Mergers between banks and commercial firms pose no risk to the financial system, the Shadow Financial Regulatory Committee said Monday.
"The notion that there will be a concentration of economic power, we think, is largely fanciful," said Peter J. Wallison, a partner in the Washington office of the Gibson, Dunn & Crutcher law firm who was speaking on behalf of the committee.
Opponents of legislation to break down the barriers between banks and commercial firms are "exaggerating the risks," Mr. Wallison said.
He attacked the notion that large conglomerates will gobble up the country's financial resources, one argument frequently made by critics of sweeping reform proposals.
"It doesn't add anything to the power of Microsoft" to acquire a bank, he said. "There isn't any increase in the market power" of its software business.
Mr. Wallison also rejected House Banking Committee Chairman Jim Leach's contention that combining banking and commerce would endanger the deposit insurance funds. Restrictions on loans by banks to their affiliates are more than sufficient to protect the funds, he said.
"There are severe punishments that can be imposed on the management of banks that violate those laws," he said.
Finally, he said banks would have little to gain by denying credit to competitors of their commercial affiliates.
"It's impossible to imagine a bank could refuse to make a loan and for that borrower to not have another source of credit immediately available," he said.
Members of the committee also said Congress should not worry that the federal safety net would be extended to banks' commercial affiliates.
Critics of cross-industry mergers argue that deposit insurance, access to the Federal Reserve's discount window, and other components of the safety net create a subsidy to banks that should not be expanded.
Kenneth E. Scott, a Stanford law school professor, said the costs of maintaining a bank charter-such as capital and reserve requirements- outweigh most, if not all, of the safety net's financial benefits.
"We doubt there is a subsidy of significant dimensions," Mr. Scott said.
The 12-member group of academics, lawyers, and bankers met last weekend to debate banking regulation. Attending his first committee meeting was University of Pennsylvania Prof. Neil A. Doherty, who specializes in insurance and risk management.
