Monopoly Man

Monopoly Man

One of the consequences of the global sweeping financial crisis was the failure of some big banks and subsequent absorption by even bigger, healthier banks. In US, three giant “superbanks”now have an unprecedented concentration of market power: Bank of America, JPMorgan Chase and Wells Fargo, each with 11.3%, 11.2% and 10.2% of marketshare. The next in line, Citigroup Inc., has an embarrassing 3.5% of market share.

The three superbanks, plus the poor cousin Citi, are in charge of the market and even get to make press releases together, like when they announced “their support for two recent FDIC regulatory efforts taken to promote the development of a U.S. covered bond market”.

Planned or not, part of the needed funds came from taxpayer money: the Treasury is pouring some $250 billion into healthy financial institutions, and obviously some of this money is getting used by stronger banks to snap up weaker rivals.

With three buddies holding 1/3 of the market, the M-word is whispered in the corners of the banking industry. In fact, existing federal banking laws say that no bank can have more than 10% of the domestic deposit market. But when asked whether the government would take any action, Justice Department spokeswoman Gina Talamona dodged the question:

“It’s always something we’ve looked at and will continue to look at. It’s something we’ve looked at as part of our general antitrust review.”

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Interestingly, a similar event might take place in Germany, but on purpose. There has been speculation about a merger involving three banks: Commerzbank, Postbank and Allianz’s Dresdner Bank have been flagged as would-be partners.

In this case, the small size of these banks make the merge more attractive to compete in the european market. German banks association chief Klaus-Peter Mueller said the country’s banks were too small as they were:

“Even if you put them all together, we would only come around the middle of the European league. Germany’s banks are too small on their own.”