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It took less than a week since Capital One proposed acquiring Discover Financial for Capitol Hill to call for the heavy hand of the federal government to block the merger. Congressional Democrats, led by Senator Elizabeth Warren (D-Mass.), urged the Biden administration to stop the deal. And Senator Josh Hawley (R-Mo.) wrote a letter to the Justice Department stating that “If consummated, this merger will create a new juggernaut in the credit card market, with unprecedented powers to extort American consumers.” While it is true that this multi-billion dollar merger will invite antitrust scrutiny, the primary impact of the combination of the two entities would be to create a third at-scale competitor in a credit card market that is currently close to a duopoly. 

It’s becoming less and less surprising that many elected officials want to use the tools of government to achieve their own ends. What is surprising, however, is how few of them understand the marketplaces they are interfering with. The government has challenged, blocked, or delayed a number of proposed mergers in the transportation sectorpasta sauce space, and more. This is just the latest in an expanding list that should cause lawmakers to pause and carefully consider deals of this nature before dismissing them outright. 

Late last year, the Biden administration released new guidelines on mergers and as my colleagues summed up nicely, “the proposed guidelines are not useful to anyone but the enforcers.” They also noted that, “Instead of laying rational groundwork for how merger compliance should work under current antitrust law, the draft guidelines establish a radically new and broad set of assumptions for which mergers and acquisitions may be subject to legal challenge.”

It is true that the announced merger is the largest bank merger and acquisition (M&A) deal since 2008 when Bank of America acquired Merrill Lynch for $50 billion. But in decades prior, there were dozens of bank mergers, regularly featuring household names such as Bank of New York, First Boston, Chemical Bank, Wachovia, Suntrust, and many more. Yet, the U.S. banking industry as a whole is not concentrated, with 4,135 FDIC-insured commercial banks in the United States as of 2022, or one per every 80,000 people. As one reporter noted, some of this harkens back to earlier days historically. “Before the days of big, sprawling national banks like Bank of America and JPMorgan Chase, Americans just did not trust big banks.”

There is nothing inherently nefarious about mergers and acquisitions in the U.S. economy. When well-executed, M&A transactions help companies build scale and boost efficiency, expand product offerings, broaden geographic reach, or deliver an exit strategy for a distressed, weaker company to survive. They are not always successful, of course, and can fail to receive regulatory approval, lose talent, see top leaders exit or threaten to exit, integrate poorly, and have clashing corporate cultures that do not mix well, among other issues. 

In this case, according to reports, Capital One hopes to “build a global payments network, helping it work directly with merchants and small businesses” while giving Discover “greater scale to compete with other credit card companies.” Does a larger-scale competitor in the credit card market add enough competition to the marketplace to satisfy government scrutiny? Will the merger of these companies improve offerings and outcomes for consumers? 

One take from JPMorgan Chase CEO Jamie Dimon is quite simple: “My view is, let them compete. Let them try, and if we think it’s unfair, we’ll complain about that.”

Regulators must answer these questions and more before making a determination. The usual suspects, from the Consumer Financial Protection Bureau and Justice Department, as well as some vocal, populist lawmakers, will likely be involved and continue making headlines before giving the transaction a seal of approval. (Or not.) For those of us experienced in the policy and financial sectors, we’d like to see more scalpels and fewer hammers, so to speak, when these deals are scrutinized. 

Jerry Theodorou is director of the finance, insurance, and trade program at the R Street Institute. 

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