Antitrust and the Financial Sector - with Special Attention to "Too Big to Fail"

Abstract

Antitrust and the financial sector have traditionally had a wary relationship with each other. However, an analysis of the special features of finance and of financial regulation shows that the pro-competition stance of antitrust is as appropriate for the financial sector as it is for the other sectors of the U.S. economy to which antitrust enforcement regularly applies. More recently, the involvement of “too big to fail” (TBTF) financial institutions in the financial crisis of 2008-2009 has caused some antitrust practitioners to believe that the “big” in TBTF must mean that antitrust somehow has a role to play in dealing with the TBTF problem. But TBTF is fundamentally a problem of subsidy and negative externalities, not of market power; consequently, this is not an antitrust issue. Nevertheless, antitrust is relevant for many of the standard issues of the creation, enhancement, and/or exercise of market power in and around the financial sector. In addition, whether the communication among and/or collective action by securities holders in various circumstances (e.g., the creditors of a troubled enterprise) warrants antitrust scrutiny deserves some careful thought and analysis.