North of the border, Canadians are doing their polite best not to brag about some recent news. The news is that the (Canadian) Bank of Montreal will take over troubled Marshall & Ilsley (M&I) Corp, a large Milwaukee-based bank. The deal is valued at $4.1 billion.
How far are the Canadians willing to go to avoid gloating? Well, one Canadian media outlet claims the purchase is a big win for the United States, since it shows that Canadian banks like the Bank of Montreal must believe the US economy is turning around, or else it would not be making such a “bet” on a US recovery.
Too bad that optimistic view isn’t shared by the Wall Street Journal; one WSJ reporter makes the Montreal purchase sound like an act of charity, writing that “Canada is bailing out” yet another US bank that finds itself in difficulties due to the Great Recession.
The Sarasota Herald Tribune takes a slightly different view, calling the purchase another example of how “Canadian banks, untouched by the mortgage meltdown or subprime crisis, are feasting on U.S. banks from a position of strength.” (That makes the Canadian banks sound like the shark in the movie Jaws.)
What’s missing from practically all the coverage I have seen about the Bank of Montreal/M&I deal is some ideas as to whether it is good for the US banking system, or whether acquisitions of US banks by Canadian banks in general provide a net benefit to Americans.
These are fair questions to ask, seeing as the Canadians at times militantly apply similar tests to foreign takeovers of Canadian firms.
“The [US] banking system as a whole is a ‘public good’ that benefits the nation over and above the profits that it earns for the banks’ shareholders,” wrote Martin Feldman in 1991. (Feldman was an economic advisor to Ronald Reagan.)
Feldman’s observation may sound obvious, but it’s still true. The US banking system is a strategic national economic resource, not just a source of dividends for those who hold bank stocks. This has never been truer than now, as the country tries to escape the Great Recession.
As envisioned by giants of American finance like Alexander Hamilton, Robert Morris, Nicholas Biddle, etc., a strong US banking system has always been key to American economic self-sufficiency.
Before US ownership of the domestic banking system is diluted further by additional foreign bank takeovers, it would be wise to study what all these takeovers by foreign banks mean for American economic independence.
A Senate Banking Committee hearing on this topic in January might be a good start.
