The Economic Impact of Merger Control: What is Special About Banking? Carletti, Hartmann and Ongena Discussant: Thorsten Beck

Main messages of the paper  Banking is special because stock returns react differently from non-financial firms after the strengthening of M&A legislation  Channel might be M&A legislation as counterweight to supervisory review process  This paper relates to two literatures: Effects of concentration  Different from non-financial sector What is special about banking?

Structure of the paper  Strengthening of M&A legislation is associated with lower cumulative abnormal returns (CAR) in non-financial sectors and higher CARs in banking  While there are no significant changes in non- financial sectors, bank targets increase in size and profitability after strengthening of M&A legislation  Countries with more opaque supervisory reviews see larger CARs after strengthening of M&A legislation  My concerns: No theoretical/conceptual framework Different combination of these results might provide different interpretation

The underlying data – competition legislation  Extensive data work, which has resulted in an exciting and important database  My concern: Details of database not used to full extent in this paper Four dimensions of merger policy regime never used in empirical work Interaction of merger policy regime and supervisory review not explored  My suggestion: Data could be used for other empirical endeavors, such as Effect on efficiency, stability What determines changes in M&A legislation?

M&A Legislation and stock returns  The results: Strengthening of M&A legislation is associated with lower cumulative abnormal returns (CAR) in non-financial sectors and higher CARs in banking  My concern: What about expectations on impending changes to competition legislation as in the case of Italy (search for first discussion in the media).  My suggestions: Is the break really around the timing of adoption? Why not look at intensity of changes as function of what dimensions of merger policy regime were reformed? Explore differences in effect across banks of different characteristics (size, solvency etc.)

M&A Legislation and M&A characteristics  The results: no significant changes in non-financial sectors, bank targets increase in size and profitability  My concern: Is there a general trend in banking towards bigger mergers?  My suggestions: Look at returns of target and acquirer banks around the strengthening of M&A legislation Explore differences in effect across countries with different supervisory review processes

M&A Legislation and supervisory review  The results: Countries with more opaque supervisory reviews see larger CARs after adoption of merger policy legislation  My concerns: Clustered errors? Few degrees of freedom for many different hypotheses  My suggestions: Re-run the same regression for the time period before and after adoption of laws – differences in differences Interaction of supervisory review variables with changes in M&A legislation

Are banks special? Interpretation of the results  The authors’ interpretation: Strengthening of M&A legislation countered the overall negative effect that supervisory stability- oriented focus has on valuation of banks, resulting in positive CAR  Alternative interpretation (1): bigger mergers following reform of M&A legislation led to more Too-Big-To-Close banks, reflected in higher CARs.  Alternative interpretation (2): bigger mergers following reform of M&A legislation led to more stable banks (Beck et al., 2006) and therefore higher CARs

Conclusions  Contribution of the paper: New exciting database Interesting results that show potential trade- off between stability and efficiency  My concerns: Theoretical/conceptual framework missing Results raise more questions than they give answers  My suggestions: Work more on the channels Exploit data to larger extent