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“MERGERS IN THE BANKING INDUSTRY” mentioning the U.S. Dept. of Justice was published in the Senate section on pages S3246 on April 20, 1998.
The publication is reproduced in full below:
MERGERS IN THE BANKING INDUSTRY
Mr. DORGAN. Mr. President, I wanted to mention a couple of subjects on the floor of the Senate today. The first deals with the proposed marriages occurring in the banking industry. In recent weeks, we have seen proposals of marriage by a number of our biggest banks, totaling some $160 billion. Three of the largest merger proposals include Citicorp with Travelers--actually a very large bank with an insurance company, NationsBank and BankAmerica, and Banc One with First Chicago. I didn't even know there was any romancing going on, and then I open the papers and see that all these banks want to gather up and get married and be one.
I think the fundamental question for this country is whether these mega mergers serve our economy and our country's best interests? Is this good for our country? Will this better serve customers, or will it result in bigger profits, perhaps, for the banks that merge and higher fees for their customers?
It is clear to me that the kinds of mergers we are once again seeing in this country mean that when two large corporations become one and an even larger corporation, there is less competition in our economy. When there is less competition and, therefore, more concentration, it seems to me it clearly injures the market system which relies on competition as a regulator and, by definition, is therefore not good for consumers. Without knowing the specific details, I admit, about the individual proposals in these mergers, I hope very much that the regulators, the Federal Reserve Board and the Comptroller of the Currency as well as the Justice Department, will review all of these mergers with a fine-
tooth comb and determine whether this will result in less competition that is harmful to consumers, whether it will result in ever higher banking fees for their customers, whether it will result in something that takes us a step backward rather than a step forward in improving our market system in this country.
As I indicated, I don't know much about the specifics of any of the merger proposals I have just described. It is not my intent to come and describe the deals or to pass judgment upon them. But I will say this: The judgment I have with respect to many of the largest mergers in our country, especially in this industry, is that we are left with less competition if the merger is approved.
With respect to this industry, there is one peculiar and defining characteristic. The Federal Reserve Board determines by policy that there are certain banks in this country that are so-called ``too big to fail.'' That is, they are so large in scope that their failure would cause such an economic calamity for the country that the Fed will not allow them to fail.
The Fed actually has a list of banks: ``These banks are too big to fail.'' All the other banks, the smaller banks, can fail and lose all their money. The deposits are insured so the depositors won't lose money, but the bank owners, the stockholders, can loose their money. The ``too big to fail'' banks cannot fail. They are on the list at the Federal Reserve Board as ``too big to fail.''
I asked the question, if you have a list of ``too big to fail'' banks and the big banks merge into even bigger banks, does it not mean then the American taxpayer will pay the cost of bad merger judgments if the merger goes sour?
My friend James Glassman, who writes op-ed pieces for the Washington Post, a rather interesting guy, I think, and pretty good thinker--I disagree with him on a fair number of issues from time to time--but he wrote a piece last week about this. He said that most of this is pretty good news really. Some call all these mergers the ``elephant mating system''--the best thing to do is stand back at a safe distance and watch.
But Glassman says, well, this is really fine. He says at the end of his long piece, though, after talking about the virtues of these mergers, ``Yes, there are some dangers. The mergers make institutions too big to fail. Knowing that regulators won't close them down in a crisis, bank managers could get reckless.''
That ought not be the last paragraph, I say to my friend Mr. Glassman; that ought to be the first paragraph.
The question of public policy on this issue of bank mergers, it seems to me, ought to be posed now to the Federal Reserve Board and Comptroller of the Currency and to the Justice Department. I asked them, do not any longer just be spectators on the question of mergers--
suit up, be involved, get active and make judgments with respect to the question of what is best for the market system of this country, what is best for the American citizen, not what is best for the newly married two corporations that have become bigger and perhaps whose misjudgments will now be borne by the American taxpayer under a doctrine of ``too big to fail.''
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