If the Federal Reserve Board permits the merger of two Minneapolis banking companies, it will be setting a dangerous precedent under antitrust law that could have grave implications for community banks and for the country.
First Bank System Inc. wants to acquire Bank Shares Inc., parent of the Marquette Banks in Minneapolis and Rochester, Minn., for some $263 million. First Bank, with 42 branches and $11.6 billion in assets in the area, is already several points in excess of the market-concentration limit that supposedly guides Federal Reserve policy on mergers.
The measure of market concentration applied under Justice Department antitrust guidelines is the Herfindahl-Hirschman index, which is based on deposit shares. It is not only an important measure of concentration in banking markets, it is the only viable indicator.
What it shows is undeniable: First Bank should not be allowed to add the $2.5 billion-asset Bank Shares to its empire. To allow it would be to abandon the critical market-domination standard, and render it useless in the future.
It would be only the latest failure to exercise appropriate control over the continued expansionary moves of banks that already have highly concentrated, or dominant, market shares.
Frequently, the excuse for allowing a deal is "the need to save a weak bank from failing" or that the acquired bank "will not add to concentration in the acquiring bank's trade area."
But what is really at work in the relaxation of competition standards is an extension of large banks' exclusive "regal privileges."
First Bank System and its competitor Norwest Corp. absolutely dominate the Minneapolis-St. Paul market. It is an understatement to say this is not in the public interest.
In Minneapolis and Rochester, small businesses will find a serious void in banking service and credit availability. Those not able to find a compatible bank will have few financial options for weathering changes in economic cycles and making long-term plans.
String of Broken Promises
It is a rare year when the large regional banks fail to announce another new campaign to finance small businesses. They never mention when their previous pledges go unmet, nor do the news media report on what happens after these announcements.
From time to time, a giant bank might decide for its own purposes that a small business is defined as one with annual sales of $1 million to $5 million. That figure will be adjusted as the lender's interests change.
But it is well established that most jobs are created by small businesses. And small businesses get their financing from small or medium-sized banks. These institutions are not, however, getting the recognition they deserve.
In the early 1980s, many small, state-chartered banks that did not belong to the Federal Reserve System were sweet-talked into coming under the Fed's regulatory umbrella on the understanding that they would get fair treatment.
But patience is growing thin. The antitrust policy - or lack of it - may be the final proof that the "contract" has been broken.