Could it be 1956 all over again in Make America Great Again land?
On May 9, 1956 Dwight D. Eisenhower signed into law the Bank Holding Company Act. The law required banks to divest themselves from nonbanking, commercial assets such as railroads and sought to prevent banks from undermining competition in banking. In the common shorthand, the law required the separation of banking from commerce.
President Eisenhower was a reluctant signer of the law but not for the reasons that some might expect from a Republican president. In his official signing statement, Ike grumbled that the law “falls short” of achieving its objectives and said he was only signing it because it was “a forward step” toward even tighter restrictions on banks.
The Bank Holding Act of 1956 was the product of decades of work to crack down on what was seen as monopolistic behavior by banks. In the 1930s, federal law had forced banks to divest themselves from their securities and insurance arms, famously forcing J.P. Morgan to spin off Morgan Stanley. But no significant regulation followed, despite support from both Presidents Franklin Roosevelt and Harry Truman.
In 1948, the Federal Reserve Board attempted to use the Clayton Act antitrust law to break up the Transamerica Corporation–a huge U.S. conglomeration of businesses that included banks, film studios, an airlines, Budget rental car, and insurance–but a federal court of appeals set aside its order, saying that the Fed had failed to show that Transamerica’s acquisitions had violated antitrust law. To the surprise of many at the time who remembered the trust-busting of the early 20th century, it was clear the existing federal antitrust law was inadequate to the task of reining in Transamerica. American businesses had learned how to grow to behemoth sizes without stumbling over the trip wires of antitrust.
That’s where the Bank Holding Company Act came in. It was designed not around theoretical ideas of what constituted fair competition but directly at the business model of Transamerica and similar companies. Notably, the Congressional record reveals no evidence of abusive practices, consumer harm, or a need to correct any past conduct. Instead, the record shows that the law was aimed at preventing Transamerica or anyone else from becoming too big and too powerful. As one legal scholar put it at the time, the goal was to close the key “routes to a national banking empire.”
“The law was created to stop monopolies and lawmakers had one particular company in mind–TransAmerica,” First Deputy Comptroller of the Currency Keith Noreika said in a speech at the American Enterprise Insitute in November.
This turn from antitrust to a law directed at one company’s business model may be replaying itself in 2018. President Donald Trump has repeatedly complained about Amazon, the world’s second most valuable company by market capitalization, but so far his administration has done nothing to address his concerns. The company’s stock fell on Wednesday when Axios reported that the president “hates” the company and is “obsessed with it.”
“He’s wondered aloud if there may be any way to go after Amazon with antitrust or competition law,” Axios’s Jonathan Swan wrote.
Most scholars agree that using current antitrust law would be ineffective at restraining Amazon. The company has avoided the kind of horizontal mergers of competitors that is sometimes attacked by federal regulators. Instead, it has expanded by constantly reaching into new areas. It grew from books to broader consumer products, offers and creates movies and television shows, purchased Whole Foods, the home-security company Ring, and now is creating a healthcare joint venture with J.P. Morgan Chase and Berkshire Hathaway. Importantly, it has also become a big provider of the underlying infrastructure of the internet through its Amazon Web Services unit.
What’s more, Amazon typically lowers prices when it enters a market. Under theories of antitrust that have dominated the federal courts for decades, it is all but impossible to prove an antitrust violation if an action produces falling prices. The destruction of competitors, the capture of ever-larger market share, and the building of an unstoppable advantage of owning both the infrastructure of the internet and the selling of consumer goods via the internet almost certainly won’t be held to violate the law if consumer prices keep falling.
In short, any attempt to use antitrust law to break up Amazon is likely to meet the fate of the Fed action aimed at Transamerica.
Which raises the question: could there be a Bank Holding Company Act for the tech giants of today?
One of the ideas inspiring the original fears of large banking conglomerates was that a bank could provide cheap financing to an affiliate, undermining the ability of competitors to earn a decent rate of return. As a result, commercial enterprises not owned by banks would either go out of business or seek out mergers with banks to stay competitive. As one contemporary bank critic put it in the debate of the Banking Holding Company Act, those who controlled banks, controlled the rails of the economy and would eventually control the trains and every business that used trains to ship goods unless the government stepped in.
Today the rails of the economy are inarguably the telecommunications infrastructure. A company like Amazon is able to leverage its immense telecommunications infrastructure and access to Big Data to overcome competitors in seemingly any sector it enters. Word of Amazon entering a business sends the stocks of other companies tanking and managements scrambling to find tech allies.
This implies that a tech version of the Bank Holding Company Act would likely insist on separating Communications from Commerce. That would mean breaking up Amazon’s retail and entertainment operations from Amazon Web Services, at the very least. It might also mean that Amazon would have to spin off its data business, which exists between Amazon’s retail business and its web infrastructure business.
The idea of separating Communications from Commerce could have appeal to the Trump administration outside of Amazon. It would also provide new grounds for opposing the merger of AT&T and Time-Warner, if Commerce is construed as including the entertainment business. On the other hand, considering data as part of the Communications side of the division, Facebook might be required to spin off its user data crunching operation to separate it from its consumer-facing business.
For now, the executives and investors of Amazon and other tech companies do not believe that they are at serious risk of being broken up by the Trump administration. Of course, a year ago AT&T executives were convinced they’d face no serious challenge to their acqusition of Time-Warner. And back in Transamerica’s heyday, chairman A. P. Gianni often insisted that there was no real danger his company would be broken up.
One year after Ike signed the law, Transamerica shattered, broken into pieces, never again to regain its former stature.