The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for February
To:
Members of the Board
From:
Office of the Secretary
27, 1959.
Attached is a copy of the minutes of the
s of the Federal Reserve System on
Governor
Board of
date.
above
the
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard
it will be appreciated if you will
minutes,
to the
advise the Secretary's Office. Otherwise, if you
were present at the meeting, please initial in column A. below to indicate that you approve the minutes.
If you were not present, please initial in column B
below to indicate that you have seen the minutes.
A
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Minutes of the Board of Governors of the Federal Reserve System
on Friday, February 27, 1959.
PRESENT:
Mr.
Mr.
Mr.
-Mr.
The Board met in the Board Room at 10:00 a.m.
Szymczak, Acting Chairman
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
Sherman, Secretary
Kenyon, Assistant Secretary
Hackley, General Counsel
Sammons, Associate Adviser, Division of
International Finance
Hexter, Assistant General Counsel
Hostrup, Assistant Director, Division
of Examinations
Hill, Assistant to the Secretary
Davis, Assistant Counsel
Unanimous approval was given to telegrams
to the Federal Reserve Banks of Nev- York, Cleveland, Richmond, St. Louis,
Kansas City, and Dallas approving the establishment without change by
those Banks on February 26, 1959, of the rates on discounts and advances
in their existing schedules.
Items circulated or distributed to the Board.
The following
Items, which had been circulated or distributed to the Board and copies
Of which are attached to these minutes under the respective item numbers
indicated, vere approved unanimously:
Item No.
Letter to the Ann Arbor Bank, Ann Arbor, Michigan,
granting an additional extension of time within
vhich to establish an in-town branch. (For transmittal through the Federal Reserve Bank of Chicago)
1
2/27/59
Item No.
Letter to the Securities and Exchange Commission
commenting on a prospectus filed with that Commission
by The First Virginia Corporation, Arlington, Virginia.
2
First Security Corporation--Fillmore State Bank (Items 3, 4, and 5).
There had been distributed to the Board a memorandum from the Legal
Division dated February 26, 1959, submitting a proposed Order, Statement,
and Dissenting Statement by Governor Mills in the matter of the application
Of First Security Corporation to acquire stock of the Fillmore State
Bank, Fillmore, Utah.
Following a discussion which brought out, nong other things,
that no comments had been received following publication of a Notice
Of Tentative Decision in the Federal Register and that a meeting of
the stockholders of the Fillmore State Bank was to be held on Monday,
March 2, the Order and Statement were approved, Governor Mills voting
nonorith the understanding that the usual procedures for notification
Of the parties and issuance of a press statement would be followed.
Copies of the Order, the Statement, and Governor Mills' Dissenting
Statement are attached as Items 3, 4, and 5, respectively.
Messrs. Hexter, Hostrup, and Davis then withdrew from the
Meeting.
The letter was approved in a form reflecting a technical change
mentioned at the meeting.
_3 _
2/27/59
Center for Latin American Monetary Studies. In a memorandum
dated February 25, 1959, which had been distributed to the Board, Mr.
Marget, Director of the Division of International Finance, advised
that only one candidate had been proposed for the 1959 course of the
Center for Latin American Monetary Studies; namely, Mr. Richard S. Dosik,
an economist at the Federal Reserve Bank of New York.
The memorandum
recommended that the Board interpose no objection to Mr. Dosikts
Participation in this program.
Following a brief discussion, the recommendation vas approved
unanimously, with the understanding that appropriate letters would be
sent to the Federal Reserve Bank of New York and the Center for Latin
American Monetary Studies.
Mr. Sammons then withdrew from the meeting.
Request for reports on bank merger bills (Items 6 7 and 8).
At the meeting of the Board yesterday, approval was given to letters
to the Chairmen of the Senate and House Judiciary Committees and the
Senate Banking and Currency Committee regarding certain bills relating
to bank mergers, with the understanding that the letters would not
actually be sent until cleared by Governor Robertson.
At this meeting Mr. Hackley described how the letters to the
Judiciary Committees might be changed in certain respects to clarify
the Board s view regarding the extent to which the competitive effect
should be taken into account in considering proposed bank mergers.
He
2/27/59
-4-
emphasized that these changes would have no effect on the fundamental
position taken in the respective letters.
Governor Robertson indicated with these changes the letters
would be in a form satisfactory to him, and the other members of the
Board also expressed agreement with the suggested modifications.
Copies of the letters in the form in which they were sent
Pursuant to this discussion are attached as Items
6 7, and 8. The
Board's action contemplated that a copy of the letter to the House
Judiciary Committee would be sent to the Chairman of the House Banking
and Currency Committee
that a copy of the letter to the Senate
Judiciary Committee would be sent to the Chairman of the Senate Banking
and Currency Committee, and that advice of the views being stated by
the Board on the pending bank merger bills would be sent to the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the Presidents of the Federal Reserve Banks, and the Bureau of the
Budget.
Notification to Justice Department on bank holding company
N21.214cations (Items
9 and 10). It was understood at yesterday's
'
fleeting that Mr. Hackley would call Mr. Maletz, Counsel for the House
JUdiciary Committee, and tell him that the matter of furnishing notice
(1.1" bank holding company applications to the Justice Department had been
discussed by the Board.
2/27/59
-5Mr. Hackley reported that he called Mr. Maletz later in the
day and read to him the letter proposed to be sent to Judge Victor Hansen,
Assistant Attorney General, and that Mr. Maletz considered it entirely
satisfactory.
Mr. Hackley said he also explained to Mr. Maletz that
bank holding companies do not have to obtain Board approval of the
indirect acquisition of bank assets in cases when a subsidiary bank
acquires such assets through merger.
Mr. Maletz had not fully under-
stood the situation and expressed the view that an exemption of holding
companies from the prenotification merger bills should be restricted
to cases where the holding company must obtain approval from the Board.
Accordingly, he asked Mr. Hackley to assist him in preparing a draft
Of amendatory language.
No objection was interposed to Mr. Hackley's furnishing the
l'equested technical assistance.
On the basis of Mr. Hackley's report,
the Board then approved unanimously the letters to Judge Hansen and
Chairman Celler of which copies are attached as Items 9 and 10,respectively.
In view of the Board's letter to the Executive Director of
the Association of Registered Bank Holding Companies dated February
16, 1959
question was raised as to whether advice of the letters on
the bank merger bills and the letters to Messrs. Hansen and Celler
Shod be sent to the Association, but it was agreed that this need
not be done.
It was felt that public release of letters sent to the
e°ngress by the Board was a matter for the responsible Committee or
Congressman to decide.
791
2/27/59
-6The meeting then adjourned.
Secretary's Note: Governor Shepardson approved
today on behalf of the Board a letter to the
Federal Reserve Bank of Boston (attached Item
No. 11) approving the designation of seven
persons as special assistant examiners.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 1
2/27/59
ADDRESS OffICIAL CORRESPONDENCE
TO INC ROAR°
February 27, 1959
Board of Directors,
Ann Arbor Bank,
Ann Arbor, Michigan.
Gentlemen:
Pursuant to your request submitted through the Federal
Reserve Bank of Chicago, the Board of Governors of the Federal
Reserve System further extends until September 5, 1959, the time
Within which Ann Arbor Bank may establish an in-town branch at
the intersection of Broadway and Plymouth Road out-off, under the
authorization contained in the Boardts letter dated March 6, 1957.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
BOARD OF GOVERNORS
.it)W gop,
44 4V,
OF THE
Item NO. 2
2/27/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 27, 1959
Mr. Charles H. Eisenhart,
Assistant Director,
Division of Corporation Finance,
Securities and Exchange Commission,
Washington 25, D. C.
Re: The First Virginia Corporation
File No. 2-14742
Dear Mr. Eisenhart:
This refers to your letter of February 16, 1959, concerning the prospectus filed with your Commission by The First
Virginia Corporation, Arlington, Virginia.
The First Virginia Corporation's annual report to the
Board for 1958 has not been received; therefore, we are not in a
Position to comment on the information pertaining to the Corporation for the year 1958 or as at tha end of that year. Furthermore,
8°me of the financial data regarding other organizations in the
gr°uP for 1958 and prior years included in the prospectus could
not be verified from information readily available in the Board's
files. However, on the basis of a review in the light of our
information regarding the Corporation and its subsidiaries, the
°n1 suggestion noted is as follows:
In the last paragraph on page 31, a portion of the
statement beginning in the fourth line is as follows: "and will
l'equire First Virginia, its affiliated banks, and nonbanking
affiliates, whether or not members of the Federal Reserve System,
to be subject to examination by examiners approved by the Board
Of Governors of the Federal Reserve System." It is felt that it
/40u1d be preferable to change this statement to read: Hand will
!equire First Virginia to be subject to examination by examiners
111Y authorized to examine the affiliated banks."
'
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
UNITED STATES OF AMERICA
BEFORE TiE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Item No.
2/27/59
WASHINGTON, D. C.
In the Matter of the Application of
First Security Corporation
for prior approval of acquisition of
voting shares of Fillmore State Bank,
Fillmore, Utah
ORDER APPROVING APPLICATION
UNDER BANK HOLDING COMPAHY ACT
There having come before the Board of Governors pursuant
to section 3(a)(2) of the Bank Holding Company Act of 1956 (12 USC
1P43) and section 4(a)(2) of the Board's Regulation Y (12 CFR
222.4(a)(2)), an application on behalf of First Security Corporation,
whose principal office is in Salt Lake City, Utah, for the 7oard's
prior approval of the acquisition of 3,000 of the outstanding voting
shares of Fillmore State Dank, Fillmore, Utah; a Notice of Tentative
Decision referring to a Tentative Statement on said application
having been published in the Federal Register on February
(24 FR
5, 1959
873); the said Notice having provided interested persons an
Opportunity, before issuance of the Board's final order, to file
objections or comments upon the facts stated and the reasons indicated
in the Tentative Statement; and the time for filing such objections
and comments having expired and no such objections or comments having
been filed;
-2-
IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that the said application be and
hereby is granted and the acquisition by First Security Corporation
of 3,000 of the outstanding voting shares of Fillmore State Bank,
Fillmore, Utah, is hereby approved, provided that such acquisition
is completed within three months from the date hereof, and that no
action be taken by First Security Corporation that will result in
Fillmore State Bank ceasing to operate as a separate banking institution within 60 days from the date of this Order.
Dated at Washington, D. C., this 27th day of February, 1959.
By order of the Board of Governors.
Voting for this action: Governors Szymczak, Robertson
and Shepardson.
Voting against this action: Governor Mills.
Absent and not voting: Chairman Martin and
Vice Chairman Balderston.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(sEAL)
So
BOARD OF GOVERNORS
Item No.
OF THE
2/27/59
FEDERAL RESERVE SYSTEM
APPLICATION BY FIRST SECURITY CORPORATION, SALT LAKE CITY, UTAH,
FOR APPROVAL OF ACQUISITION OF VOTING SHARES OF
FILLMORE STATE BANK, FILLMME, UTAH
STATEMENT
First Security Corporation, a bank holding company, has
applied, pursuant to section 3(a)(2) of the Bank Holding Company Act
of 1956 ("the Act"), for this Board's prior approval of the acquisition
of all of the outstanding common stock (3,000 shares) of Fillmore
State Bank, Fillmore, Utah.
Pursuant to section 3(h) of the Act, the Bank Commissioner
for the State of Utah was asked for his views and recommendations.
His office replied that the Department interposed no objection to the
granting of the requested approval.
Statutory factors. - Section 3(c) of the Act requires the
Board to take into con
aeration the following five factors: (1) the
financial history and condition of the holding company and bank concerned; (2) their prospects; (3) the character of their management;
(4) the convenience, needs, and welfare of the communities and the
area concerned; and (5) whether or not the effect of the acquisition
would be to expand the size or extent of the bank holding company system
involved beyond limits consistent with adequate and sound banking, the
4
-2-
public interest, and the preservation of competition in the field
of banking.
Discussion. - The Applicant, First Security Corporation, is
a bank holding company with its principal office in Salt Lake City,
Utah.
It owns a large majority of the stock of 4 banks in Utah,
Wyoming, and Idaho.
Those subsidiary banks have total deposits of
about $453 million, representing about 26 per cent of the total of
$1,725 million deposits in the three States.
They have 71 banking
offices, which represent 26 per cent of the 271 offices in those
States.
The respective percentages of deposits and banking offices
held by these banks in each of the three States are:
Utah - 32 per
cent and 35 per cent; Wyoming - 1 per cent and 2 per cent; Idaho -
33 per cent and 29 per cent.
The town of Fillmore is the county seat of Millard County.
It is the center of a relatively sparsely populated agricultural and
retail trade area which does not have as ready access to other areas
as is usually found in other sections of the country.
Millard County
extends about 100 miles east and west and approximately 65 miles
north and south.
High mountains outline its eastern boundary from
Which the county extends westward to the State of Nevada.
locatedIs
Fillmore
in the eastern part of Millard County and Fillmore State
Bank draws slibstantially all of its business from about 4)000 people
in that part of the County.
Geographic conditions tend to discourage
those people from trading or banking elsewhere.
The only other bank-
ing office in the County is located at Delta, about 37 miles away.
_3_
Other banking officet in the• surrounding areas are, at distances
ranging from about 52 to more than 90 miles.
The deposits
of Fillmore State Bank are about $2 million and the deposits at each
of the banking offices in these surrounding areas range from about
$1 million to about
$6 million.
The financial history and condition of both First Security
Corporation and Fillmore State Bank are satisfactory.
The prospects
of both the holding company and the Bank are favorable, except to
the extent that the prospects of the Bank might be adversely affected by problems of management discussed hereafter.
The management of First Security Corporation is capable and
experienced.
There appears to be some basis for Applicant's assertion
that suitable continuing management for Fillmore Bank is not available within the Bank's present staff, that it would be difficult to
secure management from outside the Bank, and that if First Security
Corporation acquires control it would facilitate the providing of
suitable management for the Bank.
The Bank appears to have been serving the convenience,
needs, and welfare of its community and area in a satisfactory manner,
but acquisition of control by First Security Corporation probably
would result in the Bank's furnishing somewhat better and more complete banking services to its customers.
ROI
The most difficult problem here, as in many other cases under
the Bank Holding Company Act, arises under the fifth factor stated in
section 3(c), which requires the Board to consider whether the effect
of the acquisition "would be to expand the size or extent of the bank
holding company system involved beyond limits consistent with adequate
and sound banking, the public interest, and the preservation of competition in the field of banking."
Since there is only one bank in Fillmore there can be no
question of reducing competition with another bank in that community.
However, the banking office in Delta, the only other banking office
in Millard County, is a branch of First Security Bank of Utah, N. A.,
a subsidiary of First Security Corporation.
of about $2-1/2 million.
This branch has deposits
The fact that acquisition of Fillmore State
Bank by First Security Corporation would give that Corporatioa control
of both the banking offices in Millard County is an adverse consideration.
It is also an adverse feature that the only banking office in
Nephi, about
6o miles from Fillmore, is a branch of First Security
Bank of Utah, N. A.
the
First Security Corporation thus controls 2 of
7 banking offices that appear to be most accessible to the area
served by Fillmore State Bank, and the Corporation would control
3 of the 7 if it acquires that Bank.
The adverse elements are mitigated by the fact that there
does not appear to be extensive trade or traffic between Fillmore
and Delta or much overlap of banking business between them; neither
of these small banking offices has more than about 3 per cent of its
deposits from the primary market area of the other.
The general
geographic and economic characteristics of Fillmore, Millard County,
and the surrounding counties tend to make the circumstances relating
to competition somewhat different from those in many other areas.
The adverse features are also offset to some extent by the improved
management and expanded service to the community that probably
would result, as indicated above, from acquisition of control of
Fillmore Bank by First Security Corporation.
Conclusion. - The above views were incorporated in the
Tentative Statement issued in connection with the Notice of
Tentative Decision published in the Federal Register on February
5,
1959 (24 FR 873) affording interested persons an opportunity to
submit comments on or objections to the Board's proposed action, and
no such comments or objections were received within the period specified for their submission.
Viewing the relevant facts in the light of the factors
specified in section 3(c) of the Act and the general purposes of
the Act, it is the judgment of the Board that in the particular
circumstances of this case the proposed acquisition would be consistent with the applicable standards and purposes, and that the
application should be approved. It is so ordered.
Item No.
2/27/59
Dissenting Statement of Governor Mills
The record in this case contains impressive evidence in
favor of the First Security Corporation's proposal to acquire
control of the Fillmore State Bank, but in my opinion that evidence
is insufficient to justify approval of the application. In view of
the topographical characteristics and the distribution of population
in the areas of the State of Utah that are now served by First
Security Corporation's subsidiary banks, and particularly the absence
of any competing banks in some counties of the State, it is apparent
that the situation calls for further investigation of the question
whether approval of the application would lessen banking competition
and further a trend to monopoly.
A public hearing on this applica-
tion would have afforded banking, commercial, and other groups, as
well as individuals, an opportunity to present views and information
regarding all aspects of the competitive situation in this case.
Without the benefit of such a hearing, and in the absence
of the evidence - either in support of or in opposition to the
application - that might thus have been adduced, I dissent from the
decision of the Board.
5
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
6
2/27/59
WASHINGTON
OFFICE OF THE CHAIRMAN
February 271 1959.
The Honorable James O. Eastland, Chairman,
Committee on the Judiciary,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
This is in response to your letter of February 11, 1959,
requesting that the Board furnish your Committee with an expression of
views on the bill S. 1004, "To amend the Clayton Act by prohibiting
the acquisition of assets of other banks by banks, banking associations,
or trust companies when the effect may be substantially to lessen competition, or to tend to create a monopoly."
This bill would amend section 7 of the Clayton Act to bring
acquisitions of bank assets within its coverage in addition to its
present coverage of acquisitions of bank stock.
As you know, numerous legislative proposals relating to bank
mergers have been considered over the past several years by Congressional
committees, some in the form of proposed amendments to section 7 of the
Clayton Act and others in the form of amendments to existing bank merger
Provisions of the banking laws. On several occasions the Board has
expressed its views regarding such proposals. On each such occasion,
the Board's position has been that, regardless of whether the matter is
approached through amendments to the Clayton Act or to the banking laws,
effective regulation of bank mergers would be provided by legislation
that would (1) Make all bank wargers subject to advance approval
of the Comptroller of the Currency, the Board of Governors,
or the Federal Deposit :nsurance Corporation, depending
upon the nature of the resulting bank;
(2) Require the Fideral supervisory agency concerned
to consider whether tba proposed transaction would unduly
lessen competition, a', well as the financial condition,
adequacy of capital, and character of management of the
resulting bank, and the needs of the community; and
(3) Require the agency directly concerned to consult
with the other two agencies regarding the effect of the
proposed merger upon competition, and authorize such agency
to request the opinion of the Attorney General on that
question.
SOS
The Honorable James 0. Eastland
-2-
The Board continues to favor legislation along the lines
above indicated. Provisions embodying the views of the Board were
contained in section 23 of Title III of the proposed Financial Institutions Act (S. 1451) which passed the Senate on March 21,
1957.
Similar provisions are contained in the bill S. 1062 introduced in
the Senate on February 16, 1959.
The reasons for the Board's views, which have been set
forth in detail on previous occasions, may be briefly summarized
here.
Under present banking laws the Comptroller of the Currency
has authority with respect to mergers in which the resulting
bank is
a national bank. In addition, section 18(c) of the Federal
Deposit
Insurance Act requires the Comptroller, the Board, and the FDIC
to
Pass in advance upon those bank mergers which will result in a diminution of capital and surplus; but, because of the limited nature of
this authority, many bank mergers d: not have to be approved in advance
by any Federal agency. The Board believes that it would be desirab
le
to expand this authority so as to require every bank
merger, irrespective of diminution of capital or surplus, to be approved by the
Comptroller, the Board, or the FDIC, depending upon whether the resulting institution will be a national bank, a State member
bank, or a
nonmember insured bank. In the Board's opinion, such advance approva
l
by the appropriate bank supervisory agency would be preferable to the
institution of proceedings under the Clayton Act after consummation
of a merger on the ground that it violated the provisions of. that
Act.
In this connection, it should be noted that coverage of
bank asset acquisitions under section 7 would present far greater
enforcement problems than its present coverage of stock acquisitions.
If a stock acquisition violates the Clayton Act, divestment of the
stock illegally acquired can be accomplished. However, if the merger
of two banks is subsequently held to be a violation of section 7,
it
iS difficult to see how it would be possible,
because of the vary
nature of the banking business, to restore the status quo or to bring
about a break-up of the consolidated bank into two banks
again.
Under section 7 of the Clayton Act as now in force and as
it would be amended by S. 1004, the
test of illegality is whether a
Particular transaction would substantially lessen competition or tend
to create a monopoly. Consequently, if the amendment
were adopted,
every bank merger that would substantially lessen competi
tion would
be prohibited. Substantial lessening of competition would be the
°n1Y factor, to the exclusion of other factors that might well have
441 equally important bearing upon the maintenance of sound
banking
441d the public interest.
Si) 4
The Honorable James 0. Eastland
-3-
Any substantial lessening of competition in the banking
course, an important consideration; and the Board, in
of
is,
field
passing upon transactions within its jurisdiction under present law,
gives consideration to the competitive aspects of the proposed transaction. However, the Board also takes into account such matters as
the adequacy of a bankts capital structure, the condition of its
assets, the competency of its management, its future earnings prospects,
and the needs of the community. There have been in the past, and there
doubtless will again be in the future, instances in which the over-all
public interest would clearly be served by a bank merger even though
it might tend to substantially lessen competition. Consequently, the
Board believes that, at least in the field of banking, not only competitive effects but other factors should be considered in passing
upon banking transactions and that the test with respect to a bank
merger should be whether it would lessen competition to such a degree
as to outweigh whatever favorable factors exist, so that the merger
would be inconsistent with the public interest.
For these reasons, and in keeping with the practice followed
in passing upon other types of banking transactions, the Board is
convinced that it would be desirable that any legislation with respect
to bank mergers should specifically require the appropriate Federal
supervisory agency to consider the competitive effect of a proposed
merger as one factor and, in addition, to consider other factors such
as the financial condition and management of the banks involved and
the needs of the community. If, after weighing all of these factors,
pro and con, the supervisory agency should find TEa there would be
an excessive or "undue" lessening of competition or tendency to create
a monopoly, the proposed merger should not be permitted. (For the
same: reasons, if Congress should decide, contrary to the recommendations of the Board, to deal with bank mergers in section 7 of the
Clayton Act, it should be clearly provided that, in the case of bank
mergers, lessening of competition would not be the only factor to be
consiiiered, but simply one to be weighed along with the other factors
al-eove mentioned in determining whether the merger would be contrary
to th: public interest.)
As previously indicated, the Board would favor a requirement
that each supervisory agency consult with the other two Federal supervisory agencies berore passing upon a proposed mere.er, together with
a provsion authorizing the agency concerned to request the views of
the AtAorney General as to the competitive effect of the merger.
Finally, with respect to enforcement, the amendment proposed
by S. 100h would leave unchanged those provisions of the Clayton Act
The Honorable James 0. Eastland
-4-
that now vest in the Board authority to enforce the provisions of
section 7 where applicable to banks. Under present law, that
authority is limited by reason of the statute's applicability only to
acquisitions of bank stock. Under the proposed amendment, however,
not only would greater enforcement problems be presented, but the
Board's responsibilities in the antitrust field would be multiplied.
It would be necessary for it to consider the competitive aspects of
every bank merger, even if it had already been considered and approved
by other bank supervisory agencies. The Federal bank supervisory
agencies are believed to be qualified by experience to determine
whether approval should be given with respect to proposed bank mergers.
However, the prosecuting and adjudicatory functions involved in enforcement of the antitrust laws are only indirectly related to the
Board's principal responsibilities, which lie in the fields of
monetary and credit policy and bank supervision. The Board feels,
therefore, that enforcement of section 7 of the Clayton Act, whether
with respect to acquisitions of bank stocks or acquisition of bank
assets, is a function that should not be vested in the Board.
While the common objective of all proposals on this subject
is to provide more effective Federal supervision and control over
bank mergers, it is the Board's belief that that objective could best
be achieved by legislation which, instead of bringing bank mergers
under the Clayton Act, would require all such mergers to be subject
to advance approval by the appropriate Federal bank supervisory
agency after consideration of the usual banking factors as well as
whether the proposed merger would unduly lessen competition.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
S1
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
2/27/59
WASHINGTON
OFFICE OF THE CHAIRMAN
February 27, 1959.
The Honorable Emanuel Celler, Chairman,
Committee on the Judiciary,
House of Representatives,
Washington 25, D. C.
My dear Mr. Chairman:
This is in response to your letter of February 12, 1959,
requesting that the Board furnish your Committee with an expression
of views on the bill H. R. 4152, "To amend the Clayton Act by prohibiting the acquisition of assets of other banks by banks, banking
associations, or trust companies when the effect may be substantially
to lessen competition, or to tend to create a monopoly."
This bill would amend section 7 of the Clayton Act to bring
acquisitions of bank assets within its coverage in addition to its
present coverage of acquisitions of bank stock.
As you know, numerous legislative proposals relating to
have been considered over the past several years by
mergers
bank
Congressional committees, some in the form of proposed amendments to
to
section 7 of the Clayton Act and others in the form of amendments
several
exi3ting bank merger provisions of the banking laws. On
occasJons the Board has expressed its views regarding such proposals.
It is the Board's position that, regardless of whether the matter is
approached through amendments to the Clayton Act or to the banking
laws, effective regulation of bank mergers would be provided by legislaVon that would (1) Make all bank mergers subject to advance approval
of the Goliptroller of the Currency, the Board of GovertAors,
or the Federal Deposit Insurance Corporation, depending upon
the nature of the resulting bank;
(2) Require the Federal supervisory agency concerned
to consider whether the proposed transaction would unduly
lessen competition, as well as the financial condition,
adequacy of capital, and character of management of the
resulting bank, and the needs of the community; and
(3) Require the agency directly concerned to consult
with the other two agencies regarding the effect of the
proposed merger upon competition, and authorize such agency
question.
to request the opinion of the Attorney General on that
7
,5"
S1 ,
The Honorable Emanuel Celler
-2-
The Board continues to favor legislation along the lines
above indicated. Provisions embodying the views of the Board were
contained in section 23 of Title III of the proposed Financial
Institutions Act (S. 1451) which passed the Senate on March 21, 1957.
Similar provisions are contained in the bill H. R. 4373 introduced
in the House on February 11, 1959.
The reasons for the Board's views, which have been set
forth in detail on previous occasions, may be briefly summarized here.
Under present banking laws the Comptroller of the Currency
has authority with respect to mergers in which the resulting bank
is a national bank. In addition, section 18(c) of the Federal
Deposit Insurance Act requires the Comptroller, the Board, and the
FDIC to pass in advance upon those bank mergers which will result
in a diminution of capital and surplus; but, because of the limited
nature of this authority, many bank mergers do not have to be approved
in advance by any Federal agency. The Board believes that it would
be desirable to expand this authority so as to require every bank
merger, irrespective of diminution of capital or surplus, to be
approved by the Comptroller, the Board, or the FDIC, depending upon
whether the resulting institution will be a national bank, a State
member bank, or a nonmember insured bank. In the Board's opinion,
such advance approval by the appropriate bank supervisory agency
would be preferable to the institution of proceedings under the
Clayton Act after consummation of a merger on the ground that it
violated the provisions of that Act.
In this connection, it should be noted that coverage of
bank asset acquisitions under section 7 would present far greater
enforcement problems than its present coverage of stock acquisitions.
if a stock acquisition violates the Clayton Act, divestment of the
stock illegally acquired can be accomplished. However, if the merger
of two banks is subsequently held to be a violation of section 7, it
is difficult to see how it would be possible, because of the very
nature of the banking business, to restore the status quo or to bring
about a break-up of the consolidated bank into two banks again.
Under section 7 of the Clayton Act as now in force and as
be
amended by H. H. 4152 the test of illegality is whether
it would
a particular transaction would substantial7y lesson competition or
tend to create a monopoly. Consequently, if the amendment were
adopted, every bank merger that would substantially lessen competition would be prohibited. Substantial lessening of competition
would be the only factor, to the exclusion of other factors that
might well have an equally important bearing upon the maintenance
of sound banking and the public interest.
The Honorable Emanuel Celler
-3-
Any substantial lessening of competition in the banking
field is, of course, an important consideration; and the Board, in
passing upon transactions within its jurisdiction under present law,
gives consideration to the competitive aspects of the proposed transaction. However, the Board also takes into account such matters as
the adequacy of a bank's capital structure, the condition of its
assets, the competency of its management, its future earnings prospects, and the needs of the community. There have been in the past,
and there doubtless will again be in the future, instances in which
the aver-all public interest would clearly be served by a bank merger even though it might tend to substantially lessen competition.
Consequently, the Board believes that, at least in the field of
banking, not only competitive effects but other factors should be
considered in passing upon banking transactions and that the test
with respect to a bank merger should be whether it would lessen
competition to such a degree as to outweigh whatever favorable
factors exist, so that the merger would be inconsistent with the
public interest.
For these reasons, and in keeping with the practice followed in passing upon other types of banking transactions, the Board
is convinced that it would be desirable that any legislation with
respect to bank mergers should specifically require the appropriate
Federal supervisory agency to consider the competitive effect of a
proposed merger as one factor and, in addition, to consider other
factors such as the financial condition and management of the banks
involved and the needs of the community. If, after weighing all of
these factors, pro and con, the supervisory agency should find that
there would be an excessive or "undue" lessening of competition or
tendency to create a monopoly, the proposed merger should not be
permitted. (For the same reasons, if Congress should decide, contrary to the recommendations of the Board, to deal with bank mergers
in section 7 of the Clayton Act, it should be clearly provided that,
in the case of bank mergers, lessening of competition would not be
the only factor to be considered, but simply one to be weighed along
With the other factors above mentioned in determining whether the
merger would be contrary to the public interest.)
As previously indicated, the Board would favor a requirement that each supervisory agency consult with the other two Federal
supervisory agencies before passing upon a proposed merger, together
with a provision authorizing the agency concerned to request the
views of the Attorney General as to the competitive effect of the
merger.
Finally, with respect to enforcement, the
by ii.1. 4152 would leave unchanged those provisions
Act that now vest in the Board authority to enforce
section 7 where applicable to banks. Under present
amendment proposed
of the Clayton
the provisions of
law, teat authority
1
The Honorable Emanuel Celler
-4-
ions
is limited by reason of the statute's applicability only to acquisit
would
only
not
however,
t,
amendmen
proposed
of bank stock. Under the
greater enforcement problems be presented, but the Board's responsibilities in the antitrust field would be multiplied. It would be
necessary for it to consider the competitive aspects of every bank
merger, even if it had already been considered and approved by other
bank supervisory agencies. The Federal bank supervisory agencies
are believed to be qualified by experience to determine whether
approval should be given with respect to proposed bank mergers. Howent
ever, the prosecuting and adjudicatory functions involved in enforcem
Board's
the
to
related
ly
indirect
of the antitrust laws are only
principal responsibilities, which lie in the fields of monetary and
credit policy and bank supervision. The Board feels, therefore, that
enforcement of section 7 of the Clayton Act, whether with respect to
acquisitions of bank stocks or acquisition of bank assets, is a function
that should not be vested in the Board.
While the common objective of all proposals on this subject is
to provide more effective Federal supervision and control over bank
mergers, it is the Board's belief that that objective could best be
achieved by legislation which, instead of bringing bank mergers under
the Clayton Act, would require all such mergers to be subject to advance
approval by the appropriate Federal bank supervisory agency after consideration of the usual banking factors as well as whether the proposed
meror would unduly lessen competition.
Sincerely yours,
(Signed) Wm. MCC. Martin, Jr.
Wm. ;IcC. Martin, Jr.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
WASHINGTON
2/27/59
OFFICE OF THE CHAIRMAN
February 27 1959,
The Honorable A. Willis Robertson, Chairman,
Committee on Banking and Currency,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
This is in response to your letter of February 18, 1959,
l
requesting a report on the bill S. 1462, "To amend the Federa
and
s
Deposit Insurance Act to provide safeguards against merger
or
consolidations of banks which might lessen competition unduly
tend unduly to create a monopoly in the field of banking."
Under the present provisions of section 18(c) of the
Federal Deposit Insurance Act, a bank merger or consolidation must
cy,
have the prior written consent of the Comptroller of the Curren
l
Federa
the Board of Governors of the Federal Reserve System, or the
a
Deposit Insurance Corporation, if the resulting bank will be
,
national bank, a State member bank of the Federal Reserve System
l
capita
the
or a nonmember insured bank, respectively, but only if
aggrethe
than
stock or surplus of the resulting bank will be less
gate capital stock or aggregate surplus of the constituent
institutions.
This section of present law would be amended by the bill
bank
S. 1062 so as to require the consent of the appropriate Federal
the
which
in
dation
consoli
or
supervisory authority for every merger
nonor
bank,
member
State
resulting bank will be a national bank,
is
member insured bank, whether or not a diminution in capital funds
to
agency
riate
the
approp
involved. The bill would also require
its
consider, not only the condition of the bank, the adequacy of
and
ity
conumin
the
of
needs
capital, the character of its management,
prothe
of
effect
the
r
similar factors, but also specifically whethe
unduly
ition
compet
lessen
to
posed mergur or consolidation might be
would
or to tend unduly to create a monopoly. The appropriate agency
es
acenci
banking
l
Federa
two
be required to seek the views of the other
be
would
and
ly
monopo
or
with respect to the question of competition
l on this
authorized to request the opinion of the Attorney Genera
question.
sed
This bill is in conformity with views previously eypres
to
ation
legisl
merger
bank
to
t
on behalf of the Board with respec
r to
your Committee and to other Committees of Congress. It is simila
8
The Honorable A. Willis Robertson
-2-
provisions on this subject contained in the proposed "Financial
Institutions Act" in the last Congress that were endorsed by the Board
and the other Federal bank supervisory authorities. In the Board's
to
opinion, S. 1062 represents a constructive and desirable approach
of
ations
consolid
the problem of Federal regulation of mergers and
banks.
The specific requirement of the bill that the Federal banking
agencies take into consideration the competitive effects of any bank
merger or consolidation upon which they would be required to pass
would, in the Board's judgment, provide an effective safeguard against
undue lessening of competition in the banking field. At the same
to
time, the bill would permit proper weight to be given in each case
n
conditio
l
financia
the
as
such
,
.other factors which may be involved
the
of
needs
the
and
nt,
manageme
of the banks, the character of their
pommunity, so that the banking agencies would be in a position to base
their decisions upon a consideration not only of the competitive
situation but of all aspects of the public interest.
The requirement of the bill that each banking agency seek
the views of the other two Federal bank supervisory, agencies with
respect to the competitive effects of a merger or consolidation is
calculated to promote the use of substantially uniform safeguards by
the three agencies with respect to problems of this kind. In addition,
it is desirable, whenever there is a substantial or important question
regarding the competitive or monopolistic aspects of any such transaction, that the appropriate banking agency be authorized to request
the views of the Attorney General; and the authorization given in the
bill for this purpose would tend to further the objective of uniformity
of standards.
Legislation of this kind, the Board believes, would effectively
accomplish the basic objective of providing means for controlling bank
mergers and preventing undue lessening of competition in the banking
field through that means. Accordingly, the Board endorses the bj11
S. 1062.
Sincerely yours,
tSS
4'1
ti,o;
Win. McC. klartin, Jr.
Si
0,totr*Oo.
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
2/27/59
WASHINGTON
OFFICE OF THE CHAIRMAN
February 27,
1959.
The Honorable Victor Hansen,
Assistant Attorney General,
Department of Justice,
Washington 25, D. C.
Dear Judge Hansen:
As you know, bank holding companies must obtain the Board's
under the Bank Holding Company Act of 1956 before acapproval
prior
quiring the stock or assets of banks, with certain exceptions.
However, section 11 of that Act spe,ifically preserves the applicability of the antitrust laws, notwithstanding any approval of an
application under that Act.
It is the practice of the Board to publish in the Federal
Register a notice of any hearing ordered to be held on an application
by a bank holding company. Such a hearing is held in all cases in
which there appears to be serious question whether the proposed acquisition would have adverse effects upon banking competition. In
cases in which a hearing is not ordered by the Board, the Board
Publishes in the Federal Register a "Notice of Tentative Decision"
on a bank holding company's application, allowing time (usual)y
15 days) for the submission of comments and objections by interested
Parties before the Board's decision is made final. Thus, in aJ1 cases
Prip?e opportunity is afforded for the expression of views by any
Parties affected by a proposed acquisition; and it is assumed that
al] notices published by the Board in this connection are brought to
the attention of your Department.
However, in view of section 11 of the Bank Holding Company
Act and of your Department's responsibilities under the antitrust
laws, the Board feels that it would be desirable to bring directly
tO your attention all applications filed with the Board for approval
of the acquisition by bank holding companies of bank stocks or bank
assets. Accordingly, the Board will hereafter follow the practice
of sending you a copy of each Notice of Tentative Decision on a bank
holding company application and of each gotice of Hearing on any such
application, at the time of transmittal of any such notice for publication in the Federal Register. It is hoped that through this procedure coordination of the respective responsibilities of your
Department and the Board in this field will be facilitated.
9
(,1
The Honorable Victor Hansen
-2-
It may be noted that, while the prenotification requirements
pending
bills (such as H. R. 3235) would apply to the indirect as
of
direct acquisition of stock or assets of a bank, the Bank
as
the
well
Holding Company Act does not require the prior approval of the Board
for the indirect acquisition by a holding company of the assets of a
bank in a case in which a banking subsidiary of the holding company
acquires the assets of another bank through a merger. In such a case,
therefore, the Board receives no advance notice from the holding
company regarding the proposed acquisition.
Sincerely yours,
(signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
a
BOARD OF GOVERNORS
OF THE
Item No. 10
2/27/59
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
February 27, 1959.
The Honorable Emanuel Celler, Chairman,
Committee on the Judiciary,
House of Representatives,
Washington 25, D. C.
Dear Mr. Chairman:
I understand that Mr. Herbert Maletz, Counsel for your
Committee, in a recent telephone conversation with the Board's General
Counsel, Mr. Howard H. Hackley, indicated that your Committee desires
to be advised whether the Board would be willing to follow a procedure
of directly notifying the Department of Justice of all applications
received by the Board for approval, under the Bank Holding Company Act
of 1956, of acquisitions of bank stock and bank assets by bank holding
companies. It is understood that this advice is considered relevant
to a proposal that bank holding companies be exempted from the provisions of certain pending bills that would amend the Clayton Act to
require advance notification, in certain cases, to the Attorney General
and to the Board with respect to proposed acquisitions of the stock
or assets of banks.
This matter has been considered by the Board, and I am
enclosing a letter that has today been sent to Mr. Victor Hansen,
Assistant Attorney General in Charge of the Antitrust Division of
the Department of Justice, stating that the Board will hereafter give
the Department direct notice of all applications filed with the Board
under the Bank Holding Company Act.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
lerclosiire
H?()
BOARD OF GOVERNORS
OF THE
,ke'39ad
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
i4.
*
*
*
3
Item No. 11
2/27/59
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
- 1002P41.*
'
February 27, 1959.
Mr. B. F. Groot, Vice President,
Federal Reserve Bank of Boston,
Boston 6, Massachusetts.
Dear Mr. Groot:
In accordance with the request contained in your
letter of February 24, 1959, the Board approves the
designation of the following named employees of your bank
as special assistant examiners for the Federal Reserve Bank
of Boston for the purpose of participating in examinations
of Depositors Trust Company, Augusta, Maine, The Merrill
Trust Company, Bangor, Maine, The Connecticut Bank and Trust
Company, Hartford, Connecticut, and Rhode Island Hospital
Trust Company, Providence, Rhode Island:
Josephine E. Anzalone
Herbert A. Johnson
Joseph L. Johnston
Edwin J. Madden
Paul Mitchell, Jr.
Mary D. Nolan
Robert M. White
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
@FedFRASER