Merger in the Banking Industry
In one of the merger reviews handled by Dr. Noel in the banking industry, Dr. Noel evaluated concentration levels and the potential for unilateral and coordinated effects stemming from a proposed merger between two regional, geographically overlapping banks. The Federal Deposit Insurance Corporation (FDIC) was the regulator handling the matter and its main concern surrounded the possibility of high concentration levels, as measured by the Herfindahl-Hirschman Index (HHI), in a few local areas.
Dr. Noel produced several policy reports in the matter, showing that the general methodology relied upon by the FDIC and other banking regulators for defining geographic banking markets have largely fallen out of date, and are in need of revision. The standard methodology is based on 1960s-era definition of "local", and in today's world suggest banking markets that are much too small as a general matter, especially outside major metropolitan areas. Dr. Noel discussed the technological changes in the banking industry that have substantially expanded consumers' access to banking services and reduced reliance on physical brick-and-mortar banks, from credit cards and debit cards to ATM networks to direct deposit to online banking. Dr. Noel also documented the increased competition from non-bank entities for services that were traditionally considered bank services, such as mortgages, loans, payment methods, and investments. These new entrants, many of them mostly or fully online, impose new competitive constraints on almost every line of a bank's business. Dr. Noel reveals that these entities are all excluded from the HHI measures relied upon by banking regulators, because measures are narrowly defined based on banking deposits alone. Dr. Noel shows how the current methodology overstates market shares, concentration, and the potential for unilateral and coordinated effects from mergers among banks, especially outside major metro areas. Dr. Noel showed that the merger at issue was unlikely to result in adverse competitive effects, and likely to result in substantial cost efficiencies instead. The merger was allowed to proceed with minimal branch divestitures.