France: Fewer banks could harm competition

French finance minister warns that fewer banks worldwide could harm competition

• By Aoife White, AP Business Writer
• On 5:06 pm EST, Monday November 9, 2009

BRUSSELS (AP) -- France's finance minister warned Monday that a wave of banking mergers and collapses around the world could give the few still standing too much control over the market.

Christine Lagarde told reporters the very small number of major banks -- including those "on steroids, relying on public money" -- could become oligopolies with the potential to abuse their market power to fix prices or squeeze out rivals.

"Look at investment banks in the United States where, before the crisis, there were about six. Today there are about three," she said. "I believe that all that doesn't happen without some effect on competition and abusive behavior."

She said she had asked a global financial oversight advisory group to the Group of 20 rich and emerging nations to look at competition problems among banks worldwide that might be "in the process of forming oligopolies for certain products in certain markets."

She also asked the Financial Stability Board to look at how competition between banks is affected by bankers' pay regulation. French banks, under government pressure, have curbed pay rewards. Some fear this could encourage talented staff to move elsewhere to earn more.

Finance ministers from all 27 EU nations meet Tuesday to discuss how they should end support to their banking industries.

The European Commission said the EU's top antitrust official, Neelie Kroes, would propose that they "should tell markets that there will be a coordinated phasing-out strategy and that banks should get prepared to stand on their own feet again as soon as there is confidence that the crisis is over."

Kroes has already demanded that the Netherlands' ING and Germany's Commerzbank shed business units to compensate for the unfair advantage they gained from public aid. In Britain, Lloyds and Royal Bank of Scotland said the EU was pressing them to sell off branches and units.

Speaking after talks between the 16 nations that use the euro, EU Economy Commissioner Joaquin Almunia said EU nations were aiming to start withdrawing economy support measures in 2011 when the region is forecast to return to stronger growth and can afford to begin paying off mounting public debt and yearly budget deficits.

He said he spoke to German Finance Minister Wolfgang Schaeuble about his country's future spending and borrowing plans. Germany was "fully committed to fiscal discipline" despite its intention to cut taxes next year, he said -- even though lower taxes may widen its debt and deficit.

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