[PEN-L:30337] RE: Re: Re: Re: congress and the banks

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: [PEN-L:30334] Re: Re: Re: congress and the banks

On the consolidation of banks:

It should be mentioned that the trend does not always mean increased monopolization of banking services. One thing is that with the breaking down of barriers to interstate banking in the U.S., a lot of local monopoly power was undermined. Further, the banks have been suffering from competition from other sectors, such as money market mutual funds and (for corporations) the commercial paper market. There is no trend toward monopolization of financial markets, as far as I can tell, so those with sufficient money to start with can do an end-run around the banking system. In fact, they have been, since the role of the banking has been shrinking as a percentage of the total financial sector in the U.S.

The problems with bank consolidation are

(1) that individual banks get more political influence. This is a shift, but it should be remembered that the banking system as a whole already has a lot of influence.

(2) that individual banks are more likely to be seen as "too big to fail" (since the failure of a big bank has a big economic impact) and therefore will be bailed out whenever snags arise. In turn, this encourages them to take undue risks with other people's money, since they know that the taxpayers will provide. (This is the moral hazard problem.)

(3) that banks will be even larger bureaucracies than they already are, being more interested in the well-heeled customers (including the bigger businesess) than in individual "middle class" depositors and borrowers. 

------------------------
Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine

> -----Original Message-----
> From: Michael Perelman [mailto:michael@xxxxxxxxxxxxxxxxx]
> Sent: Wednesday, September 18, 2002 8:15 AM
> To: pen-l@xxxxxxxxxxxxxxxxxxx
> Subject: [PEN-L:30334] Re: Re: Re: congress and the banks
>
>
> You are correct that the consolidation has been going on for some time
> now, but it keeps getting worse, and at some point, quantity
> turns into
> quality.  When that accumulation point occurs is difficult to see in
> advance.
>
> On Wed, Sep 18, 2002 at 07:59:49AM -0500, Bill Lear wrote:
>
> > Hasn't "rapid vertical/horizontal consolodation" and weakening of
> > regulation been going on for quite some time?  Richard Dale covered
> > some of this ground a decade ago in his book *International Banking
> > Deregulation: The Great Banking Experiment*.
> >
> > And we should be careful not to confuse "disaster" with so-called
> > Marxist notions of "crisis".  It could very well be a human disaster
> > for 95% of the population, but the system of privilege we call free
> > enterprise makes very effective use of the state to protect
> itself and
> > the 5% of the population (less?) who own the country (and therefore,
> > to adopt Jay's position, who should be granted the inalienable right
> > to govern it).
> >
> > BTW, sorry if this has been stated already.  I haven't read
> the entire
> > thread due to time constraints.
> >
> >
> > Bill
> >
>
> --
> Michael Perelman
> Economics Department
> California State University
> Chico, CA 95929
>
> Tel. 530-898-5321
> E-Mail michael@xxxxxxxxxxxxxxxxx
>