Summary

Because of recent increases in the number of bank mergers and the potential for further increases, GAO reviewed the federal laws and regulatory supervision for approving bank mergers.

In acting on merger applications, federal and state agencies consider: (1) the financial condition of the applicant banks; (2) the character and experience of the management of the surviving bank; (3) whether the convenience and needs of the community will be served; and (4) the effects of the merger on competition. Although federal bank regulators' assessments of the competitive effects of proposed mergers receive the most consideration and involve the most controversy, the agencies' evaluations are not uniform, and specific criteria have not been developed for making the evaluations. The ways by which the regulators defined the relevant market to be used in evaluating competitive effects of proposed mergers differed and lacked uniform criteria in applying the line of commerce and potential competition concepts. This has resulted in conflicting decisions by federal regulators and encourages agency shopping, whereby parties to a merger seek out the federal bank regulator possessing the most lenient standards for assessing mergers. GAO also found that, despite its frequent use, the phantom bank merger process is expensive, time consuming, and burdensome to banks, bank holding companies (BHC), and federal regulators. This complicated process is used because banking laws do not provide for shell corporations, which serve similar purposes for nonbank corporations. Finally, GAO concluded that changes are needed in both agency practices and merger law to reduce the processing time for merger applications.