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ANGLO AMERICAN COMPETITION ASPECTS OF BANK MERGERS Genci Bilali Degree of Doctor of Philosophy The University of Edinburgh 2017 TABLE OF CONTENTS Declaration i Acknowledgements ii Abstract iii List of Abbreviations v Chapter 1 - Introduction 1 1.0 Bank mergers and competition concerns in Anglo American economies 1 1.1 Thesis’s research scope, issues and arguments; Benefits to society 5 1.2 Thesis structure 7 Chapter 2 - Applicable competition laws in the United Kingdom pertaining to bank mergers 10 2.0 Theoretical issues concerning the nature of the relationship between 10 competition and financial stability; Public interest exemption 2.1 Competition Act 1998 23 2.2 Cruickshank Report 25 2.3 Enterprise Act 2002 26 2.4 Report on banking services for SMEs 28 2.5 Vickers’ Report and the government’s response 30 2.6 HM Treasury blueprint report 35 2.7 Financial Services Act 2012 38 2.8 Financial Services (Banking Reform) Act 2013 39 2.9 Enterprise and Regulatory Reform Act 2013 40 2.10 Banking markets investigation 2014-2016 41 2.11 EU competition legislation on bank mergers 42 2.11.1 Treaties 43 2.11.2 Regulation (EC) No 139/2004 (the EU Merger Regulation) 44 2.11.3 Council Regulation (EC) No 1/2003 (implementation of the rules on competition) 47 2.11.4 Banking retail report 2007 50 2.11.5 The Liikanen report and EU regulation on structural reform of the banking sector 52 2.11.6 European Banking Union 54 2.12 Conclusion 57 Chapter 3 - Competition and banking authorities in the United Kingdom 61 3.0 Relevant regulators that oversee bank mergers 61 3.1 Competition and public authorities 62 3.1.1 Competition and Markets Authority 62 3.1.2 Secretary of State for Business, Innovation and Skills 67 3.1.3 HM Treasury 68 3.2 Banking authorities 70 3.2.1 Bank of England 70 3.2.2 Financial Conduct Authority 72 3.2.3 Payment Systems Regulator 73 3.2.4 Prudential Regulation Authority 74 3.3 The UK government’s framework and approach to the assessment of State aids 76 3.4 European Commission 82 3.5 Conclusion 99 Chapter 4 - Role of United Kingdom’s courts and government in bank merger reviews 104 4.0 Courts and competition authorities - review of bank mergers 104 4.1 UK courts and Competition Appeal Tribunal (‘CAT’) 104 4.2 EU courts 106 4.2.1 General Court 107 4.2.2 European Court of Justice 108 4.3 Bank mergers before the UK courts and government 110 4.3.1 Case laws related to competition aspects in banking and bank mergers before UK courts and tribunals 110 4.3.1(a) The Merger Action Group v Secretary for Business, Enterprises and Regulatory Reform 110 4.3.1(b) Barclays Bank Plc v Competition Commission 116 4.3.1(c) MasterCard UK Members Forum Limited et al v Office of Fair Trading 117 4.3.1(d) Office of Fair Trading v Abbey National 120 4.3.2 Bank merger cases with government approval 124 4.3.2(a) RBS and HSBC 125 4.3.2(b) Lloyds and Abbey 127 4.3.2(c) UK government’s takeover of Northern Rock 129 4.3.2(d) Barclays and Lehman Brothers 129 4.3.2(e) Lloyds and HBOS 130 4.3.2(f) Thomas Cook and Barclays 136 4.4 Bank mergers before EU courts and Commission 137 4.4.1 Bank merger case laws before EU courts 137 4.4.1(a) Raiffeisen Zentralbank Österreich v Commission 137 4.4.1(b) ABN AMRO Group v Commission 138 4.4.1(c) Bayerische Hypo- und Vereinsbank v Commission 139 4.4.1(d) Assicurazioni Generali and UniCredit v Commission 140 4.4.1(e) BNP Paribas and BNL v Commission 141 4.4.2 Bank merger cases before the Commission 142 4.4.2(a) Banque Nationale de Paris and Dresdner Bank AG-Austrian JV 142 4.4.2(b) BNP Paribas and Fortis 143 4.4.2(c) Banco Santander and Bradford & Bingley Assets 145 4.4.2(d) UniCredit S.p.A. and HypoVereinsbank 146 4.5 The role of the UK and EU State aids assessment in banking cases 148 4.6 Conclusion 151 Chapter 5 - Implementation of competition methodologies and policies in bank mergers in United Kingdom 155 5.0 Markets, products, consumer issues and competitive analysis in relation to bank mergers 155 5.1 Markets 157 5.1.1 Horizontal bank mergers 161 5.1.2 Vertical bank mergers 164 5.1.3 Conglomerate bank mergers 167 5.2 Products 168 5.3 Consumer issues 170 5.4 Competitive analysis 177 5.4.1 Ex-ante v ex-post notification control 188 5.4.2 Significant impediment of effective competition (‘SIEC’) test 190 5.4.3 Failing firm (exiting firm) defence 193 5.4.4 Role of the ‘failing firm defence’ in EU merger assessments 194 5.5 Conclusion 198 Chapter 6 - Antitrust provisions over bank mergers in United States 202 6.0 Sherman Antitrust Act 202 6.1 Clayton Antitrust Act 203 6.2 Bank Merger Act 205 6.3 Bank Holding Company Act 206 6.4 Riegle-Neal Interstate Banking and Branching Efficiency Act 208 6.5 Change in Bank Control Act 210 6.6 Dodd-Frank Wall Street Reform and Consumer Protection Act 210 6.6.1 Volcker Rule 211 6.7 Regulation of thrifts’ acquisition 213 6.7.1 Home Owners’ Loan Act 213 6.8 Conclusion 214 Chapter 7-American antitrust and banking authorities: A comparative study 216 7.0 Antitrust federal government authority 216 7.0.1 Department of Justice 216 7.1 Federal banking agencies that oversee bank mergers 218 7.1.1 Federal Reserve 219 7.1.2 Office of the Comptroller of the Currency 220 7.1.3 Federal Deposit Insurance Corporation 222 7.2 State banking authorities 223 7.3 Coordination of efforts between antitrust and banking authorities pertaining to bank merger situations 226 7.4 Conclusion 232 Chapter 8 – Bank merger cases before the American courts and regulators 235 8.0 Role of American courts in shaping bank merger competition policies 235 8.1 United States v Philadelphia National Bank 236 8.2 Other important Supreme Court and federal court case laws related to bank mergers 241 8.2.1 Supreme Court case laws 241 a) United States v First National Bank and Trust Co. of Lexington 241 b) United States v First City Bank of Houston 243 c) United States v Third National Bank in Nashville 244 d) United States v Phillipsburg National Bank & Trust Co. 245 e) United States v Connecticut National Bank 247 8.2.2 Federal district court case laws 249 a) United States v Manufacturers Hanover Trust Co 249 b) United States v Croker-Anglo National Bank 250 c) United States v Provident National Bank 252 d) United States v Chelsea Savings Bank 253 e) United States v Idaho First National Bank 255 f) United States v First National Bancorporation 256 g) United States v First National State Bancorporation 257 h) United States v Central State Bank 257 8.3 Important bank merger transactions cleared by federal banking regulators 259 a) Bankers Trust/Public Loan Co 259 b) American Fletcher Corporation/Southwest S&L 260 c) Chase-Manhattan/Chemical 260 d) Citicorp/Travelers Group 263 e) Wells Fargo/ Wachovia & PNC Financial Services/National City 265 8.4 Conclusion 266 Chapter 9 – Antitrust methodologies and policies applied in bank mergers in the United States 270 9.0 Markets, products, consumer issues and competitive analysis in relation to bank mergers 270 9.1 Markets 271 9.1.1 Geographic market 272 9.1.2 Department of Justice approach to defining geographic markets 273 9.1.3 Federal Reserve’s method in determining geographic markets 277 9.1.4 Specific geographic market 280 9.1.5 Position of the Office of the Comptroller of the Currency in determining geographic markets 281 9.1.6 Federal Deposit Insurance Corporation’s method on geographic markets 283 9.2 Products 284 9.2.1 Banking regulators’ approach to the product market 284 9.2.2 Department of Justice’ approach to product market 287 9.3 Consumer issues 290 9.4 Competitive analysis 295 9.5 Conclusion 309 Chapter 10 – Global financial crisis and competition in banking 312 10.0 Effect and role of global financial crisis in bank merger activities 312 10.1 Responses to the TBTF concern 326 10.2 Whether TBTF status of systemically important financial institutions create special competition concerns 337 10.3 Conclusion 349 Chapter 11 - Differences and recommendation in Anglo-American bank merger competition aspects 353 11.0 Competition concerns surrounding Anglo American bank mergers 353 11.1 Approaches taken by the United Kingdom and United States to address competition issues arising in bank mergers 356 11.2 What needs to be improved, changed, or adopted in Anglo American competition systems towards bank mergers and consolidations? 376 11.3 Conclusion 402 Chapter 12 – Conclusion 405 Appendix 1: Table of Legislation 414 Appendix 2: Table of Administrative Acts 421 Appendix 3: List of Cases 438 Appendix 4: Bibliography 444 DECLARATION I confirm that this thesis has been composed by me, that the work contained in this thesis is my own and has not been submitted for any other degree or professional qualification.