Busting Up U.S. Banks Would Help China, Professor Says

A breakup of the largest U.S. banks, which has been proposed by some members of Congress, would allow competitors in Europe and Asia –  China in particular –  to gain an even larger share of a market once dominated by American firms, a Georgia State University finance professor said Wednesday.

“The large Chinese banks especially would benefit from all the business that would go away,” said Alfred Mettler, associate professor at Georgia State’s J. Mack Robinson College of Business. 

Banks that want to compete in the world economy have to be big enough to match their competitor’s ability to fund large-scale projects, Dr. Mettler said at Robinson’s quarterly economic forecasting conference. Yet U.S. banks are already losing ground to the Chinese and to a lesser extent, Europeans, he said. China now has the world’s third largest economy, trailing only the U.S. and Japan.

Dr. Mettler presented a list of the world’s 12 largest banks by market capitalization in 2009. Three of the five largest were Chinese: Industrial and Commercial Bank of China, China Construction Bank and Bank of China. Only one of the top five banks, JP Morgan Chase & Co., is American-based, he said. 

In 2004, four of the top five banks in the world were U.S -based, said Dr. Mettler

There were proposals late last year in both the U.S. House of Representatives and Senate that would allow the federal government to break up banks that are considered “too big to fail.”

Breaking up the big U.S. banks would give even further advantages to Chinese and European banks, said Dr. Mettler, which means Congress is unlikely to approve any such plan.

“For a U.S. politician it would definitely not be a good time to allow this to happen,” he told GlobalAtlanta.

In his quarterly forecast,  Rajeev Dhawan, director of Georgia State’s Economic Forecasting Center, said U.S. gross domestic product will increase by 2.7 percent this year and 2.3  percent in 2011. Georgia will continue to lose jobs in 2010, with a moderate job recovery expected in 2011, Dr. Dhawan added.

One bright spot for the U.S. economy is the increasing number of international companies building factories here to be closer to their customers, William Strauss, senior economist at the Federal Reserve Bank of Chicago, said at Wednesday’s forecasting conference. 

High energy prices in 2008, when oil prices topped $140 a barrel, caused international companies to look at making products in the U.S. in part because shipping costs were skyrocketing, said Mr. Strauss.