Article: Ebbing the Tide of Local Bank Concentration: Granting Sole Authority to the Department of Justice to Review the Competitive Effects of Bank Mergers

Take a trip back: the year is 1991, and First Hawaiian, Inc., Honolulu, Hawaii (“Applicant”) has applied for Federal Reserve Board (“Fed”) approval to acquire First Interstate of Hawaii, Inc., Honolulu, Hawaii, (“FIH”) which owns a bank as one of its subsidiaries.[1]  The Fed, instructed by statute to determine whether a particular transaction is likely to lessen competition, notes first that the Applicant is the second largest commercial banking organization in Hawaii, and that FIH is the fourth largest commercial banking organization in Hawaii.[2]  Further, after consummation of the transaction, the Applicant would control 37.3% of the total deposits in commercial banking organizations in Hawaii.[3]  Upon first blush, one would assume that the Fed would be hesitant to approve the transaction, given that the Applicant would occupy an even more dominant position in the Hawaiian commercial banking market.  But the Fed, much to the chagrin of the United States Department of Justice’s Antitrust Division (“DOJ”), approves the transaction, concluding that the proposed acquisition would not have “a substantially anticompetitive effect in any relevant market.”[4]

Now flash forward to the present day.  The United States has suffered through an economic collapse that required multiple bank bailouts, including $700 billion under the Troubled Assets Relief Program (TARP).[5]  All told, the Fed lent $2 trillion to shore up banks,[6] with much of the money going towards bailing out America’s largest banks, such as Bank of America[7] and Citigroup.[8]  Although the causes of the crisis are numerous,[9] there is no denying that regulators “pumped tens of billions of dollars into the nation’s leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system.”[10]  After the financial collapse, the public and policymakers alike heaped much scorn upon banks that had become “too big to fail.”  But another pressing concern rose from the ashes of the fallout of the financial crisis: increasing levels of bank concentration in small, local markets and the dangers such concentration presents.

Banks in localized, small markets have sought out consolidation with equal vigor as the titans of the industry, and for good reason.  Empirical analysis demonstrates that as concentration among local markets increases, the banks operating in those markets have increased profit rates, can pay lower interest rates on deposits, and can charge higher interest rates on loans.[11]  This has a particularly potent effect on small businesses that rely primarily on local banks for their credit needs.[12] Yet under the current banking regulators’ antitrust analysis, lending to small- and medium-sized businesses as a distinct submarket is ignored, which presents opportunities for local banks, such as those involved in First Hawaiian, to exploit their increased market power, or, at the very minimum, to continue to seek consolidation in hopes of obtaining a monopoly over local markets.

This Article argues that the DOJ, rather than the banking regulators, such as the Fed, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), should be given the sole power to review the competitive effects of bank mergers to minimize the dangers of continued local bank concentration.  Although we will never know the extent to which bank consolidation could have been prevented, it is clear that mergers such as First Hawaiian Inc., Honolulu, Hawaii would have come out differently under DOJ review.  Section I of this Article explores America’s long storied fear—shared by the public and policymakers alike—of concentration among industries, particularly that of the banking industry.  Section II describes the laws governing bank mergers that grew out of this fear of concentration, and details the reemergence of concentration in the banking industry.  Section III begins with a look at how the bank merger process works and then proceeds to explain why the DOJ should be the agency responsible for reviewing the competitive effects of bank mergers.  Finally, Section IV contemplates and responds to potential counterarguments.

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Aaron Stine: J.D., The George Washington University Law School.  B.A., International Relations, Mandarin Chinese, Michigan State University.

Eric Gorman: J.D., The John Marshall Law School.  B.S., Mechanical Engineering, Michigan State University.

[1]. See First Hawaiian, Inc., Honolulu, Hawaii, 77 Fed. Res. Bull. 52, 52 (1991).

[2]. Id. at 54.

[3]. Id.

[4]. Id. at 57.

[5]. See Alex Johnson, Bush Signs $700 Billion Financial Bailout Bill, (Oct. 3, 2008),

[6]. See Alan Feuer, Battle Over the Bailout, N.Y. Times,  Feb. 14, 2010, at MB1.

[7]. Bank of America received a $20 billion bailout and a government guarantee for almost $100 billion of potential losses on toxic assets through an individual rescue plan, in addition to the $25 billion it received under TARP.  See Patrick Rucker & Jonathan Stempel, Bank of America Gets Big Government Bailouts, (Jan. 16, 2009),

[8]. Citigroup received guarantees on losses of its pool of approximately $306 billion in troubled assets, along with $45 billion in capital.  See David Enrich et al., U.S. Agrees to Rescue Struggling Citigroup, Wall Street J., Nov. 24, 2008, at A1.

[9]. For an overview of the causes of the financial crisis, see generally Kenneth E. Scott, The Financial Crisis: Causes and Lessons, 22 J. Applied Corp. Fin. 8 (Dec. 10, 2009), available at; see also Sheila C. Bair, Chairman, FDIC, Causes and Current State of the Financial Crisis Before the Financial Crisis Inquiry Commission (Jan. 14, 2010), available at

[10]. See David Cho, Banks ‘Too Big to Fail’ Have Grown Even Bigger, Wash. Post, Aug. 28, 2009, at A01.

[11]. See generally R. Alton Gilbert & Adam M. Zaretsky, The Federal Reserve Bank of St. Louis, Banking Antitrust: Are the Assumptions Still Valid? (2003), available at

[12]. See generally Robert DeYoung et al., Youth, Adolescence, and Maturity of Banks: Credit Availability to Small Business in an Era of Banking Consolidation, 23 J. Banking & Fin. 463 (1999), available at http://