The recent megamerger deals are not likely to reduce competition in banking, Federal Reserve Board Governor Laurence H. Meyer said Tuesday.
Speaking a day after Norwest Corp. and Wells Fargo & Co. announced the industry's fourth big merger deal of 1998, Mr. Meyer said local markets have never been more competitive.
"While the national concentration of banking assets has increased substantially since 1980, measures of local market banking concentration have remained essentially unchanged," Mr. Meyer told a Bank Administration Institute conference.
"The stability of local market concentration in the face of such a large consolidation in the banking industry is remarkable and bodes well for the competitive vitality of local banking markets," he said.
In an interview after his speech, Mr. Meyer declined to discuss the Norwest-Wells Fargo deal. But he told the BAI that the Fed will continue to scrutinize the effects of all mergers.
"As the banking industry consolidates, we need to maintain competitive markets," Mr. Meyer said. "Competition is the best assurance that consumers receive the highest quality products at the lowest prices."
He said the Fed will pay special attention to large-scale mergers that touch many markets, even if the reduction in competition in each individual market is small.
"When a large number of markets are adversely affected, I believe that we should be especially careful to assure ourselves that there are substantial mitigating factors," Mr. Meyer said. A mitigating factor might be the presence of nonbank lenders.
Earlier at the BAI finance and accounting management conference, J. Christopher Flowers, managing director of Goldman, Sachs & Co.-the investment bank of both Wells Fargo and Norwest-predicted the merger boom will continue.
Bank stock prices are rising faster than the cost of buying banks, he said. This makes it cheaper-in terms of stock-to buy a bank today than in 1993, Mr. Flowers said.
"The companies that are paying with stock are actually paying less than five years ago," he said.
Norwest's shareholders will be the big winners in their $34 billion deal with Wells Fargo, the investment banker said. Their bank will increase its earnings at least 7% per share, join the ranks of commercial real estate market players, and become the leader in Internet and supermarket banking.
Bankers can expect more hostile takeover attempts such as Bank of New York Co.'s failed run at Mellon Bank Corp., Mr. Flowers said. But the odds will be against completion. "Everyone forgets that they don't work and then goes out and tries again," he said.
Mr. Meyer also used his speech to urge bankers to support the financial reform bill pending in Congress, which would let holding company subsidiaries underwrite insurance and securities, and make the Fed the umbrella regulator of financial services companies.
"It really is time that we modernized our financial system and got on with the business of serving consumers and maintaining a healthy, stable, and competitive banking system," Mr. Meyer said.
