Catching Up with the Rest of the U.S.

Never in U.S. history has there been such a rush of banks to merge. In 1955's first six months, no banks joined together, more than all of 1952's mergers. The urge to merge affected both big and little banks all around the nation. In Manhattan there have been four major mergers in the last year. In New Orleans the National Bank of Commerce is merging with the Louisiana Bank & Trust; in Columbia, S.C. the First National Bank merged with the Carolina National Bank to become the state's third largest; in Dallas the First National recently merged with the Dallas National Bank to become the biggest in the Southwest.

To some politicos, who have always found bankers a popular target, the merger trend is cause for alarm. Cried Brooklyn Democrat Emanuel Celler, chairman of the House Judiciary Committee: "An alarming concentration of financial power in the hands of a few banks." Celler is busily pushing a bill to restrict mergers, and has lined up top Administration support behind it. Both Trustbuster Stanley N. Barnes, who has investigated some of the mergers, and Federal Reserve Board Chairman William McChesney Martin have come out in favor of the bill. While they feel that the mergers probably have not caused any lessening of competition, they fear that some of the huge banks are now in a position where they might be able to squeeze competitors if they wish. On the other hand, Comptroller of the Currency Ray M. Gidney last week strongly supported mergers. The mergers, he said, have created a "banking system better able to serve the communities affected."

Actually, the merger trend is based on one hard economic fact: bankers, overconservative by nature, had fallen behind the economy both in growth and business methods, and they were hastily trying to catch up.

Between 1929 and 1948, while the assets of America's 100 biggest corporations grew by about 160%, the banks' capacity to lend money did not keep pace. As a result, they began to lose vast chunks of business to insur ance companies. One answer was to merge, enlarge the permissible loan limit (usually limited, for one customer, to about 10% of total capital funds). Thus, when Dallas First National merged with the National Bank, its permissible loan limit jumped mightily, making it better able to supply the cash for Texas' fast-growing industries.

But if mergers were stimulated by the need to make bigger loans, they were also stimulated by the necessity to make many more smaller ones. Time was when "blue ribbon" banks prided themselves on their "wholesale trade," and disdained any small accounts. The war and postwar-inspired rise of a great new middle-income group with tremendous income, purchasing power and appetite for consumer goods made these bankers' banks archaic.

To get into the "retail trade," required branches. In most cases merger was the best and often the only method. Banking authorities would not permit the establishment of new branches in localities in which adequate service already existed. So New York's Chase National, a bankers' bank with only 29 offices (all but two in Manhattan), merged with the Bank of Manhattan, acquired 67 branches spread across Queens. Brooklyn and The Bronx.

The result has been more, not less competition. In Greater New York, often cited as a horrible example of lessened competition because the four biggest banks control 60% of all deposits, the actual result has been such intense competition for business that the interest rate on some ten-year loans has been driven down (from about 3 1/4% to 3%) at a time of rising interest rates. Moreover, many who talk about mergers as though they were the exclusive and sinister technique of the financial titans disregard the fact that most of the mergers have been between small banks. By joining forces, they can hold their own and even gain against big-city institutions. For example, the First National Bank of Merrick, L.I. was a puny $11 million institution when it began the first of a series of eleven mergers six years ago. Today, renamed the Meadow Brook National Bank, it has assets of about $250 million, and offers, through its 26 branches, all the services of a big bank.

Although most bankers support the merger trend, they are aware of the theoretical dangers to competition. But few of them feel that competition is being hurt--yet. The indications are just the opposite; mergers have made more banks than ever capable of competing. Said Chase Manhattan's Chairman John J. McCloy before the House Antitrust Subcommittee: "Any attempt to hold banks in a static mold, impervious to the dynamic forces reshaping the rest of society, would be to render them less useful and gradually impotent."

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