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1 9 2 FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-7426 May 1, 1933. SUBJECTJ Proposed Change in Procedure re V i o l a t i o n s of the Clayton Act. Dear S i r : In the B o a r d ' s l e t t e r of May 28, 1931 (X-6901), a procedure was suggested to "be followed in cases where apparent v i o l a t i o n s of the Clayton A n t i t r u s t Act were shown by r e p o r t s of examination of n a t i o n a l "banks. I t was contemplated t h a t in each such case the Board would w r i t e to the person involved, a d v i s i n g him of the s i t u a t i o n and forwarding him the necessary forms with the r e q u e s t t h a t he execute them and send them to the Federal Reserve Agent. On f a r t h e r c o n s i d e r a t i o n , i t has been decided to a l t e r t h i s p r o cedure so t h a t the f e d e r a l Reserve Agent w i l l conduct the correspondence with the d i r e c t o r , o f f i c e r or employee in a l l cases of apparent v i o l a t i o n s of t h a t Act, In the f u t u r e , t h e r e f o r e , when apparent v i o l a t i o n s a r e shown "by r e p o r t s of examination, or are discovered in o t h e r ways, the Federal Reserve Agent should i n v e s t i g a t e the s i t u a t i o n and advise the person involved t h a t he mast "bring h i s s e r v i c e w i t h i n the p r o v i s i o n s of the Clayton Act "by o b t a i n i n g a permit from the Federal Reserve Board covering such s e r v i c e or by severing the connections which a r e c o n t r a r y to the p r o v i s i o n s of t h a t Act, I f in any case the Federal Reserve Agent f e e l s -2- X-7426 193 t h a t he i s not prepared to re commend the approval of an a p p l i c a t i o n a f t e r a p r e l i m i n a r y i n v e s t i g a t i o n , t h e r e w i l l be no o b j e c t i o n to h i s communicating h i s views to the person involved and e x p l a i n i n g the n a t u r e of the v i o l a t i o n being committed and the s t e p s necessary to avoid f u r t h e r v i o l a tions. If t h i s procedure be followed, i t w i l l probably obviate the f i l i n g of a p p l i c a t i o n s i n most cases in which the Agent i s not prepared to recommend approval. In each case r e f e r r e d to i n t h i s paragraph, the Board d e s i r e s t h a t the Federal Reserve Agent advise i t promptly of the a c t i o n taken. In making the i n v e s t i g a t i o n suggested above, a s w e l l a s i n other i n v e s t i g a t i o n s p r e l i m i n a r y to a recommendation i n connection with an a p p l i c a t i o n under the p r o v i s i o n s of the Clayton A n t i t r u s t Act, the Board w i l l expect the Federal Reserve Agent to consult with the Chief National Bank Examiner or the State banking a u t h o r i t i e s , to i n s p e c t the r e p o r t s of examination of the bank or banks which the a p p l i c a n t i s a l r e a d y s e r v i n g , to consider amy o t h e r information i n the p o s s e s s i o n of or a v a i l a b l e to the Federal r e s e r v e bank, and t o advise the Federal Reserve Board a s t o : (a) The c o n d i t i o n and management of the bank or banks with which the a p p l i c a n t i s a l r e a d y a s s o c i a t e d and t h e e x t e n t of h i s r e s p o n s i b i l i t y t h e r e f o r ; (b) Whether the a p p l i c a n t discharges the d u t i e s and r e s p o n s i b i l i t i e s of h i s o f f i c e by a t t e n d i n g d i r e c t o r s ' meetings or otherwise; (c) Whether the a p p l i c a n t has abused the c r e d i t f a c i l i t i e s of the bank or banks he i s a l r e a d y serving — e . g . , whether the examiners have c r i t i c i z e d loans to the 1 9 4 -»3- X-7426 a p p l i c a n t , h i s family o r h i s i n t e r e s t s a s b e i n g excessive or " u n j u s t i f i e d f o r any o t h e r reason; (d) Whether the a p p l i c a n t ' s i n f l u e n c e upon the banks involved i n h i s a p p l i c a t i o n i s apt to "be h e l p f u l o r harmful to such "banks; and (e) Any o t h e r f a c t o r s having a "bearing upon the d e s i r - a b i l i t y of the a p p l i c a n t as an o f f i c e r , d i r e c t o r or employee of each of the banks involved in h i s a p p l i c a t i o n , and upon the d e s i r a b i l i t y of p e r m i t t i n g him to serve a l l of such banks a t the same time. In t h i s connection you a r e advised t h a t , u n l e s s o t h e r f a c t s appear which i n the judgment of the Board render i t incompatible with t h e p u b l i c i n t e r e s t , the Board o r d i n a r i l y w i l l take f a v o r a b l e a c t i o n on the a p p l i c a t i o n i f i t appears to the s a t i s f a c t i o n of the Board, on the b a s i s of the f a c t s p r e s e n t e d by the a p p l i c a n t , the banks involved, and t h e Federal reserve a g e n t , (a) t h a t such banks a r e not i n s u b s t a n t i a l competition, or (b) t h a t the a p p l i c a n t ' s s e r v i c e as d i r e c t o r , o f f i c e r or employee of such banks' i s not l i k e l y to r e s u l t i n a r e s t r i c t i o n of c r e d i t or a s u b s t a n t i a l l e s s e n i n g of competition, or (c) t h a t h i s s e r v i c e s w i l l add needed s t r e n g t h to the management of such banks, w i l l be b e n e f i c i a l to the community or the p a t r o n s of such banks, or w i l l otherwise be in the p u b l i c i n t e r e s t . In view of the f a c t t h a t Section 8 of the Clayton A n t i t r u s t Act f o r b i d s i n t e r l o c k i n g r e l a t i o n s h i p s between banks of c e r t a i n c l a s s e s except i n cases where the Federal Reserve Board f i n d s s p e c i f i c i n t e r l o c k i n g r e l a t i o n s h i p s not incompatible with the p u b l i c i n t e r e s t and g r a n t s permits t h e r e f o r , the burden must r e s t upon each a p p l i c a n t f o r such a permit* and 195 X-7426 -4- upon the tanks involved, to show to the s a t i s f a c t i o n of the Board t h a t i t would be not incompatible with the p u b l i c i n t e r e s t to permit him to serve the "banks involved. The Board suggests t h a t each Federal Eeserve Agent adopt the p r a c t i c e of making a review during the course of each year of the o u t standing Clayton Act p e i m i t s issued to a p p l i c a n t s in h i s d i s t r i c t ; and of submitting to the Board h i s recommendation i n each case i n which i n h i s opinion the p u b l i c i n t e r e s t r e q u i r e s the revocation of a permit e f f e c t i v e e i t h e r immediately or a t the time of the next annual e l e c t i o n of d i r e c t o r s , t o g e t h e r with h i s recommendation in each case i n which he f e e l s t h a t t h e r e i s ground f o r doubt under the Board's i n s t r u c t i o n s a s to the a c t i o n which should be taken. Very t r u l y yours, Chester M o r r i l l , Secretary. TO ALL KEHEEAL RESERVE AGENTS.