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48–102 PDF 2009

‘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 
(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

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 

RICK BOUCHER, Virginia 

ROBERT WEXLER, Florida 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

[Vacant] 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

BOB GOODLATTE, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 
(III) 

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 

(1) 

‘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. 
2 

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. 
3 

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 Republicancontrolled 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. 
4 

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 bal-
5 

ance 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 laugh-
6 

ing 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. 
7 

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 
8 

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:] 
9 

PREPARED STATEMENT OF ALBERT A. FOER
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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 
20 

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:] 
21 

PREPARED STATEMENT OF C. R. ‘‘RUSTY’’ CLOUTIER
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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. 
33 

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:] 
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PREPARED STATEMENT OF WILLIAM ASKEW
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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.] 
47 

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 
48 

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:] 
49 

PREPARED STATEMENT OF DEBORAH A. GARZA
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Mr. JOHNSON. Thank you, Ms. Garza. 

And next, and certainly not least, Dr. Cooper, would you grace 

us with your presentation? 
63 

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 
64 

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:] 
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PREPARED STATEMENT OF MARK COOPER
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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 
74 

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 
75 

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, McCarranFerguson, 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 McCarranFerguson, or would you? 
76 

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-LeachBliley 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. 
77 

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 
78 

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. 
79 

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 kneejerk 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. 
80 

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. 
81 

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 en-
82 

tity 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. 
83 

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 
84 

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.] 
(85) 

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. 

f 

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 
86 

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. 

f 
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