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Reviving Bank Antitrust

 |  April 1, 2022

By: Jeremy C. Kress (CLS Blue Sky Blog)

Antitrust is back. The Chicago School relegated antitrust policy to obscurity during the latter half of the 20th century, but a new cohort of antimonopoly scholars has recently rekindled concerns about industrial consolidation and corporate “bigness.” This antitrust revival has spurred an unlikely coalition of ideologically diverse policymakers to pursue aggressive merger enforcement and de-concentration strategies in technology, pharmaceuticals, transportation, and healthcare. Harnessing this momentum, President Joe Biden issued an executive order shortly after his inauguration, directing his administration to “combat the excessive concentration of industry” and “promote competition” throughout the economy.

To date, however, the new antitrust movement has largely overlooked a key cause of industrial concentration: the dramatic and sustained consolidation of the U.S. banking sector. More than 30,000 banks operated in the United States during the 1920s. Today, fewer than 5,000 remain. U.S. financial conglomerates are now bigger than ever, with the six largest bank holding companies (BHCs) controlling more assets than all other BHCs combined. Widespread bank consolidation, in turn, has fueled conglomeration throughout the U.S. economy. Empirical studies consistently demonstrate that more concentrated banking markets favor incumbent firms and deter new entrants, as bigger banks lend to larger, more established businesses. As the United States Supreme Court put it in 1963, “[C]oncentration in banking accelerates concentration generally.” To enhance competition in the U.S. economy, therefore, policymakers must prevent harmful consolidation in the banking sector.

My new article, “Reviving Bank Antitrust,” contends that scholars and policymakers have traditionally neglected bank antitrust law and thereby encouraged excessive concentration in the banking sector and the broader economy. I aim to correct this error by properly situating antitrust law within the broader U.S. bank regulatory framework. I argue that policymakers’ current approach to bank antitrust law fails to adequately address numerous societal harms from bank consolidation, and a new enforcement paradigm is therefore necessary to better protect consumers, businesses, and the wider financial system from anticompetitive banking practices.

Debates over bank competition have pervaded economic policymaking since the founding of the republic. Early battles pitted Alexander Hamilton’s vision for a single national bank against Thomas Jefferson’s preference for smaller, decentralized banks rooted in local communities. Later conflicts over the Second Bank of the United States, the establishment of the dual banking system, and the creation of the Federal Reserve System echoed themes from these debates, as policymakers weighed trade-offs between centralization and competition in the financial sector…