Document Type

Article

Publication Date

2014

Abstract

Today, the need for nimble financial regulation is paramount. The Dodd-Frank financial reform bill has not prevented further scandals and will not stop banks from selling risky products. Yet one understudied law is a surprisingly versatile device that has the potential to temper financial risk: the Bank Holding Company Act’s Anti-Tying Provision. The Anti-Tying Provision prohibits banks from requiring borrowers to purchase additional products in order to obtain a loan. It applies antitrust principles to bank sales and lending practices. Under antitrust law, a seller cannot condition the availability of one item (the desired product) on the consumer’s purchase of another item (the tied product). Similarly, the Anti-Tying Provision limits when banks can condition the availability of credit on a borrower’s purchase of another product. In the last two decades, those limits have been eroded by numerous exceptions.

This Article recasts the Anti-Tying Provision as a bulwark against financial risk. Specifically, this Article proposes narrowing the exceptions to the Anti-Tying Provision so as to reduce the types of investment products that can be tied to loans. Further, this Article argues that plaintiffs in bank tying actions need only prove the existence of a tying requirement, rather than actual coercion. Bolstered in these two ways, the Anti-Tying Provision can curtail sales of risky financial products to borrowers.

An expanded role for the Anti-Tying Provision draws upon four theoretical underpinnings. First, this approach approximates the separation between commercial and investment banking that was central to the Glass-Steagall Act and is again resurgent with the Volcker Rule. Second, recent developments in antitrust scholarship suggest that credit can be manipulated as leverage and rate evasion. Third, borrower welfare is the proper framework from which to evaluate tying, so the effect of leveraging credit should be analyzed for its harm to borrowers, not its benefit to banks. Fourth, one lesson from the financial crisis is that antitrust law must be concerned with more than efficiency. By extension, the Anti-Tying Provision should be viewed as serving broad goals such as mitigating financial risk.

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Published at: 9 N.Y.U.J. L. & Bus. 851 and also available at http://www.nyujlb.org/wp-content/uploads/nyb_9-3_851-916_Chang.pdf.

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