Capital One Bank by Can Pac Swire is licensed under CC BY-NC 2.0 DEED

Today, RealClearMarkets published an op-ed written by ATR’s director of financial policy, Bryan Bashur. The op-ed talks about the benefits of Capital One’s acquisition of Discover. Click here to read the full op-ed. 

The piece starts by talking about the acquisition’s effect on prime and subprime borrowers:

The vilification of bank mergers and acquisitions is unjustified. Opponents of the deal arbitrarily claim that the concentration of subprime lending will limit credit options and raise fees on borrowers. This is not true. Two professors at The University of Chicago found that “in markets with a greater portion of high-risk borrowers, increased competition can actually increase prices.” The paper goes on to state that “antitrust regulators may want to allow some amount of concentration in these markets.” The argument that concentration among lenders is bad for riskier borrowers is utterly false.   

For prime borrowers, the enhanced competition resulting from this acquisition will lower prices. The same paper found that for less risky borrowers “more competition leads to lower prices.” The enhanced competition among payment card networks, especially in terms of purchasing volume in the credit card market, will markedly elevate Discover’s market share. 

The article also talks about how the Office of the Comptroller of the Currency (OCC) is arbitrarily changing bank merger rules under political pressure:

Activists are aligned with the Biden administration’s efforts to undo years of bank merger policy. The OCC is arbitrarily proposing to change its bank merger rules. The proposed rule has been described as “a more ambiguous, multifaceted and complex bank merger evaluation process than what bank regulators historically have followed.” Before succumbing to political pressure, regulators should be wary of exposing themselves to litigation. Past rules have been vacated because an agency “failed adequately to justify departing from its own prior interpretation.” Regulators should also be aware that they may not expand their authority merely because they believe their “preferred approach would be better policy.” Regulators need to keep the consumer welfare standard at the front of their minds and not cave to political pressure. 

The piece goes on to discuss the benefits of bank mergers, such as the effects of economies of scale. Lawmakers have legislation to streamline the bank merger process to avoid political shenanigans: 

Some lawmakers understand the benefits of bank mergers and have proposed legislation that would streamline the bank merger process. Reps. Andy Barr (R-Ky.) and Scott Fitzgerald’s (R-Wis.) bill would require the Fed to approve mergers in a punctual fashion without leaving banks in purgatory. This would cast aside any political pressure from interfering in the decision-making process. After all, as the congressmen point out, the benefits of bank mergers are realized because “economies of scale and scope” both enhances competition and “generates cost savings that can be passed on to consumers through higher interest rates on deposits, lower interest rates on loans, and reduced administrative fees.” Consumers will have the opportunity to reap dividends with Capital One’s acquisition of Discover.  

The piece concludes by stating that “regulators need to stay true to their statutory remit and refuse to genuflect to political activists that aim to block every proposed merger or acquisition, regardless of their own merits.”