Mullins Says Merger Route Has Few Antitrust Obstacles

The new wave of bank mergers presents the Federal Reserve Board with a special challenge: how to foster consolidation without undermining competition.

David W. Mullins Jr., the new vice chairman of the central bank, says the Fed's answer is to adopt a more flexible measure of market concentration to replace its strict pass-or-fail calculation.

The Fed will then be able to identify potential antitrust problems and fix them, instead of rejecting applications outright, he explained in an interview.

Move to Include Nonbanks in the Antitrust Analysis

When analyzing the impact of a proposed merger, the Fed will take nonbank competitors into consideration. By adding nonbanks to the picture, many banks may find it easier to tie the knot.

"It looks like there is room for a lot of consolidation without running up against antitrust constraints," Mr. Mullins said.

His statements on Fed policy are timely, given the merger announcement Monday of BankAmerica Corp. and Security Pacific Corp. Mr. Mullins' comments seemed to suggest that, as far as the Fed is concerned, it's full speed ahead for big mergers, which have been encouraged by the Bush administration.

Along with nonbank competition, the Fed will give new weight to a bank's product lines when it considers merger applications. "It's going to be awfully hard to raise antitrust concerns over mortgage lending and credit cards," areas where competition is brisk, Mr. Mullins said.

But other activities - like small-business lending and some narrow specialties like American depositary receipts - may raise concerns.

Mr. Mullins is a natural base of support for the Bush administration's banking agenda.

The former Harvard Business School professor cut his teeth on banking policy issues at the Treasury Department, where he was assistant secretary for domestic finance from 1989 to 1990. There, he helped frame the administration's banking policy goals, and he did some of the early work on the banking reform bill winding its way through Congress.

Mr. Mullins' major achievement during his brief tenure at the Treasury was work on the thrift-bailout law. That earned him an appointment to the Fed in May 1990. The Senate approved Mr. Mullins' elevation to vice chairman last month, underscoring his growing influence.

When Mr. Mullins came to the Fed, some observers suggested he might be a Treasury mole. But he has become one of the Fed's tight-money advocates, resisting Treasury Secretary Nicholas Brady's calls for aggressive cuts in interest rates.

For his part, Mr. Mullins laughs at the idea that he was sent to the Fed on a mission for the Treasury Department. "When that line of questioning came up, someone inside Treasury said, |Well, we couldn't control him here. What makes you think we'll be able to control him over there?'" Mr. Mullins recounted.

Is He Too Much of a |Rocket Scientist'?

Mr. Mullins' reputation as a Harvard "rocket scientist" worries some Fed watchers. "The new members to the board often come in with some newfangled ways of interpreting monetary policy," said Jerry Jordan, chief economist at First Interstate Bancorp, Los Angeles. "After a while, they settle down."

While he continues to play a leading role in banking policy, Mr. Mullins says he is content to leave the "heavy lifting" to his colleague, Governor John LaWare, a former banker. After living with the S&L crisis every day for more than 18 months, "It's nice to be a little distant to that whole area," he said.

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