The Effect of the Farm Credit System--论文代写范文精选

作为批准过程的一部分,他们必须确保并购遵守反托拉斯法。机构最初评估拟议，使用检查措施基于存款银行的股票在市场上操作。如果提出合并不通过最初的筛选试验,银行机构进行进一步分析合并的潜在影响。下面的essay代写范文进行详述。

Abstract
The goal of U.S. antitrust laws is to protect consumers and businesses from anticompetitive behavior. One area of antitrust law prohibits business mergers that substantially lessen competition or create a monopoly. In banking, insufficient competition can be harmful for consumers and businesses. For example, if a merger of two competing banks results in a combined bank with a substantial market share, bank customers may pay higher interest rates on loans, receive lower interest rates on deposits, or have less access to credit. The federal banking regulatory agencies are responsible for approving bank mergers. As part of the approval process, they must ensure mergers comply with antitrust laws. 

The agencies initially assess the competitive effects of proposed mergers using screening measures based on the deposit shares of banks operating in the market. If proposed mergers do not pass the initial screening test, the banking agencies conduct further analysis of the mergers’ potential effects on competition. One shortcoming of deposit-based measures of competition is they do not explicitly account for competition from nondepository financial firms. For example, banks compete with finance companies for business and consumer loans and with money market mutual funds for deposit products. In rural markets where agriculture is a primary business activity, the Farm Credit System’s retail lenders, known as Farm Credit Associations (Associations), are particularly important nonbank competitors.

Despite Associations’ large presence in agricultural loan markets, we are not aware of any studies that have assessed the effect of Associations on banking concentration measures—in particular, their implications for banking market competition and the evaluation of competitive conditions. In this article, we estimate local market shares of agricultural loans to assess how Associations affect competition for these loans in rural markets where agriculture is an important industry. Our analysis suggests Associations often reduce measures of local market concentration, which implies excluding them from market structure analyses may understate the market’s competitiveness. Section I reviews U.S. antitrust laws and the underlying economic theory. Section II outlines the methodology for assessing competition in banking markets, with a focus on the Federal Reserve System’s process. Section III shows how including Associations as a competitor in rural agricultural lending markets affects local market concentration measures.

The U.S. Antitrust Framework 
In the United States, antitrust laws prohibit or restrict anticompetitive business conduct and practices and protect consumers and businesses from abuses of power that can occur when a firm or group of firms controls a substantial share of a market. In banking, the federal banking agencies—the Board of Governors of the Federal Reserve System (Board), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—are responsible for assessing the competitive effects of bank mergers and acquisitions (M&As) to ensure they comply with antitrust laws.1 The agencies’ merger approvals, however, are subject to review by the U.S. Department of Justice (DOJ). The federal banking agencies and the DOJ use what is known as the Structure-Conduct-Performance (SCP) paradigm to assess whether an M&A may substantially lessen competition in banking. According to the SCP paradigm, market structure can affect firm and industry conduct, which in turn affects firm and industry performance. From an economic perspective, performance is maximized when firms set prices equal to their incremental production costs, which ensures industry resources are allocated to their most productive uses. This is the ultimate goal of antitrust policy.

Firm conduct determines the extent to which prices rise above incremental costs. Examples of such conduct include restricting product output, discriminating in the prices charged for different customer groups, and pursuing strategies that prevent new firms from entering the market. Market structure, in turn, affects a firm’s ability to engage in conduct that raises prices. Market structure can be described by factors such as the number and size distribution of firms and customers. In a product market with a single firm, the monopolist is able to maximize its profits by limiting its output, and therefore market output, to increase the market price above incremental cost. In a market with many firms, no single firm is able to influence the market price, so in equilibrium, price will equal incremental cost. 

More generally, as a market’s structure becomes more concentrated—for example, if the number of firms shrinks significantly or if one firm becomes much larger than others—conduct is more likely to approach that of a monopolist. For example, a small group of firms may agree (explicitly or implicitly) to collude to restrict their collective output and raise the market price above their incremental costs to increase their collective profit. The SCP paradigm provides a practical methodology for assessing the potential competitive effects of proposed mergers. Conduct and performance are difficult to observe and measure. For example, measuring the difference between prices and incremental costs can be difficult in many industries. Abusive market practices and conduct are also often difficult to observe and prove. In contrast, structure is relatively easy to observe and measure. While a highly concentrated industry does not necessarily result in poor conduct and performance, it is more likely to do so than an unconcentrated industry. As a result, measuring industry concentration and the effect of mergers on concentration provides a good initial screening tool for assessing mergers’ competitive effects.

The Federal Reserve’s Implementation of the Structure-Conduct-Performance Paradigm 
The DOJ and federal banking agencies all begin their competitive assessment of mergers by measuring pre- and post-merger concentration levels with the Herfindahl-Hirschman Index (HHI). The HHI is the sum of the squared market shares of firms producing the same product in the same market. However, the DOJ’s and banking agencies’ processes differ slightly in how they measure the products and markets. This section focuses on the process used by the Federal Reserve.2 The HHI varies between 0 and 10,000 and increases as the number of firms falls or the distribution of firm sizes becomes skewed to large firms. For example, if five firms in an industry all had a 20 percent market share, the HHI would be 2,000. If two of the firms merged, the HHI would increase to 2,800. 

The federal banking agencies’ initial criteria for assessing the competitive effects of a merger or acquisition is whether it would (1) raise the HHI by 200 points or more to a level of 1,800 or higher in any local banking market in which both firms operate, or (2) increase the posttransaction market share for the acquiring firm to more than 35 percent in any of those markets. If the merger does not exceed these thresholds, it will generally be approved. If it exceeds one or both thresholds, the agencies conduct further analysis to determine whether the merger would be anticompetitive. Before the banking agencies calculate an HHI, they must first define the relevant market for the antitrust analysis. Specifically, they must define the product and geographic dimensions of a market. In general, a product market includes all products and services that consumers consider to be close substitutes. 

The geographic area encompasses all banking service providers that customers would consider a viable alternative for meeting their banking needs. From a practical perspective, geographic markets should include any depository institution that a bank’s customer would consider switching to when prices or service quality change. Consistent with these principles, the criteria the agencies use to define banking product and geographic markets are largely based on U.S. Supreme Court antitrust cases.3 The agencies define the product market for banking services as a “cluster” of commercial banking products and services. The cluster includes products and services that banks offer to most households and small businesses. As a result, competitors included in HHI calculations are depository institutions—commercial banks and thrift institutions—and sometimes credit unions.4

How Does Farm Credit System Lending Affect Competition in Agricultural Lending Markets? 
Rural areas are sparsely populated and consequently have less economic activity than metropolitan areas. As a result, most rural areas can support a limited number of banks, which often leads to high measures of banking market concentration. Agriculture is the dominant industry in many rural areas, and rural banks often specialize in lending to farmers and other agribusiness entities. However, nonbank agricultural lenders also compete with these banks, and none are explicitly included in the market shares and HHIs used in the initial competitive analyses of mergers. Along with commercial banks, the FCS is the largest lender to the agriculture sector. To see how the FCS affects local market competition in agricultural lending, we estimate bank and FCS agricultural loan market shares and HHIs in rural banking markets where agriculture is an important part of the local economy and compare the HHIs with and without Association loans.

Estimating agricultural loan shares and HHIs in local markets 
To calculate HHIs, we first need individual bank and Association shares of agricultural loans in local markets. Agricultural loan data, however, are available only at the bank and Association level, which may span more than one local market for banks with multiple branches and for all Associations. As a result, we must estimate agricultural loans in local markets for both banks and Associations. We estimate agricultural loans at the county level and then aggregate the estimates if the local market includes multiple counties. We then use the estimates of Association loans and bank loans in each market to calculate market shares for Associations and individual banks. Finally, we use these shares to calculate market HHIs.

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