On Tuesday, the House Judiciary Committee’s Subcommittee on Courts and Competition Policy held a hearing to address the role of antitrust law in government-funded consolidation in the banking industry. Much of the discussion focused on whether to permit, or how to prevent, bank mergers that may create institutions that are “too big too fail.” Witnesses included:

Mr. Foer noted that current antitrust law cannot prevent large bank mergers and nor can it be used to break up existing conglomerates. He argued that these limitation permit the creation of institutions that are too big too fail. Mr. Foer urged Congress to “consider creating legislation that will give the government an opportunity to stop the formation of new organizations that are too big too fail.” The recommended procedure outlined by Foer would give the Treasury Department, the Federal Reserve and the Justice Department’s Antitrust Division authority to designate a proposed merger as “potentially creating or exacerbating an unreasonable systemic risk,” triggering a 90-day waiting period during which the “effects of a future failure of the merged entity” could be assessed. The President would then make the ultimate decision whether to block the proposed merger. He also urged the creation of a new “Deputy Assistant Attorney General for Emergency Restructuring” in the Department of Justice’s Antitrust Division who would be responsible for assessing the competitive impact of emergency industry restructuring and consolidation.

Mr. Cloutier agreed that current antitrust laws “fail to address the systemic risks posed by excessive financial concentration.” He proposed that Congress should direct an “interagency systemic risk task force to order the break up of systemic risk institutions over a five year period.” He also argued that Congress should give such a systemic risk regulator the power to “block any merger that would result in the creation of a systemic risk institution.”

An opposing view was offered by Ms. Garza, who cautioned that “there is no evidence that the current economic crisis resulted from a failure of antitrust merger enforcement in the banking industry.” She urged Congress to focus more on the actions of large institutions rather than mere size. The primary question should be “whether the merger likely will enable the firm to exercise market power by reducing output and raising the price of loans.”