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E-MailSaule Omarova is Beth and Marc Goldberg Professor of Law at Cornell University and Sidley Austin-Robert D. McLean Visiting Professor of Law at Yale University, and Graham Steele is the Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury. This post is based on their forthcoming article in the Yale Law Journal.
There is a curious tension between antitrust law and U.S. bank regulation, as currently practiced. While banks are not technically exempt from antitrust enforcement, they are generally seen as inhabiting an alternative regulatory universe that is governed by principles and prioritizes substantive goals different from antitrust’s traditional competition-related concerns. This de facto exception came into a sharp relief during the Global Financial Crisis of 2007-09. To stabilize the financial system, regulators rapidly approved emergency mergers and acquisitions and took other measures that dramatically increased the level of concentration in the U.S. banking sector. The post-crisis effort to ensure the stability of these new behemoths was subsequently truncated by regulatory “tailoring” that relaxed many of the new rules to fit banks’ business needs, ostensibly to preserve their competitiveness. As the memories of the crisis faded away, the banking sector remained largely untouched by the recent antitrust turn in American politics and academia. The latest banking mini-crisis, triggered by the failures of Silicon Valley Bank (SVB) and Signature Bank in the spring of 2023, brought this dynamic back into public view. This latest episode not only replayed the familiar scenario—emergency takeovers and further growth of large banking conglomerates—but also unleashed public calls to further liberalize federal bank merger policy.
These examples underscore a deeper and increasingly widely accepted, albeit implicit, notion that greater concentration of market power is the necessary price of banking sector stability. In this view, antitrust and banking are not just separate regimes—they are fundamentally incompatible.
In our forthcoming article, Banking and Antitrust, we challenge this assumption. Instead, we offer an alternative understanding of the U.S. bank regulation as a multi-faceted sector-specific antitrust regime, rooted in the long-standing antimonopoly tradition in American law and policy. Banking law is, and has long been, as much about containing banks’ structural power as about protecting them from failure.
While drawing broadly on historical material, the article’s conceptual argument is grounded in the operative logic of modern banking. Modern banks are not merely financial “intermediaries” that supposedly collect deposits and use them to make loans. As the Supreme Court’s foundational banking antitrust case acknowledged, banks create deposits—the prevalent form of money circulating in our economy—when they extend loans by crediting borrowers’ accounts. In effect, banks are licensed agents, or instrumentalities, to which the federal government outsources the essentially sovereign power of creating, distributing, and managing the supply of U.S. dollars in response to the national economy’s evolving needs. In this fundamental sense, the banking system is a kind of public-private franchise arrangement, in which the government commits to accommodating banks’ private deposit liabilities and guarantees their full convertibility into sovereign currency at par, on demand.
As the sovereign public’s private franchisees, banks have an exclusive access to public subsidy that comes in various direct and indirect forms. While necessary, this public subsidy not only shields banks from important disciplining effects of free market competition but also gives them an extraordinary structural advantage vis-à-vis all other private financial and nonfinancial businesses. In effect, by outsourcing the core public function of sovereign money-creation to a specific class of private entities—banks—the state has created a form of “unnatural” monopoly on the distribution of money and credit, the universal and foundational input in all economic activity.
The early twentieth-century antitrust reformers appreciated banks’ critical role as quasi-public distributors of financial resources to households and businesses and were therefore highly attuned to the dangers of the “money monopoly” and its “control of credit.” But even today, despite the regulators’ focus on the increasingly technical aspects of prudential oversight, antimonopoly concerns remain deeply embedded in the fabric of banking law. As our research shows, this hidden side of banking law is just as important as, and inextricably intertwined with, its much more widely recognized role as the safeguard of financial stability. Far from being preoccupied solely with banks’ safety and soundness, the elaborate regime of U.S. bank regulation also seeks to prevent excessive concentration of power over the supply and allocation of sovereign money and credit—a fundamentally public good—in the hands of a few dominant private conglomerates.
To this end, banking law imposes multiple structural constraints on private banks’ ability to accumulate and abuse economic power. We divide these mechanisms into three categories.
The first category includes provisions of U.S. banking law generally recognized as governing banking sector competition: regulatory review of bank mergers and acquisitions, anti-tying rules, and prohibitions on management interlocks. These formal antitrust tools aim to curb the tendency toward “bigness,” and the unfair competition it enables. However, decades of deregulation and consolidation in banking have significantly eroded their practical efficacy.
The second category includes elements of banking law that are not typically seen as antitrust-related but that replicate various antimonopoly tools in the unique context of banking. These functional antitrust tools include liability and loan concentration limits, rate regulations, and regulators’ authority to break up large banking organizations. While these provisions are routinely interpreted as targeting exclusively safety and soundness, systemic risk, or consumer protection concerns, they are also meant to prevent excessive industry consolidation, constrain systematic abuses of market power, and ensure the fairness and efficiency of credit allocation.
Finally, the third category comprises the key elements of U.S. bank regulation without direct parallels in antitrust law: market entry controls, balance-sheet constraints, and activity and affiliation restrictions contained in laws like the Bank Holding Company Act, National Bank Act, and Federal Reserve Act. These provisions, unique to banking law, are commonly interpreted as purely financial-stability measures qualitatively distinct from, and even antithetical to, competition policy. On a deeper level, however, these familiar provisions operate as unnatural monopoly regulation: they structurally constrain potential abuses of government-granted private power over the nation’s money and credit. This modality demonstrates the broader significance of prospective structural regulation as a potent antimonopoly tool.
Rediscovering the shared roots of the banking and antitrust laws is not just a useful intellectual exercise. Deepening our understanding of the fundamental goals and tools of bank regulation can help policymakers tackle some of the biggest challenges in today’s financial markets. For example, it encourages regulators to see the “too big to fail” phenomenon not only as a financial stability problem, but also as a structural problem of private banks abusing their special economic privileges and thus creating economy-wide competitive distortions. Likewise, the rise of crypto and digitization of finance can be viewed both as an attempt to replicate nominally “safe” assets using implicit guarantees and as tech-driven “unbundling” of legal constraints imposed on issuers of public money and credit. Refocusing attention on the underlying dynamics of structural power in the rapidly evolving financial markets opens the aperture for more comprehensive, dynamic, and effective macro-systemic solutions to these, as well as many other, problems on the regulators’ agenda. It could help us break the cycle of bailouts and the seemingly endless expansion of public subsidies to private financial institutions whose risk-generating activities are increasingly difficult to control by pinning all hopes on prudential rules alone.
The draft of the article is available here.
