[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
  `TOO BIG TO FAIL?': THE ROLE OF ANTITRUST LAW IN GOVERNMENT-FUNDED 
                 CONSOLIDATION IN THE BANKING INDUSTRY

=======================================================================

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON COURTS AND
                           COMPETITION POLICY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 17, 2009

                               __________

                           Serial No. 111-33

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
LUIS V. GUTIERREZ, Illinois          JASON CHAFFETZ, Utah
BRAD SHERMAN, California             TOM ROONEY, Florida
TAMMY BALDWIN, Wisconsin             GREGG HARPER, Mississippi
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
[Vacant]

            Perry Apelbaum, Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

             Subcommittee on Courts and Competition Policy

           HENRY C. ``HANK'' JOHNSON, Jr., Georgia, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               JASON CHAFFETZ, Utah
ROBERT WEXLER, Florida               BOB GOODLATTE, Virginia
CHARLES A. GONZALEZ, Texas           F. JAMES SENSENBRENNER, Jr., 
SHEILA JACKSON LEE, Texas            Wisconsin
MELVIN L. WATT, North Carolina       DARRELL ISSA, California
BRAD SHERMAN, California             GREGG HARPER, Mississippi
[Vacant]

                    Christal Sheppard, Chief Counsel

                    Blaine Merritt, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             MARCH 17, 2009

                                                                   Page

                           OPENING STATEMENTS

The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Chairman, Subcommittee 
  on Courts and Competition Policy...............................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts and Competition Policy..................................     2
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Member, Subcommittee on Courts 
  and Competition Policy.........................................     4
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California, and Member, Subcommittee on Courts and 
  Competition Policy.............................................     4

                               WITNESSES

Mr. Albert A. Foer, President, American Antitrust Institute, 
  Washington, DC
  Oral Testimony.................................................     7
  Prepared Statement.............................................     9
Mr. C. R. ``Rusty'' Cloutier, President and Chief Executive 
  Officer, Midsouth Bank, N.A., Lafayette, LA
  Oral Testimony.................................................    19
  Prepared Statement.............................................    21
Mr. William Askew, Senior Policy Advisor, Financial Services 
  Roundtable, Washington, DC
  Oral Testimony.................................................    32
  Prepared Statement.............................................    34
Ms. Deborah A. Garza, former Assistant Attorney General, Division 
  of Antitrust, U.S. Department of Justice, Washington, DC
  Oral Testimony.................................................    47
  Prepared Statement.............................................    49
Mr. Mark Cooper, Director of Research, Consumer Federation of 
  America, Washington, DC
  Oral Testimony.................................................    63
  Prepared Statement.............................................    65

                                APPENDIX

Material Submitted for the Hearing Record........................    85


  `TOO BIG TO FAIL?': THE ROLE OF ANTITRUST LAW IN GOVERNMENT-FUNDED 
                 CONSOLIDATION IN THE BANKING INDUSTRY

                              ----------                              


                        TUESDAY, MARCH 17, 2009

              House of Representatives,    
                 Subcommittee on Courts and
                                 Competition Policy
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:06 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Henry 
C. ``Hank'' Johnson, Jr. (Chairman of the Subcommittee) 
presiding.
    Present: Representatives Johnson, Conyers, Jackson Lee, 
Watt, Sherman, Coble, Chaffetz, and Goodlatte.
    Staff Present: (Majority) Christal Sheppard, Subcommittee 
Chief Counsel; Anant Raut, Counsel; Elisabeth Stein, Counsel; 
Rosalind Jackson, Professional Staff Member; and (Minority) 
Stewart Jeffries, Counsel.
    Mr. Johnson. This hearing of the Subcommittee on Courts and 
Competition Policy will now come to order.
    Without objection, the Chair is authorized to declare a 
recess of the hearing.
    I will now recognize myself for a short statement.
    First of all, good afternoon to everyone. This is a topic 
that many of us want to learn about. The single most important 
issue on the minds of people today is the state of the global 
economy.
    The statistics are grim. We are in the midst of an economic 
downturn that, by some measures, is the deepest since the Great 
Depression: 12.5 million Americans, or 8.1 percent of our 
workforce, are unemployed. The net worth of U.S. households 
declined by nearly $11 trillion in 2008, erasing 18 percent of 
American wealth in a single year. Every week, local businesses 
and big national retailers alike announce losses, layoffs, or 
bankruptcy.
    The origins of our current economic downturn can be traced, 
in part, to the issuance of high-risk mortgage-backed 
securities in the earlier part of the decade. When the housing 
bubble collapsed in late 2007, anyone holding these mortgages, 
or securities derived from these mortgages, got caught in a 
downward spiral. In spring of 2008, the rapid devaluation of 
these mortgage-backed securities shook investor confidence and 
was partially responsible for the credit crisis that began 
gripping our economy.
    Bear Stearns was sold over a weekend to JP Morgan Chase, 
and the Federal Government put Fannie Mae and Freddie Mac into 
receivership. Last September, hopes for a quick recovery were 
dashed when Merrill Lynch had to be sold to Bank of America; 
Lehman Brothers was allowed to--or forced into bankruptcy, if 
you will; and AIG, the now well-known company, asked the 
Federal Government for a $40 billion bridge loan, which has 
since escalated, into about $180 billion or $170 billion.
    Since August of 2008, the Federal Government has invested 
hundreds of billions of dollars into financial institutions, 
either directly into these institutions, which have been deemed 
too big to fail, or through the TARP program, the ``Troubled 
Asset Recovery Program.'' Although, the stated goal of the TARP 
funding is to increase liquidity in the credit markets and to 
stimulate lending; some of the funds were used by recipient 
banks to acquire competing banks that, in some cases, had been 
denied TARP funding.
    It is not my intention, ladies and gentlemen, to suggest 
that either the previous or the current Administration should 
have sat idly by as the economy plummeted. I believe that my 
colleagues on both sides of the aisle can agree that the 
intention of both Administrations was to protect a fragile 
economy from further destabilization.
    Our purpose here, as the Courts and Competition Policy 
Subcommittee, is to determine whether or not this economic 
downturn was worsened by antitrust. In particular, there are 
two interrelated issues I would like for us to consider: one, 
this concept of ``too big to fail.'' Are there such things as 
institutions that are too big to fail? And, if so, should 
antitrust have prevented them from becoming so embedded in the 
economy?
    The second is the use of TARP money in bank consolidation. 
When the Federal Government provides funds to the acquiring 
bank but denies it to the acquired bank, is antitrust law 
adequately suited to evaluate the competitive effects of these 
acquisitions when the government, by the stroke of a pen, can 
radically shift market power? And, by doing so, are we simply 
creating the next generation of institutions that are too big 
to fail?
    At the end of today, I hope that our panel will have 
provided us with guidance as to what we can do and what we 
should do to prevent this type of crisis from reoccurring.
    I now recognize my honorable colleague, Mr. Howard Coble, 
the Ranking Member of this Subcommittee, for his opening 
remarks.
    Mr. Coble. Thank you, Mr. Chairman.
    And it is good to welcome the panel with us this afternoon.
    I thank you, Mr. Chairman, for calling this hearing of the 
Courts and Competition Policy Subcommittee.
    Without a doubt--and you have touched on it, to some 
extent--the current economic crisis has altered the way that we 
view government intervention with business. Many, including me, 
were wary of giving large sums of money to financial 
institutions in the wake of the failure of Lehman Brothers last 
September. I reluctantly voted for the initial disbursement of 
emergency economic stabilization funds because of the outcry 
from many of my constituents, who viewed it as their only means 
to protect their life savings.
    I continue, Mr. Chairman, to be very skeptical of the 
approach we have taken to stabilize and stimulate our economy. 
The current AIG bonus controversy is a prime example. That 
said, today's hearing gives us the opportunity to examine how 
past government intervention, specifically antitrust 
enforcement, may have contributed to the current situation.
    First, this hearing will examine whether mergers created 
some of the institutions that were too big to fail. It will 
also examine whether antitrust law, as it has been 
traditionally understood, could or should have prevented some 
of these institutions from getting to the point that the 
government felt compelled to bail them out.
    Secondly, in the course of providing relief funds under the 
government's TARP program, it appears that the government has 
in at least one instance deliberately supplied money to one 
bank for the purpose of acquiring another. In other cases, 
banks have used the TARP funds to assist in the purchase of 
other banking institutions. This hearing gives us the 
opportunity to explore whether the existing antitrust review 
properly protects taxpayers from ultimately having to save 
other institutions that are, again, too big to fail.
    As a North Carolinian, Mr. Chairman, I am proud that my 
State is home to two very large financial institutions. One of 
those, Bank of America, has received TARP funds and has 
acquired troubled financial institutions, including Merrill 
Lynch and Countrywide Financial. The other, Wachovia, was not 
so fortunate. It was recently acquired by Wells Fargo, as you 
know.
    Whether they were being acquired or doing the acquiring, 
these transactions have had and will continue to have a 
significant impact on the residents in my State and upon other 
States. Not unlike all Members, I have a number of small banks 
and credit unions in my district, Mr. Chairman, as no doubt you 
do. It is my hope that these essential institutions are not 
forgotten in this debate or by policymakers here in D.C.
    Finally, I would like to note that we are facing a 
bipartisan problem here. The Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994, which enabled banks to 
operate across State lines, was passed with strong bipartisan 
support under a Democratic President and by a Democratically 
controlled Congress. The Gramm-Leach-Bliley Act, which allowed 
banks to expand into broader areas of business, including 
insurance and securities, also enjoyed broad bipartisan support 
and was passed by a Republican-controlled Congress.
    Similarly, President Clinton's Antitrust Division presided 
over the merger of Citicorp with The Travelers Group in 1998, 
which created Citigroup, while President Bush's Antitrust 
Division presided over the Wells Fargo-Wachovia deal, among 
others. Undoubtedly, the Obama administration will face similar 
mergers as the financial crisis continues and deepens.
    All of this, Mr. Chairman, is to say that this is neither a 
Democratic nor a Republican problem; it is an American problem. 
And I appreciate your willingness, Mr. Chairman, to have 
invited a balanced panel to discuss these issues.
    And, with that, I yield back the balance of my time and 
look forward to hearing from our witnesses.
    Mr. Johnson. I thank the gentleman for his statement. And, 
without objection, any additions that you want to make to it 
will be included in the record, as well.
    Do any of my other colleagues on this Subcommittee wish to 
make opening statements?
    Mr. Watt. Mr. Chairman, I won't take the full 5 minutes.
    I do think it is interesting that, as a result of serving 
on both the Financial Services Committee and the Judiciary 
Committee, on the same day in two separate Committees of 
jurisdiction we are dealing, in one respect or another, with 
the question of ``too big to fail.''
    I didn't want to be here to hear the testimony, because I 
am not sure that whether an institution is acquired or is 
acquiring another financial institution and that, in and of 
itself, makes it too big to fail is something that ought to be 
an independent criteria for evaluation by the Justice 
Department under the antitrust law. So, while I think this is 
an interesting inquiry and certainly a topical inquiry, I hope 
we don't go too far overboard in that direction, because I 
think that might be an overreaction to what is going on in the 
current economic context.
    That said, I will be very anxious to hear the testimony, 
and it is certainly a matter that, when it involves antitrust 
implications, is a matter of the jurisdiction of this Committee 
and this Subcommittee. And I will be interested in knowing how 
these witnesses tie this all together.
    So, with that, I will yield back. I appreciate the 
gentleman having the hearing. I guess the more I can talk about 
``too big to fail,'' whether in the context of antitrust laws 
or in the context of how you create a systemic regulator to 
supervise it, the better off I am, because the more I 
understand about the issue, the better we are able to legislate 
on it. And I appreciate it and yield back.
    Mr. Johnson. Thank you, Congressman Watt, out of 
California, one of our resident legal scholars on this 
Committee and especially on this Subcommittee.
    I want to welcome also----
    Mr. Watt. I thought you were introducing Mr. Sherman. I am 
from North Carolina.
    Mr. Johnson. I also want to recognize my colleague from 
Utah, Mr. Jason Chaffetz. And he is a brand-new Member.
    We welcome you to the Subcommittee.
    And if there are any other opening statements--I see that 
my colleague, the cerebral Mr. Brad Sherman out of California, 
cannot help himself. He must share his knowledge with us, and 
we definitely appreciate it.
    Mr. Sherman. Thank you, Mr. Chairman.
    ``Too big to fail''--those words are an affront to 
capitalism. Capitalism can only work when entities are allowed 
to fail. But ``too big to fail'' is not only an attack on the 
taxpayers, saying, ``You must bail us out, we have created this 
house of cards, we did it for our own benefit, and you must 
ensure us against risk,'' but it is also an attack on 
competition. Because if an entity claims to be too big to fail, 
what they are really saying is, ``Don't just look at our 
balance sheet to see whether we are credit-worthy, look at the 
balance sheet of the United States Federal Government. That is 
available to you.'' And so these entities are able to borrow at 
reduced interest rates, giving the ``too big to fail'' a chance 
to get bigger at the expense of those who are small enough to 
fail.
    You know, we have faced this in my own community. When you 
have a financial institution that becomes insolvent, the FDIC 
takes them over. The insured depositors have paid for that 
insurance because they get a little lower yield, and the bank 
has to pay into the FDIC fund, and you paid for the insurance, 
and, to the extent you are insured, the Federal Government is 
there to pay on the insurance that you have paid for to the 
Federal Government. But everybody else--the bondholders of that 
local bank, the accounts that are in excess of FDIC insurance--
they don't get any taxpayer money. Why? Well, that bank wasn't 
too big to fail. That is why we have receivership.
    In contrast, you have a dozen or so of the largest 
financial institutions in the country whose general creditors 
are being paid with taxpayer money. And the fact that they are 
being paid is, if anything, proof that if you have to lend 
money, lend it to somebody who is too big to fail. Give them 
the good interest rate, give them the chance to succeed.
    And so, what we ought to have done, what we can still do, 
is to put into receivership those financial institutions that 
are insolvent and deal with them the same way we deal with 
everyone else.
    Now, this will turn them into much stronger financial 
institutions, because the way you clean up a balance sheet is 
not by taking off assets, even, quote, ``toxic assets''; the 
way you clean up a balance sheet is you take off liabilities. 
And that is what happens in receivership. You give a haircut to 
the general creditors.
    These companies are not too big to fail. It is said that 
they are too interconnected to fail. I don't think that is true 
either. They are too well-connected to fail. And so the general 
creditors are coming here, and so far they have been successful 
in getting a Federal bailout.
    What we see here is a casino, a casino created at AIG's 
financial products division, where a lot of people were smart 
but not smart enough. They placed the winning bets. They went 
to the AIG casino and they bet against the mortgages being 
valuable, and they were right on their bet. But there were so 
many of them that they broke the bank. And now these gamblers 
are here in Washington, having us bail out the bank that they 
have broken.
    That is not the right role for the Federal Government, and 
it is not the right competition model for the future, where 
smaller banks and larger banks should all live by the same 
rules. And that is, if you pay for Federal insurance you get it 
up to the terms of that insurance, and otherwise the general 
creditor is a general creditor. And when you are a general 
creditor of an insolvent financial institution, you take a huge 
haircut.
    Mr. Chairman, I thank you for the time.
    Mr. Johnson. Thank you, Congressman. And I will say that it 
was unexpected to hear you mention the term ``haircut'' twice.
    I am now pleased, ladies and gentlemen--and I am glad you 
have such a great sense of humor, Congressman. We are all 
laughing with you, not at you. And I don't want to put myself 
in line for replies either.
    But I am pleased now to introduce the witnesses for today's 
hearing.
    The first is Mr. Bert Foer, president of the American 
Antitrust Institute. Mr. Foer is a recognized antitrust expert 
who served previously as assistant director and acting deputy 
director of the Federal Trade Commission's Bureau of 
Competition.
    Welcome, Mr. Foer.
    Next is Mr. C. R. ``Rusty'' Cloutier.
    I have been struggling with that for a while, Mr. Cloutier.
    And Mr. Cloutier is president of the MidSouth Bank. He is 
also past chairman of the Independent Community Bankers of 
America. And, in 2004, he was honored by the city of: 
Lafayette, Louisiana, he was given the highest award, the Civic 
Cup, for his civic actions.
    So we appreciate you being here also, sir.
    Next is Mr. William Askew, senior policy advisor for the 
Financial Services Roundtable. In addition to his role with the 
Roundtable, Mr. Askew is a senior executive vice president of 
Regions Financial Corporation. Regions Financial Corporation 
made Forbes' Platinum 400 list of America's best big companies. 
As head of the retail banking for Regions from 1987 to 2006, 
Mr. Askew played a leadership role in the acquisition of the 
consortium of banks that created Regions.
    Welcome, Mr. Askew.
    Also on the panel is Ms. Deborah Garza, former Assistant 
Attorney General for the Department of Justice's Antitrust 
Division. Prior to her most recent tenure at the Department, 
Ms. Garza chaired the Antitrust Modernization Commission, which 
is a bipartisan panel created by Congress to evaluate the U.S. 
antitrust laws and policy recommendations and also to make 
policy recommendations to the Congress and to the President.
    And I would like to add that the members of the commission, 
as well as its recommendations, are held in highest regard by 
this Subcommittee. And we thank you and your colleagues for all 
the work that you have put in for the benefit of the citizens 
as well as the commercial interests that are so important for 
this country.
    And last but not least, I would like to recognize Dr. Mark 
Cooper, who is also on our panel. He is the director of 
research at the Consumer Federation of America. And he has 
provided expert testimony in over 250 cases for public interest 
clients, ranging from attorneys general to citizen intervenors, 
before State and Federal agencies, courts, and legislatures in 
the United States as well as Canada.
    And I want to welcome you all to this important hearing.
    And just one housekeeping matter: Any opening statements 
that have not been presented orally may be submitted in 
writing. And there will be 5 business days within which that 
can happen.
    And the same goes for the panelists, also. So your written 
statement will be placed into the record. And we wish to ask 
you that you limit your oral presentation to 5 minutes. You 
will note that we have a lighting system, which is right in 
front of you. It starts with a green light, and then at 4 
minutes it displays a yellow light. And then, thereafter, we 
all know what red means.
    After each witness has presented his or her testimony, 
Subcommittee Members will be permitted to ask questions, 
subject to the 5-minute rule.
    Mr. Foer, please proceed with your testimony.

            TESTIMONY OF ALBERT A. FOER, PRESIDENT, 
          AMERICAN ANTITRUST INSTITUTE, WASHINGTON, DC

    Mr. Foer. Thank you, Mr. Chairman, Members of the 
Committee. And if the Committee wishes to discuss haircuts 
further, I am happy to take you on.
    I am going to pose five questions and try to answer them 
very briefly, perhaps cryptically. My written statement 
contains elaboration.
    First, what do we mean by ``too big to fail''? It is 
important at the outset to observe that the chief issues are 
not large size alone or even inadequate competition. The ``too 
big to fail'' problems relate to, one, creation of large 
organizations that are so deeply embedded in the economy that 
their failure is likely to have ripple effects which, 
cumulatively, are just not acceptable to the polity; combined 
with, two, failure of governmental oversight to require 
relevant disclosure of escalating risks--that is, the 
information that would be necessary if government were to 
determine to inhibit the formation of such organizations or to 
protect against their failure.
    Question two: Was antitrust policy responsible for allowing 
the ``too big to fail'' problem? Well, it is the more broadly 
conceived competition policy that I think has failed. The more 
narrowly defined antitrust enterprise--that is, the Sherman, 
Clayton, and FTC Acts--was not empowered to stop mergers on the 
basis of either the absolute size of the resulting institution 
or a calculation of the systemic consequences of their eventual 
failure. We lack a workable antitrust mechanism for stopping 
large conglomerate mergers that create giant corporations 
without, at the same time, reducing competition in specific 
markets.
    My third question: Can current antitrust law protect us 
from future mergers that will create a ``too big to fail'' 
problem? And my answer, cryptically, is no, not most of the 
time.
    My fourth question: Can current antitrust law be used to 
break up financial services or other organizations that are 
deemed too big to fail? And my cryptic answer again is, no.
    So let me turn to the final question: What should Congress 
do? And I have four suggestions.
    First, Congress should create within the Department of 
Justice Antitrust Division and should appropriately budget a 
new position: Deputy Assistant Attorney General for Emergency 
Restructuring. The purpose is to give competition policy an 
important place at the table as regulatory and legislative 
policies are developed to deal with the recession. I think this 
should be a high priority, as decisions are being made now that 
may have long-term competitive effects. Congress should assure 
that a loud competition voice is heard in a timely and 
respectful way in the councils that are restructuring our 
economy.
    Second, Congress should emphasize that competition policy 
concerns be taken into account during a recession and even 
during emergency consolidation situations. History suggests 
that industries faced with downsizing seek ways to do so 
jointly. The three C's of consumer catastrophe are 
consolidation, cartelization, and constraints on trade. These 
strategies have not worked in the past, and we need to remain 
especially vigilant against them now.
    My third proposal: Congress should consider creating 
legislation that will give the government an opportunity to 
stop the formation of new organizations that are too big to 
fail. In my statement, I develop a procedure for facilitating 
governmental review of mergers that potentially create or 
exacerbate an unreasonable systemic risk. And when such mergers 
are identified, they could not be consummated for a period of 
time, during which a task force of relevant regulators, 
including antitrust officials, could report on both the 
beneficial effects and the risks of the merger. The President 
would be empowered to make a final decision to stop the merger. 
The process could be truncated during an emergency. The 
predictions required by this process will be quite difficult, 
but we should err on the side of not generating new risks of 
substantial catastrophe, even if the probability of occurrence 
is low.
    I see I am about out of time. Let me make one final point, 
please.
    For the longer term, Congress should create a process for 
rethinking where we are and where we want to be after the 
current crisis has settled down. And, in my paper, I propose 
what I call a TNEC-Two, a new version of the Temporary National 
Economic Committee that served during the New Deal. I won't 
have time to go into that right now, but I would be pleased to 
answer your questions.
    [The prepared statement of Mr. Foer follows:]

                  Prepared Statement of Albert A. Foer





















                               __________
    Mr. Johnson. Thank you, sir.
    And before we proceed to Mr. Cloutier, I would like to 
welcome and recognize the presence of our esteemed Chairman of 
the full Committee, the Honorable John Conyers from Michigan.
    And I would also ask you, sir, whether or not you wanted to 
make an opening statement.
    Mr. Conyers. No.
    Mr. Johnson. Okay. So thank you, sir, and we shall proceed 
with the panel.
    Mr. Cloutier?

  TESTIMONY OF C. R. ``RUSTY'' CLOUTIER, PRESIDENT AND CHIEF 
     EXECUTIVE OFFICER, MIDSOUTH BANK, N.A., LAFAYETTE, LA

    Mr. Cloutier. Chairman Johnson, Representative Coble, and 
Members of the Committee, my name is Rusty Cloutier. I am the 
president and CEO of MidSouth Bank Corp., a $936 million bank 
holding company located in Lafayette, Louisiana.
    We operate in all of south Louisiana and most of southeast 
Texas. We are community-oriented and focus primarily on 
offering commercial and consumer loan and deposit services to 
individuals and small businesses, middle-market businesses, et 
cetera.
    I am pleased to represent the Community Bankers of America 
and ICBA's 5,000 members at this important hearing.
    While recent government funding has encouraged 
consolidation in banking, this is nothing new. For decades, 
antitrust laws, banking laws, and banking regulations have all 
contributed to consolidation of the banking and financial 
industry.
    I personally have spent years warning policymakers of the 
systemic risks that were being created in our Nation by 
unbridled growth in the Nation's largest banks and financial 
firms. But I was told I just didn't get it, I didn't understand 
the new global economy, that I was a protectionist and that I 
was afraid of competition, that I needed to get with the modern 
times. Sadly, we know what modern times look like, and it 
hasn't been pretty. Excessive concentration has led to systemic 
risk and the credit crisis we now face.
    Banking and antitrust laws were much too narrow to prevent 
these risks. Antitrust laws are supposed to maintain 
competitive geographic and product markets. If there were 
enough competitors in a particular market, that ends the 
requirement. This often prevented local banks from merging, but 
it does nothing to prevent the creation of the giant, 
nationwide franchises.
    Banking regulation is similar. The agencies ask only if a 
given merger will enhance the safety and soundness of the 
individual firms. They generally answer, ``bigger'' is always 
necessarily a ``stronger'' financial institution. It can, many 
say, spread the risk across geographic areas and business 
lines. No one wonders what would have happened if it and its 
counterparts jumped off a cliff and made billions in unsound 
mortgages. We now know. The economy is in a crisis.
    The four largest banking companies, many of which have been 
bailed out by the United States Government, now control over 40 
percent of the Nation's deposits and more than 50 percent of 
the U.S. bank assets. This is not in the public interest. A 
more diverse financial system would reduce risk and promote 
competition, innovation, and the availability of credit to the 
consumers of various means and business sizes.
    We can prove this. Despite the challenges we face, the 
community bank segment of the financial system is still working 
and working well. We, the community banks, are open for 
business. We are making loans, and we are ready to help all 
Americans weather these difficult times without government 
assistance.
    But I must report that community banks are angry. Almost 
every Monday morning they wake up to the news that the 
government has bailed out yet another ``too big to fail'' 
institution, while on Saturdays they hear that the FDIC has 
summarily closed one or two ``too small to save'' institutions. 
And just recently, the FDIC proposed a huge special premium to 
pay for the losses imposed by large institutions.
    This inequity must end, and only Congress can do it. The 
current situation will damage community banks and the consumers 
and the small businesses that we serve. What can we do? ICBA 
recommends the following measures.
    Congress should direct a fully staffed, interagency task 
force to immediately identify systemic risk institutions. They 
should be put immediately under Federal supervision. The 
Federal systemic risk agency should impose two fees on these 
institutions that, one, would compensate the agencies for the 
cost of their supervision, and capitalize a systemic risk fund, 
comparable to the FDIC, so that the United States taxpayers do 
not have to pick up their losses in the future.
    The FDIC should impose a systemic risk premium on any 
insured bank that is affiliated with a systemic risk firm. The 
systemic risk regulator should impose higher capital charges, 
to provide a cushion against systemic risk.
    The Congress should direct the systemic risk regulator and 
the FDIC to develop procedures to resolve the failure of a 
systemic risk institution. The Congress should direct the 
interagency systemic risk task force to order the breakup of 
systemic risk institutions that cause problems for America.
    Congress should direct the systemic risk regulator to block 
any merger that will result in the creation of a systemic risk 
institution in the future. And finally, it should direct the 
systemic risk regulator to block any financial activity that 
threatens to impose systemic risk.
    The current crisis provides you an opportunity to 
strengthen our Nation's financial system and the economy by 
taking these important steps. They will protect the taxpayers 
and create a vibrant banking system where small and large 
institutions are able to fairly compete. The ICBA urges 
Congress to quickly seize this opportunity.
    And I look forward to answering any questions you may have. 
Thank you.
    [The prepared statement of Mr. Cloutier follows:]

             Prepared Statement of C. R. ``Rusty'' Cloutier























                               __________
    Mr. Johnson. Thank you, Mr. Cloutier.
    We are in the middle of a vote on the floor. We have time 
for at least one more opening statement.
    So, Mr. Askew, would you proceed?

 TESTIMONY OF WILLIAM ASKEW, SENIOR POLICY ADVISOR, FINANCIAL 
              SERVICES ROUNDTABLE, WASHINGTON, DC

    Mr. Askew. Chairman Conyers, Chairman Johnson, Ranking 
Member Coble, and Members of the Committee, I am Bill Askew, 
senior advisor to the Financial Services Roundtable.
    At this hearing, I am representing the Roundtable, but I 
actually wear two hats, as I am also a banker. During the last 
25 years, I worked within the antitrust laws as we acquired and 
merged a number of banks. I know the Antitrust Division of the 
Department of Justice, the Federal Reserve, and antitrust 
mechanisms are working well because I have experienced them 
firsthand.
    Divestitures have been one of the most challenging and 
difficult parts of my job over the last 2 decades. It is not 
just deposits you give up in a divestiture; it is customers, 
associates, brick and mortar, and hard-fought market share, all 
built over many years. But, as difficult as this was, the point 
is, the system works and antitrust laws do the job as they are 
intended to do.
    As part of this process, the laws are straightforward. 
Banks know when they agree to merge that certain market share 
concentrations will probably require divestitures. The Justice 
Department selects the specific branches based upon independent 
review. This is the function of antitrust law, to review 
pending acquisitions and prevent mergers that would 
substantially lessen competition or restrain trade in any 
section of the country.
    Given the number of participants in the market today, we 
assess the financial services sector as highly competitive. As 
of 2007, the financial industry included 5,000 registered 
broker/dealers, 1,250 thrifts, 8,000 credit unions, 7,250 
commercial banks, 1,200 life insurance companies, and 2,700 
property and casualty companies.
    We believe that the current crisis is not a result of 
failure of antitrust laws. Rather, it is a combination of 
several unprecedented and interrelated financial events: large 
amounts of savings investments flowing into the United States 
financial system searching for a higher return; a booming 
housing market with home prices increasing at record levels, 
served by an under-regulated mortgage lending engine; 
innovation in largely unregulated credit derivatives, 
collateralized debt obligations, and credit default swaps; and 
excessive leverage in firms who failed to put the brakes on 
their own borrowing in the midst of cheap money supply.
    A fragmented system of national and State financial 
regulations straddled these market conditions. And, in the end, 
no Federal agency was responsible for examining the totality of 
the risk created in interconnected firms and markets. Decades 
of ad-hoc legislation to regulatory updates, not our antitrust 
laws, has created significant gaps in financial regulation that 
permitted some financial services firms to operate with minimal 
oversight.
    To address these shortcomings, the Roundtable has developed 
a proposed financial regulatory architecture, as illustrated in 
my written testimony. It has six key features.
    First, we propose an expansion of the President's Working 
Group with the Financial Markets Coordinating Council. Second, 
to address systemic risk, we propose that the Federal Reserve 
be authorized to act as a market stability regulator.
    Third, to eliminate gaps in regulation, we propose the 
consolidation of several existing Federal agencies into a 
single national financial institutions regulator. Fourth, to 
focus greater attention on the stability of the financial 
markets, the creation of a national capital markets agency.
    Fifth, we propose the Federal Deposit Insurance Corporation 
be reconstituted as an insurer for bank deposits, retail 
insurance policies written by nationally chartered insurance 
companies, and for investors who have claims against broker/
dealers. Finally, as the market stability regulator interacts 
with regulators, there is an evident need to create a national 
insurance regulator.
    Mr. Chairman, as a result of this crisis, some financial 
firms have been labeled ``too big to fail.'' Their counterparty 
obligations and global reach required that they be treated by 
the Fed and Treasury differently than typical institutions. It 
does not, however, make them examples of market power in the 
truest sense of the antitrust law. The trouble in the financial 
services sector has exposed severe flaws, regulatory and 
otherwise, which I have detailed, but a lack of competition and 
choice for consumers is not one of them.
    We commend you and the other Members of Congress for your 
work to modernize and strengthen financial regulations. This 
work is of the highest priority. And it will, I am confident, 
produce a regulatory regime that will help us and every 
American consumer and the companies with whom they choose to do 
business emerge from this crisis stronger than before.
    Thank you. I look forward to answering your questions.
    [The prepared statement of Mr. Askew follows:]

                  Prepared Statement of William Askew



























                               __________

    Mr. Johnson. Thank you, Mr. Askew.
    And, at this time, it would be best for us to go into a 
recess. We will be back in about maybe 20, 25 minutes. We 
appreciate you all's patience. Thank you.
    [Recess.]
    Mr. Johnson. We will call the hearing back into order and 
give you our appreciation for your time.
    And thank you for your statement, Mr. Askew.
    And now we will turn it over to Ms. Garza.

   TESTIMONY OF DEBORAH A. GARZA, FORMER ASSISTANT ATTORNEY 
  GENERAL, DIVISION OF ANTITRUST, U.S. DEPARTMENT OF JUSTICE, 
                         WASHINGTON, DC

    Ms. Garza. Thank you, Chairman Johnson, Ranking Member 
Coble, and when they get here, if they do, other distinguished 
Members of the House Judiciary Committee Subcommittee on Courts 
and Competition Policy. It is a privilege to be invited to 
speak today about the role of antitrust enforcement in the 
current financial crisis.
    I am not appearing today on behalf of any organization. I 
do not purport to express views of either the Antitrust 
Modernization Commission or the Justice Department. However, my 
written statement does discuss several relevant recommendations 
of the AMC.
    In addition to discussing those recommendations, my written 
testimony makes a few points in response to the Subcommittee's 
specific question about what role antitrust should play in bank 
mergers today, particularly those funded by the Troubled Asset 
Relief Program, or TARP, and whether the antitrust laws should 
be used to block mergers on the basis that the resulting 
financial firms might subsequently be deemed ``too big to 
fail.''
    To briefly summarize, first, antitrust enforcement and 
sound competition policy remain relevant in the current 
financial crisis. Competitively operating financial markets 
drive economic growth and ensure that consumers benefit from 
lower prices, higher quality, innovation, and diversity of 
products. Although we urgently need to strengthen and protect 
the banking system in order to prevent further deterioration of 
the economy, we must also be mindful of the longer-term 
competitive effects of consolidation.
    Second, there is no apparent necessary conflict between 
current antitrust enforcement policy and achieving stability in 
banking markets. The Justice Department's Antitrust Division 
should continue to assess the likely competitive effects of 
mergers, including those funded through TARP or involving banks 
in which the U.S. Government has taken an equity interest.
    Third, there is no evidence that the current economic 
crisis resulted from a failure of antitrust merger enforcement 
in the banking industry or that current merger law needs to be 
changed to address bank mergers.
    Fourth, antitrust enforcement should continue to focus on 
whether markets are functioning competitively rather than 
whether a bank or other financial firm is too big or too 
systematically significant to fail. Those concepts present 
political and regulatory issues that are better handled outside 
the realm of antitrust enforcement.
    The AMC made six recommendations relevant to the 
Subcommittee's questions.
    One, the AMC recommended that there is no need to revise 
the antitrust laws to apply different standards to different 
industries. Current law, including the Horizontal Merger 
Guidelines applied by the Antitrust Division, is sufficiently 
flexible to address specific competitive circumstances in the 
banking or any other industry.
    Secondly, the AMC recommended that there is no need to 
revise section 7 of the Clayton Act or the general framework 
used by the enforcement agencies and courts to assess mergers. 
The AMC found broad-based consensus that merger enforcement 
policy has become increasingly predictable, transparent, and 
analytically sound. This has resulted in a broad consensus in 
support of current enforcement policy, which has become the 
paradigm for enforcement around the world.
    Third, the AMC recommended that the Antitrust Division and 
the Federal Trade Commission should work to increase 
understanding of the basis for and the efficacy of U.S. merger 
enforcement policy. Notwithstanding the general consensus that 
exists in support of current policy, the empirical basis 
supporting assumptions about the effect of concentration, for 
example, is arguably limited. Although some studies in the 
banking industry suggest that there is a relationship between 
concentration and market power, there is substantially less 
consensus about the level at which antitrust should bite.
    Focused study of this issue could improve the enforcement 
authority's ability effectively to enforce the antitrust laws. 
Extrapolating from this recommendation, it may be an 
appropriate time to review the empirical data and existing 
studies.
    Fourth, the AMC recommended that the Antitrust Division and 
the Federal Trade Commission should increase the transparency 
of their decision-making to enhance public understanding of the 
agency's merger enforcement policy. It may be a good time for 
the Antitrust Division to focus such efforts specifically on 
bank mergers.
    Fifth, the AMC recommended that Congress should not 
displace free-market competition without extensive, careful 
analysis and compelling evidence that either competition cannot 
achieve important societal goals that trump consumer welfare or 
a market failure requires the regulation of prices, costs, and 
entry in place of competition. Failing to enforce the antitrust 
laws where they would otherwise be enforced under current 
policy is unlikely to resolve the current economic crisis, but 
it could cause further harm to the economy in the future after 
markets have stabilized.
    Finally, the AMC recommended that even in industries 
subject to economic regulation, such as the banking industry, 
the antitrust agencies should have full merger enforcement 
authority under the Clayton Act. The bank merger review regime 
closely fits the model proposed by the AMC.
    Thank you for your attention, and I look forward to 
answering any questions.
    [The prepared statement of Ms. Garza follows:]

                 Prepared Statement of Deborah A. Garza





























                               __________

    Mr. Johnson. Thank you, Ms. Garza.
    And next, and certainly not least, Dr. Cooper, would you 
grace us with your presentation?

  TESTIMONY OF MARK N. COOPER, DIRECTOR OF RESEARCH, CONSUMER 
             FEDERATION OF AMERICA, WASHINGTON, DC

    Mr. Cooper. Thank you, Mr. Chairman, Members of the 
Committee.
    This hearing is about one of the most important problems 
arising in the inadequately regulated financial sector that has 
plunged this Nation into the worst economic crisis in three-
quarters of a century, the moral hazard of ``too big to fail.'' 
But the technical definition of ``moral hazard'' does not 
convey the full implications of this problem in the current 
financial crisis, so let me put a finer point on it: Capitalism 
without bankruptcy is like Catholicism without hell. It lacks a 
sufficiently strong motivational mechanism to ensure good 
behavior.
    The financial system never should have been allowed to 
become exposed to a plague of banks, shadow banks, and 
financial products that are too big to fail. And, worse still, 
we have discovered that it is not only size that kills in the 
financial sector, but complexity and lack of transparency. 
Complex and opaque products and interconnections among firms 
that spread like a virus through the financial system and are 
nearly impossible to unwind also pose systemic risk.
    The bipartisan theory of market fundamentalism that got us 
into this current mess offered the proposition that all we 
needed to protect us from these problems was the market. But 
Alan Greenspan, the high priest of market fundamentalism, 
recently admitted that there is a flaw in his theory. Quote, 
``Those of us who looked to the self-interest of lending 
institutions to protect shareholders' equity, myself included, 
are in a state of shocked disbelief. I made a mistake in 
presuming that the self-interest of organizations, specifically 
banks and others, were such that they were best capable of 
protecting their own shareholders and their equity in their 
firms.'' If they can't protect the private interest, you can 
imagine the mess they make of the public interest.
    The flaw in market fundamentalism teaches us that 
competition alone is not enough to ensure the proper 
functioning of the financial system. It is clear that the only 
way to prevent the public from being exposed to the moral 
hazard of ``too big or too complicated to fail'' is to regulate 
financial institutions and products in a manner that imposes 
effective discipline on their behavior.
    And regulation must also address the other problems that 
afflict this inadequately regulated financial sector, including 
asymmetric information, agency, conflicts of interest, perverse 
incentives, and unfairness. All of these are well beyond the 
reach of the antitrust laws.
    Effective, prudential regulation should establish the 
framework within which competition works. When the New Deal 
created the institutions of prudential regulation to repair the 
financial sector after the crash that followed the Roaring 
Twenties, it did not repeal the antitrust laws; it layered 
prudential regulation atop the antitrust laws. The result was a 
most remarkable half-century, the only half-century that was 
free of a major domestic financial crisis in the history of the 
Republic.
    There is much to do to restore effective regulation but 
also much to restore effective antitrust oversight. Let me 
suggest four critical steps that would have helped to reduce 
the size of this problem. Could never have solved it, but it 
might have helped to reduce it.
    First, Federal authorities should take their own guidelines 
more seriously, challenging mergers more consistently in highly 
concentrated markets. The theory of the dynamic duopoly has 
proven to be just as wrongheaded as market fundamentalism.
    Second, antitrust authorities must return to the 
fundamentals of head-to-head competition as the foundation of 
antitrust action. Intermodal and potential competition have 
simply proved ineffective in disciplining market power. Head-
to-head competition is what we need.
    Third, antitrust has given far too much deference to 
efficiency at the expense of competition. The assumption that 
private actors will be perceptive and well-intentioned in their 
pursuit of efficiency and share efficiency gains with 
consumers, even where competition is feeble, never made any 
sense. And in light of the collapse of market fundamentalism, 
it must no longer be relied upon. Private actors have proven 
that they are at least as likely to be myopic, misinformed, and 
maleficent.
    Fourth, the digital economy of the 21st century is made up 
of platforms in which layers of complementary products and 
services sit atop one another, and they are closely 
interconnected, frequently through technology. This renders the 
threat of vertical leverage much greater than was the case in 
the physical markets of the 19th and 20th centuries. Tying, 
anticompetitive bundling, and exclusionary conduct take on much 
greater significance.
    The need for reform does not demand a radical new 
experiment. Rather, it demands a return to the traditional 
values, institutions, and practices of progressive capitalism 
that served us well in the half-century after the New Deal. The 
market fundamentalism of the past 30 years was the radical 
experiment, and it has failed miserably. It is time for us to 
abandon the market fundamentalist view that sees regulation and 
antitrust as the ex-post cleanup after the occasional market 
failure, instead viewing antitrust and regulation as the ex-
ante prophylaxis to prevent market failure.
    Thank you.
    [The prepared statement of Mr. Cooper follows:]

                   Prepared Statement of Mark Cooper



















                               __________

    Mr. Johnson. Thank you, Dr. Cooper.
    I appreciate, and I am sure we all do, the testimony of you 
all on this panel.
    Without objection, Members as well as witnesses will have 5 
legislative days within which to submit any additional written 
questions and responses. Without objection, the record will 
remain open for at least 5 legislative days for submission of 
any additional materials.
    And again, I want to thank everyone for your patience, and 
it is now time for questions. I will yield to myself 5 minutes 
for that purpose, and we will be enforcing the 5-minute rule 
among Congressional Representatives as well, though we may go 
into a second round of questions.
    Looking back over how some of these financial institutions 
became so big and how the Federal Government responded to their 
near failures, what are the key lessons that Congress should 
learn from this economic crisis that we find ourselves in?
    And I would like for each of you to answer that question, 
starting with Mr. Foer.
    Mr. Foer. Well, if we might focus on antitrust, the 
question, I think we have all pretty much agreed that 
antitrust's actual responsibility for the kinds of conglomerate 
problems we see now is not a failure of enforcement so much as 
the absence of authority to actually deal with a conglomerate 
merger.
    Our merger policy is if there is a direct horizontal 
overlap, then we eliminate the overlap if it is anti-
competitive, and we allow the merger to occur.
    So to the extent that we are worried about creating very 
large and complicated organizations whose effects of an 
eventual failure need to be predicted far down the road, a very 
difficult prediction, we just don't have a mechanism for 
dealing with that.
    There are other antitrust issues that might go in here, but 
I don't think the issues that we are looking at are 
concentration issues in themselves. There is a lot of 
competition out there.
    On the other hand, had we been taking more concern about 
high levels of concentration, it is possible that some of the 
very large institutions we are dealing with over time might not 
have gotten to be this large. And in that regard, one other 
area I would mention is the lemming effect.
    A lot of times we have a merger that we know is going to 
kick off a series of additional mergers, and yet we don't have 
a good mechanism for stopping that in its tracks. The agencies 
typically say we will look at one merger at a time. I will give 
you an example right now. You have got Pfizer and Wyeth, and at 
the same time you have got Schering and Merck, and you have got 
discussions of at least two, maybe three other mergers that 
will highly concentrate the pharmaceutical industry virtually 
overnight if they all go through.
    I think we need to be able to look at these together. Who 
knows whether we are going to create--letting these go through 
one at a time, each one with a couple of overlaps that get laid 
off, but the companies keep getting bigger and bigger and fewer 
and fewer, whether we might be creating a risk, a systemic risk 
right there in that industry.
    Mr. Johnson. Mr. Foer, thank you for your response. And 
don't forget about the Ticket Master/Live Nation situation as 
well.
    Mr. Cloutier. Mr. Chairman, I will give you a good example. 
In the year 2000, there was a hearing held in this building by 
Congressman Baker on Citicorp buying the associates. Quite a 
bit of discussion was held then about the predatory nature of 
the whole Citicorp operation, which later they pled guilty to 
that, as you are well aware of. They paid a $200 million fine 
to the Federal Trade Commission. Citicorp was built on that 
basis.
    And what we have today--and I know many of my colleagues 
here say, well, we have got good competition--I would like 
anybody to explain to me how you compete with somebody who has 
the full faith and credit of the United States Government. So 
far Citicorp has received guarantees on their loans of $380 
billion, they have a $10 billion guarantee by the FDIC, and I 
mean they are too big to fail. It is a perfect example. There 
are a number of other of the large eight that testified before 
the House Banking Committee that all had the guarantees of the 
United States Government. That makes it very difficult to 
compete again, and they already have got to a size where they 
are too big to fail, and Congress needs to take immediate 
action to do something about this. Either that or we continue 
to pump trillions of dollars into these institutions that are, 
to a point that they are not competitive, don't have to be 
competitive.
    I would use as another example AIG, who just told the 
President, ``Good luck. We are doing what we want with our 
businesses.''
    Mr. Johnson. What actions do you think would be appropriate 
for Congress to make at this particular time?
    Mr. Cloutier. When Congress sits down and looks at the fact 
that the eight largest institutions in America now control 66 
percent of the assets in this country, I think that is an anti-
competitive, monopoly-type of situation and needs to be looked 
at very closely by this Committee. And I think that no one 
would disagree when you have that much concentration in a 
marketplace, they have some real questions about 
competitiveness.
    I understand they say, well, in every market it is 
competitive, but the fact of the matter is these people control 
the financial system of America, and it is something that needs 
to be looked at very carefully.
    And all of these mergers were done with, ``Don't worry. We 
have got control of it.'' I have been told that so many times 
it is unbelievable. And look at where it has led us. We are 
bailing out the largest financial institutions in America.
    Mr. Johnson. Thank you, sir.
    It looks like my time has now expired. So, I will now turn 
it over to the Ranking Member, Howard Coble, for questions.
    Mr. Coble. Thank you, Mr. Chairman. Good to have you all 
with us today, Panel.
    Mr. Askew, the Financial Services Roundtable is calling for 
a streamlined financial regulator, including a national 
insurance regulator. The insurance industry's antitrust 
exemption, McCarran-Ferguson, as we all know is tied to the 
State regulation of insurance. Has Roundtable taken a position 
on the McCarran-Ferguson appeal?
    Mr. Askew. Congressman, we agree with the advent of a 
national insurance regulator that we talk about. We would agree 
with then the antitrust laws applying to the national 
insurance.
    Mr. Coble. So you would not be in favor of repealing 
McCarran-Ferguson, or would you?
    Mr. Askew. I am--we would agree with the--I guess--I don't 
want to misanswer your question. I will get you a written 
answer. I don't want to misstate the opinion of the Roundtable.
    Mr. Coble. I can appreciate that. And for the record, Mr. 
Chairman, I have always been comfortable with State regulation, 
for what that is worth, but I will be glad to hear from you.
    Mr. Askew, what is Roundtable's position toward Gramm-
Leach-Bliley and Riegle-Neal and do you think those laws have 
pretty much accomplished what they were set out to do?
    Mr. Askew. Congressman, we certainly feel those laws have 
done what they were set out to do, and we feel comfortable with 
how they are operating.
    Mr. Coble. Ms. Garza, what is the process for antitrust 
reviews for mergers utilizing TARP funds, A, and B, is it 
different than the traditional Hart-Scott-Rodino filing 
process? Is this consistent with the transparency that the 
Antitrust Modernization Commission recommended?
    Again, I threw three balls at you simultaneously.
    Ms. Garza. The fact that the institution may have been the 
recipient of TARP funds really doesn't affect the process for 
review of the transaction. Antitrust review of bank mergers is 
governed by a set of statutes. It is a little complicated, the 
extent to which Hart-Scott-Rodino applies. But when there is a 
bank consolidation that is reviewed by the Federal banking 
agencies, the Justice Department does receive information at 
the same time that the banking agencies do relevant to the 
transaction, and there is a 30-day period, and comparable to 
the HSR, Hart-Scott-Rodino, period, in which they look at the 
transaction and report to the banking authorities.
    The way that it has worked, in my understanding, is that 
the Justice Department Antitrust Division has had the 
opportunity to look at each of the transactions that have 
occurred where one of the parties was the recipient of TARP 
funds. So it didn't affect the review of it.
    Now, it is the case that some of those transactions were 
reviewed on an extremely expedited basis because of the 
exigencies of the circumstances, not because of TARP funds but 
because of the economic situation of one of the parties.
    In those cases, my understanding is that the Antitrust 
Division was able to conduct the review that it needed to 
conduct. In the PNC-National Citicorp transaction, for example, 
the agency did look at the transaction--6 or 7 weeks, I think, 
is what DOJ took to review it--and did require divestitures, 
which were agreed to by the parties and incorporated in the 
order of the Federal Reserve Board.
    Mr. Coble. Thank you. I think I have time for one more 
quick question.
    Mr. Cloutier, in your testimony you indicate that the four 
largest financial institutions control 40 percent of the 
Nation's deposits. Riegle-Neal limits bank holding companies to 
a maximum of 10 percent of deposits. Would you favor lowering 
that percentage?
    Mr. Cloutier. Absolutely, sir. And, of course, before this 
crisis started Ken Lewis of Bank of America was pushing very 
hard to have that level raised. So absolutely we would prefer 
lowering it. And be very careful because there are some banks 
that would like to raise that limit.
    Mr. Coble. And where would you like to lower it, Mr. 
Cloutier?
    Mr. Cloutier. I think 5 percent would be a good place to 
start to lower it to that level and make sure the 20 top banks 
in America couldn't control more than 100 percent of the 
deposits.
    Mr. Coble. I want to beat the illumination of that red 
light so the Chairman won't come after me with his buggy whip.
    Mr. Askew, if you will get back on my question, I would 
appreciate that.
    Mr. Chairman, I yield back.
    Mr. Johnson. Thank you, Mr. Coble.
    Next we will hear from our esteemed Chairman of the full 
Committee, Chairman Conyers.
    Mr. Conyers. Thank you. I ask unanimous consent to put my 
statement in the record at this time.
    Mr. Johnson. Without objection.
    And I was wondering why I saw some of my brethren from the 
other side of the aisle right here at your spot.
    And I don't get any laughs on that. But you all know what I 
meant.
    Go ahead, Mr. Chairman.
    Mr. Conyers. This is an important hearing, and I really 
appreciate the selection of witnesses.
    Dr. Cooper, of course, has made the statement which I would 
like to invite your reactions to. And I am sure heartened by 
Howard Coble's review of where McCarran-Ferguson and Hart-
Scott-Rodino come in.
    But look at AIG, for example: $178 million in bonuses, 73 
people got more than a million dollars, some of them not even 
citizens. And they explained to us, well, it is contractual, 
Members of Congress. We contracted to do that and you don't 
expect us to go back on our word, do you?
    AIG, nine mergers since 1960. Nine big ones. And 5,400 
mergers just between 1990 and 2005 alone. From Reagan on, 
mergers have been growing and growing. But it was only, I think 
under perhaps the Bush administration, that they really got 
into what we call mega mergers, 74 mergers in which each merger 
partner had more than $10 billion in assets.
    So I am not comfortable to think that the rules are working 
okay and that mergers are all right. I think there is a 
connection. When Greenspan can come clean, I don't think it is 
hard for any of us not to realize that we have got to do 
something about it.
    I have never been comfortable about all the mergers that 
were going on, all the time, one Administration after the 
other, including the Democratic administrations.
    I would like to get your reactions on that, starting with 
Dr. Cooper and then Ms. Garza.
    Mr. Cooper. Well, it is difficult to see how the antitrust 
laws will solve the underlying problem of ``too big to fail.'' 
I do believe that that problem needs to be solved in prudential 
regulation, and I will give you two examples. And what will 
happen, however, is that effective prudential regulation will 
make the mergers go away because essentially what we have to do 
is make--any financial entity has to have the capital and pay 
the insurance so that its failure will not need recourse to the 
Treasury.
    So what we need is dramatically escalating capital 
requirements as you get bigger and bigger. And, of course, the 
bankers will tell you if you require me to have more and more 
capital I can't leverage as much, and so I won't be able to do 
as many deals. Well, then that is exactly what we want, is we 
want them not to do as many deals.
    Second of all, if you dramatically increase the insurance 
premiums and the capital requirements, should they fail the 
insurance fund would have the resources and the capital would 
be available to resolve these institutions.
    Essentially, what we have been told is that it is 
impossible to resolve AIG without pulling down other 
institutions. But if AIG had a very high capital requirement, 
they would have the assets available to resolve their own mess. 
If they had been required to pay heavy insurance premiums, 
those resources would be available to the resolution agency to 
resolve the mess without recourse to the Treasury.
    So I believe that if we intend to be serious about 
preventing ``too big to fail,'' we will do so in a manner 
through prudential regulation, which will also solve your 
merger concern.
    Mr. Conyers. Can I ask for a little additional time, Mr. 
Chairman.
    Mr. Johnson. Sure.
    Mr. Conyers. Can I ask Mr. Foer's feelings about this part 
of our hearing.
    Mr. Foer. Well, sir, I agree that the problem for this 
hearing, the ``too big to fail'' problem, is something beyond 
what antitrust was really able to do with.
    Now, the Cellar-Kefauver Act came out of this Committee. It 
said that we were going to deal with mergers that concentrate 
the economy in their incipiency. As the Chicago School became 
dominant in the setting of antitrust policy, with microeconomic 
analysis at the core, the burden shifted. The burden that I 
think Congress wanted back in the 1950's is that we would 
really be worried about mergers and the tendencies they have 
toward concentration. And we moved away from that and in a way 
we reversed our presumptions. The presumption today is that 
mergers are generally and mostly beneficial because they are 
efficient, and only a few represent problems.
    What I would say is the more we know about these things, 
the more worried we should be that at least very large mergers 
at the top of the scale we should be reversing the burden, and 
instead of assuming that they are good and forcing the 
government to prove that they are bad, we should make the 
opposite assumption. And if we could work with that, only for 
the very largest and most concentrating types of mergers, I 
think we might get back toward what Congress originally was 
after.
    Mr. Conyers. Ms. Garza.
    Ms. Garza. Obviously, we have a lot of reason to be 
concerned about the situation we find ourselves in today, but I 
think that antitrust has had very little role to play in the 
reasons we are where we are.
    It is not so much that the entities that are being bailed 
out are large. It is what they have done. ``Too big to fail,'' 
I think there is a relative consensus here, is really not an 
antitrust concept. Size is certainly relevant to the antitrust 
analysis of a merger in the sense that it is a starting point--
size in terms of market share--is certainly a starting point in 
the antitrust analysis, but it is only that.
    The antitrust analysis today this has evolved far beyond a 
knee-jerk reaction to a ``big is bad'' philosophy and it now 
rests on a very sophisticated assessment of the likelihood that 
a merger will result in the acquisition or growth of market 
power based on solid economic principles. And it would be, I 
think, a mistake to move backward from that. I don't know how 
you would incorporate a standard or apply a standard that said 
simply size is a problem.
    Having said that, I think, you know, and we looked at this, 
as you know, at the AMC. We spent 3 years looking in part at 
the very question of whether current merger enforcement policy 
was properly calibrated, whether we were not stopping mergers 
that we should have stopped or stopping mergers that we 
shouldn't have stopped.
    And the general consensus was that merger enforcement 
policy had evolved to about the right place, where we were 
carefully considering the effects of a merger on market power, 
on consumer welfare, but also allowing entities to engage in 
transactions that either were not anti-competitive or that 
benefited the economy through efficiencies.
    That balance, I think, is the correct way to go.
    Now in the banking area, as I said in my written statement, 
it may be appropriate at this time to shed some light on this, 
to look at the number of studies that have been conducted and 
to consider whether or not increased consolidation in the 
banking industry has resulted in an effect of higher amounts 
being paid for loans, lower amounts being paid for deposits, 
other competitive effects.
    It would be worthwhile to look and see whether divestitures 
that have been ordered in past transactions have been effective 
in what they sought to accomplish. It would be worthwhile to 
look at what the effects are on the competitive dynamics of a 
marketplace when you have government intervention. Either 
government owning, taking partial stake in companies, or 
subsidizing the operations of companies. It would be useful to 
take a look at whether or not national concentration has 
affected the competitiveness of the interbank money markets.
    All of those things are things to look at. But before 
Congress does anything, I would suggest that it consider asking 
the Antitrust Division and the banking agencies to look at the 
data so that when you do act you are acting on a full sense on 
what the actual facts are.
    Mr. Conyers. Thank you.
    Mr. Johnson. You are welcome, Mr. Chairman.
    We are joined by our colleague from Texas, Ms. Sheila 
Jackson Lee. Welcome, Congresswoman.
    And now we will go to Mr. Chaffetz.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Mr. Cloutier, has the TARP process been sufficiently 
transparent from your perspective and that of the Independent 
Community Bankers of America?
    Mr. Cloutier. You know, we don't have enough information 
yet on the total TARP program to know if it is totally 
transparent or not. I have to tell you very honestly, Mr. 
Congressman, that we wake up every morning under some new rules 
and they continue to change. So you know, is it TARP I, TARP 
II? It continues to change. And the bailouts, as we have seen 
with AIG, continue to change.
    Mr. Chaffetz. Ms. Garza, from a purely procedural view, 
what steps should the Obama administration take, if any, to 
ensure the transparency of the merger review process in the 
context of the TARP funds?
    Ms. Garza. You know, the Antitrust Modernization Commission 
made the recommendation in fact that the agencies should focus 
on transparency, and the agencies have taken steps toward that 
with the merger guideline speeches, testimony, reports.
    I actually have said in my written statement I think that 
it may be appropriate to focus some of those efforts more 
specifically on the bank mergers. It is important for the 
public to have confidence in what the antitrust agencies are 
doing, and it would help build confidence in not only what the 
government is doing but also that the antitrust agencies are 
doing their job.
    So I think it would help with that if the new 
Administration would focus on explaining not only to Congress 
but to the public how it is that they are conducting their 
investigations in these, with respect to, these bank 
consolidations that involve TARP funds, where enforcement 
action is taken, why it is not being taken.
    I have no particular reason to believe that the agencies 
won't act appropriately, but I do think it is useful for them 
to explain the standards they are applying and explain the 
decision making. So I think that would be good.
    The other thing I suggested is that it may be appropriate 
for the agency to do something similar to what it did recently 
in the telecom industry, which is to have a symposium and 
report on the state of competition in the financial industry 
and to clarify what its standards are going forward.
    I noticed that the incoming head of the Antitrust Division 
did indicate she had a desire to revisit how bank mergers were 
being looked at. Hopefully, that revisiting will lead to a 
transparent policy of discovery in this area, discovery with 
respect to the data that exists on where we are now and then a 
discussion about what should be done going forward.
    Mr. Chaffetz. Mr. Foer, you seem to be in agreement with 
Ms. Garza and Mr. Askew that antitrust analysis is not to blame 
for the current crisis, rather it is a problem of the 
competition policy more broadly defined.
    If this is not a problem of antitrust, why do you advocate 
for the creation of a new deputy provision within Antitrust?
    Mr. Foer. There are two issues here. Competition policy 
really is anything that the government does that affects 
competition, and that includes your sectoral regulation.
    Antitrust is just limited to your three laws, the Clayton, 
Sherman, and FTC Act, primarily. The Antitrust Division has 
always had an advocacy function, where it goes before other 
agencies and it explains what the competition implications of a 
given regulation or even a legislative proposal would be, and 
that is a very proper and important function of the Antitrust 
Division.
    No, what I am saying is that this emergency recession 
situation where we are rapidly restructuring the economy and 
having huge effects on competition is so important that there 
should be one person designated to report to the Assistant 
Attorney General, but to have the backing of Congress to sit 
there in all the meetings, the various planning meetings, to be 
able to talk with the Secretary of the Treasury, with the 
Federal Reserve Bank, and with others in the White House who 
are doing the planning and to make sure that the voice for 
competition is heard, because we are going to be making some 
very tough decisions with long-term consequences, and in some 
cases it will be necessary to make decisions that are anti-
competitive. But let us keep those to the minimum when they are 
absolutely required.
    And the other thing is we have got to deal with this in the 
future. We shouldn't think that these decisions now are 
necessarily permanent. We got to come back to all of this after 
the crisis is over and we have resolved the crisis and then 
figure out where we want to be, and that is going to take a 
whole new inventory of where we are and it is going to take 
building a consensus about where we want to go. I think it is 
too soon to do that now because we don't know how far down we 
are going. We don't know when we are going to be at the bottom.
    Mr. Chaffetz. Thank you, Mr. Chairman.
    Mr. Johnson. Thank you, sir.
    Next, we will have questions from Congresswoman Sheila 
Jackson Lee.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman. Let me 
thank you for holding this hearing, you as well as the Ranking 
Member, Mr. Coble from North Carolina, and certainly the full 
Committee Chair and the Ranking Member.
    I am going to, I guess, be the skunk of the party and 
indicate that, one, I believe the Judiciary Committee has an 
amazingly instrumental and intricately important role, if you 
will, on this whole question of reordering our markets, not to 
suggest that everyone engaged should be held criminally liable 
in the markets, no. But I think the partnership of regulation 
and enforcement is key. And not so much enforcement, for those 
of you who are certainly proponents of the free market, that we 
would kill the free market, but I am not totally convinced that 
the antitrust laws don't have an important role that can be 
utilized.
    And let me just indicate that one of the issues of 
antitrust laws have been monopolization. And I imagine I would 
be refuted, if you will, on the issue of monopolization of the 
banking industry by the fact that they carry different names, 
and you are absolutely right. So you can't say that Citigroup 
is a monopoly because their counterparts, their equals, are in 
the business. But you can say that big banks create a monopoly, 
and it may be that they are intrinsically part of the 
capitalistic system. But the named big banks or the entity big 
banks are a monopoly. And you can point out to me what little 
guy has risen to be a big guy in the last 50 years, short of 
the big guys buying them up, and you might say, well, the big 
guys have now added and so that little guy finally got in. But 
no, that little guy was eaten up.
    So I frankly believe that maybe we need to breath life into 
the antitrust laws that begin to look at industries in a 
monopolistic or that they are monopolistic in a fashion in 
terms of how they bar growth from others who are competing 
against them.
    Some would say community banks, regional banks, and private 
banks are not competing. They are. Now, these banks have been 
very proud to say, for example, that it was not us and they are 
still doing well. They didn't take the marketplace.
    Mr. Cloutier, you are familiar that you didn't probably 
take the kinds of mortgages. You probably knew a lot of those 
who came into your bank that you gave mortgages to. I don't 
want to suggest that we don't want to spread the opportunity of 
home ownership. I was certainly part of that, but I certainly 
wasn't part of the predatory-type form, the subprime, you know, 
the people who could afford regular mortgages were getting 
subprime. Just a skewed marketplace.
    So let me raise some questions.
    AIG a is a monopoly. How do we allow one company to be the 
insurer of everything, making bread, going across the street 
making movies. That is monopolistic. Now, that is insurance. It 
is a marketplace. It has a marketplace role. I, frankly, 
believe that our laws have a responsibility, antitrust laws, to 
address that bigness that injures the marketplace because what 
happens is AIG is so big and the regulatory process is so 
limited.
    So Mr. Cloutier, since you seem to be the lone wolf trying 
to argue for this idea of having some involvement, how would 
you suggest that Congress be creative in its thinking on using 
antitrust laws that I frankly believe need to be updated. And I 
want to thank Theodore Roosevelt for his wiseness because we 
have done well since. But how would you think we would 
intervene if we were to use antitrust laws?
    Mr. Cloutier. Well, as I mentioned a while ago in answer to 
a question, I think the first thing you do is you drop the 
limit on what a large bank particularly can hold in assets and 
I think you----
    Ms. Jackson Lee. Do we kill the market that way?
    Mr. Cloutier. You won't kill the market. I guarantee you in 
the State of Texas, if Citicorp had to sell branches in the 
State of Texas, Don Adams would buy them all, and the ones he 
wouldn't buy Don Powell would. So, you know, you are going to 
have very good competition.
    And I will tell you that I would just point out that 
yesterday President Obama and Secretary Geithner reached out to 
the community bankers--I happen to have the picture here of our 
current chairman, who lives in the State of Texas, who made the 
presentation yesterday with the President--about small business 
lending and getting back to the core of America in that type of 
lending.
    Often when these large CEOs buy these companies, Ms. Lee, 
it is amazing how much they pay themselves for doing that, 
which has led to where we are today.
    Ms. Jackson Lee. If the Chairman will indulge me an 
additional minute to raise my other question to Ms. Garza.
    Thank you, Mr. Cloutier. You are talking about the limits.
    Ms. Garza, why don't you think modernized antitrust laws 
could be effective? And would you keep an open mind to the 
extent there may need to be some modernizing of our laws?
    I ask unanimous consent for an additional minute, Mr. 
Chairman.
    Mr. Johnson. Without objection.
    Ms. Jackson Lee. Thank you.
    Ms. Garza. Just to be clear, my position isn't that the 
antitrust laws have no role to play. My statement is very clear 
that I think they do.
    Ms. Jackson Lee. Thank you for correcting me. Maybe you 
could expand on that.
    Ms. Garza. So, for example, while we clearly have an 
interest in shoring up the stability of the markets today, what 
I have said is that I think we also have to be careful about 
consolidation that occurs today that may affect the 
competitiveness of the marketplace in the future.
    So I don't think that antitrust should be displaced. I 
think it has a role to play. But that also says that I don't 
think you can lay the current crisis at the foot of antitrust 
enforcement. The issues that have brought us to where--the 
problems that have brought us to where we are today are much 
more complex and different than the size of the institutions, 
and people have mentioned what some of those problems are. And 
I mentioned them in my paper. Those things have to be dealt 
with, but they are beyond the scope of antitrust enforcement.
    So what I would suggest is that we don't put the antitrust 
laws on the shelf, we don't do what was mistakenly done at the 
time of the Depression and say, well, we can't afford the 
antitrust laws anymore. I think we can afford the antitrust 
laws, and I do believe that the antitrust laws, the way they 
are enforced today, are not incompatible with steps that need 
to be taken to try to shore up the stability of our financial 
markets.
    Ms. Jackson Lee. Can we not consider, rather than looking 
at the isolated name groups, Citigroup and others, look at the 
big banks banking industry in terms of modernizing our 
antitrust laws to try to penetrate what--not caused them but to 
keep them from doing that again.
    Ms. Garza. The structure of the market is an important 
thing to look at. And I can't sit here today and say that I 
have studied the structure of the market or that I think it is 
monopolistic or oligopolistic.
    What I do think is that this is something that would be 
appropriately tasked to the Antitrust Division to look at. The 
Antitrust Division, after all, does have jurisdiction to review 
bank mergers. They do have a process that has been in place 
since 1995 for looking at bank mergers that does tend to focus 
on effects in localized markets where lending is done and 
deposits are taken. I think that that process has worked well, 
but to the extent there are questions about the effect of 
consolidation now, the effect of the interconnectedness, 
whether that is having--whether it is affecting prices that are 
paid, diversity, et cetera. All of those things I think are 
legitimate to look at. But at this point I can't say that I 
think antitrust has failed. The only thing I can say is that it 
may be worth further investigation of how the markets are 
operating.
    I agree with Bert Foer. I don't necessarily agree that 
there needs to be a new Deputy Assistant Attorney General 
appointed, but I do agree with him that the Antitrust Division 
and the Justice Department should be at the table when steps 
are taken to ensure there is a voice speaking about the 
competitive effects of various actions that are taken. I think 
the Assistant Attorney General probably can fill that role and 
the Attorney General.
    Ms. Jackson Lee. I would like to make an inquiry of the 
Chair as I thank him for his leadership on this issue. I think 
the door that Ms. Garza has opened and the door that I started 
out on is we are always playing around the edges of antitrust 
law but we might need some creative updating. I know that one 
suggestion has been a deputy position and you have disagreed 
with it. But a creative updating on how we, in essence, 
restrain some of the bad acts that bigness created.
    I still think there is a monopolistic scenario with all the 
big banks. They are in there together, and I don't think our 
antitrust laws fit that. They usually fit a big entity like GM, 
but they don't fit the collective, and we may need to deal with 
that because we need to get our feet in the door of 
enforcement. That might help a lot of our citizens who are 
suffering right now, Mr. Chairman.
    And I look forward to working with you on that issue, on 
that approach.
    Mr. Johnson. Thank you, Congresswoman, and your point is 
well taken. We will be having discussions and hearings on that 
very issue. So thank you.
    And the time for this hearing has now expired, and I am 
sure that you all are happy.
    So, again, without objection, Members will have 5 
legislative days to submit any additional written questions 
which we will forward to the witnesses and ask that you answer 
as promptly as you can and they will be made a part of the 
record.
    Without objection, the record will remain open for 5 
legislative days for the submission of any additional 
materials. Again, I want to thank everybody for their time and 
their patience.
    And this hearing of the Subcommittee on Courts and 
Competition Policy is adjourned.
    [Whereupon, at 4:29 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, Chairman, Committee on the 
 Judiciary, and Members, Subcommittee on Courts and Competition Policy

    Thank you, Chairman Johnson, for holding a hearing on this 
important issue.
    We are in a situation of our own making. We have sat back and let 
ourselves be convinced by the argument that bigger is always better.
    More than 5400 bank mergers occurred between 1990 and 2005. Those 
mergers included 74 ``mega-mergers'' where the buyer and seller each 
had more than $10 billion in assets.
    As a result of these mergers, the percentage of banking assets and 
deposits held by the ten largest banks more than doubled, rising to 55% 
and 45%, respectively.
    This was done with the approval of the antitrust enforcement 
agencies. For years, federal antitrust enforcement has drifted towards 
the ``free market'' school of thought, which says that a market with 
only two or three huge conglomerates is okay as long as they're 
competitive. This school of thought assumes that the market will 
correct itself.
    But how can you talk about a ``free market'' when CEOs whose 
companies went bankrupt walk away with $40 or $50 million?
    With incentive structures rewarding short-term risk-taking, Wall 
Street is in the business of getting bigger and more complex, and 
taking greater risks with other people's money, secure in the fact that 
they will reap all of the benefits, squeezing every dime of profit out, 
and that the government will bail them out if they fail big enough.
    This raises a number of important questions.
    First, by picking some banks as winners, and giving them money to 
buy their competitors, is the Federal Government creating a whole new 
generation of institutions that are ``too big to fail?''
    What kind of seat at the table does antitrust get when Treasury 
decides which banks get money and which ones don't?
    If antitrust law can account for competition from potential 
entrants, why can't it also account for systemic risk?
    Thank you.

                                

       Prepared Statement of the Honorable Sheila Jackson Lee, a 
    Representative in Congress from the State of Texas, and Member, 
             Subcommittee on Courts and Competition Policy

    Thank you, Mr. Chairman and ranking member for your leadership in 
holding today's important oversight hearing on ``Too Big to Fail'': The 
Rule of Antitrust Law in Government-Funded Consolidation in the Banking 
Industry.'' Today's hearing will examine whether the nation's recent 
economic downturn was worsened by the policies regarding the antitrust 
laws and the lessons that we should learn to prevent or limit systemic 
risk of ``too big to fail'' institutions. This hearing will focus upon 
the causes, antitrust enforcement, problems, and possible remedies to 
address ``too big to fail'' institutions.
    It is interesting that today's hearing comes just a day after 
President Obama has signaled that he will freeze releasing additional 
TARP funds to AIG because of its mismanagement (i.e., AIG was using 
TARP funds to pay for employees bonuses). The TARP bill proscribed the 
use of the TARP funds and specified that there would be repercussions 
if the TARP funds were used wrongly. AIG has used its funds 
inappropriately.
    The fist sign of crisis occurred in March 2008 when investment bank 
Bear Stearns turned to the federal government and competitor JP Morgan 
Chase for assistance in addressing a sudden liquidity crisis. At that 
time, the Federal Reserve provided JPMorgan with funds to complete the 
merger. Later, in July 2008, the Federal Deposit Insurance Company 
seized control of IndyMac, the nation's largest home lender.
    In September, the federal government put Fannie Mae and Freddie Mac 
into conservatorship. Since August 2008, the federal government has 
invested billions of dollars into financial institutions. Much of this 
money was given directly to large banking institutions. Other money was 
distributed through the Troubled Asset Relief Program. This program was 
supposed to increase liquidity in the credit and lending markets. Some 
of this money, it was later found was mismanaged and was used to buy 
other banks.
    The antitrust questions that these events raise are (1) Were these 
banks too big to fail and (2) should the antitrust law have prevented 
these banks from becoming embedded in the economy such that government 
intervention was required?
    I am very interested in hearing the testimony today and will listen 
with an open mind to whether the antitrust laws have any application to 
the present banking situation. On October 3, 2008, under the TARP, 
Congress authorized $700 billion for the Treasury to buy troubled assts 
to prevent further disruption in the economy. After the Act was passed, 
the Administration decided to use a portion of the $700 billion to 
recapitalize some of the nation's leading banks by buying their shares. 
Despite this purchase by the government, many banks had no intention of 
making new loans. In allocating the TARP fund, Treasury made a 
determination about which banks would survive and receive funds and 
which banks, usually smaller, would not. By the end of 2008, nine of 
the largest banks were participating in the TARP program. AIG, Bank of 
America, Citigroup all benefitted.
    Antitrust does not require that big companies be broken up into 
smaller ones. Only monopolization violates the antitrust laws. Section 
2 of the Sherman Act governs monopolies. Section 7 of the Clayton Act 
prohibits mergers and acquisitions that tend to lessen competition. The 
DOJ examines both provisions.
    Experts have argued that the mergers should be subject to supply 
and demand but they require for the merger to divest if the reviewing 
agency determines that it is appropriate. Other experts suggest that 
legislation should be introduced to create new standards for merger. 
Another group of experts argue that the free market should reign.
    I am interested in learning our expert witness' perspective on how 
the current economic and financial situation developed. I am also 
interested in hearing how antitrust laws can ameliorate the situation. 
For some aspects of the present crisis, I believe that there were a 
number of conscious decisions undertaken by bankers, financial 
institutions, and other lenders that have had a direct and adverse 
effect on borrower. I will keep an open mind to the issues. I welcome 
today's testimony and I look forward to hearing from today's important 
witnesses.
    Thank you. I yield back the balance of my time.

                                




                                 
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