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Antitrust and the New Bank Holding
Company Act: Part II

The Bank Holding Company Act of 1956 was

ing as a vehicle.

The result was two lengthy, often

intended to accomplish three principal objectives:

bitter, legislative struggles to amend the Act.

(1 )

first culminated in 1966 with amendments subject­

to prevent bank holding companies from ac­

quiring banks across state lines;

(2 )

to control


ing all regulated bank holding companies to stringent

their expansion within the states in which they were

new antitrust standards.

permitted to acquire banks; and (3 ) to preserve the
historical separation of power between the suppliers

1970 amendments broadening the scope of the law
to include one-bank holding companies.

of money

amendments also imposed rigorous new antitrust

(the banks)

and the users of money

The second resulted in
The latter

prohibitions upon extensions of credit by banks.

(commerce and industry).
The 1956 legislation achieved the first of these
objectives in the following ways: All holding com ­

The events that led to the 1966 legislation and
the effects of those changes are discussed in the

panies controlling 25 percent or more of the stock
of each of two or more banks, or controlling in any

present installment.

manner the election of a majority of the directors

article to appear next month.

of such banks, were required to register with the
Board of Governors of the Federal Reserve System.
Prior approval by the Board was required for the
acquisition by a registered holding company of more

The 1970 legislation and its

impact will be reviewed in the final portion of this

Bank Acquisitions Under the 1956 Standards A s
discussed last month, five “ banking factors” were
written into the 1956 Bank Holding Company A ct
to guide the Board of Governors in acting upon

than 5 percent of the stock of any additional bank.

proposed bank acquisitions by holding companies

The Board was prohibited from permitting bank

and upon proposals to form new holding companies.

acquisitions by a registered company across state

These were

lines, thus confining future expansion by individual
holding companies to the geographic borders of a

of the applicant company and the banks concerned;
(2 ) their prospects; (3 ) the character of their

single state.
A s time passed, however, it became increasingly

management; (4 ) the convenience, needs, and wel­

evident that the 1956 law was not adequate to achieve
The provisions gov­

(5 ) whether the proposed transaction would expand
the size or extent of the holding company system

erning bank acquisitions within permissible geo­

beyond limits consistent with adequate and sound

its other two principal goals.

(1 ) the financial history and condition

fare of the communities and the area concerned; and

graphic areas caused continual difficulties for the

banking, the public interest, and the preservation of

Board of Governors; and the exclusion of one-bank

competition in the field of banking.

holding companies from coverage was to become a

Table I, between 1957 and the end of 1966, the

A s shown in

massive loophole in the statute permitting bank ex­

Board approved a total of 94 bank acquisitions and

pansion into nonbanking areas.

denied 17, a denial rate of 15.3 percent of all ac­

These deficiencies were aggravated by growing
concern over concentration in banking by means of
bank mergers and consolidations throughout the
1950’s and 1960’s, and by a sudden, massive rush
by major banks in 1968 to expand into new non­
banking areas using the unregulated one-bank hold­

quisition proposals presented.
these years the
form new bank
a denial rate of
A s shown by
company banks

In addition, during

Board approved 21 applications to
holding companies and denied 10,
32.2 percent.
Table II, total deposits of holding
increased from almost $16 billion

at the end of 1958, representing 7.4 percent of total
United States bank deposits, to just over $41 billion
at the end of 1966, or 11.6 percent of total deposits.




During these years, as discussed last month, the
B a n k H o ld in g C o m p a n y
F o r m a tio n s

Board repeatedly advised Congress of its difficulties
in attempting to balance “ convenience and needs” in

B a n k A c q u is it io n s

A p p ro v e d

D is a p p r o v e d

A p p rove d

D is a p p r o v e d








the fourth statutory test with the “ size or extent”
test of the fifth factor.

The Board’s 1958 Report

to the Senate Banking and Currency Committee
stated, in p art:
A more precise statement of the purposes of the
statute . . . would materially facilitate adminis­
tration of the act. It is recognized that this might
be difficult to accomplish.
The Board believes,
however, that the Congress should be aware of
[this problem] . . . in order that it may, if it
wishes to do so, provide more specific guidance
for the exercise of the Board’s discretion under
the act.1

Congress took no direct action in response to the
Board’s request at this time.

However, during this

period a train of rapidly evolving events in the re­
lated area of bank mergers brought about a major
change in the regulatory environment of the com ­
mercial banking industry.

This change led directly

to the incorporation of antitrust principles into bank
holding company regulation and transformed the
entire basis for approval of all forms of concentra­
tion among commercial banks.

By 1966, when this


Percent of


* ln a d d it io n to the six n e w r e g u la t e d h o ld in g c o m p a n ie s cre ate d
in 1966, f iv e e x is t in g c o m p a n ie s p r e v io u s ly e x e m p t f r o m r e g u l a ­
tio n d u e to sp e c ia l p r o v is io n s in the o r ig in a l 1956 A c t b e c a m e
r e g u la t e d c o m p a n ie s in 1966 a s a resu lt o f C o n g r e s s io n a l re­
m o v a l o f the sp e c ia l e x e m p tio n s.
So u rc e :

A n n u a l Re p o rts, B o a r d
R eserve S y ste m .

o f G o v e r n o r s o f the

F e d e ra l

change was made, a remarkable evolution of anti­
trust doctrine applicable to corporate concentration
generally furnished the more objective guidelines
sought by the Board.

In these years, there were few regulatory con­
straints on concentration in the banking industry.

The Bank Merger Acts of 1960 and 1966

C om ­

thorities had no clear authority to consider com ­

mencing about 1950 large numbers of mergers and

petitive aspects of proposed bank mergers and con­

Prior to

1960 the Federal bank supervisory au­

consolidations among banks began to attract in­

solidations. Existing requirements for prior Federal

creasing attention from Congress and the Federal

approval were a legal patchwork, and could be

bank supervisory agencies.

avoided entirely. A total of 440 bank mergers, con­

A total of 1,601 inde­

pendent banks disappeared between 1950 and 1960.

solidations, and assumptions of liabilities occured

Fully 1,503 of these banks with total resources ex­

during the years 1955-1958. O f these, 153 involving

ceeding $25 billion vanished as a result of mergers2

banks with total resources in excess of $8.0 billion

Notwithstanding the substantial increase in the na­

were com pleted w ithout prior approval b y any

tion’s deposits and credit needs and the chartering

Federal agency.3 The courts also refused to permit

of 887 new banks during the decade, the total num­

the bank supervisory authorities to deny approval of

ber of banks declined from 14,174 to 13,460, a net

a bank merger because competition between some

reduction of 714.

of the branches of the merging banks would be

1 Report of the Board o f Governors o f the Federal Reserve System
to the Committee on Banking and Currency, United States Senate,
85th Cong., 2d Sess. (M ay 7, 1 9 5 8 ), pp. 5-6.
2 “ Regulation o f Bank M ergers,” Report o f the Committee on Bank­
ing and Currency, House o f Representatives, 86th Cong., 2d Sess.
on S. 1062, March 23, 1960, pp. 4-5; see also, U. S. v. Philadelphia
National Bank, 374 U. S. 321, 326 (1 9 6 3 ).

Digitized for4

3 “ Regulation of Bank M ergers,” Report o f the Committee on Bank­
ing and Currency to accompany S. 1062, U nited States Senate, 86th
Cong., 1st Sess., A p ril 17, 1959, pp . 14-15.
* Old K en t Bank and Trust Co. v. M artin, 281 F.2d 61
1960 ).

(D . C. Cir


B a n k in g O ffic e s
C o m p a n ie s




B ra n c h e s



Percent o f
T o ta l U. S.
D e p o sits

T o ta l D e p o s it s
M illio n s o f D o lla r s


1 1.6

* D a t a a s o f D e c e m b e r 31.
* * D e p o s it d a t a a s o f J u n e 30; o ffic e d a t a a s o f O c to b e r 31.
So u rc e :

B o ard

o f G overn o rs

o f the

F e d e ra l Reserve S y ste m .

Similarly, antitrust enforcement was no deterrent

led to enactment of the Bank Merger A ct of I960.8

to bank concentration throughout the 1950’s. A s dis­

Taking the form of an amendment to Section 1 8 (c)

cussed in Part I of this article, the Transamerica

of the Federal Deposit Insurance Act, the Bank

case in 1953 established that acquisitions of bank

Merger Act required prior written consent for any

stock by other banks were subject to Section 7 of

insured bank to merge or consolidate with any other

the Clayton A c t ; by implication, this made all forms

insured bank or to acquire the assets or assume the

of bank acquisitions, consolidations, and mergers
subject to the broader antitrust prohibitions of the

liabilities of any other insured bank. Unlike the
Bank Holding Company Act, however, which placed

Sherman A ct.5

all administrative control with the Board of Gov­

Yet for a variety of reasons, the antitrust laws
were ineffectual in halting concentration in banking
before 1961.

ernors, the Bank Merger Act created a three-headed

Prior approval was required

(1 ) by the

It was generally believed that Section

Comptroller of the Currency if the acquiring, assum­

7 of the Clayton Act did not apply to most types of

ing, or resulting bank was to be a national bank;

bank mergers.

The Senate Report on the bill that

became the 1960 Bank Merger Act expressly stated
that “ Since bank mergers are customarily, if not in­
variably, carried out by asset acquisitions, they are
exempt from Section 7 of the Clayton A ct.” 0 The
House Report was equally positive on this question:
Although the Sherman Act applies to asset ac­
quisitions as well as to stock acquisitions, it has
been of little use in controlling bank mergers. It
has been used only once in court (in a proceeding
initiated in March 1959) against a bank merger.7

The combination of 1,503 bank mergers in 10
years and the lack of statutory power for regulatory
and antitrust authorities to control the merger trend

(2 )

by the Board of Governors if it was to be a

State member bank; and (3 ) by the Federal De­
posit Insurance Corporation if it was an insured
nonmember bank.
Common standards to be used in passing upon
proposed acquisitions were provided for all three

These included

the financial history and condition of each of
the banks involved, the adequacy of its capital
structure, its future earnings prospects, the
general character of its management, the con­
venience and needs of the community to be served,
and whether or not its corporate powers are con­
sistent with the purposes of [the] Act.9

The responsible agency also was required to take
3 In A p ril, 1959, a Report of the Senate Committee on Banking and
Currency stated: “ It is now generally accepted that these sections
(Sections 1 and 2 of the Sherman A c t) apply to bank mergers and
consolidations by either stock or asset acquisitions (see Trans­
america Corp. v. Board o f G overnors, 206 F.2d 163, pp . 165-166 (3rd
Cir. 1953) ) .
6 Supra, note 3, p . 1.
7 Supra, note 2, p. 9.

into consideration the effect of the transaction on
8 74 Stat. 129 (M ay 13, 1960 ).
a Compare the substantially sim ilar
Holding Company A c t, p. 3.







competition, and was prohibited from approving any
transaction unless it was found to be in the public
interest. The statute required each agency, “ in the
interests of uniform standards,” to request a report
on the competitive factors involved from the A t­
torney General and the other two banking agencies
before acting on an application.
Nevertheless, the merger trend continued.


1961, 133 banks with total resources of almost $6
billion were absorbed following approvals by the
banking agencies under the new law.10

A number

of these approvals were granted despite reports of
the Attorney General and one or more of the other
banking agencies advising of substantial anticom­
petitive effects.11 Tw o of these approvals led to ex­
tended litigation and because leading antitrust bench­
marks with enduring influence not only upon merger
law but upon bank holding company acquisitions of
commercial banks as well.
The Philadelphia Bank Case

On February 24,

1961, the Comptroller of the Currency approved the
proposed merger of The Philadelphia National Bank
(P N B )

and Girard Trust Corn Exchange Bank

would be far better able to serve the convenience
and needs of its community by being of material
assistance to its city and state in their efforts to
attract new industry and to retain existing in­

One day later the Department of Justice sued in





amended Section 7 of the Clayton Act.


This statute

had been amended in 1950 to read as indicated below,
with the italicized phrases added in 1950 and the
bracketed portions deleted.

Both the added and the

deleted portions were relevant to the issues pre­
sented in Philadelphia B an k:
No corporation engaged in commerce shall ac­
quire, directly or indirectly, the whole or any part
of the stock or other share capital and no c o r ­
poration su b ject to the jurisd iction o f the F ed era l
Trade Com mission shall acquire the w hole or any
part o f the assets of another corporation engaged
also in commerce, where in any line o f com m erce
in any section o f the cou n try the effect of such
acquisition may be substantially to lessen com­
petition [between the corporation whose stock is
so acquired and the corporation making the ac­
quisition, or to restrain such commerce in any
section or community,] or to tend to create a
monopoly [of any line of commerce].13

(G irard), the second and third largest, respectively,
of 42 commercial banks with head offices in the

The Trial Court held that approval of the pro­

Philadelphia metropolitan area. The two banks were

posal by the Comptroller under the Bank Merger

direct competitors, and within the relevant four-

Act of 1960 did not prevent the Government from

county metropolitan area accounted for a combined

challenging it under the antitrust laws, but that
amended Section 7 was not applicable to bank mer­

total of approximately 36 percent of total bank
assets, 36 percent of deposits, and 34 percent of

The Attorney General advised that the pro­



gers because banks are not corporations “ subject to
the jurisdiction of the Federal Trade Commission.”

petitive effects in the Philadelphia metropolitan area.

Nevertheless, realizing that the case was destined to
go to the Supreme Court, and in order to present

Nevertheless, the Comptroller approved the merger

a decision on the merits for review, the Trial Court

stating that

assumed Section 7 was applicable for purposes of





deciding the case.
. . . since there will remain an adequate number
of alternative sources of banking service in Phila­
delphia, and in view of the beneficial effects of
this consolidation upon international and national
competition it was concluded that the overall ef­
fect upon competition would not be unfavorable.

The Comptroller also found that the consolidated

It reasoned that if the proposal

did not violate the narrower test of Section 7, de­
signed to prevent incipient violations of the Sherman
Act, it could not possibly constitute an unreasonable
“ restraint of trade” under the latter statute.
On this assumption, the court concluded that there
was no reasonable probability that competition would
be substantially lessened in the relevant four-county
metropolitan area, although it agreed with the Gov­
ernment’s contention that commercial banking was

10 Annual R eport
1961, p. 11.







11 Annual R eport o f the Comptroller o f the Currency, 1961, pp. 41-42,
61-62; see also U. S. v. Philadelphia National Bank, 374 U. S. 334
(1 9 6 3 ), pp. 332-333.
Indeed, in the case o f the consolidation of
Security Trust Company, Lexington, Ky. with the First National
Bank and Trust Company o f Lexington, K y., the Attorney General’s
report to the Comptroller advised that an investigation had been
initiated to determine whether the consolidation would violate the
Sherman A ct.

12 U. S. v. Philadelphia National Bank, 374
p. 333.

U. S.




ia 38 Stat. 730 (1914) as amended 64 Stat. 1125 ( 1 9 5 0 ). The Gov­
ernm ent’s complaint in the Philadelphia Bank case also alleged an
unlawful restraint o f trade in violation o f Section 1 o f the Sherman
A ct.
This issue was never reached in the decision o f either the
D istrict or Supreme Court.

a “ line of commerce” for purposes of Section 7.
Finally, since it concluded that the proposed merger
would not violate Section 7, it concluded that the
transaction could not be a “ restraint of trade” pro­
hibited by Section 1 of the Sherman A ct.14
On appeal, the Supreme Court reversed. It found
that the proposed merger was neither an acquisition
of stock nor an asset acquisition and concluded that
“ the specific exception for acquiring corporations
not subject to the F T C ’s jurisdiction excludes from
the coverage of Section 7 only asset acquisitions by
such corporation when not accomplished by merger.”
In net effect, this construction subjected all bank
mergers, consolidations, assumptions of liabilities,
and acquisitions of assets (if substantially all the
assets are acquired) to Section 7.
The tremendous impact of the decision was de­
scribed by dissenting Justices FTarlan and Stewart
in these w ord s:
The result is, of course, that the Bank Merger
Act is almost completely nullified; its enactment
turns out to have been an exorbitant waste of con­
gressional time and energy. As the present case
illustrates, the Attorney General’s report to the
designated banking agency is no longer truly ad­
visory, for if the agency’s decision is not satis­
factory, a Section 7 suit may be commenced im­
mediately. The bank merger’s legality will then
be judged solely from its competitive aspects, un­
encumbered by any considerations peculiar to bank­
ing. And if such a suit were deemed to lie after
a bank merger has been consummated, there would
then be introduced into this field, for the first time
to any significant extent, the threat of divestiture
of assets and all the complexities and disruption
attendant upon the use of that sanction. The only
vestige of the Bank Merger Act which remains is
that the banking agencies will have an initial

This was only the threshold effect of Philadelphia
Bank. In addition to taking away the shelter of the
Bank Merger Act, the case announced sweeping
new antitrust principles governing corporate mergers

The majority opinion said:

Specifically, we think that a merger which pro­
duces a firm controlling an undue percentage
share of the relevant market, and results in a
significant increase in the concentration of firms
in that market is so inherently likely to lessen
competition substantially that it must be enjoined
in the absence of evidence clearly showing that the
merger is not likely to have such anticompetitive
effects . . . .

Such a test lightens the burden of proving il­
legality only with respect to mergers whose size
makes them inherently suspect in light of Con­
gress’ design in Section 7 to prevent undue con­
centration . . . .
The merger of [PNB and Girard] will result in
a single bank’s controlling at least 30% of the
commercial banking business in the four-county
Philadelphia metropolitan area. Without attempt­
ing to specify the smallest market share which
would still be considered to threaten undue con­
centration, we are clear that 30% presents the
threat. Further, whereas presently the two largest
banks in the area (First Pennsylvania and PNB)
control between them approximately 44% of the
area’s commercial banking business, the two
largest after the merger (PNB-Girard and First
Pennsylvania) will control 50% .
Plainly, we
think, this increase of more than 33% in concen­
tration must be regarded as significant.10

Philadelphia Bank was an antitrust bombshell that
first demolished the shelter— the Bank Merger Act
— and then destroyed the challenged bank combina­
tion using new antitrust rules formulated in the
Court’s opinion. Moreover, it was only the opening
salvo. A year later the follow-up Lexington Bank1
opinion sent shock waves throughout the banking
industry and the Congress.




O ne



beginning its antitrust proceeding against the PN B Girard merger in late February, 1961, the Depart­
ment of Justice sued under Sections 1 and 2 of the
Sherman Act to dissolve the consolidation of the
first and fourth largest banks in Fayette County,
Kentucky, approved by the Comptroller of the Cur­
rency only three days after sanctioning the PN B Girard merger.

The two institutions accounted for

a combined total of 52 percent of total deposits, 54
percent of total loans, and 53 percent of total assets
of the six commercial banks in Fayette County.
They also held 95 percent of all trust assets and ac­
counted for 92 percent of all trust department earn­
ings in the county.
The lower court and the Supreme Court agreed
that commercial banking was the relevant product
market in this Sherman Act proceeding, just as
it was for Clayton Act purposes in Philadelphia
Bank.18 They also agreed that Fayette County was
the relevant geographical area. They parted com ­
pany, however, over the legality of the merger.
18 374 U. S. at pp. 364-365.
17 U. S. v. F irst National Bank and Trust Com pany o f L exington,
376 U. S. 665 (1 9 6 4 ).

1 U. S. v. Philadelphia National Bank and Girard Trust Corn E x ­
change Bank, 201 F . Sup p. 348 (D .D .C . 1962 ), reversed, 374 U. S.
321 (1 9 6 3 ).
>■"*374 U. S. at p. 385.

18 In a footnote the Court said: “ In view o f our disposition o f the
case we find it unnecessary to determine whether trust department
services alone are another relevant m arket.” 376 U. S. at p. 667,
fn . 3.


W hile the lower court found no unreasonable re­
straint under Sherman Act standards, the Supreme
Court concluded in a brief opinion :
There was here no “ predatory” purpose. But we
think it clear that significant competition will be
eliminated by the consolidation . . . .
We think it clear that the elimination of significant
competition between First National and Security
Trust constitutes an unreasonable restraint of
trade . . . .




Where, as here, the merging companies are major
competitive factors in a relevant market, the
elimination of significant competition between
them constitutes a violation of Section 1 of the
Sherman Act.19

There was no reference in the Court’s opinion to
the particular conditions of the banking industry
which caused Congress to write the five specific
nonantitrust banking factors into the 1960 Bank
Merger Act discussed earlier.

These were simply

The failure of the Court in Philadelphia Bank
and Lexington Bank to give weight to the banking
factors of the Bank Merger Act, coupled with the
vigorous enforcement campaign mounted by the De­

Finally, the adversaries agreed to a compromise.
The new statute provides that a Federal banking
agency may not approve a bank merger “ which
would result in a monopoly, or which would be in
furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of
banking in any part of the United



further provides that an agency may not approve
any merger that may substantially lessen competi­
tion, tend to create a monopoly, or be in restraint of
trade unless it finds that the anticompetitive effects
of the transaction are clearly outweighed in the
public interest by the probable effect of the transac­
tion in meeting the convenience and needs of the
community to be served.

The “ public interest”

factors that must be considered are the financial and
managerial resources and future prospects of the
existing and proposed institutions and the con­
venience and needs of the community to be served.22
Prior approval by one of the banking agencies is
required before any merger, consolidation, acquisi­
tion of assets, or assumption of liabilities involving
an insured bank may occur.

partment of Justice against banking concentration,


generated a movement in Congress to revise the

Throughout the fierce controversy over amending



A ct

Am endm ents

Bank Merger Act to give complete antitrust exemp­

the Bank Merger Act, the Bank Holding Company

tion to any bank merger approved by one of the

Act was almost entirely ignored.

three banking agencies, as well as any bank merger

antitrust problems had arisen in connection with

predating the 1960 Bank Merger Act.
The atmosphere in which this momentous legis­

N o significant

regulated holding company acquisitions.

Only one

holding company approval by the Board between

lative battle was waged— against the backdrop of

1956 and 1966 was challenged by the Department of

pending major bank merger antitrust cases brought

Justice,23 and this was settled prior to trial. Never­
theless, as previously indicated, the Board had on

by the Department of Justice in Illinois, Arizona,
New York, California, Tennessee, and Missouri20—
was summed up in this paragraph from a con­

several occasions advised Congress of difficulties in
accommodating the “ convenience and needs” test to

temporary newspaper account:

“ size and extent” and preservation of competition

For a complex measure directly affecting so few
people, the heat of battle seemed worthy of the
Missouri Compromise, League of Nations member­
ship and Prohibition repeal rolled into one. Secret
letters circulated in the pockets of those involved.
Conspiratorial Congressmen huddled “ in the dark”
to write legislation without telling their committee
chairman. Liberals fought liberals, while the A t­
torney General wrestled inconclusively with himself.21

Proposed amendments to the Bank Holding Com­
pany Act, however, were pending before the same
committees of Congress with jurisdiction over the
bank merger question.

None of these proposals in­

volved possible modification of the five banking
factors in the Bank Holding Company Act of 1956.
But when the 1966 amendments to the Bank H old­
ing Company A ct emerged from the Senate Bank­

18 376 U. S. at pp. 672-673.
20 U. S. v. Continental Illinois National Bank and Trust Com pany
o f Chicago, filed A ugust 29, 1961; U. S. v. The Valley National
Bank o f Arizona, filed December 28, 1962; U. S. v. M anufacturers
H anover Trust Com pany, filed September 8, 1961; U. S. v. CrockerA n glo National Bank, filed September 8, 1963; U. S. v. Third N a ­
tional Bank in Nashville, filed September 10, 1964; U. S. v. M er­
cantile Trust Com pany National A ssn ., filed July 7, 1965.
21The Wall S treet Journal, February 8, 1966, p. 16.


ing and Currency Committee shortly after the Bank
Merger Act was amended, the five banking factors
22 80 Stat. 7, February 21, 1966.
2 17. S. v. Marshall and Ilsley Bank Stock Corporation,
March 7, 1961, settled by consent decree in 1969.


had been replaced with the identical test imposed
upon bank mergers. Therefore, the novel statutory
criteria for approving bank mergers were extended
to include holding company organizations.
This change, though far-reaching, drew only one
comment in the Senate Report on the 1966 Bank
Holding Company Act amendments, as follow s:
11. C onform ing standards in holding com pany
cases w ith those in m ergers.— In the interests of
uniform standards, the bill would amend section
3(c) of the Bank Holding Company Act to require
the Board, in acting on applications for the forma­
tion or expansion of holding company systems, to
take into account the same factors as are specified
in the recently amended Bank Merger Act (Public
Law 89-356) for consideration in passing on
bank mergers.


the approval date to commence a court proceeding
under the antitrust laws. If it does not act within
that time, the merger or acquisition is thereafter
permanently immunized from antitrust attack except


under the monopolization provisions of Section 2 of
the Sherman A ct.29


T o tal
N u m b e r,
A ll
D e fe n d a n t s

T he ink was barely






Justice took the position that paramount considera­
tion must be given to competitive aspects of pro­
posed transactions.25

“ clearly outweighed in the public interest” by its
probable effect “ in meeting the convenience and
If the Department of Justice disagrees with an

Company legislation when a new round of litigation
its meaning.

will, it may not be approved unless the responsible
agency finds that its anticompetitive aspects are

agency’s approval, it has 30 calendar days from

dry on the 1966 Bank Merger and Bank Holding
erupted over

lessen competition, tend toward monopoly, or re­
strain trade “ in any section of the country.” If it

needs of the community to be served.”

19. A pplication to holding com pany cases o f
same antitru st procedu res as apply in m erger
cases.— The Congress recently amended the Bank
Merger Act to eliminate conflicts between that
act and the antitrust laws that might otherwise
require the unscrambling of a merger, under the
antitrust laws, that had been approved under the
Bank Merger Act. The bill would apply to bank
holding company cases the same procedures as
are now provided for this purpose in bank
merger cases, in addition to establishing uniform

Present Status of the Law

adverse consequences, the agencies must determine
whether the proposed transaction would substantially

This interpretation was soon

N u m b e r A g a in s t
Bank M e rge rs
H o ld in g C o m p a n y
A c q u isit io n s

Ban k M erge r
a n d H o ld in g C o m p a n y
C a se s a s a
Percent o f T o ta l

1970 *








confirmed by a series of Supreme Court decisions
commencing with the First City Bank of H ouston20
case in 1967, and culminating with the Phillipsburg27

* T h r o u g h J u n e 30, 1970.
So u rc e :

D e p a r tm e n t o f


opinion in m id-1970.
A t present, therefore, the banking agencies must
follow a two-step process in acting upon merger and

If an antitrust proceeding is filed within the pre­

The first determina­

scribed time, the Federal court must use identically
the same standards as the agency used in its ap­

tion is whether the proposal will result in a monopoli­

proval, unless monopolization or attempt to monopo­

holding company applications.

zation or contribute to monopolization of the banking

lize is charged. However, even though it must apply

business in “ any part” of the United States.

the same standards as the agency, the court is not

If so,

the application must be denied.28 Assuming no such

bound by the agency’s findings of fact.

The case

is tried as if there had been no prior administrative
proceedings, although the court may take note of the

24 Senate Report N o. 1179, 89th Cong., 2d Sess. (1 9 6 6 ), p. 2393.

agency’s findings.

25 Congressional Record, March 8, 1966, p. A1310.
20 U . S. v. F irst C ity National Bank o f H ouston, 386
(1 9 6 7 ).




2717. S. v. Phillipsburg National Bank & Trust Co., 90 Sup. Ct.
2035 (1 9 7 0 ).
Sandwiched between H ouston and Phillipsburg was
the im portant ruling in U. S. v. Third National Bank in Nashville,
390 U. S. 171 (1 9 6 8 ).
28 Presumably the courts will read an exception into this absolute
prohibition where a bank is failing and the only available purchaser
is the sole competitor o f the failing institution.

29 Section 2 provides, in pertinent part, th a t:
Every person who shall monopolize or attem pt to monopolize,
or combine or conspire with any other person or persons, to
monopolize any part o f the trade or commerce am ong the
several states or with foreign nations, shall be deemed guilty
o f a misdemeanor . . . .
26 Stat. 209 (1 8 9 0 ).


Antitrust trials against bank merger and bolding
company acquisitions have accounted for a sub­
stantial proportion of the entire enforcement effort

with approximately the same rate for mergers, hold­
ing company formations, and holding company ac­
quisitions. In contrast, less than 3 percent of bank

by the Department of Justice under Section 7 of

merger applications were denied by the Federal De­

the Clayton Act since the 1966 legislation, as in­
dicated by Table III.

posit Insurance Corporation, and less than 2 percent

A s indicated, 38.6 percent of all antitrust cases
brought by the Department of Justice since 1966
against corporate acquisitions by all types of com ­
panies— industrial, commercial, and financial— have
been directed against mergers and acquisitions of
commercial banks.

In part, this vigorous enforce­

by the Comptroller of the Currency.30




O f the 29



holding company acquisitions during this period,
only five were against transactions approved by the
Board of Governors.
(N ext month, the concluding installment will dis­
cuss the one-bank holding company question, the

ment record reflects the fact that the three banking

1970 amendments to the Bank Holding Company

agencies apparently have not applied the uniform
bank merger standards in a uniform manner. For

Act, and the current issues regarding permissible

example, during the period from the beginning of

banking areas.)

1966 through July of 1968, the denial rate of the

expansion by bank holding companies into non­
William F. Upshaw

Board of Governors was almost 11 percent of total
merger and holding company applications received.


30 Andrew F . Brim m er, “ Market Structure, Public Convenience, and
the Regulation o f Bank M ergers,” Speech, October 1, 1968.

A 1970 Review o f . . .

This study was made in December 1970 at the request of USDA’s Agricultural
Finance Branch and has since been updated. It is based on a sample
survey of Fifth District bank agricultural specialists and on data from the
U. S. Department of Agriculture, the Farm Credit Administration, and the
Federal Deposit Insurance Corporation.

Results of a sample survey of bankers’ opinions,

Despite the slight increase in gross cash income

combined with the most recent statistical data, pro­

from farming in the District as a whole in 1970,

vide the basis for this review of the financial and

some communities doubtless experienced declines.

credit conditions of Fifth District farmers in 1970.

Localities suffering from prolonged drought con­

Briefly, here are the highlights:

ditions and/or from the ravages of Southern corn

Gross farm in­

come was slightly larger than the improved level of

leaf blight were especially hard hit.


in the Carolinas and soybean producers in Maryland

Off-farm income rose further.

Farm and

family living costs also continued to climb.


ing for family living items showed a slight advance,
but in general expenditures for capital items were

Market values of farmland continued to rise,


and Virginia were hurt badly.

Corn farmers

But, in the aggre­

gate, gains from other farm enterprises offset the
Livestock production, a growing money-maker for


District farmers for many years, provided the basis

Demand for farm credit remained strong,

for further improvement in farm income again in






but not as strong as in 1969. Interest rates were
higher. Bank loan funds generally were tight, al­
though some slight improvement in the availability
of loan funds seemed evident.

Bankers’ farm loan


Supplies of poultry and eggs, the leading

source of livestock income, were larger: broilers,
around 5 % ; eggs, 4 % ; and turkeys, some 4 % .
Milk production was about 1% above that in 1969.

repayment experience was generally as good as, or

H og marketings were up around

better than, a year earlier.

supplies of cattle and calves, however, were down

Farm Income and Costs

D istrict farm incom e in

1970 showed some further slight gain over that in
1969, a year in which realized gross farm income
hit an all-time high and realized net farm income
reached its highest point since 1953. Most of 1970’s
improvement in gross farm income resulted from a
7 % upturn in cash receipts from farm marketings.
In view of the continued rise in farm production
expenses, realized net farm income seems likely to
have turned up only slightly, if at all.


earnings from nonfarm employment also continued
to rise, however, providing some additional improve­
ment to their income positions in 1970.
Bankers’ opinions regarding farm income in 1970
varied widely. Three-fifths of those reporting looked
for a further upturn in gross farm income from that
in 1969.

Half felt the increase would be small, and

one-tenth anticipated that it would be considerable.
In contrast, one-fourth foresaw a slight decline, and
the remaining 15% expected little change.



by roughly the same percentage even though the
beef cattle inventory at the beginning of 1970 was
6 % over that of the previous year.
Livestock and livestock product price indexes
were above year-earlier levels in all District states
except North Carolina, where a decline of roughly
2 % occurred.

Although the gains recorded in the

other states were not nearly as sharp as those in
1969, all the increases were larger than the national
average and ranged from 2 % in South Carolina and
Maryland to 4 % in Virginia. Farmers’ cash receipts
from sales of livestock and livestock products during
1970 were 3 % above those in 1969.

Gains were

registered in all states and ranged from 1% in
Maryland to 5% in South Carolina.
Many crop farmers will remember 1970 as a
drought year or as the year of the corn blight.
Obviously, the adverse growing conditions hurt many
— some seriously. The dry weather and leaf blight
dealt the corn crop a double blow and, as a result,
production was 16% below 1969 and the smallest

Output of soybeans, the other major

resulted from the need to buy additional inputs.

money crop damaged by drought, was down some

But survey data suggest that the volume of pur­
chased inputs increased less in 1970 than in 1969.

since 1966.

Although of less importance as income pro­

ducers, the following crops were also significantly

pecans, 3 4 % ; peaches, 1 2 % ; and sweet

potatoes, 7% .

A 10% cut in acreage was primarily








operators and by other farm family members, con­
tinued to trend upward in 1970.

Respondents at­

responsible for the smaller crop of sweet potatoes,

tribute this trend to some further industrial ex­

But whether farmers remember 1970 as a poor

pansion in rural areas. The pace of this trend, which
has done much to improve both the living standards

Those grow ­

and the creditworthiness of farmers, apparently
tapered off in some localities as bankers in some

ing either flue-cured tobacco, peanuts, or cotton, or

areas reported a slight decline in off-farm income.

a combination of these major money crops, will al­

This decline, noted by 10% of those replying, was

year or as a good one will depend primarily on what
combination of crops they produced.

most surely count it a good year.

Production of

flue-cured tobacco, the chief income earner, was up
10% (with a 14% increase in North Carolina), and
prices averaged only fractionally below the all-time
high established in 1969. A record-breaking, good
quality peanut crop, 30% larger than a year earlier,

said to have resulted both from unemployment and
from work stoppages caused by strikes.
Farmers’ Savings and Spending D istrict farmers
appear to have maintained their financial savings
and reserves at about the same level as a year

This situation can probably be attributed to

was harvested under generally ideal weather con­

a slight improvement in income and to a cutback


in spending on capital goods.

Prices throughout most of the marketing

season averaged at the support level, roughly 3%
higher than that in 1969. Cotton production was

Farmers, like their urban cousins, were again
faced with a general increase in the cost of living

23% greater than the small 1969 crop, with most

in 1970.

of the increase in North Carolina.


The Tar Heel

The farm family living index rose some

during the year, and farmers’ total spending

crop was the largest since 1965 and reportedly one
of the highest quality cotton crops in the Southeast.

for family living items seems likely to have increased

Cotton prices during the fall harvesting season wy

this was generally the case, a good many farmers

well above average support prices.

Added to these

were considerably more resistant to the higher con­

pluses were the sharply higher prices received for

sumer prices in 1970 than in 1969. Thirty per cent
of the respondents felt that farmers had reduced

soybeans, corn, and peaches which offset much of
their reduced production. Prices of most District
crops, in fact, held up well in 1970.

W ith the ex­

ception of West Virginia, w^here prices averaged


Our banker survey indicated that while

their spending for family living purposes slightly.
This contrasts with only 15% who held this view
in 1969.

lower, average crop prices were up 2 % in Virginia,

Farmers generally held the line or cut back on

3% in Maryland, 4 % in North Carolina, and 6 %

capital expenditures in 1970. Reductions in capital
outlays for machinery and equipment appear to have

in South Carolina.
District farmers’ cash receipts from crop market­
ings during 1970 were 11% larger than those in

Increases among the District states varied

been significantly larger than those for facilities and
other capital goods.

Farmers’ efforts to reduce this

type spending were attributed not only to the high

substantially, however, ranging from about 1% in

cost of capital items but also to the high cost and

Maryland to 14% in South Carolina.

limited availability of credit.

Farmers’ costs continued to increase under per­
sisting inflationary pressures in the general economy.
Cost increases, however, were probably not as large
as in the previous year.

Compared with the better

than 5% advance in 1969, average prices paid by
farmers, including interest, taxes, and w^age rates,
rose slightly less than 5% during 1970.

Some fur­

ther rise in farm production costs also seems to have

Farmland values continued to increase, but the
rate of advance among District states varied con­
siderably. Farm real estate prices in the District as
a whole rose nearly 10% during the year ended
November 1, 1970, with most of the increase oc­
curring during the eight months from March 1 to
November 1. Market values recorded the slowest
rate of gain in the Carolinas, South Carolina

registering a 7% increase and North Carolina 9 % .
Sharp advances of 12% occurred in both Virginia
and Maryland, states where nonfarm factors con­

as strong as in 1969. The survey indicated that some
farmers showed reluctance to borrow at the higher

tinue to exert a strong influence on the price of
Market prices in West Virginia, also

rowed from commercial banks fell slightly, but the

under the influence of fairly strong nonfarm factors,
rose 10%. The decline in prices of flue-cured to­

rates of interest.

The number of farmers who bor­

average amount loaned per farm borrower again in­
creased moderately. Bankers’ farm loan repayment
experience was about the same as, or somewhat

bacco land, first reported by North Carolina bankers

better than, in 1969.

in 1969, has continued.

was lower, and loan renewals were down slightly.

Where flue-cured tobacco

allotments then sold for $3,000 to $4,000 per acre,

The number of delinquencies

Bankers’ lending policies in general were tight.

This decline

Basically the same restrictive policies adopted by

in land values continues to reflect the growing labor

many in 1969 were reported by 65% of the 1970

they sold for $2,500 to $3,000 in 1970.
shortage in flue-cured tobacco areas.

Activity in the farm real estate market in 1970


The remaining 35%

indicated that

they adopted tighter policies during 1970.


appears to have been considerably slower than in

adhered to generally tight loan policies by charging

other recent years.

The number of farms on the

higher rates of interest, confining their lending to

market was said to be small, and some respondents

long-established customers, and making mostly, or

noted that fewer people were looking for farmland.

only, short- and intermediate-term farm loans.

W ith the supply of farms on the market down and

Some 55% of the bankers surveyed noted that

with money tight, declines in the purchase of farm­

interest rates charged farmers in 1970 were higher

land for farm enlargement were reported by 65%

than a year earlier.

of the bankers surveyed.

little change.

Farm rental and leasing

The remaining 45% indicated

The most common rate in 1970, as

arrangements, some running for three to five years,

in 1969, was 8 % .

increased further. Use of available funds to purchase

7^4% to 9% for short-term loans, from 7 ^ %

machinery and equipment rather than farmland was

10% for intermediate-term loans, and from 7 ^ %

also noted.

to 9 y2% for long-term loans.

Where demand for land for farm en­

largement was strong and land was available, some

Rates ranged, however, from

By comparison, rates

on all types of farm loans in 1969 ran as low as

bankers indicated they were continuing to refer

7 % , and the highest rate charged on farm-mortgage

farmers to the Federal land banks for long-term

loans was 8 % .
Bank funds available for loans to farmers may

The demand for farmland for nonfarm purposes

have been fractionally larger in 1970 than in 1969.

remained fairly strong, although market activity was

One-fifth of the reporting bankers stated that their

apparently slower than during the previous year.

supplies of loan funds were greater.

Only 40% of the responding bankers reported slight
gains in such purchases, compared with 55% in 1969.
In contrast, 30% of the respondents in 1970 noted
a slight decrease from a year earlier, compared with
10% in 1969. Some of the decline in the purchase
of farmland by nonfarm buyers was attributed to a
slowdown in industrial expansion, but in a number
of areas industrial development continued to be one
of the prime reasons for increased activity. Other
reasons for increased nonfarm purchases were: de­
velopment of housing subdivisions, construction of
interstate highways, purchase of lots for retirement
homes, and expansion of airport facilities. As has
been the case for many years, increased buying of
farmland for nonfarm uses was associated with a
significant increase in the price of farmland.

increase was partially offset by the 10% who indi­
cated smaller supplies, the remaining 70% noted that

Farm Credit Situation Dem and for farm credit
remained strong in 1970, although apparently not

Though this

the availability of funds for farm loans had been
about the same as a year earlier. W here the latter
situation was reported, these bankers often qualified
their answers by saying funds were sufficient for
their long-established customers.

Ninety-five per

cent of the reporting bankers said, however, that
they had not turned down farm loan applications in
1970 because of lack of funds.
Comparison of the change in the volume of out­
standing farm debt held by three of the principal
institutional farm lenders during the year ended
June 30, 1970 with that during the year ended
June 30, 1969 indicates that overall demand for farm
credit did remain strong in 1970 but not as strong
as in 1969. For exam ple: Farm real estate loans
held by all insured commercial banks in m id-1970

Farm Financial and Credit Outlook for 1971

totaled $290.8 million, roughly 1% or $1.7 million
below a year earlier. This contrasts with a gain of
5% or $14.4 million in bank held long-term farm
debt during the year ended in mid-1969. By com ­

Bankers indicated that some further slight improve­
ment in farm income was probable in 1971. Under

parison, outstanding loans held by the Federal land

harvesting season would be average or better, 35%

banks on June 30, 1970 amounted to $480.1 million,

anticipated that farm income would increase slightly,

the assumption that weather during the growing and

up around 12% or $49.5 million during the 12-month

40% foresaw little or no change, while the remaining


25% looked for a slight decline.

This increase, however, was less than the

One reason given

gain of 16% or $60.3 million recorded by the Fed­

for a prospective decline in 1971 farm income was

eral land banks during the 12 months ending in

that a good many flue-cured tobacco growers had

m id-1969.

marketed 110% of their farm’s poundage quota in

The volume of non-real-estate farm debt held by


Under the acreage-poundage program, any

District banks during the year ending at midyear

marketings in excess of the farm’s quota in any one

1970 had increased faster, both in percentage and

year will be deducted from the farm’s poundage

dollar terms, than during the previous

quota and acreage allotment the following year.


period. The opposite was true in the case of the
P C A ’s, although both the percentage and dollar in­

cording to 95% of our respondents.

creases in their volume of outstanding non-real-estate

however, believed that the rate of increase would

loans were far greater than those for banks during

be somewhat slower than in 1970.

both 12-month periods. Non-real-estate farm debt
outstanding at banks in m id-1970 amounted to $339.1

Farm costs may well rise further in 1971, ac­
Many of these,

On balance, it appears that the general debt and

This gain of 3.8% or $12.5 million com ­

financial position of District farmers may be some­
what better in 1971 than in 1970. Favorable returns

pared with an increase of 3.6% or $11.5 million

from farming in 1970 should enable farmers in many


during the year ended in m id-1969.

On the other

sections to pay off old debts and enter the new year

hand, the amount of non-real-estate debt held by

with improved equity positions.

P C A ’s at midyear 1970 totaled $383.0 million, some
15 % or $48.8 million above that outstanding at mid­

corn blight no doubt adversely affected the overall
financial position of farmers in some areas, how ­

year 1969.


During the preceding 12 months, the

gain in P C A loans amounted to


or $52.6


Drought and the

Forty-five per cent of the replying bankers

expressed the belief that the debt and financial
position of farmers in general would be better in




United States and Fifth District by States, June 30, 1970 compared with June 30, 1969
____________________ F a r m - M o r t g a g e
A ll In su r e d
C o m m e r c ia l B a n k s

S ta te

D e b t______________

A ll In su r e d
C o m m e r c ia l B a n k s

F e d e ra l L a n d B a n k s


Am ount


Am ount


A rea

O u t s t a n d in g
19 70

fr o m
19 69

O u t s t a n d in g
19 70


$ M illio n

Per C e n t

$ M illio n

Per C e n t

M a r y la n d *


+ 1.8

V ir g in ia


-1 .9

_______________ N o n -R e a l- E s t a t e F a rm

Am ount


O u t s t a n d in g
$ M illio n

fro m
Per C e n t

D e b t____________

P ro d u c tio n C r e d it
A s s o c ia t io n s
Am ount


O u ts ta n d in g
19 70

fr o m

$ M illio n

Per C e n t


+ 11.4







+ 11.7




5 5 .7

+ 10.2


W e s t V ir g in ia


+ 6.7




N o rth

C a r o lin a

7 7 .4

-2 .4


+ 10.4





+ 18.8

So u th

C a r o lin a


+ 4.0


+ 14.6

4 4 .9



94 .5

+ 13.9


-0 .6


+ 11.5




38 3.0

+ 14.6


-1 .1





5 ,35 8.7

+ 17.3

F ifth D istric t
U n ite d

State s**

* In c lu d e s D istric t o f C o lu m b ia .
N o te :





S t a t e s a n d o th e r a r e a s .

D a t a m a y n ot a d d to to ta ls b e c a u se o f r o u n d in g .

o u rc e s:
Digitized for SFRASER F e d e ra l D e p o s it

In su r a n c e C o r p o r a t io n a n d F a rm C r e d it A d m in is t r a t io n .

+ 13.6





1971 than in 1970. Two-fifths felt the situation
would be about the same as in 1970, and the re­

that they made no long-term loans to farmers in

maining 15% believed it would be worse.

said that they were continuing to refer farm bor­

Demand for farm credit in 1971 is expected to
match or to exceed that of 1970.

Two-fifths of the

1970 or that they made very few such loans.


rowers to the Federal land banks for this type fi­

responding bankers felt that farm loan demand will

nancing. Developments in the general economy,
competition for loan funds, and the level of the prime

remain at about the same level as in 1970.

and discount rates will, of course, have a strong in­


five per cent, however, looked for a slight increase,

fluence on the availability of loan funds for agri­

while only 5% expected a slight decline.

cultural purposes.


inflationary trends and an anticipated increase in






Little change in bankers’ present policies on farm
loans, generally reported as already fairly restrictive,

reasons behind the expectations that credit demands

is indicated for 1971.

will be strong.
The expected levels of farmers’ spending and in­

85% of the bankers expected to adhere to about the

vestment in 1971 varied considerably.

Survey results showed that

same loan policies as in 1970.

One-fifth of

Interest rates banks charge on farm loans in 1971

the participating bankers looked for farmers to in­

can be expected to remain high, although a little

crease their spending and investment slightly. Sixty-

softening, mostly in short-term rates, is indicated by

five per cent felt that spending and investment

a tally of our survey.

would remain roughly the same as in 1970, while

cited for all three types of farm loans was an 8 %

only 15% looked for a decline. Larger expenditures

simple rate of interest. But quoted interest rates for

The most prevalent charge

by some farmers were expected because of the

1971 varied substantially, ranging from 7% to 9 %

necessity of having to replace worn-out machinery

for short-term loans, from 7% to 10% for inter­

and equipment.

mediate-term loans, and from 7% to 9^2% for long­

Spending for livestock feed is also

expected to be greater because the drought- and

term loans.

blight-reduced corn crop will necessitate larger pur­

tion “ What trends in interest rates on farm loans

chases of feed grain, probably at higher prices.

do you foresee ?” brought these results: Three-fifths

Bank funds available for loans to farmers in 1971

Tabulation of the answers to the ques­

expected little change, 35% looked for a possible

will likely be moderately larger than in 1970, ac­

slight decline, and the remaining 5% anticipated a

cording to survey responses. Funds for short- and
intermediate-term farm loans will probably be more

moderate increase.

plentiful than funds for long-term loans. Onefourth of the responding bankers indicated that the
availability of loan funds for all three major types
of farm loans in the year ahead would likely be
slightly above that in 1970. Three-fourths, or all of
the remaining bankers, expected that funds available
for short-term loans would be roughly the same as
in 1970. By comparison, 70% felt that the availa­
bility of funds for both intermediate- and long-term
farm loans would be about the same. Am ong the
bankers reporting that funds available for farmmortgage loans would remain at about the same
level as in 1970, roughly one-fifth indicated either



The upward adjustment would



probably amount to % of 1%.




W here a downward

trend in interest rates was foreseen, the majority
felt that the decline would range from
to ]/ per­
centage points and that the downward adjustment
would be slightly greater in the shorter-term ma­

Generally, bankers who stated that interest

rates on farm loans in 1971 might drop slightly held
the view that any downward adjustment would be
dependent upon the possibility of a further cut, or
cuts, in the prime rate below the 7V2% level in
effect at the time of the survey.
Sada L. Clarke