Executive Summary

• The Bank Competition Modernization Act – which passed the House Financial Services Committee on September 16 – would amend the Federal Deposit Insurance Act, the Bank Holding Company Act of 1956, and the Home Owners’ Loan Act to require certain competitive factors to be considered when evaluating proposed mergers and acquisitions involving financial institutions.
• The bill would also establish a safe harbor provision whereby banking regulators would no longer be required to request a competitive analysis from the Department of Justice for mergers and acquisitions that result in an entity with less than $10 billion in assets.
• While the bill would make the merger review process more efficient, its the safe harbor provision would establish two sets of rules that could distort market incentives and lead to inefficient outcomes, resulting in higher prices and fewer choices for consumers.

Introduction

The Bank Competition Modernization Act, legislation to update bank merger review standards, passed the House Financial Services Committee on September 16, 2025. The legislation would amend the Federal Deposit Insurance Act, the Bank Holding Company Act of 1956, and the Home Owners’ Loan Act to require certain competitive factors to be considered when evaluating proposed mergers and acquisitions involving financial institutions.

The act would also establish a safe harbor provision where banking regulators are no longer required to request a competitive factors report from the Department of Justice (DOJ) for transactions that result in an entity with less than $10 billion in assets.

While the bill would make the merger review process more efficient, its safe harbor provision establishes two sets of rules that could distort market incentives and lead to inefficient outcomes, resulting in higher prices and fewer choices for consumers.

Bank Merger Review

The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency are the primary regulatory agencies that review proposed mergers and acquisitions involving financial institutions.

The Bank Merger Act – part of the Federal Deposit Insurance Act – and the Bank Holding Company Act outline the criteria the banking regulators must consider during a merger review, including financial and managerial resources, convenience and needs of the community, community reinvestment compliance, financial stability, and adequacy of capital. These parameters supplement a review of the merger’s effects on competition.

The DOJ assists the banking regulators on matters of competition. The law mandates that, before the banking regulators act on any merger transaction, the agency responsible for the review shall request a competitive factors report from the DOJ.

Historically, the competitive factors report narrowly focused on local deposit concentration levels as a proxy for competition. Previous American Action Forum analysis described how this process likely underestimated the competitive environment in the banking industry.

More recently, the DOJ abandoned the 1995 Bank Merger Guidelines to adopt the framework outlined in the 2023 Merger Guidelines, which are not tailored to one specific industry. The DOJ explained that the 1995 Bank Merger Guidelines “contain modes of analysis that do not accurately reflect how the Antitrust Division currently reviews bank mergers.” The agency added that it would “rely[] on the 2023 Merger Guidelines and its comprehensive and flexible framework to assess antitrust and competition considerations in connection with bank mergers.”

The parameters outlined in the 2023 Merger Guidelines, however, established a presumption of illegality for mergers based on market concentration alone. Specifically, a merger that results in a certain level of concentration would be deemed unlawful. This structural presumption encourages the antitrust enforcers at the DOJ to narrowly define a market, which can often exaggerate the market power of the merging parties.

New Competitive Considerations

The Bank Competition Modernization Act would update merger review standards involving financial institutions by amending the Federal Deposit Insurance Act (12 U.S.C. 1828(c)), the Bank Holding Company Act of 1956 (12 U.S.C. 1842(c)), and the Home Owners’ Loan Act.

The bill would require the banking regulators and the DOJ to consider additional factors in its evaluation of mergers and acquisitions, including the banking products and services – among them loans and deposits – of depository institutions, depository institution holding companies, industrial loan companies and industrial banks, entities charted and operating under the Farm Credit Act of 1971, nonbank financial companies, and insured credit union and noninsured credit unions.

Such amendments reflect the changing dynamics of the financial industry. In essence, the bill would broaden the definition of competitors the agencies must consider.

Non-traditional banks, including nonbank financial institutions, offer many of the same services as traditional banks and have gained market share over the past decade. A nonbank financial institution is any financial institution that is not a central bank, a licensed bank, or public financial institution.

In a 2023 speech, former FDIC Chairman Martin J. Gruenberg described the increased role of nonbank financial institutions in providing financial services. He explained that “nonbank companies now manage over 55 percent of U.S. mortgages compared to just 11 percent in 2011.” He added that “nonbank mortgage originations have increased by 27 percent since 2017 and now account of approximately two-thirds of all mortgage originations.” Moreover, Gruenberg explained how nonbanks, such as private credit funds, have increased lending activity directly to nonfinancial businesses from $600 billion to $1.2 trillion globally over a five-year period ending in 2021.

Alternative payment methods such as person-to-person transfers, digital wallets, and buy-now-pay-later services compete directly with traditional bank payment services. Firms such as Venmo, PayPal, Affirm, and Klarna all offer consumers an alternative to bank debit and credit card payments. Data from the Federal Reserve found that mobile wallet payments reached 14.4 billion transactions in 2022, up from 2.9 billion in 2018. A survey conducted by EY found that more than 85 percent of merchants are planning to accept these alternative payments in the next one to three years.

Requiring the banking regulators and the DOJ to consider a broader set of competitors would likely ensure merger reviews better reflect the competitive realities of the financial industry.

Safe Harbor

In addition to the added competitive considerations, the Bank Competition Modernization Act would provide a safe harbor from the DOJ’s competition analysis for entities resulting from a merger or acquisition with less than $10 billion in assets. The bill states that such entities would not:

(A) result in a monopoly, or be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States; and

(B) have the effect in any section of the country of substantially to lessening [sic] competition, tending to create a monopoly, or in any other manner restraining trade.

To put the asset threshold in perspective, there were 2,156 insured U.S.-charted commercial banks with at least $300 million in consolidated assets as of June 30, 2025. Only 130 of them exceeded the asset threshold of $10 billion, with the largest bank – JP Morgan Chase – having $3.8 trillion.

A bank merger under the threshold would be deemed not to violate antitrust law and no longer require the banking regulators to request a competitive factors report from the DOJ. Moreover, because the DOJ’s purview with respect to bank mergers is limited to matters of competition, the bill would effectively shield these mergers from a DOJ legal challenge. To be clear, merging banks below the asset threshold are not guaranteed approval by the financial regulators; the merging parties are still subject to the other host of factors previously discussed.

Generally, safe harbor provisions – or outright exemptions – often fail to replace the precision of case-by-case antitrust enforcement. These safe harbors are typically written to reflect the current market environment. Yet the Bank Competition Modernization Act would direct regulators to consider evolving market conditions by including a wider range of competitors that would not have been considered just a decade ago in a merger review involving financial institutions. It is contradictory for regulators to both acknowledge the rapidly changing marketplace and implement a safe harbor that necessarily relies upon a model of a market that is no longer evolving. Moreover, while the dollar threshold would be adjusted for growth in nominal gross domestic product, it is uncertain whether that measure adequately represents changes in the role traditional banks and other financial firms play in the economy.

The safe harbor provision in the bill would undoubtedly lessen the regulatory burden on smaller firms while increasing merger review efficiency for certain transactions. Yet it would also establish two sets of rules based on an arbitrary size threshold that would distort incentives. This delineation could incentivize banks to pursue less-efficient mergers simply to stay below the threshold or disincentive pro-competitive mergers that would exceed the cap in order to avoid added regulatory scrutiny.

Antitrust enforcement is designed to look at the competitive effects of each transaction and judge them on the merits. Limiting this review with a regulatory safe harbor could lead to inefficient outcomes that result in higher prices and fewer choices for consumers.

Conclusion

The Bank Competition Modernization Act would update bank merger review laws to better reflect the competitive environment of the financial industry. The new provisions promise to reduce the regulatory burden on smaller firms while increasing merger review efficiency for certain transactions.

Yet the bill’s safe harbor provision would establish two sets of rules that could distort market incentives and lead to inefficient outcomes, resulting in higher prices and fewer choices for consumers.