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. ... _._ FEDERAL RESERVE BOARD WASHINGTON X-}880 November 6, 1923· SUBJECT: Adhti.nis tra.tion pf the Clayton Act. Dear Sir: The question has been ra.ised in the past, whether a. pel"mit issued under the Kern .Arr.endment authorizing a. person to serve as director of a. na.tional bank and some other ba.nk: continues to be effective after such na.tional bank consolida.tes with another na.tiona.l bank under the provisions of the Act of November 7, 1918. This Act provides, in part: nAny two or more na.tiona.l ba.nking associa.tions * >it may * * * consolida.te into one associa.tion under the cha:rter of either existing bank * * * .All the rights, · franchises and interests of sa.id na.tional bank so consol ida. ted in ar.d to every species of property, personal and mixed, and choses in a.ction the:re to belonging, shall be deemed to be tra.nsfel"red to and vested in such na.tional bank into which it is consolida.ted without any deed or other transfer, and the said consohdated na.tional ba.nk shall hold and enjoy the same and a.ll :rights of property, fl"anchises, and interests in the same manner and to the san:e extent a.s wa.s held and enjoyed by the na.tional bank so consolidated therewith. rt These provisions necessa.:rily imply that the co:rpora.te existence of the consolidating or constituent banks s:r.a.a~l be termi:ria.ted, while the corpora.te existence of the a.bsorbing bank continues and ca:r:ries with it a.ll the rights and interests of the defunct consolidating banks. The consolida.ting banks a.cco:rdingly cease to exist a.s sepa:ra.te corpo:ra.tions and permits covering them must be deemed simila.rly to termina.te, unless it can be sa.id tha.t permitted dil'ectorates in such banks i:l:t'e included in the rights, franchises or interests of a. conso1ida.ting national bank which a.:r:e transferred upon a. consolida.tion within the meaning of the .Act of November 7, 1918. The Board previously · held tha.t a. permit issued under the Kern Amendment is a. pe.r.sona.l license to the a.pplying director and does not constitute such a. right • franchise or interest of the consolidating na.tional bank· In cases of conso].idation of national banks, therefore, the Board ruled tha.t a. permit will continue to be effective where the consolidation is ca:r.ried out under the charter of the na.tional bank al:r·eaoy covered by the permit, but tha.t the permit will lapse a.nd a. new permit will be required where the na.tional bank cove :red by the pe:rmi t consolida.tes with a.nd under the charter of anothe.r- national ba.nk. -·2- X·-3BBO The Boerd ha.s recently :1ad occasion to :r.econsic1ex· thh ruling and 1 afte:r careful study 0f Uie entire q1lS,:s:tion, i t i.s now of the opinion that the;. e is no waXJ'a.n~ in J.aw :"'c,r th0 d .i.s ti.nc tiion made in tha.t Ml.ling. W~'J.ile a. pe:--r.ui t :issw'3d ur.tC! ->X' the Ke.1:n Aco~n·i;::;e:nt is primarily a. pa:rsonal lice:1se to the applying d:'sec:t,(rr 1 giv:i.ng h:i.m the :r:ight to se:rve ::.n cnx·t.e.in capscities, it ftlso r.cnfe:rs upon the be11..k pnV•)lved a. definite, th·:mgh incidenta.l, inter8at in '~he oi:::ector 1 s ser'Vices and the Boa:::·d believes that this :i.nte:r.est of the b:mk shouJ.d be const:>.'<:<ed a.s includeCI in the d gc1ts, fl'enchises or interests of a consolida.ting na.tional bank within the mP.a.aing of the Act of Norember 7, 1918. The dist~ncl;ion d:r·avvn :tn th8 nr)aJ'C Is fo,•mer :rul:i.ng 1''85 based enti.r.ely ~Upon tbe question of which d.a,·ter wa.s selected a.s the b8sis fox- the consolidat~.on, bnt the Eoa.1d ~.s now of the opinion t.bat ::he rr:er-e choice of a cha:t:"te:r sho,.;;.ld make no d :i..ffe:t:'ence fo:r- the pu1·poses of a. Clayton Act permit, since :it was the o"r>v:lou:. in·i·e.1t vf the Act of November 7, 1918, to t:l'Emsfe:t· to the cnnsoliCia.ted :i.nst.itntirm a.ll thA .rights, interests, and P'~ivileges of all the cons titu.:=:nt banJ:.:s, i.t'res?ect:i.ve of which na.tional bc.lllk wa.s selected to continue its charte:t:' and its co.r.po:r:-a.te entity. The Board a.cco:rd ingly :r-ules that where a. perrni t is g:r:-a.nted to a. person to se"ve a.s d5.rector of a. nC~.ticnal oan'k: and some othe:r:- bank, and the :Ja.ticnC~l bank S'tb:~~q.uently consolid:a.tes with 1mothe:r. na.tiona.l bank, under. the Act of November 7, 1915, the pe:r:-mit will continue to be effective and vvi.ll aut'lo:rize the di:t·ecto:r in q11estion to se:r-ve the consolid?.'ted na.tj.cma.l b&l1k and. the ot.he:r bank, i:rx·espective of which natior..al bnk ~ha.rt::3:r:- WEtS selected as the basis fox- the consolida.tion. Su~h pe.;_·mits, howeve:r, will be subject to x·evocGtion a.nd, a.s sta.ted in the Board's ci::-cular lette:r X-3603, dated Janua-ry 2, 1923, the Boa.:rd will consider . the revocation of l.Jer"ml ts in cases where existing interlocking d irec~orates have had the effect of J.essening o:r stifling compet Hi on between banks whicll, but for the comn;on di.recto:r:-a.te, would freely compete. Federal I(8se:r.ve Agents will, therefore, :r.epo:r:-t to the Board a.ll cases of interlocking d irecto:ra.tes jnvolving na.tiona.l banks which have consolida.ted whe.re, in the ..<\gent's opinion, the q.uestion of the :revoca.tion of pe:rmi ts should be considered by the BoaJ·d in a.ccordance with the p:r.a.ctice herctofo:r:-e indicated' Very t:r:-uly you-rs, Walter 1. Eddy, Se c:re ta.ry. TO ALL F. R. AGENTS.
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