February 4, 2009 / 6:34 PM / 11 years ago

Bank mergers could hurt competition: Senator

WASHINGTON (Reuters) - The use of federal funds for bank mergers rather than lending to get the U.S. economy moving could lead to acquisitions that threaten competitiveness in financial services, a top senator warned on Wednesday.

“It is my view that both the antitrust regulators and those involved in the banking aid process should be cognizant of the impact on competition of mergers and acquisitions in the financial services industry, particularly those financed by TARP funds,” wrote Sen. Herbert Kohl, chair of the Judiciary Committee’s antitrust subcommittee, referring to the Troubled Asset Relief Program, which has funneled billions of dollars to banks.

“Serious concerns have arisen as to whether these transactions are receiving any meaningful scrutiny through the merger review process at the Justice Department,” wrote Kohl, a Wisconsin Democrat.

He urged the new heads of the Treasury and Justice Departments, Timothy Geithner and Eric Holder, respectively, not to brush aside antitrust concerns.

“We cannot countenance a situation in which the banking bailout leads to a highly concentrated industry with millions of consumers — already suffering as a result of the recession — paying higher banking and credit card fees, higher loan rates, or lower interest rates on savings due to excessive consolidation,” wrote Kohl.

Banking experts have worried that the focus on getting large amounts of money to giant banks such as Citigroup Inc (C.N), JPMorgan Chase and Co (JPM.N) and Wells Fargo & Co (WFC.N), which each got at least $25 billion, will inevitably make the most powerful banks even more powerful.

Banks make money by lending money. Cheap money from the government lent out at a profit translates to bigger profits.

“At the margin, as time goes by, the faster-growing banks tend to acquire the slower-growing banks,” Wayne Abernathy of the American Bankers Association, told Reuters last month.

Thomas Barnett, until recently the head of the Justice Department’s antitrust division, said his division looked seriously at the transactions.

“The U.S. banking industry has been relatively unconcentrated historically,” said Barnett, now at law firm Covington and Burling LLP.

Reporting by Diane Bartz; Editing by Andre Grenon

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