Comment by Lee B. David
A plaintiff challenging the propriety of a merger under the antitrust laws bears the burden of proving that the challenged merger will substantially lessen competition in a clearly defined line of commerce within a specific section of the country. Thus, in order to decide whether a proposed merger violates the Clayton Act, one must identify both the relevant product market and the relevant geographic market. This comment focuses exclusively on the relevant product market determination employed in commercial bank merger cases, proposes improvements to that calculus, and discusses implications for the entire depository institutions industry.
Generally, the relevant product market includes those products that are close substitutes for the product in question, and may be deemed to be a unique cluster of products and services. In the two decades since the Supreme Court first considered the relevant product market issue within the context of the depository institutions industry, federal trial courts and regulatory agencies regularly have adopted ‘commercial banking’ as the line of commerce within which to measure the anticompetitive impact of commercial bank mergers. The underlying rationale has been that the range of products and services provided by commercial banks made them unique relative to other types of depository institutions. Today, however, that rationale has lost much of its validity.
The depository institutions industry consists of commercial banks, savings and loan associations, mutual savings banks, credit unions, bank holding companies, and savings and loan holding companies. Each type of institution, except of course holding companies, was developed initially to provide services to a particular sector of the financial marketplace. Originally, commercial banks almost exclusively served the credit needs of business and agriculture, savings and loan associations and mutual savings banks offered home mortgages, and credit unions provided a primary source for personal loans. To some degree, the current market role of each type of institution continues to reflect its historic niche. However, in recent years, there have been significant changes in the competitive relationship between commercial banks and other types of depository institutions. Evolving economic realities in the depository institutions industry, combined with recently enacted legislation, have eliminated many of the previous distinctions between commercial banks and thrift institutions. ‘Depository institutions have diversified their credit, depository, and other services in order to capture larger market shares and to withstand destabilizing economic fluctuations.’ This is especially true at the retail level, where the cluster of products offered by commercial banks is virtually identical to that available today at most thrift institutions. These economic pressures and new industry responses to the market have altered the competitive impact of thrift institutions in the industry. Federal regulatory agencies have increasingly recognized these changes in identifying relevant product markets. Moreover, recent jurisprudence indicates that federal trial courts may be willing to accept the concept of a unified, industry-wide product market in analyzing proposed mergers between commercial banks. While neither the regulatory agencies nor the judiciary has accepted a fully unified, industry-wide product market, these developments strongly suggest that a reassessment of relevant product market determinations is appropriate. In light of the increasing number of bank affiliations and the Justice Department's continued concern in this area, such a reassessment is especially relevant today.
This comment begins with a review of Supreme Court precedents establishing commercial banking as a distinct line of commerce within the depository institutions industry. Following that is a discussion of recent economic and statutory changes affecting the validity of that distinction. In addition, recent deviations by federal trial courts and regulatory agencies from the Supreme Court's approach will be discussed. Finally, proposals for altering the relevant product market determination applicable in bank merger cases will be suggested and critically analyzed. It is submitted that evolving economic realities and legislative and regulatory responses, as well as developing trends within the industry, will inevitably alter the Supreme Court's fragmented perception of the depository institutions industry.
About the Author
Lee B. David.
Citation
57 Tul. L. Rev. 958 (1983)