Are U.S. Banks Growth Caps Too Limiting? Bank of America Thinks So

Implications: Bank of America met with the North Carolina Bankers Association and the New Hampshire Bankers Association a few months ago, to gain support around its efforts to raise the regulatory cap limits on any U.S. bank from an acquisition that would give it more than 10% of the nation's total bank deposits (checking, savings and cds) and no more than 30% in any state.

1.  Bank of America argues the "Riegle-Neal Interstate Banking & Branching Efficiency Act of 1994," unfairly disadvantages U.S. banks by preventing U.S. banks from acquiring foreign banks that hold U.S. deposits, can limit potential merger partners of a U.S. bank to foreign banks and it could potentially put large U.S. banks at risks by foreign banks, who could acquire U.S. banks because they aren't restricted by the cap

2. For all the support Bank of America has garnered in the last few months, they also have some fierce opponents, who will fight to keep the status quo and argue that the act should remain in place to prevent large banks such as Bank of America, Chase, Wells Fargo, Wachovia and others from establishing a monopoly


Analysis: The 1994 Act imposed the cap restrictions arbitrarily, because it feared that interstate banking would lead banks to engage in excessive mergers and also in order to placate the smaller banks and credit unions, who feared the larger banks would monopolize the market and force them from competing. The national cap of 10% has no rationality to antitrust laws or economies, because at the time the law was enacted in 1994, no depository institution had deposits that put then even close to either cap. (10% national; 30% in any state).

1.  The caps may protect the U.S. financial system by preventing undue political power, prevent systemic risk (if banks grow too large and fail, they could threaten the financial system and/or economy as a whole) and prevent the development of "TBTF's," (banks that are "Too Big To Fail," - which relates to systemic risk, in that the federal government would have to "bail out" the TBTF's should they fail, (FDIC - insured institutions), to protect depositors per the FDIC (Federal Deposit Insurance Corporation) insured deposits of the first $100,000 in deposits

2.  Any changes to the current regulations will have to go through congressional approval and Barney Frank (D-MA), who currently chairs the U.S. House Financial Services Committee, appears to have changed his views and opposition against Bank of America and of possibly raising the caps, which may have stemmed from Frank's outcry when Bank of America acquired FleetBoston a few years ago and laid off workers in the Boston area