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FEDERAL RESERVE BOARD WASHINGTON X-4209 address official correspondence to the federal reserve board December 13, I92U ( SUBJECT: E f f e c t of Consolidation of S t i t e Banks on Clayton Act Permits. Dear S i r : The opinion of the Federal Reserve Board has been requested as to whether a person who has received t h e permission of the Board to serve at the same time as d i r e c t o r of c e r t a i n banks, one of which i s a State i n s t i t u t i o n which subsequently consolidated with another S t a t e bank under State law, w i l l be required to make a new a p p l i c a t i o n to the Board a f t e r such consolidation in order to continue to serve the consolidated i n s t i t u t i o n together with the other banks which he has been s e r v i n g . With r e f e r e n c e to the consolidation of n a t i o n a l banks the Board ruled on November 6, 1923, (X-388O) as f o l l o w s : "The Board accordingly r u l e s t h a t where a permit i s granted to a person to serve as d i r e c t o r of a n a t i o n a l bank and some other bank, and the n a t i o n a l bank subsequently cons o l i d a t e s with another n a t i o n a l bank, under the Act of November 7. 1918, the permit w i l l continue to be e f f e c t i v e and w i l l authorize the d i r e c t o r in question to serve the consolidated n a t i o n a l bank and the other bank i r r e s p e c t i v e of which n a t i o n a l bank c h a r t e r was selected as the b a s i s of the c o n s o l i d a t i o n . " In reaching the conclusion j u s t s t a t e d , the Board s a i d : "While a permit issued under the Kern Amendment i s p r i m a r i l y a personal l i c e n s e to the applying d i r e c t o r , giving him the r i g h t to serve in c e r t a i n c a p a c i t i e s , i t a l s o .. confers upon the bank involved a d e f i n i t e , though i n c i d e n t a l , i n t e r e s t in the d i r e c t o r ' s services and the Board b e l i e v e s t h a t t h i s i n t e r e s t of the bank should be construed as i n cluded in the r i g h t s , f r a n c h i s e s or i n t e r e s t s of a c o n s o l i d a t ing n a t i o n a l bank within the meaning of the Act of November 7, 1918." Under the reasoning of t h i s r u l i n g the Board holds t h a t i n any case where two or more banks consolidate under a s t a t u t e , e i t h e r Federal or S t a t e , which v e s t s i n t h e consolidated i n s t i t u t i o n a l l the r i g h t s , f r a n c h i s e s or i n t e r e s t s of the consolidating banks, the consolidated i n - Page 2 X-4209 s t i t u t i o n would, as a matter of law, have the right to the service of any d i r e c t o r of any of the consolidating banks; in other words that a d i r e c t o r who i s serving a bank by the permission of the Federal Reserve Board may, a f t e r h i s bank consolidates with another, continue to serve the consolidated i n s t i t u t i o n if the s t a t u t e under which the merger was e f f e c t e d gives to t h i s i n s t i t u t i o n a l l the r i g h t s , f r a n c h i s e s and i n t e r e s t s of the constituent banks. The Board r u l e s , t h e r e f o r e , that in such cases i t w i l l not require the d i r e c t o r e f f e c t e d to cake ap pl i c a t i o n to the Board f o r a new permit, but the d i r e c t o r w i l l be permitted, without any formality, to continue to serve the consolidated ins t i t u t i o n together with the other banks which he was serving before the consolidation took p l a c e . In every case of t h i s kind, however, the Board w i l l request the Federal Reserve Agent to consider and report with recommendation whether or not the s i t u a t i o n existing as a r e s u l t of the consolidation of the banks involved has so e f f e c t e d the question of competition between the banks upon which the d i r e c t o r i s serving as to make advisable the revocation of the permit formerly issued. In reporting on these matters the Federal Reserve Agent should consider e s p e c i a l l y the question of competition between the branches of the consolidated i n s t i t u t i o n , if any, and the other banks which the director i s serving. Very t r u l y yours, Walter L. Eddy, Secretary TO ALL FEDERAL RESERVE AGENTS
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