#Capital One

25 09, 2024

FedFin on: DOJ Bank-Merger Policy

2024-09-25T15:37:45-04:00September 25th, 2024|The Vault|

In conjunction with final merger-policy statements from the FDIC and OCC, the Department of Justice (DOJ) released “commentary” expanding on how the 2023 guidelines it issued along with the Federal Trade Commission expressly apply to bank mergers.  The DOJ’s commentary and that from the other banking agencies revise merger policy last set in 1995.  However, the Fed has yet to do so or even clarify how all of these actions affect its approach beyond a statement earlier this year that the FRB was working with other agencies and a more recent answer from Vice Chair Barr that he is content with Fed policy as it stands…

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26 02, 2024

Karen Petrou: The Unintended Consequences of Blocking the Credit-Card Merger

2024-04-12T09:46:02-04:00February 26th, 2024|The Vault|

There is no doubt that the banking agencies have approved all too many dubious merger applications along with charter conversions of convenience.  However, the debate roiling over the Capital One/Discover merger harkens to an earlier age of thousands more prosperous small banks all operating strictly within a perimeter guarded by top-notch consumer, community, and prudential regulators.  Whether this ever existed is at best uncertain.  What is for sure is that all this nostalgia for a halcyon past will hasten a future dominated by GSIBs and systemic-scale nonbanks still operating outside flimsy regulatory guardrails.

The best way to demonstrate this awkward certainty is to run a counter-factual – that is, think about what the world would look like if opponents of the Capital One/Discover deal get their way.  Would we quickly see a return to card competition housed firmly within a tightly-regulated system?  Would the payment system be loosed from Visa and Mastercard’s grip?  Would merchants see the dawn of a new era of itsy-bitsy interchange fees?  Would card rates plummet and rewards stay splendiferous?  I very much doubt it.  Space here does not permit a detailed assessment of the analytics underlying my conclusions, so let’s go straight to each of them.  

First, banning the CapOne/Discover deal would not ensure robust card competition under strict bank regulation.  JPMorgan’s and American Express’ formidable stakes could grow because credit-card lending is a business dependent on economies of scale and scope vital to capital-efficiency through the secondary market.  However, large banks will

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