Bank Mergers in a Deregulated Environment
1 February 2001
By Dr. Bernard Shull with George Mason School of Management Professor of Finance Dr. Gerald Hanweck
Deregulation in banking and finance may hold promise for consumers, but what actually seems to be developing is trouble. Large banks are combining into small clusters of mega-banks with national and global reach, supported by government safety nets premised on fears they are "too big to be allowed to fail." One result, among several, is that retail banking suffers.
In this book from Quorum Books, NERA Special Consultant Dr. Bernard Shull and George Mason School of Management Professor of Finance Dr. Gerald Hanweck evaluate existing bank merger policy and offer workable proposals for new legislative actions that would enhance the benefits of bank mergers without exacerbating the weaknesses. The authors review the historical role of governments in protecting banks from competition and the modern policy that promotes competition, then present a model to explain and highlight the problems that today's policies are causing.
Many argue that deregulation and technological change have so intensified competition among banks that bank mega-mergers should cause little concern. Dr. Shull and Dr. Hanweck conclude, however, that a special bank merger policy is still warranted but it needs to be adapted in ways that would rein in the trend toward bigness and soften the impact this has domestically and internationally. The authors provide a history of how governments in the US and elsewhere sought to suppress bank competition and the unique procompetitive policies that developed in the second half of the twentieth century, including the introduction of antitrust standards and deregulation.
Dr. Shull and Dr. Hanweck note that pricing of retail banking services in local markets does not reflect the improvements that deregulation and rapid technological change have led us to expect. They also describe how current bank merger policy, implemented by the Federal Reserve, other Federal banking agencies, and the Justice Department, facilitates the growth of large banks and augments the new structural configuration.
