Economic Quarterly

2003

 

Spring 2003

Banking and Commerce: Tear Down This Wall?

John R. Walter

Banking/commerce combinations, whereby a banking firm conducts commercial activities such as manufacturing, have long been prohibited in the United States. The traditional concerns with such combinations--conflicts of interest and the spread of monopoly power--are not compelling in today's competitive banking markets. But the danger that losses produced by commercial firms might be shifted to government-insured banks is significant. Tight regulatory controls over combined firms can minimize the danger. However, the cost of such controls might well exceed any benefits produced by banking/commerce combinations.

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