Bank Merger Essay Research Paper I — страница 4

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lending is reduced. In this case, large banks are found to devote smaller proportions of their portfolios to small business lending. The next effect is the dynamic effect, which is an increase in small business lending by means of restructuring policies. The last effect, the external effect is often an increase in small business lending by other banks in the local market. In this case local banks may pick up profitable loans dropped by the merging institutions ( Peek 1). A report from the Office of Advocacy of the U.S. Small Business Administration finds that recent bank mergers have had mixed effects on lending to smaller businesses (Peek 1). On the contrary, an analysis of urban banking mergers found that business loans fell substantially when the merged bank became a junior

partner in a new firm. When out-of-state firms bought banks owned by urban firms these loans fell even more drastically (Dymski 93). XI. Effects on Consumers When banks are going to merge they will announce that they are merging, listing all of the positive aspects of the newly consolidated company to the consumer. On September 7, 1999 Fleet and BankBoston received the Fed’s approval on their merger application. The news release of this merger read: “After both the merger of Fleet and BankBoston and the divestiture of operations in connection with that merger are complete, Fleet Boston Corporation will be a $170 billion diversified financial services company and the eight largest bank in the nation, with consumer and commercial platforms serving 20 million customers. The new

company’s lines of business will include commercial and consumer banking, institutional and investment banking, cash management, trade services, export finance, mortgage banking, corporate finance, asset-based lending, commercial real estate lending, equipment leasing, government banking, investment management services, credit cards, discount brokerage services, student loan processing, and full service banking” (Fleet 1). Obviously, none of the negative factors of the merger were stated in the news release, which was put out by BankBoston. There are a number of things that usually result from a merger, that consumers should be aware of: Fees for cashing checks may be increased, new minimum account balances may be required to continue low-or-no-fee services, tellers may be

replaced by may be replaced by machines, accounting errors may occur, automated teller machines may not work properly causing cash deposits to end up in the wrong account, and phone numbers for account services, balance inquiries and other bank-by-phone features will change (Rothman 1). The consumer program director for the U.S. Public Interest Research Group, Edmund Mierzwinski, stated that studies confirmed that bigger banks use “monopoly muscle” to charge customers higher fees. Without competition the merged banks can charge whatever fees they want (Moore 1). With all of the anti-trust laws that have been passed over the years an absence of competition still prevails in the banking sector. XII. Effectiveness of Anti-Trust Laws Due to the increasing numbers in merger

activity, the effectiveness of the anti-trust laws is questioned. Many people believe that these laws have not been effective at all. In ten years, from 1982 to 1992, the Fed approved 205 of the 211 bank merger applications that had the effect of increasing banking market concentration (Dymski XV). Arthur Burns says, ” Although Federal anti-trust legislation has been on the books since 1890, there is very little doubt that we have failed to achieve a competitive system at all closely resembling that which was in the minds of the economists of the last century and which provided background for legislation” (Balassa 51). Edward H. Levi lists three reasons for the ineffectiveness of the anti-trust laws. First, he says that the courts are not truly aware of the monopoly problem.

He says that courts should consider size, not just monopoly position, to be a violation of law. Second, The Department of Justice has not continuously maintained tight enforcement of the laws. He contend that lack of superior knowledge, due to a limited number of monopoly cases, leaves enormous gaps in the law. These gaps are permitted to remain, making it much easier to have an ineffective enforcement policy. Lastly, Edward believes that economics themselves are to blame for ineffectiveness. Monopolies are explained as inevitable, giving the general public the idea that if inevitable why bother to try preventing monopolies (Balassa 57). XIII. Mergers Absorb Banks Along with the high level of merger activity since 1980, there has been a large number of failures. Without a doubt,