By James Langton

(February 7 – 18:00 ET) – The Department of Finance has released the framework for the merger review process in conjunction with financial services reform legislation tabled today.

The formal review process applies to mergers among banks and bank holding companies with equity in excess of $5 billion. Industry observers are divided on whether having a formal process will ease mergers or not.

In general, it’s believed that the process won’t actually make mergers easier, but it should clarify for the banks what they have to do to sell the deal. At least one merger is expected, with Bank of Montreal tipped as the logical target among the big players

There are three distinct phases to the Merger Review Process: examination, decision, and, if required, a remedies stage. The government will seek to complete the decision stage of its review of major transactions within a maximum of five months after receiving a complete application and adequate supporting documentation from the parties.

The banks will be required to apply to the Competition Bureau, the Office of the Superintendent of Financial Institutions and the Minister of Finance in writing for permission to merge and must provide information necessary to assess the merger request.

Applicants will be required to prepare a Public Interest Impact Assessment. The Competition Bureau and OSFI will conduct reviews of the proposal from the competition and prudential perspectives.

The House of Commons Standing Committee on Finance and the Standing Senate Committee on Banking, Trade and Commerce will be asked to conduct public hearings into the broad public interest issues that are raised by the merger proposal, using the PIIA as a key input.

Once those bodies have completed their analyses of the proposed merger, the Commissioner of Competition and the Superintendent of Financial Institutions will provide to the applicants and to the Minister of Finance a letter with views on the competitive and prudential aspects of the proposed merger.

The minister will release the documents and they will be available for scrutiny by the Finance Committee and Senate Committee. Upon completion of its hearings, the Finance Committee and Senate Committee will each report to the minister on the broad public interest issues that are raised by the proposed merger.

Using the reports of the Competition Bureau, OSFI, the Finance Committee and the Senate Committee, the minister will decide based on, “whether the public interest, prudential and competition concerns that are raised by the transaction are capable of being addressed. If not, the transaction will be denied and the process will stop at this stage. If these concerns are capable of being addressed, the Merger Review Process will enter the negotiation of remedies stage.”

The Competition Bureau will negotiate the competition remedies and OSFI the prudential remedies with the merger applicants.