A Time to Return to Competition Goals in Banking Policy and Antitrust Enforcement: A Memorandum to the Antitrust Division

• DOI: 10.1177/0003603X9604100214
• Author: Peter C. Carstensen
• Date: 01 June 1996
• Published date: 01 June 1996
• Subject Matter: Article

The Antitrust Bulletin/Summer 1996

Atime to return to competition

goals in banking policy and

antitrust enforcement:

amemorandum to the

Antitrust Division

BY PETER C. CARSTENSEN*

I.

Introduction

489

The

bank

regulators and antitrust

enforcement

authorities are

making very important, long-term decisions about the structure

of

American finance. Their failure to enforce astrict standard

of

competition is imposing on financial institutions and, in conse-

quence, our entire economy, a far worse and costly ultimate fate:

an inefficient, undynamic, noncompetitive financial system that

will ultimately have to be governed by a massive system of direct

governmental regulation.'

*Arthur-Bascom Professor of Law, University of Wisconsin Law

School.

If

rural stories would help iIlustrate the point, one might consider

the Wisconsin dairy farmer who came from the Midway in Chicago (legal

geographers will recognize that as the address of a certain university)

©1996 by Federal Legal Publications. Inc.

490

The antitrust bulletin

In the 1960s, competition policy contributed to large-scale

change in the character

of

American banking and finance. Forced

to compete, banks innovated, created joint ventures or otherwise

found innovative ways to serve customer needs. This was accom-

plished in efficient ways at reasonable and even declining real

prices. Local market concentration stopped increasing and aggre-

gate concentration measured on a national level declined in the

period 1960-1980.2As banking structures deconcentrated, compe-

tition and the benefits

of

competition increased. With the arrival

of

the Reagan administration in 1980, there was a reversal of pol-

icy. Bank mergers were not contested, concentration ceased to

decline, and competition atrophied. Even when a merger had an

objectionable competitive effect, the new promerger policy looked

for marginal divestitures

of

offices in the most affected local mar-

kets as the solution to the competitive problems. This encouraged

the cannibalization of large banks.

In the 1960s and 1970s the combination of Chemical (itself a

combination

of

Chemical

and

Manufacturers-Hanover)

with

Chase, First Boston with BayBanks, or NationsBank with Bank

who

applied

the survival theory of

economics

to her

pastures.

See,

Stigler, The Economics

of

Scale, 1J. L. &

ECON.

54 (Oct. 1958). As a

result the pastures had no grass but instead were full of Canadian thistles,

which will dominate such fields if not controlled. Cows will not eat this-

tles and so her dairy failed. The suggestion is that no rational farmer

allows the plants that can dominate a field to do so unless it serves the

farmer's efficient economic interest. After all, a farm field is itself a con-

struct of human activity and so there is nothing inherently preferable in

an organism that can take strategic advantage to dominate such an artifi-

cial creation. Cf., Krattenmaker &Salop, Anticompetitive Exclusion:

Raising Rivals Costs to Achieve Power Over Price, 96

YALE

L.J. 209

(1986). Asecond illustrative story concerns the genetic

engineering

experiment with lemmings at Wisconsin that lead to the 500-pound lem-

ming that was almost, but not quite, as efficient, at least in theory, as its

weight in natural lemmings.

Of

course, the entire project died, literally,

when all three of them leaped out of the barn before any of their herders,

called regulators for some reason lost in rural Wisconsin humor, figured

out

what was happening. Needless to say, the clean-up problems that

resulted still burden the agricultural system.

Shull, The Origins

of

Antitrust in Banking: An Historical Perspec-

tive, in this issue of The Antitrust Bulletin.