Federal regulators are taking a fresh look at a legal theory that could make it easier for banks to complete in-market mergers.

The Justice Department, the Federal Trade Commission, and the Federal Reserve Board are all reviewing whether they should give more weight to the cost savings generated by mergers.

Banks have complained for years that regulators are too strict when they review in-market mergers, arguing the government looks only at the number of competitors in a community.

Instead, regulators should give equal weight to cost savings the merger will produce, according to bankers. A more efficient bank will be able to pass some of those savings on to consumers in the form of higher rates on savings deposits and lower rates on loans. The bank will pocket the rest of the savings as additional profit, allowing both consumers and the institution to come out ahead, according to the industry's argument.

"The theory for taking action against anticompetitive behavior is that anticompetitive mergers will raise prices for consumers," said H. Rodgin Cohen, a partner at Sullivan & Cromwell, a New York law firm. "But if you continue with this theory, you also have to consider that the combined bank will operate more efficiently and reduce prices."

Regulators have previously dismissed this idea, which has been labeled "cost savings analysis." Several Fed studies show the savings from mergers are normally much lower than predicted.

But that hasn't deterred the industry from pressing regulators to reconsider. Banks regularly spell out in merger applications how savings from the deal will result in lower prices for consumers.

"This should be a meaningful factor in analysis," Mr. Cohen said. "But I have never seen any opinion from any agency saying, 'Although this has an adverse affect, it is offset by increased efficiency."'

But that may be changing. All three agencies that have a role in approving mergers are now reconsidering their views. The Justice Department and FTC announced late last month the formation of a joint task force to reexamine cost savings analysis.

Also, staff researchers at the Fed are conducting a new study trying to calculate the savings from recent in-market mergers among major banks.

The task force has not yet set a deadline for concluding its probe, but the Fed expects to release its study early next year.

Michael Greenspan, a partner at the Washington law firm of Thompson Coburn, said bankers need action from both the Fed and Justice in order to benefit.

The Fed must first find that mergers actually make banks more efficient, he said. All of its previous studies have found little, if any, cost savings from acquisitions, he said.

Then the Justice Department must decide to give the cost savings theory more weight when reviewing the competitive effects of a merger, he said.

"We need both things working together," he said. "We need efficiencies and we need regulators looking for them."

If regulators adopt the cost savings theory, banks could get a substantial payoff. Banks would be able to merge with competitors without having to divest nearly as many branches and deposits.

"This could be very important," Mr. Cohen said. "These efficiencies are enormous and the impact on the bottom line could be enormous."

But not everyone is convinced any of the agencies will act. Steve Sunshine, a former Justice Department lawyer now with Shearman & Sterling in Washington, said he isn't hopeful. "I wouldn't expect too much to come out of this," he said.

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