The recent round of megamergers in banking could produce disappointing returns, Federal Reserve Board Chairman Alan Greenspan told Congress Tuesday.

Huge new banks could lose business if they respond too slowly to competition or if customers become frustrated with poor service, Mr. Greenspan testified.

"There are no clear-cut findings that suggest bank mergers uniformly lead to efficiency gains," he said. "Returns could be muted by large company inefficiencies, and their customers may face bureaucratic inflexibility."

Mr. Greenspan said improved economic performance resulted in only four of nine large bank mergers studied by the Fed.

However, there is no evidence that mergers are damaging the economy, Mr. Greenspan told the Senate Judiciary Committee, which called the hearing to assess the impact of corporate mergers, including bank deals. The Fed chief urged lawmakers against passing new laws to curtail industry consolidation.

"Unless a relationship between bigness and market concentration can be more firmly rooted in anticompetitive behavior, bigness, per se, does not appear to be an issue for national economic policy," he said.

Mr. Greenspan rejected a lawmaker's assertion that the banking industry's consolidation is stifling competition in local markets. "Despite the dramatic shift in concentration nationally, there has been very little change in the average number of competitors locally," he said.

Assistant Attorney General Joel I. Klein called the bank merger wave a "natural market response" to the elimination of interstate banking restrictions in 1994. Worries over diminished competition can be handled by antitrust reviews on a case-by-case basis, he said.

However, committee Chairman Orrin Hatch, R-Utah, would not rule out congressional action. "It is not the job of CEOs or shareholders to determine whether these mergers ultimately serve consumers or society in general," the Oregon Republican said. "This is the job of policymakers. How we strike the proper balance is, in my view, one of the more important economic policy issues of our time."

Sen. Hatch asked Mr. Greenspan whether specific limits should be set on the amount of economic concentration permitted in a particular market. The Fed chairman said the idea was "too rigid and too simplistic."

Other lawmakers also expressed concern over the current pace of mergers. Sen. Edward Kennedy, D-Mass., said too many workers are losing their jobs in mergers, and Sen. Charles Grassley, R-Iowa, said industry consolidation could reduce the availability of financial services in rural areas.

Sen. Dianne Feinstein, D-Calif., said mergers are likely to reduce corporate contributions to communities. "The concern is no longer there," she said. San Francisco, where she was once mayor, is likely to suffer reduced sponsorship of civic activities after BankAmerica Corp. merges with NationsBank Corp., she said.

"I was never turned down by BankAmerica for a charitable contribution, but in today's landscape I don't think that would be the case," Sen. Feinstein said.

Rather than trying to curb mergers, the government should make it easier for new institutions to get started, said Sen. Robert Torricelli, D-N.J. "Regulators can play a positive role by making sure the price of entry is as low as possible," he said.

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