Research On Bank Mergers Antitrust And China’s Regulation Policy

Bank mergers antitrust is an important aspect of banking antitrust control. Americanfinancial crisis caused people to think about bank antitrust, meanwhile, it also caused thepeople to take into account of the bank mergers antitrust. As for China, bank mergersantitrust is still very weak because of lack of mechanism, law, procedure and method. So,we can not effectively control domestic banks from abusing market power arising frommergers, but also can neither effectively control foreign banks to carry out unlawfulmergers, which harm China’s financial security. Furthermore, it hinders domestic banks byoverseas acquisitions to occupy the international market. Therefore, this study has greattheoretical and practical significance.Basing on the" post-crisis" as the background, the bank mergers as the researchobject, bank antitrust as the research perspective, this dissertation demonstrates thenecessity, mechanism, methods and procedures of the bank mergers antitrust in"post-crisis" era. Finally, this dissertation designs Chinese bank mergers antitrust policybased on the international comparison.An important reason about American financial crisis lies on banking predatorylending, which should be attributed to the omission of the antitrust control authority. So, itis an important measure to deal with financial crisis of strengthening antitrust control inbanking. Under the current situation, measures should be made to enact mergers antitrustcontrol which is an important part of banking antitrust.Bank mergers antitrust principle mainly has two, one is the Harvard School’s SCPparadigm, and the other is Williamson’s efficiency trade-off theory. SCP paradigm pointsout that market structure determines the behavior of enterprises and enterprise behaviorimpact on enterprise performance. According to this theory, market structure regulation isthe most important. Due to mergers enhancing market concentration, it leads to the changeof market structure and the enterprise performance, hence measures must be taken tocontrol bank mergers. Mergers enhance the degree of concentration, which causes bank market power rising, while bank market power brings about the loss of social welfare. Wecalled this logic as negative effect of mergers. Williamson’s efficiency trade-off theorythinks, even if the merger brings negative effect which leads to the social welfareimpairment, but if the merger at the same time has brought efficiency, and the efficiency issufficient to offset the negative effect, so this acquisition should not be prohibited; onlythose whose efficiency is not enough to offset the social welfare loss should be prohibited.We called increased efficiency as positive effect of mergers. The competitive evaluationabout bank mergers is to weigh the two aspects. This dissertation corrects Williamson’sstatic efficiency, and focus on the quantitative evaluation methods for efficiency,including pass through rate and Compensating Marginal Cost Reductions.Bank mergers antitrust mechanism can be divided into five kinds of mechanisms: thedefinition of the relevant market mechanism, market force measuring mechanism, mergerseffect evaluation mechanism, monopoly mitigating factors mechanism, divesturemechanism. As for the definition of relevant market mechanism, this dissertationintroduces market definition methods, such as SSNIP test, Harris&Simons (1989)"Critical Loss" test, Katz&Shapiro (2003)"Aggregate Diversion Rate" test; As formarket power measurement, this dissertation focuses on the use of the discrete choicemodel in banking; As for the merger effect evaluation mechanism, this dissertationfocuses on the Diversion Rate Method and Upward Price Pressure Method; As formitigating factors, analysis includes competitors, market entry, customer switching costs,the failure banks rescue, public interest, population migration; Finally, this dissertationillustrates the divesture mechanism, which includes the principle, target and mechanismdesign, all those prepares a theoretical basis for following analysis.China needs to learn from the antitrust experience in banking mergers of the othernations or regions because of lack of experience. This dissertation selects therepresentative countries or regions, including the United States, Canada, European Union,Japan, Australia, Central and Eastern European countries, to compare them from the valueorientation, organization, the definition of the relevant market, critical value threshold,competitive effect analysis etc, at the same time, this dissertation provides experience and reference guide for the Chinese banking industry "going abroad” through cases analysis.Defining the relevant markets is the most basic step in banking mergers antitrust. InPhiladelphia Bank case, the court defined the relevant geographic market as “localmarket”, while relevant products market be defined as “banking service cluster”. Thisdissertation makes empirical analysis on relevant markets in order to distinguish whetherthe Philadelphia Bank standard can be applicable to China’s banking industry. Its purposeis to identify "local market " and" cluster" hypothesis in China by designing1500consumers and200small and medium enterprises questionnaires in the local samplingsurvey. According to the competition situation and development trend, this dissertation putforward the principle about the definition of the relevant market in China’s bank mergersmarket.From the bank mergers antitrust practice point of view, economic analysis isincreasingly prevalent and prominent. Economic analysis includes unilateral effect andco-coordinated effect. The unilateral effect research focuses on the application andevaluation of Merger Simulation Model, while the coordinated effect research focuses onthe improvement about the traditional "checklist" method. A new analysis framework onthe coordinated effect is put forward through combination the traditional "checklist"method with the "unanimous consent-screening deception-credible punishment" paradigm.This new framework comes from the Friedman "balance temptation equilibrium" concept.We don’t study cartel formation conditions, but from the cartel stability index (δ) tojudge the coordinated effect of bank mergers.With the deepening of China’s banking opening-up progress, foreign banks enhancethe penetration into China’s banking sector. Merger is an important way for foreign banksto entry China’s banking sector. We need to do a dialectical analysis about thisphenomenon. On the one hand, it is in favor of banking competition; The other hand, itmay damage China’s banking competition, even detrimental to China’s financial security.So, it is necessary to regulate foreign banks mergers. From developing countriesperspective, this dissertation analyzes foreign banks merger motivation and competitioneffect in China. Correspondingly, regulation policy on foreign bank mergers is advanced.It is the key and base of this dissertation on designing China’s banking antitrust policy,which includes antitrust institution setting, antitrust principles, standards and goals,pro-merger notification, competitive evaluation system, mergers relief system. In addition, this dissertation also discusses the construction of China’s banking competition policy.This issue is discussed from demand side and supply sides. The latter deepens the former.The key points are as follows:(1) during the "post-crisis era", China should not onlystrengthen the bank prudential regulation, but also must strengthen the competitiveregulation. Both are essential.(2)The Ministry of Commerce of the Anti-monopolyBureau should be competition authority on bank merger, and gives the correspondingrights and obligations to China Banking Regulatory Commission.(3)"Reasonable"principle should be the core principle of bank mergers antitrust. Taking into account of thelikely harmless of foreign banks mergers, these mergers should receive national financialsecurity review.(4) Banking pro-merger notification system should be established andperfected. This system may execute two steps review method, and notification thresholdshould be relatively loose.(5) The economic analysis method should place moreimportance on banking mergers regulation, including the definition of the relevant marketmethod, unilateral effect and coordination effect assessment method and efficiencyevaluation method.(6) Applicable exception system and extraterritorial application systemshould be used reasonably in bank mergers regulation.(7) China must strengtheninternational antitrust harmonious. One is the bilateral and multilateral coordinationmechanism between Ministry of Commerce and foreign competition authority; another isthe bilateral memorandum of understanding between the China Banking RegulatoryCommission and the foreign bank supervision authority.