The Federal Reserve Board has published an 11-page guide for banks looking to acquire large rivals.
The guide, structured as a series of frequently asked questions, focuses on how the Fed and the Justice Department's antitrust division analyze a deal's competitive elements.
"Given the increase in applications to acquire or merge following the recent recession and changes to the application process resulting from passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, this document should be especially useful for banking organizations that are contemplating acquisitions," the document states.
It is unclear what prompted the agencies to release the guide, given that most recent acquisitions have involved smaller banks and have seldom triggered competitive or antitrust issues.
Nonetheless, much of the document is devoted to explaining the differences between how the agencies evaluate bigger deals. Ultimately, the Fed has the authority to deny applications, while the Justice Department can challenge applications that raise competitive concerns in court.
The guide explains the often nuanced difference between how the Fed and the Justice Department approach applications. For instance, both rely on summary of deposit data from the Federal Deposit Insurance Corp. and the Herfindahl-Hirschman index, which measures the market concentration. However, the Justice Department does not have predefined geographic markets for screening applications. Rather, it reviews each transaction on a case-by-case basis.
The document also discusses how credit unions and thrifts factor into the competitive landscape. For instance, thrifts are often given a 50% risk weighting.
Ultimately, the Fed and Justice Department view branch divestures as an effective way to address competitive issues, the guide said. Umpqua Holdings in Portland, Ore., recently used such a tactic to secure approval for its acquisition of Sterling Financial. Umpqua paid Banner Corp. in Walla Walla, Wash., $7 million to take Sterling branches in Douglas and Coos counties in Oregon, where Umpqua already had a significant presence.