Silicon Valley Bank Shutdown: Antitrust Considerations

While complex questions remain about what impact the Silicon Valley Bank (SVB) crisis will have on the financial services and emerging business sectors, it is important to be mindful of antitrust considerations when mitigating risk. As seen in prior financial crises, antitrust observers will closely scrutinize conduct in response to the crisis to assess whether any industry efforts to stabilize SVB or other banks and avoid further contagion have, in turn, harmed competition under federal and/or state antitrust law. We identify the antitrust considerations relevant to industry collaborations in response to the SVB crisis and discuss how firms may mitigate antitrust risk.

Competitor Communications and Collaboration

Facing financial loss or the risk of contagion, market participants may need to communicate and/or collaborate with competitors in examining options for ensuring that the SVB crisis does not destabilize markets.[1] Such conduct—even when firms are in financial distress or collaborating to maintain the integrity and liquidity of potentially affected markets—can give rise to antitrust risks that such efforts could be challenged as collusive and illegal.

In the aftermath of the 2008 financial crisis, for example, antitrust enforcement agencies and the plaintiffs’ bar pursued cartel claims asserting that competing firms unlawfully colluded to manipulate financial benchmarks to protect their respective reputations and maximize their profits in transactions impacted by increased volatility and declining liquidity in affected markets. These investigations and litigations resulted in billions of dollars in fines, penalties, and settlements.

Steps to Take

To protect against and reduce such antitrust risks, we recommend that firms anticipate that their employees may seek to discuss and potentially coordinate with competitors on industry responses to the crisis and proactively consider the following compliance measures:

• Confirm that existing compliance programs include training and antitrust guidelines on collaborations and information exchanges with competitors.
• Remind employees that while there may be circumstances under which information exchanges and industry collaborations are reasonably necessary to address the crisis, any such activities must (1) have a procompetitive purpose, and (2) be reasonably tailored and limited to serve such purposes.
• When reviewing portfolio risk or other exposure to the crisis, identify those categories of employees charged with managing those risks and confirm their understanding of antitrust compliance policies and practices that apply to interactions with competitors.
• Create contemporaneous documentation of the business justifications for any proposed competitor collaborations or information exchanges.
• Set up and document competition guardrails to guide any collaborations, including the exchange of information.[2]
• Consider whether any collaboration is cross-border and make sure to take account of different approaches across international jurisdictions.
• Consult with outside legal counsel, particularly with respect to collaborative activity or information exchanges that could potentially impact prices or liquidity in affected markets, to ensure risk is managed and any privileged communications are protected.

Industry Consolidation

During the 2008 financial crisis, the US Department of the Treasury encouraged consolidation in the banking sector to avoid bank failures. To the extent banking regulators take a similar tack now or firms make the strategic decision to consolidate, and those deals are reportable to the antitrust agencies,[3] it is likely that they will be investigated by the Federal Trade Commission (FTC) or the US Department of Justice Antitrust Division (DOJ).

Under the Biden administration, the antitrust agencies have been aggressive in investigating and challenging mergers and other business combinations; it is unlikely that an economic crisis would change the agencies’ skepticism about consolidation.[4]

Steps to Take

Market participants should be mindful of antitrust risk when considering a transaction and creating related documents—particularly those addressing their rationale for a deal (i.e., Hart-Scott-Rodino Act (HSR Act) Items 4(c)/(d))—to avoid a protracted investigation and a potential agency challenge.

Firms should consider the following actions:

• Consult with antitrust counsel about the deal early on and avoid creating documents about the transaction until counsel is consulted.
• Write clearly and without hyperbole and document the procompetitive justifications for any combination (efficiency, growth, reduction of transaction costs, etc.).
• Ensure that sources of capital and consultants are well informed about antitrust considerations relevant to the transaction. Note that it is often documents prepared by consultants that include the unhelpful language (usually hyperbole) that enforcement agencies rely on as a primary basis to investigate a prospective transaction.