An Evaluation of Recent Evidence Advanced in Support of the Potential Competition Doctrine

• Author: S. A. Rhoades,A. J. Yeats
• DOI: 10.1177/0003603X7401900304
• Published date: 01 September 1974
• Date: 01 September 1974
• Subject Matter: Article

AN

EVALUAnON

OF

RECENT

EVIDENCE

ADVANCED

IN

SUPPORT

OF

THE

POTENnAL

COMPETITION

DOCTRINE

by

S. A.

RHOADES·

and A. J.

YEATS·

A recent study by Kohn and Carlo purports to develop evi-

dence vindicating the application of the potential competition

concept in bank merger analysis.' Because there is virtually

no previous empirical evidence on the theory of potential com-

petition, the study by Kohn and Carlo has received consider-

able attention. This is disturbing because

that

study perpetu-

ates a serious analytical confusions which has developed in

applications of the potential competition doctrine in bank reg-

ulatory analysis. Because of the increasing importance of the

potential competition doctrine in bank merger analysis,

it

seems essential to allay confusion and clarify the basic issues."

• Staff Economists, Banking Markets Section, Division of Re-

search and Statistics, Board of Governors of the Federal Reserve Sys-

tem, Washington, D.C. The views expressed herein are those of the

authors and do not necessarily reflect those of the Board or its staff.

1Ernest Kohn and Carmen J. Carlo, Potential Competition: Un-

founded Faith or Pragmatic Foresight1 (New York State Banking

Department, March 1970).

• This confusion has been discussed in some detail in another

paper. See, Stephen A. Rhoades,

'~A

Clarification of the Potential

Competition Doctrine in Bank Merger Analysis," Journal of Bank

Research (forthcoming).

For

a discussion of the theoretical develop-

ment of potential competition and the legislative and judicial actions

leading to the increased application of the theory, see Stephen A.

Rhoades, "Potential Competition: Regulatory Whim or Rational

Analysis'" Bankers Magazine (Summer 1973), pp.

28-35.

• The Kohn-Carlo study forms the basis for a major portion of the

amicus curiae brief filed with the Supreme Court by the New York

State Banking Department in the pending Bancorporation-Firgf

National Bank of Greeley merger case. Since this is the first bank

merger or holding company acquisition involving potential competi-

tion to reach the Supreme Court, it seems likely

that

important guide-

lines will be established. There have been several bank merger cases

tried in lower courts where potential competition was an issue. See,

for example, United States v. Crocker-Anglo National Bank, 277 F.

543