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The banking agencies and the Department of Justice review the competitive impact of bank and bank holding company mergers under the banking and antitrust laws to proscribe mergers that would tend to substantially lessen competition. To speed this competitive review and reduce regulatory burden on the banking industry, the banking agencies and the Department have developed screens (attached as Screens A and B), to identify proposed mergers that clearly do not have significant adverse effects on competition. In addition to the screens, the banking agencies and the Department have identified information, described below in Section 2, which has proven to be useful in analyzing the competitive effects of proposed mergers highlighted by Screen A or Screen B.
Parties planning a merger transaction may wish to consult with the relevant banking agency or the Department before submitting an application. Where a proposed merger causes a significant anticompetitive problem, it is often possible to resolve the problem by agreeing to make an appropriate divestiture. In such cases, it may be useful to discuss the matter with the Department and the relevant regulatory agency. The Department seeks divestitures that will resolve the loss of competition in the market. A divestiture will resolve the problem if it ensures the presence of a strong and vigorous competitor that replaces the competition lost because of the merger.
The banking agencies rely primarily on Screen A, which looks at competition in predefined markets developed by the Federal Reserve. If the calculation specified in Screen A does not result in a postmerger HHI over 1800 and an increase of more than 200, the banking agencies are unlikely to further review the competitive effects of the merger.(1) If the result of the calculation specified in Screen A exceeds the 1800/200 threshold, applicants may consider providing additional information. See Section 2 for a description of the types of information that may be relevant. Providing such information with a merger application can eliminate delays in the review process and may avoid special requests for additional information.
The Department initially reviews transactions using data from the banking agencies' screen, Screen A. If a proposed merger exceeds the 1800/200 threshold in Screen A, applicants should consider submitting the calculations set forth in Screen B.
In some cases, the Department may further review transactions which do not exceed the 1800/200 threshold in Screen A. This is most likely when Screen A does not reflect fully the competitive effects of the transaction in all relevant markets, in particular lending to small and medium-sized businesses. For example, the Department is more likely to review a transaction involving two commercial banks if the postmerger HHI approaches 1800 and the HHI increase approaches 200, and screen A includes thrifts which are not actively engaged in commercial lending. In addition, the Department is more likely to review a transaction if the predefined market in which the applicants compete is significantly larger than the area in which small business lending competition may exist (e.g., the predefined market includes multiple counties, or is significantly larger than an RMA in which the applicants are located). In such a case, applicants should consider submitting the calculations set forth in Screen B. Often, the Department will review the information in Screen B and find no need for further review of the proposed merger.
If the calculation specified in Screen B results in an HHI over 1800 and an increase of over 200, applicants may consider providing additional information. See Section 2 for a description of the types of information that may be relevant. Providing such information with a merger application can eliminate delays in the review process and may avoid special requests for additional information.
The Screens' market area does not fit the transaction. Sometimes the geographic market used in the screens may not be an appropriate choice for analyzing the particular merger involved. For example, the Screens' market area is a county, and one merging institution is at the east end of one county and the other merging institution is at the west end of the adjacent county. The institutions may in reality be each other's most important competitors, but the screens would not reflect that fact. Or the Screens' market area may be quite large, but the merger involves two institutions at the center of the market. Institutions at the periphery of the market area may be very improbable substitutes for the competition that would be lost in the transaction and thus the transaction should be scrutinized in a narrower area to ensure that the relevant geographic market is considered.
In such cases, applicants may wish to submit additional information. See Section 2 for a description of the types of information that may be relevant. Providing such information with a merger application can eliminate delays in the review process and may avoid special requests for additional information.
The Department and the banking agencies are likely to examine a transaction in more detail if it exceeds the 1800/200 threshold in Screen A. The Department is also likely to examine the effect of a proposed merger on competition for commercial loans if the transaction exceeds the 1800/200 threshold in Screen B. In instances where a screen highlights a transaction for further review, the applicant may present additional information not considered in the screen.
A.2. Calculate HHIs. For each area listed under item A.1, prepare an HHI worksheet (see next page) covering all banks and thrifts in the area. Follow the instructions accompanying the worksheet (including thrifts at 50 percent as explained in the instructions) to calculate the pre-merger and post-merger HHIs and the HHI increase. Prepare as many worksheets as there are market areas listed above in Item A.1.
In Column (e), calculate the square of the percentage figures listed in Column (d) for the acquiring institution, the acquired institution, and the other institutions. Calculate the Pre-merger HHI by adding all of the figures in Column (e).
In column (f), calculate the square of the percentage figure listed in column (d) for the merged institution, and enter the figures from column (e) for the other institutions. Calculate the post-merger HHI by adding all of the figures in column (f).
B.2. Calculate HHIs. For each area listed under item B.1, prepare an HHI worksheet (see next page) covering all commercial banks in the area. Follow the instructions accompanying the worksheet to calculate the pre-merger and post-merger HHIs and the HHI increase. Prepare as many worksheets as there are market areas listed above in Item B.1.
In Column (e), calculate the square of the percentage figures listed in Column (d) for the acquired institution, the acquiring institution, and the other institutions. Calculate the Pre-merger HHI by adding all of the figures in column (e).
1. Purpose. The purpose of these guidelines is to acquaint the business community, the legal profession, and other interested groups and individuals with the standards currently being applied by the Department of Justice in determining whether to challenge corporate acquisitions and mergers under Section 7 of the Clayton Act. (Although mergers or acquisitions may also be challenged under the Sherman Act, commonly the challenge will be made under Section 7 of the Clayton Act and, accordingly, it is to this provision of law that the guidelines are directed.) The responsibilities of the Department of Justice under Section 7 are those of an enforcement agency, and these guidelines are announced solely as a statement of current Department policy, subject to change at any time without prior notice, for whatever assistance such statement may be in enabling interested persons to anticipate in a general way Department enforcement action under Section 7. Because the statements of enforcement policy contained in these guidelines must necessarily be framed in rather general terms, and because the critical factors in any particular guideline formulation may be evaluated differently by the Department than by the parties, the guidelines should not be treated as a substitute for the Department's business review procedures, which make available statements of the Department's present enforcement intentions with regard to particular proposed mergers or acquisitions.
2. General Enforcement Policy. Within the over-all scheme of the Department's antitrust enforcement activity, the primary role of Section 7 enforcement is to preserve and promote market structures conducive to competition. Market structure is the focus of the Department's merger policy chiefly because the conduct of the individual firms in a market tends to be controlled by the structure of that market, i.e., by those market conditions which are fairly permanent or subject only to slow change (such as, principally, the number of substantial firms selling in the market, the relative sizes of their respective market shares, and the substantiality of barriers to the entry of new firms into the market). Thus, for example, a concentrated market structure, where a few firms account for a large share of the sales, tends to discourage vigorous price competition by the firms in the market and to encourage other kinds of conduct, such as use of inefficient methods of production or excessive promotional expenditures, of an economically undesirable nature. Moreover, not only does emphasis on market structure generally produce economic predictions that are fully adequate for the purposes of a statute that requires only a showing that the effect of a merger "may be substantially to lessen competition, or to tend to create a monopoly," but an enforcement policy emphasizing a limited number of structural factors also facilitates both enforcement decision-making and business planning which involves anticipation of the Department's enforcement intent. Accordingly, the Department's enforcement activity under Section 7 is directed primarily toward the identification and prevention of those mergers which alter market structure in ways likely now or eventually to encourage or permit non-competitive conduct.
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