, long-term financing, and access to goods, which generally occurs after a crisis—not during the crisis.41 Among the biggest of these mergers proposed in the shadow of the subprime fallout, was Dimon’s JPMorgan Chase bidding $2 per share to acquire investment bank and broker Bear Stearns & Co. with the support of, and “prodding” by, the Federal Reserve, including as much as $30 billion in government backing of distressed assets.42 Fewer banks controlling an increasingly higher concentration of domestic banking assets has been the trend in the U.S. for decades.43 In 2006 the DOJ screened 1048 bank mergers, of which 592 required competitive analysis.44 By contrast, the DOJ screened 1850 bank mergers and required competitive analysis of 1197 (approximately 64%) of these bank merger proposals in 1997. A majority of the nation’s banking customers have experienced at least one merger where their accounts were switched to another bank.45 The consolidation trend is not limited to banks themselves, but extends to the banking advocacy associations as well. America’s Community Bankers and American Bankers Association merged on December 1, 2007.46 The now unified Association, which retained the American Bankers Association name,47 represents a majority of the banking industry and comprises more than 95% of the domestic banking industry’s $12.7 trillion in assets.48 The Association boasts membership comprised of “large money-center banks and community banks,” and a majority of its constituents are banks with less than $125 million in assets.49 Various theories exist regarding the trend of increased banking consolidation via mergers and similar transactions. According to a former FTC commissioner, some of the more notable contributing causes to this acquisition trend include “deregulation, competition, the desire to improve bank capital ratios, the S&L crisis, [and] a growing Id. 48. America’s Community Bankers Merger Takes Effect, supra note 46. 49. Id. perception that we have too many banks.”50 A Federal Reserve economist remarked that the Federal Deposit Insurance Corporation Improvement Act of 1991 mandates that “regulators . . . promptly close a depository institution when their capital falls below predetermined quantitative standards” and the Act may motivate banking organizations to become larger so that the “FDIC will cover 100 [%] of their deposits.”51 A 2004 Federal Reserve study identified “the most important factor” facilitating bank consolidation as “the gradual easing of geographic restrictions on banks.”52 “Widespread deregulation of geographic limits started in the mid-1970s and culminated with the Riegle–Neal Interstate Banking and Branching Efficiency Act of 1994[;] [t]he easing enabled banking organizations to increase the size and reach of their operations by making acquisitions outside of their markets, including in other states.”53 The DOJ attributed the trend of swelling bank mergers in the early 1990s to “the fragmented way in which the law has required banks to operate: confining them to their home states, and in some cases, to their home counties or cities.”54 Banks were prevented from expanding internally, but were generally able to expand into other geographic markets, such as across state lines,55 by acquiring banks in target markets.56 The DOJ, in response to the hike in merger activity, assessed 50. Calvani et al., supra note 39. 51. Brewer III et al., supra note 15, at 2-3. 52. Pilloff, supra note 35, at 1. 53. Id. 54. Robert E. Litan, Deputy Assistant Attorney Gen., Antitrust Div., U.S. Dep’t of Justice, Address before the Antitrust Section of the ABA: Antitrust Assessment of Bank Mergers (Apr. 6, 1994), available at The reason for the low challenge rate is because: In many cases, the banks involved in these mergers have not competed with each other and thus have not posed antitrust risks. In the overwhelming majority of the others where the banks have competed against each other, it was clear that the market would continue to be competitive even after the merger. Id. 55. See Brewer III et al., supra note 15, at 2 (stating that the Riegle-Neal Act of 1994 permitted banks to “branch interstate by consolidating existing out-of-state bank subsidiaries or by acquiring banks or individual branches through mergers and acquisitions”) . In 1995, the Riegle-Neal Act permitted bank holding companies to acquire banks in any state, and in 1997 , the Riegle-Neal Act enabled banks located in different states to merge. Id. 56. See Litan, supra note 54; see also David C. Wheelock & Paul W. Wilson, approximately 2000 bank merger proposals each year in the early 1990s.57 The enactment of the Gramm-Leach-Bliley Act of 1999 facilitated new types of banking combinations,58 permitting “banks to merge with securities firms and insurance companies within financial holding companies.”59 The vast majority (94% of 3313 bank mergers) effected between 1994 and 2003 involved combinations in which the target bank operated exclusively in a single state.60 Most of the smaller bank mergers of that era were “fairly limited,” at least in terms of the geographical market scope, which together “tended to account for a relatively small share of the assets, deposits, and offices that were purchased.”61 These congressional acts ratified the decades-long deregulation movement, and as such they marked the culmination of story lines that began in the 1970s and 1980s. Id. 60. 61. See Pilloff, supra note 35. Id. at 21-22. Which banks are typical takeover targets? The most likely to be absorbed have been banks with low capital ratios and those that are costefficient operators.62 Larger national banks also have a greater than average likelihood of engaging in mergers.63 The acquiring bank tends to be a large bank, often one which has experienced recent rapid growth, “lower average capital ratios,” and “higher ratios of total loans to assets.”64 A slim minority of proposed bank mergers are denied according to a review of the Board’s Orders on Banking Applications.65 During the ten year period from 1997 to 2007 , there was apparently only one denial of a merger application,66 and this denial did not appear to be based upon competitive or public interest factors.67 The Board appears to have approved all applications for acquisitions, purchases or mergers brought pursuant to the Bank Merger Act during the same period.68 Out of the several hundred bank merger and acquisition applications reviewed by the Federal Reserve each year, as required by law, fewer than a dozen evaluated by the Federal Reserve raise any potentially serious anticompetitive problems that might jeopardize the application.69 Statistics and examples of approvals and denials can be misleading, however. It may appear that the current bank merger review process has become something of a bureaucratic “rubber stamp” where some 99.5% of all bank merger applications were ultimately approved between 1996 and 2007.70 Yet, banks contemplating a merger or acquisition will often remedy any regulatory issues which may bar approval, or withdraw their application, which a skewed view of the statistics would not reflect.71 Although it is not yet clear what will be the end result of the subprime lending market’s 2008 collapse, an increased pace of bank merger activity is a reasonable expectation, especially combinations involving community banks located in hard hit real estate markets. According to at least one sector analyst, “you’re going to see companies merge to survive.”72 A cottage industry has even developed recently that 69. See Supporting Statement, supra note 30. 70. See Litan, supra note 54 (“For the period 1989 to 1994, the DOJ only conducted a full investigation into forty-three (0.5% of all proposed transactions) of the roughly 9000 applications filed with the relevant supervisory banking authorities, and challenged only four (0.05%) of those forty-three, requiring divestiture of branches.”). 71. Brewer III et al., supra note 15, at 6, 8. For example, Homestone Mortgage Inc., one of Washington State’s largest mortgage brokers, applied to the FDIC for a bank charter. When the FDIC recommended that Homestone Mortgage make changes to the bank’s initial business plan (recommending a broadening of some of its lending areas), Homestone withdrew its application. Homestone had hoped to “transition[ ] from a mortgage firm to a bank,” thereby expanding its “footprint and help it tap into the Puget Sound region’s booming banking business.” Apparently Washington state regulators are familiar with this sort of “transitioning,” because banking rules make it fairly easy for a mortgage company to convert itself into a bank. See Justin Matlick, Mortgage Firm Withdraws Application to Open Bank, PUGET SOUND BUS. J., May 25, 2007, available at tories/2007 /05/28/story11.html ?f=et143&b=1180324800^1467880&hbx=e_vert; see also William Jason, Sterling Savings Bank, North Valley Bank Merger Delayed, NORTH BAY BUS. J., Oct. 26, 2007, available at URNAL/71026020/1209. Sterling Financial Corp. recently submitted a proposal to the FDIC seeking to merge with North Valley Bancorp, but the delayed regulatory approval process took “longer-than-expected” and the firm sought additional time to comply with FDIC requirements. 72. See Kevin Duffy, Local Banks Reeling from Housing Downturn, ATLANTA J. CONST., Apr. 13, 2008, available at tori es/2008 /04/11/bankhangover_0413.html. Banks with soaring loan amounts that were at least 30 days past due at year’s end include First Georgia Community Bank in Jackson, up 4,061 percent; Neighborhood performs “early triage” on behalf of prospective bank merger participants in order to improve the approval chances of related merger applications.73 Those who seek to predict the outcome of bank merger proposals, and the resultant regulatory scrutiny, would be well served to remain mindful of the relevant doctrinal approaches that preceded this era. III. ORIGINS OF U.S. BANKING AND ANTITRUST LAW—BRIEF OVERVIEW [T]here can be no single, consistent sketch of the developments in banking law in the period under review. Only the perspective that comes when time provides the proper spacing will reveal whether the storm or the quiet was the theme of the picture, or whether it was all just a happening.74 The Sherman Act, passed on July 2, 1890, “forbids mergers effecting an unreasonable restraint of trade.”75 The Clayton Act, enacted in 1914, “prohibited the acquisition by one corporation of the stock of another corporation when such acquisition would result in a substantial lessening of competition between the acquiring and the acquired companies, or tend to create a monopoly in any line of commerce.”76 In 1950, the Cellar-Kefauver Act amended the Clayton Act. CellarKefauver, viewed as the beginning of the “modern era of merger control,”77 broadened the reach of section 7 of the Clayton Act. The Community Bank in Newnan, up 10,097 percent; and FirstBank Financial Services in McDonough, up 3,072 percent. The list goes on. “You’re going to see companies fail, you’re going to see companies merge to survive,” said Christopher Marinac, an analyst at FIG Partners in Atlanta, a bank research firm. Id. 73. See Wachtell, Lipton, Rosen & Katz, Financial Institutions M&A 2007: Continued Rich Diversity in an Active M&A Market an Annual Review of Leading Developments, 1638 PLI/CORP 209, 737-78 (2007). 74. John J. Brennan, Developments in Banking Law – 1964-1965, 83 BANKING L.J. 189 (1966). 75. United States v. Phila. Nat’l Bank, 374 U.S. 321, 354-55 (1963) (citations omitted). 76. Brown Shoe Co. v. United States, 370 U.S. 294, 312-13 (1962). 77. William E. Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71 ANTITRUST L.J. 377, 433 n.184 (2003) (“Brown Shoe Co. v. United States, 370 U.S. 294 (1962), a case DOJ initiated in the 1950s, supplied the 1950 legislation “eliminated the artificial distinction between acquisitions of assets and acquisitions of stock,”78 and removed the perception that there was a “rising tide of economic concentration in the American economy79 [and] . . . that increased economic concentration might threaten other fundamental values of a non-economic nature.”80 These changes were the impetus for this amendment.81 The objective of section 7 of the Clayton Act is to prohibit only those acquisitions that may allow the combined entities to exercise market power by raising prices and restricting the availability of a product or service to customers.”82 “[T]he Supreme Court, echoed by the lower courts, has said repeatedly that the economic concept of competition, rather than any desire to preserve rivals as such, is the lodestar that shall guide the contemporary application of the antitrust laws, not excluding the Clayton Act.”83 Prior to the enactment of the Bank Holding Company Act in 1956 (“BHCA”),84 bank holding companies were not subject to existing regulatory restrictions that otherwise prevented banks from blending banking with commerce.85 Further, non financial companies, such as Ford Motors and Sears, the titans of traditional “commerce,” openly operated banks.86 Concerns mounted in the 1950s that combinations such as these might eventually result in a disproportionate concentration of economic and social power, and served as a catalyst for promulgation of the Bank Holding Company Act of 1956 and its 1970 amendment.87 The Bank Holding Company Act prohibits companies which own banks from acquiring banks across state lines and disallows these companies from partaking in “activities that are not closely related to banking.”88 The Bank Holding Company Act “vests broad regulatory authority in the [Federal Reserve] Board over bank holding companies ‘to restrain the undue concentration of commercial banking resources and to prevent possible abuses related to the control of commercial credit,’”89 and “authorizes the Board to regulate ‘any company which has control over Chicago, Ill.), at 44, available at pectives/ep_4qtr2007_part3_johnson_etal.pdf. The mixing of banking and commerce in ‘universal’ banks, as exists in many countries, has long been controversial in U.S. banking history. Most state charters for banks and the federal charter for national banks limit the activities of banks to accepting deposits and making loans, but permit other services viewed as incidental to banking. This was generally interpreted by regulators as prohibiting the banks from engaging in some financial activities, such as insurance underwriting and real estate brokerage, and all nonfinancial activities. Until the enactment of the BHCA in 1956, these limitations were not generally applied to bank holding companies, so that commercial firms could own banks. Id. 86. See id. Ford Motors and Sears, among other large nonfinancial firms, operated banks. But, as discussed earlier, growing fears in the 1950s that such combinations could lead both to excessive economic and social power and to potential conflicts of interest favoring sellers resulted in the enactment of the BHCA in 1956 and its expansion in 1970. Since then, the thrust of legislation, which often is preceded by changes in the marketplace, has reversed. The financial powers of BHCs have been expanded significantly, most recently in the Gramm–Leach–Bliley Act of 1999, and the nonfinancial powers have been expanded moderately. However, unlike ILCs, commercial banks may still not be owned by commercial firms. Id. 87. See id.; see also Bank Holding Company Act Amendments of 1970 (Pub. L. No. 91-607, 84 Stat. 1760); Bank Holding Company Act of 1956 ( Pub. L. No. 511; 70 Stat. 133). 88. Carol Conjura, Comment, Independent Bankers Assoc. v. Canover: Nonbank Banks Are Not in the Business of Banking, 35 AM. U.L. REV. 429, 430 (1986) (quoting 12 U.S.C. § 1843 (1982)). 89. Bd. of Governors v. Dimension Fin. Corp., 474 U.S. 361, 365 (1986) (quoting S. REP. No. 91-1084, at 24 (1970)). lower court determined that the United States was the relevant geographic market “for the general purpose card product market and the general purpose card core system services market.”470 The attorneys general of twenty-seven states, and for the District of Columbia, argued for the government in a joint amicus brief that asserted “[w]hen a defendant is a participant in geographic markets outside the one under scrutiny, as Visa and MasterCard [are] in this case, courts may look at [its] activity in those markets.”471 Paycom Billing Services, an internet credit card transaction processor, sued MasterCard International ( a national bank card association), for alleged Sherman Antitrust Act violations and claimed that MasterCard conspired with member banks to restrain trade.472 Paycom cited United States. v. Visa as support and claimed that the relevant geographic market was the United States as a whole because there were six distinct types of markets.473 The Paycom court agreed and defined the geographic market as the entire country, in large part, because MasterCard did not challenge Paycom’s market definition, but In addition, plaintiff claims two distinct ‘payment card processing services’ markets. The first is broader and includes the processing of all payment card transactions, regardless of whether performed over the internet or through a ‘brick and mortar’ merchant. The second is a submarket of the first and includes only those transactions made over the internet. Defendant also does not challenge the definition of these two markets for purposes of this motion. Id. at 2-3 (citations omitted). also because precedent supported an expanded geographic delineation.474 Signs of a shifting paradigm were beginning to surface. Federal regulators have had success in expanding the relevant geographic market in nonbanking mergers. The Federal Trade Commission (“FTC”) also argued, for Clayton Act section 7 purposes, that the relevant geographic market was the United States as a whole, twenty-five years before the Paycom decision.475 The Ninth Circuit accepted the nationwide geographic market determination,476 and allowed two lead smelting firms, RSR Corporation and Quemetco, to continue combined operations.477 The FTC contended that the companies were in competition to a significant degree in more than just the Midwest market, and the court concurred.478 The FTC had filed an administrative complaint alleging that RSR (a lead company) violated section 7 of the Clayton Act when it acquired the stock of two competitors.479 Similar to the banking market, the lead smelting market in the United States is also highly concentrated.480 Although the FTC argued that the relevant geographic market for a section 7 analysis was the entire United States,481 RSR countered that the companies were not Id. 476. See id. at 1322-23. “Here these considerations indicate nationwide competition in the secondary lead market. Thus, the relevant geographic market is, as found by the FTC, the entire United States.” Id. at 1324. The Court held that the FTC’s plan requiring “divestiture by petitioner of all premerger assets, except for one plant, was proper remedy.” Id. at 1325-26. 477. See generally RSR Corp. v. FTC, 602 F.2d 1317. 478. See id. at 1322-23. Evidence on the pre-merger competition between RSR and Quemetco, coupled with evidence of pricing interdependence nationwide and evidence of the ability of secondary producers to ship lead into states in which most secondary lead is consumed, is substantial. That evidence is sufficient to support the FTC’s factual findings on the relevant geographic market issue. Id. at 1323. 479. In re RSR Corp., 88 F.T.C. 800 (1976), 1976 WL 180019, *3. 480. See id. at *18. 481. RSR Corp., 602 F.2d at 1322; see also In re RSR Corp. at *33 (“The relevant geographic market for the purposes of this proceeding is the United States as a in direct competition with one another anywhere in the country.482 The administrative law judge not only found that the companies directly competed in the Midwest, but also that the entire country was the relevant geographic market483 “because the merger lessened competition in the nationwide secondary lead market.”484 The Ninth Circuit turned to Brown Shoe Co. v. United States485 for guidance regarding the delineation of the geographic market boundaries and found the criteria sufficiently similar to that used to determine the relevant product market.486 RSR, however, attempted to advance the view that Connecticut National Bank and Marine Bancorporation should apply, and that therefore, the relevant geographic market should be “the area in which the acquired firm is in direct competition with other firms in the industry or in which it is marketing a significant degree of goods or services.”487 The Ninth Circuit disagreed with RSR’s position that the geographic market should be defined by the banking antitrust cases, precisely because those decisions concerned “the heavily-regulated banking industry,” in which the relevant geographic market was historically limited to only those areas where regulatory agencies had permitted the banks to provide services.488 Thus, the Philadelphia National Bank legacy, at least according to the Ninth Circuit, was distinguishable, not because banks are “unique” and whole.”). 482. Id. The parties did agree, however, that the relevant geographic market for the overall U.S. lead market (not the secondary lead market) was the nation as a whole. See In re RSR Corp., 88 F.T.C. 800 (1976),1976 WL 180019, at *78. 483. Id. 484. Id. 485. Brown Shoe Co. v. United States, 370 U.S. 294, 336-37 (1962). 486. RSR Corp., 602 F.2d at 1323 (citing Brown Shoe Co., 370 U.S. at 336-37). The geographic market selected must, therefore, both ‘correspond to the commercial realities’ of the industry and be economically significant. . . . The fact that two merging firms have competed directly on the horizontal level in but a fraction of the geographic markets in which either has operated, does not, in itself, place their merger outside the scope of [§] 7. That section speaks of ‘any . . . section of the country,’ and if anticompetitive effects of a merger are probable in ‘any’ significant market, the merger at least to that extent is proscribed. Id. (citations omitted); see also id. at 1323 (“To decide that the merger violated Section 7, the FTC was not required to find that Quemetco and RSR competed on a nationwide basis.”). 487. Id. at 1323. 488. Id. at 1323-24 (citing United States v. Marine Bancorp., 418 U.S. 602, 641 (1974). “insulated,” but rather because they are highly regulated. The fact that the secondary lead market in which RSR competed was not nearly as regulated as banking, in turn aided the court in determining the relevant competitive region.489 6. Conspicuous Absence of Relevant Geographic Market Analysis in Recent Bank Mergers Wachovia Corp. consummated a merger with Golden West Financial Corp.490 on October 2, 2006491 In the Federal Reserve approval order, the phrase “relevant geographic market” was altogether absent. The Board’s analysis of the competitive effects of the proposed acquisition in terms of nonbanking subsidiaries, however, noted that both banks engage in various services, including “credit extension, trust company, investment advisory, and securities brokerage activities [,] [t]he markets for these activities are regional or national in scope and unconcentrated [sic], and there are numerous providers of these services.”492 Accordingly, Wachovia’s acquisition of Golden West’s nonbanking subsidiaries would ostensibly not have any substantial anticompetitive effect upon any relevant market,493 at least from the Fed’s perspective. The Federal Reserve approved Wachovia’s application to acquire Golden West,494 and also permitted Wachovia “to acquire two of Golden West’s savings associations, World Savings Bank FSB of Oakland, Calif., and World Savings Bank FSB of Houston, along with Golden West’s non-banking subsidiaries.”495 The Federal Reserve considered a variety of factors in its merger approval analysis, such as the number of remaining competitors in the market, market deposits controlled by both banks,496 the increase in market deposit concentration levels as measured by the HHI,497 and various other market competition measures.498 The word “geographic” only appeared once in the Fed’s approval order, but not in the context of a relevant geographic market.499 The Board did acknowledge in its order that, as part of its public interest evaluation, it reviewed “the effect of the proposal on competition in the relevant markets.”500 There was also no mention of the now antiquated Philadelphia National Bank antitrust test, nor did there appear to be any evaluation of the cluster of products and services.501 Although the following merger was approved without apparent adherence to Philadelphia National Bank’s local geographic market analysis, the Fed’s merger analysis appears to be evolving. Citizens Bank completed its acquisition of Republic Bank in late 2006.502 The combined entity, dubbed Citizens Republic Bancorp,503 became the country’s 45th largest bank.504 Before the combination, Republic was Michigan’s second largest bank holding company, and its merger into Citizens created the state’s third-largest bank holding company.505 The Fed scrutinized two particular Michigan banking markets where Citizens and Republic had competed directly—Flint and Jackson.506 Scrutiny of those local markets was warranted because, even with branch divestitures, the HHI concentration levels in the two banking markets exceeded the DOJ’s Guideline threshold.507 The Board considered various mitigating competitive factors favorably and ultimately concluded that the merger between the two Michigan banks “would not have a significantly adverse impact on competition.”508 The Board also found that increased market share concentration, as represented by the HHI, was not preclusive and in fact, overstated the potentially adverse competitive effects to some degree because: (1) seventeen other depository institutions co-existed in the market; (2) competing community credit unions509 were vibrant in that market;510 and (3) the Flint market was attractive for new entrants.511 The DOJ determined that the merger would produce insignificant adverse competitive effects TRIBUNE, Apr. 26, 2007 (“Citizens Republic Bancorp will become the largest Michigan-based bank holding company and 43rd largest in the county . . . .”). 506. See id. at C10-11. 507. See id. “The DOJ has stated that the higher-than-normal HHI thresholds for screening bank mergers and acquisitions for anticompetitive effects implicitly recognize the competitive effects of limited-purpose and other nondepository financial entities.” Id. at C10 n.9. 508. Id. at 5. 509. Credit Unions are often a good counter measure to anticompetitive effects. See Local Control Lost in Iowa Banks, but not in CUs, Credit Union National Association, NEWS NOW, Feb. 9, 2004, available at date=020604#15579. Credit unions can help to counter to increased concentration of national bank power, according to a 2003 study: “Credit unions provide an important and necessary check-and-balance to these banking conglomerates, says the report. While local control of financial institutions in Iowa is rapidly disappearing, ‘credit unions are locally controlled and are countering the trend toward out-of-state banking control.’” Id. 510. See Citizens Banking Corp., 93 Fed. Res. Bull. at C10-11 (“Eight community credit unions control approximately $887.5 million in deposits in the market, which represents approximately 9 [%] of market deposits on a 50 [%] weighted basis.”). 511. Id. at C11. Within the past five years, six de novo bank branches and one credit union have opened in the Flint market, and all remain operational. Other factors indicate that the Flint banking market remains attractive for entry. For example, from 2002 to 2005, the market’s average annualized deposit growth exceeded the average annualized deposit growth for all metropolitan areas in Michigan. and the other governing banking agencies did not object.512 While the Fed has begun to look beyond the narrow Philadelphia National Bank pedigree analysis, a discussion of geographic market was absent from the Fed’s order.513 ANTICOMPETITIVE EFFECTS The fundamental legislative purpose of the Bank Merger Act of 1966514 was to allow bank mergers even where a reduction in competition might result in the relevant market.515 The rationale is that if the public interest is served, despite a consequential dampening of competition, the merger should still be approved and consummated.516 Although mandating Sherman and Clayton Act application, the 1966 Act established a new defense once an action is brought to challenge a bank merger on anticompetitive grounds.517 An otherwise anticompetitive combination can still be consummated if the prospective merger participants can demonstrate “‘that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.’”518 The Federal Reserve has relied on the public interest factor519 to approve a proposed merger where the public interest factor outweighed any likely adverse competitive effect.520 The Fed widened the scope of its review for public interest benefits, and found a host of public interest factors.521 Mitigating public interest factors can be “weighted against the increase in concentration,” and offset anticompetitive effects.522 The DOJ Merger Guidelines523 explain that the effect of the merger on market concentration, as measured by HHI,524 is the “logical economic ‘starting point’ for merger analysis,” and if the proposed combination does not significantly increase concentration, no further analysis is required.525 But even where a proposed transaction’s HHI suggests that substantially lessened competition may result, mitigating public interest factors can outweigh the HHI and allow the combination to be consummated.526 If market concentration is significantly increased, mitigating factors might outweigh anticompetitive effects, and the merger may still be approved.527 An example of mitigating factors might be the lack of “competitive viability of the target, [the] presence of active competition from thrifts and other financial institutions in the market, competition from out-of-market financial institutions, and market attractiveness.”528 If mitigation will not justify the increased concentration, then divestiture of offices and branches529 might be required in order to bring the “concentration indicator” to the level that the DOJ guidelines mandate, and, for this reason, according to the Federal Reserve, very few bank mergers are ever rejected for antitrust reasons.530 While inching towards a new analytical framework like the one proposed, the divestiture approach, as adopted, tends to ultimately frustrate the spirit of the Community Reinvestment Act (“CRA”), especially in low income markets where the stability of bank branches is often sacrificed, with predatory check cashing operators filling the void.531 The authors’ interpretation of “public interest” definitely does not exclude underrepresented constituencies who are precisely the population the CRA was designed to protect.532 527. See, e.g., Foster, 2007 WL 1793441, at *29. 528. Brewer III et al., supra note 15, at 8. 529. There are critics of the DOJ’s and Regulators requirement of divestiture. The effect of regulatory divestiture requirements appears to sometimes render a detrimental effect on communities. See Rep. Kucinich Sends Letter, supra note 143 (“The disappearance of depository bank branches throughout Cuyahoga County has ushered in a crisis of foreclosures, predatory mortgage and payday lending.”). 530. See Brewer III et al., supra note 15, at 8. The author points out that the statistics may be skewed because bank merger applications which raise antitrust issues may be voluntarily withdrawn. See id. 531. See Off. of Congressman Anthony D. Weiner, Many More Banks in New York (But Only For Some), Dec. 18, 2005, available at report.pdf.; see also Rep. Kucinich Sends Letter, supra note 143. 532. See Federal Financial Institutions Examination Council, Community Reinvestment Act, Background and Purpose, (last visited May 12, 2008) . The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including lowand moderate-income neighborhoods, consistent with safe and sound banking operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulations 12 CFR parts 25, 228, 345, and 563e. Ease of entry into the market is another mitigating factor. In FTC v. Foster, the Commission revealed sufficient increases in market concentration and high market shares, “trigger[ing] the presumption” that the contested merger would likely result in anticompetitive effects.533 This presumption can be successfully rebutted, however, with a showing of minimal barriers to market entry, which would mitigate the anticompetitive effect.534 Competitive influence of credit unions and other nonbank market participants is another mitigating factor which the Federal Reserve can consider when analyzing the competitive effect of a proposed merger.535 Nonetheless, these factors do not go far enough, and the 2008 credit crunch and economic fallout reveals that relevant market factors have not yet been given due consideration in the bank merger review context. 533. Foster, 2007 WL 1793441, at *26; see also Brief of Petitioner, United States v. Sungard Data Sys., Inc., No. 01-2196, (D.D.C. Oct. 22, 2001), available at Once the United States establishes a presumptive violation of the Clayton Act, the defendants may introduce evidence to attempt to rebut that presumption. However, the Supreme Court has directed that the presumption will not easily be overcome. To rebut the presumption, the defendants must produce evidence that “show[s] that the market-share statistics [give] an inaccurate account of the acquisitions’ probable effects on competition. Id. (citations omitted). 534. See Foster, 2007 WL 1793441, at *26 (The DOJ’s “Merger Guidelines require that entry must be timely, likely, and sufficient.” (citation omitted)); see also United States v. Phillipsburg Nat’l Bank & Trust Co., 399 U.S. 320, 367-68 (1970). The District Court in Phillipsburg Nat’l Bank & Trust Co stated: ‘Ease of access to the market is also a factor that deserves consideration in evaluating the anticompetitive effects of a merger. It is not difficult for a small group of business men to raise sufficient capital to establish a new small bank when the banking needs of the community are sufficient to warrant approval of the charter.’ Appellees, however, made no attempt to show that a group of businessmen would move to start a new bank in Phillipsburg-Easton, should the proposed merger be approved. 399 U.S. at 367-68 (citations omitted). 535. See First Citizens Banc Corp., 94 Fed. Res. Bull. C1, C2 (2008), available at [T]he Board notes that one community credit union also exerts a competitive influence in the Logan County banking market. This institution offers a wide range of consumer products, operates street-level branches, and has membership open to almost all the residents in the market. The Board previously has considered the competitiveness of certain active credit unions as a mitigating factor. Id. at C2 & n.12. VIII. SUBPRIME MELTDOWNS AND CREDIT MARKET BEATDOWNS BEGET BANK MERGER SHOWDOWNS Unprecedented lending practices of the last two decades and aggressive pooling, packaging and securitizing of real estate-based credit have led the United States toward an economic downturn that will likely be labeled a recession with the benefit of hindsight. At least one critic has attributed the crisis to the “Fed’s monetary policy having created the housing bubble, characterized by a spectacular escalation of real estate values in every American city . . . .”536 The credit crunch of 2008 spread like a contagion, and will likely shape public sentiment. It may also whet the American appetite for fundamental change of our financial system, including the manner in which banks, and bank-like financial services firms combine operations through mergers and acquisitions. The collapse of many former subprime “players” has already begun to lead to mergers by necessity and a host of distressed asset sales. In August 2007, America’s biggest bank,537 Bank of America made a $2 billion equity investment in Countrywide Financial Corp., but claimed that it had a merely passive investment stake in Countrywide.538 However, Bank of America’s long desired market share dominance in NCNB later made a $200 million strategic investment in MNC Financial Inc. of Baltimore and quickly bought the distressed bank, extending its reach up the East Coast. Id. 538. Bauerlein, supra note 537; see also Bank of America Takes Countrywide Stake, N.Y. TIMES, Aug. 22, 2007, available at /08/22/business/ apee-mortgage.html (last visited Dec. 23, 2007) . the mortgage business led to discussions between the two companies that the leading retail lender’s staff and technology539 would be inserted into Bank of America’s omnipresent branches. Countrywide CEO Angelo Mozilo claimed there were no plans for the two companies to merge, but hinted about vague future mortgage business collaborations.540 Despite Mozilo’s poker player bluster, Bank of America offered roughly $4 billion to acquire Countrywide in the second week of 2008 and in effect, “doubl[ed] down on a previous investment in the troubled firm and catapult[ed] the buyer into the top spot among mortgage lenders and loan servicers in the U.S.”541 Bank of America now has more branches (and customers) than any other bank in the United States.542 According to one analyst, if Countrywide “were indeed to fail, the federal government would facilitate a sale to Bank of America, much as many believe that regulators encouraged Bank of America to take the stake in the first place.”543 Kenneth D. Lewis, Bank of America CEO, “flatly denied that his deal with Countrywide was at the behest of regulators.”544 539. “Countrywide’s computer technology also is considered a big plus in holding down loan-origination and servicing costs.” See Hagerty & Bauerlein, supra note 537. 540. Id. 541. Alistair Barr & Steve Goldstein, Bank of America to Buy Countrywide Financial, MARKETWATCH, Jan. 11, 2008, available at, news/story/bank-america-buy-countrywide-financial/story.aspx?guid=39417545-5DC74CD1-862D-5939F89D9667. 542. Hagerty & Bauerlein, supra note 537 (“Countrywide has roughly 61,000 employees, nearly 1,000 branch offices for mortgage loans and a stock-market value of about $12.7 billion. Bank of America has nearly 200,000 employees, 5,700 branches and a market capitalization of $233.14 billion -- second only to Citigroup Inc. among banks.”). 543. Bauerlein, supra note 537 (quoting analyst Richard X. Bove of Punk Ziegel & Co.). In that respect, Mr. Bove compares a potential takeover to the legendary maneuver in 1988 of FirstRepublic, then the largest bank in Texas. Bank of America got its foothold in Texas for a bargain, with huge tax benefits. Mr. Bove says that if Countrywide got in deeper trouble, regulators might also be willing to waive regulatory limits that bar any U.S. bank from an acquisition giving it more than 10 percent of total U.S. bank deposits. As market pundits speculated about the veracity of Countrywide’s financials,545 and whether its bondholders would be confronted with default risks, Bank of America noted far less conspicuously in an amended registration statement filed with the Securities and Exchange Commission that the likelihood it would back Countrywide’s bond debt, which had been downgraded to “junk” just days earlier,546 was a rapidly diminishing prospect with “no assurance that any such debt would be redeemed, assumed or guaranteed.”547 Meanwhile, the senior Senator from New York, Charles Schumer, could barely couch his support for the mega-bank when he remarked that Bank of America should actually receive a deeper discounted purchase price due to the widening belief that Mozilo’s Countrywide crew cooked its books.548 545. See, e.g., Christopher Whalen, Are Countrywide Financial Bond Holders Bankruptcy Remote?, SEEKINGALPHA.COM, May 02, 2008, available at The columnist cited the opinion below for the premise that government assisted “bail out” deals ultimately increase systemic market risk over time: Ever since the government bailout of Chrysler in 1979-80, this country has been on a course of raising the safety net so that the market’s discipline, in a capitalistic economic system, has been truncated. We have witnessed a growing level of decisions that are based upon expediency rather than sound long-term decision making. Each time these expedient decisions are made, the level of risk within the U.S. economy has been increased. The market’s discipline is not allowed to work for fear of the potential economic fallout. Id.; see also John Spence, B. of A. Should Exit Countrywide Deal: Analyst, MARKETWATCH, May 5, 2008 available at alyst-says-bank-america-should/story.aspx?guid=%7B479AEC2B-AEF7-477F-94DE-4 AA90EC59156%7D&dist=msr_14; David Mildenberg & Eric Martin, Bank of America Should Skip Countrywide, Analyst Says (Update3), BLOOMBERG, May 5, 2008, available at .Ts&refer=home. 546. David Mildenberg, Countrywide Rating Cut to ‘Junk’ By Standard & Poor’s (Update4), BLOOMBERG, May 2, s2008, available at news?pid=20601087&sid=aNssWctbuukA&refer=home. 547. David Mildenberg, Bank of America May Not Guarantee Countrywide’s Debt (Update6), BLOOMBERG, May 5, 2008, available at ws?pid=20601087&sid=a0qQd39LDl7c&refer=home; see also, BofA Gives ‘No Assurance’ on Portion of Countrywide Debt, DALLAS BUS. J., May 2, 2008, available at tories/2008 /04/28/daily66.html; Bank of America Amended Registration Statement Form S-4/A, available at es/edgar/data/70858/000095014408003445/g11537a2sv4za.htm (filed with the SEC Apr. 30, 2008) . 548. Christopher S. Rugaber, Countrywide Financial Admits Loan Officers Made Errors, ASSOCIATED PRESS (via Yahoo!), May 6, 2008, available at Bank of America was not the only mega-bank positioned to pick from the smoldering subprime rubble in 2008 and acquire big brand financial assets with government assistance and fire-sale prices. JPMorgan Chase Bank, the nation’s third-largest bank in terms of total assets, received far more than just matchmaking services and dealfriendly legislator rhetoric. According to the New York Times, the “Federal Reserve Bank of New York pushed Bear Stearns into the arms of JPMorgan Chase.”549 In fact, JPMorgan Chase was the beneficiary of a $29 billion Federal Reserve imprimatur that effectively insulated the bank from substantial risk in the acquisition of distressed subprime assets.550 The Fed’s backing facilitated the investment bank bailout buyout, the primary purpose of which, “according to regulators, was to forestall a toppling of financial dominoes on Wall Street, in the event that Bear Stearns skidded into bankruptcy and other firms began falling apart as well.”551 Central Bank Chairman Ben Bernanke reportedly “helped broker the buyout, after liquidity evaporated at Bear.”552 Sighs of relief were heard overseas, where at least one experienced market crisis manager, Bank of Israel governor Stanley Fischer, opined that the Fed’s willingness to back a Bear bailout “marked a “turning According to the AP account, the senior Senator from New York made the following rather ironic remarks during Senate Panel testimony regarding Bank of America’s planned purchase of Countrywide: Sen. Charles Schumer, D-N.Y., chairman of the panel, criticized what he called a broader ‘vulture mentality’ in the mortgage lending industry. ‘Companies have repeatedly sought to foreclose on homes where owners were current on payments, sought attorneys fees in bankruptcy court for motions that they have lost, and failed to keep even the most basic records to justify their claims in bankruptcy court,’ he said. Schumer also said that Bank of America Corp., which agreed to buy Countrywide in January [2008 ] for approximately $4 billion, should reconsider the deal’s price tag. If the purchase price for Countrywide was ‘based in part on profits from these bad practices, Bank of America should demand a lower price, because these practices will not be allowed to continue,’ he said. Id. 549. Morgenson, supra note 544; see also Jonathan Stempel, Buffett Says Fed Avoided Chaos in Bear Bailout, REUTERS, May 3, 2008, available at 550. Henry Blodget, Bear Stearns Bailout Paves Way For $1+ Trillion U.S. Homeowner Rescue Plan, HUFFINGTONPOST.COM, Mar.24, 2008, available at; see also Stempel, supra note 549. 551. Morgenson, supra note 544. 552. Stempel, supra note 549. point” in the latest financial market turmoil,” although other economics experts were far less sanguine about the Fed’s maneuver.553 Anna Schwartz, a contemporary of Nobel Laureate economist Milton Friedman, called the Bear Stearns bailout a “rogue operation,” and that “the Fed had no business intervening there.”554 Timothy F. Geithner, Federal Reserve Bank of New York president, has since called for “more stringent supervision over financial institutions and urged banks to put in place more fail-safes to prevent the liquidity problems that claimed Bear Stearns last month.”555 According to Minneapolis Fed president Gary Stern, there is simply “no way to put the genie back in the bottle,” while Harvard University professor, and former International Monetary Fund research director, Kenneth Rogoff quipped, “[I]t is very hard in the middle of a crisis to know where to draw lines.”556 Former regulators have also spoken publicly about the political climate for change.557 Counted among them is former SEC Chairman 553. John Thornhill et al., Bear Stearns Rescue a ‘Turning Point,’ FIN. TIMES, Apr. 6, 2008, available at,dwp_uuid=8cd8eda0-f1d7-11dc-9b45-0000779fd2ac.html; see also Janet Morissey, Nouriel Roubini – Superbear Says There’s More to Come, INVESTMENTNEWS, Mar. 24, 2008, available at pbcs.dll/article?AID=/20080324/REG/767507756. It’s the beginning of a radical change in monetary policy. It’s not just the $30 billion that the Fed confirmed to Bear Stearns via JPMorgan — there were two other major options that went in the same direction. One was the decision [two weeks ago] to provide $200 billion so that all primary dealers, including non-bank financial institutions, would be able to swap their illiquid and toxic MBS [paper] for safe Treasuries. The other was the Fed giving any primary dealer, including non-banks, access to the Fed discount window on the same terms as banking institutions. This is a radical change; we haven’t seen anything like this since the Great Depression. These are financial institutions that are not regulated or supervised by the Fed. The Fed has no idea of whether they are just illiquid or insolvent, which creates a massive moral hazard problem. It’s a radical shift in the way the Fed operates — and a dangerous way, I would argue. Id. 554. Craig Torres, Fed ‘Rogue Operation’ Spurs Further Bailout Calls (Update 1), REUTERS, May 2, 2008, available at 087&sid=a1ctn1Xfq5Do&refer=home. 555. Michael Grynbaum, Fed Officials Defend Rescue of Bear Stearns, N.Y. TIMES, Apr. 3, 2008, available at /04/03/business/03cnd-fed.htm (Mr. Geinther’s “recommendations were vague and came at the close of an oftengripping testimony [as he] recounted the weeklong process by which the Fed mediated the fire sale of Bear Stearns to its Wall Street rival, JPMorgan Chase.”). 556. Torres, supra note 554. 557. Brian Blackstone, Real Time Economics: Volcker Warns of Precedent Set by William Donaldson, who announced his support for Senator Barack Obama’s candidacy, based in large part upon the issue of financial market regulatory reform, and noted that Sen. Obama “saw the ‘need to take a good hard look at how things are organized’ and ‘just exactly what went wrong in terms of the regulatory oversight that we have.’”558 Formerly America’s fifth-largest investment bank, Bear Stearns was widely reputed for having among the largest appetites for subprime risk on Wall Street, and as two of its hedge funds imploded under the weight of excessive leverage,559 its stock slid from a peak of roughly $120 per share, to JPMorgan Chase’s initial bid of $2, later upped to $10 per share.560 Bear Stearns shareholders have asserted a host of derivative claims, connected principally to the bank’s subprime collapse and subsequently proposed takeover, and as a class they seek, inter alia, injunctive relief to block the proposed merger.561 Meanwhile, Bear’s Fed Moves, WALL ST. J., May 14, 2008, available at 2008/05/14/volcker-warns-of-precedent-set-by-fed-moves/?mod=WSJBlog. Former U.S. Federal Reserve Chairman Paul Volcker cautioned during prepared testimony to the Joint Economic Committee of Congress that use of what he characterized as “longdormant” Fed powers may be seen subsequently as a precedent for future periods of economic stress: ‘Whatever claims might be made about the uniqueness of current circumstances, it seems inevitable that the nature of the Fed’s response will be taken into account and be anticipated, by officials and market participants alike, in similar future circumstances,’ [ ] Volcker hinted at the Fed’s recent role facilitating the rescue and proposed takeover of Bear Stearns by J.P. Morgan Chase. The Fed, he said, ‘felt it necessary to extend that safety net’ to systemically important institutions by ‘providing direct support for one important investment bank experiencing a devastating run, and then potentially extending such support to other investment banks that appeared vulnerable [to] speculative attack,’ Volcker said. ‘Hence, the natural corollary is that systemically important investment banks should be regulated and supervised along at least the basic lines appropriate for commercial banks that they closely resemble in key respects,’ he said. Id. 558. Christopher Cooper et al., Obama to Receive Endorsement Of 3 Former SEC Chairmen, WALL ST. J., May 14, 2008, available at 073227421390697.html. 559. Joe Bel Bruno, Hedge Fund Collapse at Bear Stearns Trickles Down to Pension Funds, Ordinary Investors, ASSOCIATED PRESS, June 26, 2007, available at ws/business/2007 ml. 560. Francesco Guerrera et al., JPMorgan Faces $9bn Charge for Bear Clean-Up, FIN. TIMES, May 13, 2008, available at; see also Stempel, supra note 549. 561. See Second Amended Complaint, Cohen v. Bear Stearns Companies, Inc., No. bailout was examined during House Oversight and Government Reform Committee hearings.562 JPMorgan Chase was not the only firm to benefit from the Federal Reserve’s historic largesse. During a rare crisis avoidance move, the Fed opened its “discount window” to investment banks who were all too willing to scoop up “tens of billions of dollars from the Federal Reserve, rushing to get hard-to-sell mortgage bonds off their battered balance sheets.”563 One month later, “as Washington beg[an] to consider how to modernize a hodgepodge of banking regulations,” the Senate Banking Committee conducted post-mortem hearings aimed at “examin[ing] the collapse of Bear Stearns and its implications for taxpayers, regulators and future financial crises.”564 Senate Banking Committee Chairman, Sen. Christopher Dodd, has also expressed recent concerns about a “potential crisis in the student-loan market,” and House Financial Services Committee Chairman, Rep. Barney Frank, has noted that “new rules are needed to deal with a lack of regulation of risk.”565 The approach advocated here, solely with regard to the prospective financial services merger review process, favors neither business combinations nor opposition thereto, but instead promotes a “new baseline for fairness,”566 one which effectively equips those empowered to review proposed banking mergers with whatever tools are reasonably available to accurately evaluate relevant micro and macro market conditions as they relate to a prospective transaction. 07 Civ. 10453 (S.D.N.Y. 2007) . 562. See James Politi, House Panel Questions Bear Rescue Plan, FIN. TIMES, Apr. 8, 2008, available at 8,dwp_uuid=8cd8eda0-f1d7-11dc-9b45-0000779fd2ac.html. 563. Stephen Foley, Brokers Rush to Borrow Funds from the Fed, INDEPENDENT (UK), Mar. 21, 2008, available at brokers-rush-to-borrow-funds-from-the-fed-799127.html. 564. Grynbaum, supra note 555. 565. See Torres, supra note 554. 566. John Poirier, Fed Backs Credit Card Reforms, REUTERS, May 2, 2008, available at ‘The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,’ Fed Chairman Ben Bernanke said at a meeting to approve the proposal. ‘Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.’ IX. CONCLUSION The last half-century has been a period of incredible social, technological, and economic advancement for much of the world, as an electronic “information age” has brought unprecedented enlightenment to billions. The benefits have also extended to financial services, as money now moves around the world daily with enhanced information processing and at the speed of light, allowing for efficient delivery of financial services in virtually every currency known and at every location on earth. Formerly provincial economies now operate globally and trading partners cooperate from virtually all locales. The domestic market for financial services is no exception, and has realized vast improvements in efficiencies, largely through the use of technology, but also through combinations of financial services firms with complimentary skills, markets, products and services. Regrettably, much of the law that still governs the antitrust review process of bank mergers remains rooted in a doctrine that was developed years before humans first explored the surface of the moon. Financial services are no longer an exclusive domain of commercial banks. In fact, market sectors for virtually every financial product and service, once associated with “insulated” traditional banks, are now filled with nonbank competitors of all sorts, including toll-free telephone mortgage originators, purely internet “banks,” credit card companies offering checking accounts, auto and home loan markets financed by hedge funds, check cashing and predatory “pay day advance” outfits that litter struggling urban neighborhoods, and firms like American Express dominate the small business lending market. There can be little debate that beyond the last classic bastion of the banking industry—the purely depository account—almost every other imaginable financial product or service has a competitive landscape that includes non-banks. These advancements only increased during the last decade, as the Internet became commercialized and the Gramm-LeachBliley Act ushered in the era of combined banking, securities, and insurance businesses organized under one corporate umbrella. Since the Citicorp and Travelers mega-merger, others have followed suit, and still hundreds, if not thousands, of other smaller transactions have resulted in combinations of traditional banks with a host of nonbank firms. The U.S. Supreme Court established once prudent and effective boundaries to govern the scope of regulatory reviews for proposed mergers involving businesses that were considered “unique”—banks. Those boundaries were delineated mostly in the 1960s and 1970s, well before the most significant economic and technological changes served as catalysts for an evolving financial services industry. Philadelphia National Bank was the common law progenitor of what was indeed sound policy for an era when a commercial bank was a clearly identifiable creature. The Philadelphia National Bank Court labored to craft a workable rule that “was substantively strong and administrable,” and that would presumably stand the test of time.567 Today, the entities that provide many of the bank-like functions are often, although not always, components of a bank holding company structure that include a variety of products and services that may have been unimaginable when the Supreme Court first fashioned those regulatory standards of review. The Philadelphia National Bank approach remains quite relevant in some respects, but it is believed that the test created in 1963 should only be among the sharpest arrows in a bank regulator’s quiver, instead of its entire arsenal of review. The Department of Justice moved away from bank merger reviews dominated by the local market analysis that has been the hallmark of the Philadelphia National Bank legacy, and which has become an inflexible metric when employed exclusively. Federal bank regulators have not yet been liberated from the constraints of an antiquated standard created almost a half century ago. Local market analysis has indirectly engendered a trend of closure and divestiture, designed to secure merger approval, which in the abstract might seem to be innocuous, until one carefully considers the adverse secondary effects attendant to the elimination of long-standing relationships at the neighborhood and community level, in addition to frustration of the spirit and intent of the Community Reinvestment Act. Consolidation typically promises greater efficiencies and lower delivery costs, although it seems that all too often any realized savings quickly morph into one-time higher net profits, and consumers are 567. ABA Section of Antitrust Law, Monograph No. 12, HORIZONTAL MERGERS: LAW AND POLICY p. 58 n.296 (1986) (citing and quoting Richard Posner, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE 105 (1976)). Philadelphia National Bank placed considerable weight upon devising a rule that was substantively strong and administrable. Noting ‘the danger of subverting congressional intent by permitting a too-broad economic investigation,’ the Court said that ‘in any case in which it is possible . . . to simplify the test of illegality, the courts ought to do so in the interest of sound and practical judicial administration.’ (citing Phila. Nat’l Bank, 374 U.S. 321, 362 (1963)). rarely, if ever, the beneficiaries of any of the merger upside. The downside can of course include higher fees, fewer choices, decreases in staff and customer service, and worse still, a market vacuum that all too often replaces depository institutions that were once community pillars with “pay-day” lenders, check-cashing stores and outfits of similar predatory ilk. With virtually 100% of all merger applications garnering approval during the last decade, approval has been a veritable “rubber stamp,” provided that overtly monopolistic market share did not result directly from a proposed transaction. The DOJ has been consistently more pragmatic in its approach to bank merger analysis over the years, and continues to factor in market elements that federal bank regulators might ignore, due to what seems to be an overly devoted deference to Philadelphia National Bank precedent. A DOJ review typically includes evaluation of any market participants that provide competing products or services, regardless of whether the potential competitor is a credit card issuer, or some other nonbank operation. However, federal bank regulators do partially consider savings and loans and similar thrifts that are not considered part of the traditional commercial banking sector, or a component of the DOJ merger application analysis. The divergence between the DOJ and federal banking regulators creates inconsistency, contradiction, and increased regulatory uncertainty, save for the consistent fact that virtually every merger application has been approved during the last decade. It also offers a skewed vision of the actual amount of anticompetitive activity present in various banking markets. Perhaps an aspect of provincialism is at work that causes factions of the federal government to resist adopting standards developed in another portion of that same government. Nonetheless, the DOJ position, on balance, is more adaptable to the market realities of consolidation in today’s financial services sector. The Philadelphia National Bank standard endures to some degree, even if unspoken, and unquestionably deserves to hold a meaningful place amongst all of the tools available to the DOJ and banking regulators, as future proposed transactions are evaluated. Yet, adherence to that standard has all too often been the totality of the analysis, in such devoted deference to stare decisis, that it seems misguided. The United States Court of Appeals for the District of Columbia Circuit made the following observations some two decades ago: Whether, in view of the dynamic changes in the banking industry over the past decade, discrete and highly specialized banking practices, such as those involved here, may realistically be included in a general commercial banking product market, however, is a difficult question which the time constraints of the decision making process in this case simply do not allow us to probe with the necessary care.568 The U.S. Supreme Court has more than once wisely recognized that as times change, so too must legal standards adapt to evolving circumstances.569 This is almost certainly one of those occasions. During its last term, the Court eliminated a nearly century-old antitrustbased ban on minimum retail pricing,570 in a direct acknowledgement that as markets evolve, U.S. laws must keep the pace.571 This is especially true as the domestic economy will eventually rebound from the recession in which it is eventually mired, and an upswing of M&A activity will be a likely occupant of the leading edge of that recovery.572 The Court can, and should, take prudent steps to modify and modernize the governing standard of bank merger review and equip banking regulators with all the tools available to perform application scrutiny in a manner truly consistent with their regulatory charge. The Authors urge that whatever the future analytical framework for evaluating proposed bank mergers might be, the last thing it should be is dutiful devotion to stare decisis merely for the sake of not offending a half-century of doctrinal deference. Regulatory reform trial balloons have been advanced throughout the year, including the dramatic release of the U.S. Treasury Department’s “blueprint,” which advocates for the adoption of a “less is more” approach, and urges for the consolidation and closure of federal financial regulators, with the Federal Reserve filling the void by utilizing substantially enhanced powers over the banking sector. The Fed recently advanced substantive reforms regarding consumer credit card issuer practices, including “a proposal that would limit interest rate hikes, abolish certain fees, and modify controversial billing practices—targeting what officials consider to be abuses,”573 and further suggesting receptiveness to systemic regulatory overhaul. Considering that the Fed has arguably been the most devout adherent to the monolithic and now outdated Philadelphia National Bank standard, the Court is stridently urged to soon revisit the question of what might constitute an appropriate measure of bank merger scrutiny, and craft an adaptable new standard that is mindful of the path already traveled, but also responsive to the rate of change fast afoot on Wall and Main streets, and perhaps soon within the “Beltway” and also on Pennsylvania Avenue. OVERVIEW.................................................................................. 611 A. A Tide Not Stemmed ........................................................... 615 B. Philadelphia National Bank and its Progeny....................... 620 C. The Aftermath of Philadelphia National Bank.................... 625 D. Regulation in the 1990s Produced the Highest Ever Run on Bank Mergers................................................................. 629 VI. RELEVANT MARKETS ..................................................................... 646 A. The Federal Reserve's Competitive Analysis...................... 650 B. The Department of Justice's Competitive Analysis............. 652 C. Relevant Product Market ..................................................... 654 1. DOJ's Relevant Product Market.................................... 655 2. Failed Attempt to Diversify the Product Market ........... 658 3. Justice Harlan Criticizes Narrow Cluster Approach ...... 661 4. Stare Decisis and Shifting Market Conditions............... 664 D. Geographic Market .............................................................. 665 1. Federal Reserve Continues to Utilize a Localized Geographic Market........................................................ 668 2. Federal Deposit Insurance Corporation and Comptroller of the Currency ......................................... 670 3. DOJ's Relevant Geographic Market.............................. 672 4. Rejection of the “State as a Whole” Geographic Market ........................................................................... 675 5 . A More Expansive Geographic Market ......................... 679 6. Conspicuous Absence of Relevant Geographic Market Analysis in Recent Bank Mergers .................... 685 1 . Oliver Wendell Holmes , The Path of the Law , 10 HARV. L. REV. 457 , 469 ( 1897 ). 2. The U.S. banking system is comprised of the main components, national and STATES 19-32 .5 (Juris Publ., 4th ed. 2001 ). 3. United States v . Phila. Nat'l Bank , 374 U.S. 321 ( 1963 ) (providing Court's discussion of unique and insulated nature of traditional commercial banking). 4 . Steven Greenhouse , Nonbanks' Community Role Will Be Target of U.S. Study, N.Y. TIMES , June 9, 1993 , available at 9F0CE0DE163FF93AA35755C0A965958260&n=Top/Reference/Times%20Topics/Or ganizations/T/Treasury%20Department (quoting Joann Barefoot, banking consultant). 5 . See Deborah Salus & Mary Weeks , Do Community Banks Gain Competitive Advantage with Online Banking? 3 J. BEHAV . & APPLIED MGMT . 263 ( Winter 2002 ), available at 17 . htm. 6. Id. at 263 . 7. See Bd . of Governors v. Dimension Fin . Corp., 474 U.S. 361 , 364 ( 1986 ). In 1984, the Board promulgated rules providing that nonbank banks offering the functional equivalent of traditional banking services would thereafter be regulated as banks. The Board accomplished this by amending its definition of a bank, found in 'Regulation Y,' in two significant respects. First, the Board defined 'demand deposit' to include deposits, like NOW accounts, which are 'as a matter of practice' payable on demand. Second, the Board defined the 'making of a commercial loan' as 'any loan other than a loan to an individual for personal, family, household, or charitable purposes,' including 'the purchase of retail installment loans or commercial paper, certificates of deposit, bankers' acceptances, and similar money market instruments .' The Federal Reserve is currently May Come By Yr-end, REUTERS, Oct. 18 , 2007 , available at ws/articleinvesting .aspx?type=etfNews&storyID= 2007 - 10 -18T185833Z_ 01 _ N1837770 5_RTRIDST_0_FED-ACQUISITIONS.XML. 8. For example, CapitalOne is a hybrid financial holding company, offering a Z_Z_Z_ABT1_ C1 _01_ T_ABT3. Wells Fargo & Co “is a diversified financial services company almost 6000 stores, the Internet and other distribution channels across North America and internationally.” See Wells Fargo, 9. See Christine E. Blair , The Future of Banking in America, The Mixing of Banking and Commerce: Current Policy Issues, 16 FDIC BANKING REV . 97 , 100 ( 2004 ), available at 10. Comment Letter from R. Hewitt Pate , Assistant Attorney Gen., Antitrust Div ., Compliance Guide to the Anti-Tying Restrictions of Section 106 of the Bank Holding Company Act Amendments of 1970 , Docket No. R- 1159 , Nov. 7, 2003 , available at (“[T]he competitive benefit respond to multi-product bundles and discounts offered by non-banks . Consumers are 20 . See id.; see also id. at 361 (acknowledging that the four-county Philadelphia law, best defines the “section of the country” for the purposes of evaluating the merger ). 21 . Michael T. Sheehan , Irving Bank Corp. v. Board of Governors: Recognition of the Submarket Approach in Bank Merger , 9 ANN. REV. BANKING L. 677 , 702 ( 1989 ) (quoting and citing Loevinger & Lehr, A New Look at Bank Mergers, 4 BANKING EXP . REP. 1 , 13 ( 1985 ) (citations omitted)). (brackets in original). 22. See Office of the Comptroller of the Currency, About the OCC , http: federal branches and agencies of foreign banks . ”) . 23 . See Eugene A. Ludwig, Comptroller of the Currency, Remarks Before the OCC Antitrust Conference (Nov. 16 , 1995 ), available at 95- 127 .txt (“ [N]onbank competitors . . . enjoyed relatively unrestrained access to the services universe.”) . 24 . See id. 25 . Sheehan, supra note 21, at 701 ( citing A Clear Message : Expand Banks' Product Line , ABA BANKING J., 52 (Dec. 1987 )). 26 . Id. at 700-01 (quoting A Clear Message: Expand Banks' Product Line , ABA BANKING J. , 52 (Dec. 1987 )). 27 . See Thomas B. Leary, FTC, Guidelines for Merger Remedies: Prospects and Principles , Remarks at the Joint U.S./E.U. Conference (Jan. 17, 2002 ), available at 28. Id . 29 . See Debra A. Valentine , FTC , Assistant Dir. for Int'l Antitrust , The Evolution of U.S. Merger Law , Remarks at the INDECOPI Conference (Aug. 13 , 1996 ), available and our enforcement tools have not always been perfectly adapted to their tasks . ”) . 30 . Supporting Statement for the Survey to Obtain Information on the Relevant Market in Individual Merger Cases (FR 2060; OMB No. 7100 - 0232 ), at 2, available at [hereinafter Supporting Statement]. Since the [Connecticut National Bank] decision, numerous changes in bank regulation, technology, and the economy have raised questions regarding the 34 . Robert DeYoung et al., Whither the Community Bank? Relationship Finance in the Information Age , 178 CHI. FED LETTER (Fed . Reserve Bank of Chi., Chicago, Ill.), June 2002 , available at 1 78.pdf. Community banks are “identifiable by their small size, their limited geographic mergers have eliminated a community bank . ” Id . 35. Steven J. Pilloff , Fed. Reserve Sys., Staff Study 176 : Bank Merger Activity in the United States , 1994 - 2003 , at 1 ( 2004 ), available at ubs/staffstudies/2000-present/ss176.pdf. 36. Brewer III et al., supra note 15, at 2 . 37. Id . For a detailed statistical economic analysis of banking merger data, see The Philadelphia National Bank Case ( 1981 ) (unpublished Ph.D. dissertation , Columbia Regulation , Antitrust, and Bank Mergers, 92 BANKING L.J. 6 ( 1975 ). There were less than 100 bank mergers per year from 1940 through 1951 . From that date forward the pace quickened. During the entire decade of the 1950s, the Comptroller of the Currency approved 904 mergers involving national banks and 735 mergers were approved by the various state regulators. In the latter half of that decade there were 883 approved mergers involving resources amounting to $16.6 billion. Id. at 6-7 . 38 . United States Delegation, Working Party No. 2 , Organisation for Economic Retail Banking , at 2, DAF/COMP/WP2/WD( 2006 )60, available at bc/international/docs/Banking_US.pdf [hereinafter Roundtable]. 39 . See Terry Calvani et al., Antitrust Analysis of Bank Mergers: A Survey of Recent Developments , n.2 (Dec. 1 , 1996 ), available at Dec/1/129882.htm. 40 . John O'Donnell , JP Morgan Heads Predicts Wave of Bank Mergers, REUTERS, Dec. 7 , 2007 , available at idUKL0762 21020071207?feedType=RSS&feedName=bankingfinancial-SP. 41. See id. 42 . Robin Sidel et al., J.P. Morgan Buys Bear in Fire Sale, As Fed Widens Credit to Avert Crisis , WALL ST. J., Mar . 17 , 2008 , at A1, available at icle/SB120569598608739825.html?mod=hpp_us_inside_today . 43. See Daniel J. Mahoney, When Bank Mergers Meet Antitrust Law, There's No The Banking Industry , 14 ANN. REV. BANKING L. 303 , 302 ( 1995 ) “Total domestic banking assets held by the largest 100 banking organizations increased from 50.2% in 1977 to 61.5% in 1987 .” Id. at 303 (citation omitted). 44. U.S. Dep't of Justice, Antitrust Div., Workload Statistics, Fiscal Year 1998 - 2007 ( 2008 ), available at 45. See Bank Mergers Provide Opportunity for Phishing, NETCRAFT .COM, 2007 , phishing. html. 46 . Press Release, Am. Bankers Ass'n, America's Community Bankers Merger Takes Effect (Dec. 3 , 2007 ), available at Bankers Merger Takes Effect]. 47. See Press Release, Am. Bankers Ass'n, America's Community Bankers Board Unanimously Approves Merger Plan with ABA (Sept . 14, 2007 ), available at usly_approves_merger_plan_with_aba/. ACB and the ABA are the nation's two leading advocates for banks of all charter types and sizes. When combined, the new organization's members will represent 95% of the assets of the nation's $11.5 trillion banking industry. The organization will be the premier bank trade association in Washington and the nation . St. Louis , Working Paper Series, Dec. 2002 ), available at 003 .pdf. Prior to 1997 , when the Reigle- Riegle-Neal Amendment Act of 1997 was enacted in 1997 . See Riegle-Neal Amendments Act of 1997 , Pub. L. No. 105 - 24 , 111 Stat. 238 ( 1997 ) ; see also Pa . Ass'n state lines after June 1 , 1997 .”). 57 . See Litan, supra note 54 . 58. Gramm-Leach-Bliley Act , Pub. L. No. 106 - 102 ( 1999 ). The Financial Modernization Act of 1999 is also known as the Gramm-Leach-Bliley Act . 59 . Brewer III et al., supra note 15 , at 2; see also Blair, supra note 9 , at 97- 100 passed in 1999, effectively acknowledging and extending the degree to which banking organizations were permitted to engage in nonbank financial activities .”) Id. at 100; see Banks 13 (Fed . Reserve Bank of Chi., Working Paper No. 2003 - 14 , 2003 ), available at 14 .pdf. Feeling pressure from a series of rulings by the Office of the Comptroller of the Currency that granted increased product powers to national banks, and an announced merger between the largest bank in the U.S. and one of the world's largest insurance companies (CitiBank and Travelers), Congress followed nationwide geographic deregulation with broad-based deregulation of banking powers. Specifically, in 1999 Congress passed the Graham-Leach-Bliley Act which effectively repealed the GlassSteagall Act . 62 . See Wheelock & Wilson, supra note 56, at 3 ( citing D.C. Wheelock & P.W. Acquisitions , REV. OF ECON. & STATISTICS 82 , 127 - 38 ( 2000 )) ; see also id . at 15 (“One is located, the less likely it will absorb other banks . ”) . 63 . Id. at 15- 16 . 64 . Id. at 18; see also Brewer III et al ., supra note 15 , at 6 (noting that where a increase) . 65 . For a list of the Board of Governors' Orders on Banking Applications, visit and click the link for each year to view the orders by year (last visited Mar . 30 , 2008 ). 66 . See Fed . Reserve Sys., 2002 Orders on Banking Applications , available at (last visited Mar. 30 , 2008 ). The authors reviewed each merger application from the period of 1996 to 2007, by visiting and click the and this could skew the statistics . 67. See , e.g., Illini Corp., 89 Fed. Res. Bull . 85 , 86 ( 2003 ), available at (denying the acquisition ). 68 . To see each order for applications filed under the Bank Merger Act during the 1997-2007 period, visit dersother/1997.htm, click the link for each year, and view under the heading “Bank Merger Act .” The Bank Merger Act is codified as 12 U .S.C. § 1828(c)(4) ( 2007 ). 470. United States v. Visa USA , Inc., 163 F. Supp . 2d 322 , 339 -40 (S.D.N .Y. 2001 ). 471. Brief for Connecticut, Ohio, Alaska et al. as Amici Curiae Supporting Plaintiff- Appellee , United States v. Visa USA , Inc., 344 F.3d 229 ( 2d Cir . 2002 ) (No. 02 - 6074(L)) , 2002 WL 32828496, * 13 (2d Cir. July 3 , 2002 ) (citing Aspen Ski Co . v. Aspen Highlands Skiing Corp ., 472 U.S. 585 , 603 ( 1985 )). 472. Paycom Billing Servs., Inc. v. Mastercard Int'l, Inc., No. CIVA03CV6150DGT RLM , 2005 WL 711658, at *1 ( E.D.N.Y. Mar . 29 , 2005 ), aff'd 467 F.3d 283 ( 2d Cir . 2006 ) (granting defendant's motion to dismiss). 473. Id . at *2; see also id. at *2 -*3 (citations omitted) (“A 'brick and mortar' merchant sells goods and/or services in person, not over the internet .”). Id. at *3 n.3 474. See Paycom , 2005 WL 711658 at * 2 (citations omitted). 475. See RSR Corp . v. FTC , 602 F.2d 1317 , 1320 ( 9th Cir . 1979 ). Both sides appealed to the full FTC, which adopted the ALJ's decision with some modifications. The FTC agreed that the secondary lead market was the proper submarket, that secondary lead was the relevant product market, that the United States as a whole was the appropriate geographic market, and that the RSR/Quemetco merger could substantially lessen competition in the national secondary lead market . 489. See RSR Corp., 602 F.2d at 1324. 490. See Wachovia Corp., 92 Fed. Res. Bull. C183 , C183 ( 2006 ). 491. Press Release, Wachovia Corp., Wachovia Completes Golden West Merger (Oct. 2 , 2006 ),,, 134 _ 307 % 5E1403 , 00 .html. 492. Wachovia Corp ., 92 Fed. Res. Bull. at C186. 493. Id . 494. Wachovia Corp ., 92 Fed. Res. Bull. C183. 495. See Federal Reserve Gives Nod to Wachovia's Acquisition of Golden West, BIRMINGHAM BUS. J. , Sept . 29 , 2006 , available at am/stories/2006/09/25/daily24.html. 496. See Wachovia Corp., 92 Fed. Res. Bull. at C184 ( Market deposits are “the 497. The HHI is set forth in the DOJ's Merger Guidelines . HORIZONTAL MERGER GUIDELINES , supra note 224; see also Wachovia Corp., 92 Fed. Res. Bull. at C184 n.16 exceeds 1800 , ” and “moderately concentrated if the post-merger HHI is between 1000 and 1800 .”). 498. See Wachovia Corp., 92 Fed. Res. Bull. at C184 . Wachovia and the target bank , Golden West, competed directly in 26 banking markets . Id. Of the 24 banking markets listed in Appendix B of the Order, 20 banking markets had a resulting 1000), and one banking market had a resulting HHI above 1800 indicating a highly concentrated market post merger, id . at C192, “without an increase in market concentration as measured by the HHI .” Id. at C184. 499. See id. at C188-89. 500. Id . at C183. 501. Subsequent to the merger, the Comptroller of the Currency agreed to hold to Discuss Wachovia Branch Closings, PHILA . BUS. J., Dec . 14 , 2006 , available at 502. Citizens Banking Corp., 93 Fed. Res. Bull. C9 ( 2007 ), available at 503. See Press Release, Citizens Bank, Citizens Bank Completes Successful Merger Integration with Republic Bank (May 7, 2007 ), bin/stories .pl?ACCT=109&STORY=/www/story/05-07-2007/0004582701&EDATE=. 504. Greg Morcroft , Citizens to Buy Republic Bancorp for $ 1 .05 Billion, MARKETWATCH , June 27, 2006 , guid={FDD0A7C3-4DC9-4272-9E0D-0BEECD79CE0F}. 505. See Mark Brooky, Republic Bank Transforming into Citizens, GRAND HAVEN 512. See id. 513. Citizens Banking Corp., 93 Fed. Res. Bull. C9. 514. Pub . L. No. 89 - 356 ( 1966 ) (codified at 12 U .S.C. § 1823(c)) . 515. United States v. Third Nat'l Bank , 390 U.S. 171 , 192 ( 1968 ) ; see also Wachovia Corp ., 92 Fed. Res. Bull. C183 ( 2006 ) (Under the BHC [Section 4(j)(2)(A) 516. Third Nat'l Bank , 390 U.S. at 192. 517. See id. at 178 (citing United States v . First City Nat'l Bank of Houston , 386 U.S. 361 ( 1967 ) ). Last Term, in United States v. First City National Bank of Houston this court interpreted the procedural provisions of the 1966 Act, holding that the Bank Merger Act provided for continued scrutiny of bank mergers under the Sherman Act and the Clayton Act, but had created a new defense, with the merging banks having the burden of proving that defense. The task of the district courts was to inquire de novo into the validity of a bank merger approved by the relevant bank regulatory agency to determine, first, whether the merger offended the antitrust laws and, second, if it did, whether the banks had established that the merger was nonetheless justified by 'the convenience and needs of the community to be served.' Houston Bank reserved 'all questions' concerning the substantive meaning of the 'convenience and needs' defense. Id. at 178 (citations omitted). 518. First City Nat'l Bank of Houston, 386 U.S. at 363-64 (quoting 12 U.S.C. § 1828(c)(5)(B)) . An application for approval of the Texas merger was made to the Comptroller of the Currency pursuant to 12 U .S.C. § 1828(c)(5)(B), which provides that he shall not approve the merger 'whose effect in any section of the country may by substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless (he) finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served .' Id. at 364. 519. Wachovia Corp ., 92 Fed. Res. Bull. at C190 - 91 (In this particular application, the public interest factor was cited under section 4 of the Bank Holding Company Act .). 520. Id . 521. See id. These benefits include an array of banking products and services, such 522. Brewer III et al., supra note 15 , at 6. 523. HORIZONTAL MERGER GUIDELINES , supra note 224. 524. See , e.g., FTC v. Foster, No. Civ . 07 - 352 JBACT , 2007 WL 1793441, at * 26 (D. N .M. May 29, 2007 ) (citation omitted). 525. Id . (citation omitted). 526. Brewer III et al., supra note 15 , at 6. 536. Thomas J. DiLorenzo , The Government-Created Subprime Mortgage Meltdown , LEWROCKWELL.COM, Sept. 6 , 2007 , available at 537. Valerie Bauerlein , Will BofA Laugh Last ?-Bet on Countrywide Looks Funny To Some , But Patience May Pay, WALL ST. J., Nov . 29 , 2007 (“ Bank of America, the Countrywide , Bank of America Courted for Years, WALL ST . J., Aug . 24 , 2007 . Bank of America reached its scale by scooping up banks, many of them in hardship. Predecessor NCNB kicked off the growth spree with the 1988 purchase of the remnants of FirstRepublic Bank of Dallas, what was once one of Texas's largest banks, at the urging of federal regulators. That deal gave it a backdoor to expansion in Texas and , thus, interstate banking. 568. Irving Bank Corp. v. Bd. of Governors , 845 F.2d 1035 , 1041 (D.C. Cir . 1988 ). 569. Payne v. Tennessee , 501 U.S. 808 , 849 ( 1991 ) (Marshall , J. Blackmum , J., 570. Leegin Creative Leather Products , Inc. v. PSKS, Inc., ___ U. S. ___, 127 S. Ct . 2705 ( 2007 ). Justice Kennedy, writing for the 5-4 majority, noted that long-standing Id. at 2721. 571. Id .; see also Giang Nguyen, Leegin Creative Leather Prods, Inc. v. PSKS, Inc. d/b/a Kay's Kloset, MEDILL NEWS SERVICE , Dec . 12 , 2006 , http://docket.medill.north 572. Ben Steverman , M& A: The Big Thaw? , BUSINESSWEEK, May 15 , 2008 , available at 0515 _ 859749 .htm. It has been reported that: So far this year [2008], the total value of announced M&A deals is . . . down 39% in the U.S. and 34% worldwide from this time a year ago . . . . [but] [b]ankers and experts said the shrinking of available credit has acted as a brake on the M&A

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Edward Pekarek, Michela Huth. Bank Merger Reform Takes an Extended Philadelphia National Bank Holiday, Fordham Journal of Corporate & Financial Law, 2018,