Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, May 3, 1962, Volume 49, Part 5

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Minutes for

To:

Members of the Board

From:

Office of the Secretary

May

3, 1962

minutes of the
Attached is a copy of the
Federal Reserve System on
Board of Governors of the
the above date.
lude a statement
It is not proposed to inc
entries in this set of
with respect to any of the
icy actions required to
minutes in the record of pol
section 10 of the Federal
be maintained pursuant to
Reserve Act.
on with regard to
Should you have any questi
iated if you will advise
the minutes, it will be apprec
Otherwise, please initial
the Secretary's Office.
t at the meeting, your
below. If you were presen
roval of the minutes. If
initials will indicate app
initials will indicate
you were not present, your
minutes.
only that you have seen the

Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell


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Minutes of the Board of Governors of the Federal Reserve
System on Thursday, May 3, 1962.

The Board met in the Board Room

at 10:00 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Hackley, General Counsel
Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Benner, Assistant Director, Division
of Examinations
Mr. Thompson, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office
of the Secretary
Mr. Potter, Senior Attorney, Legal Division
Mr. Lyon, Review Examiner, Division of
Examinations
Mr. Poundstone, Review Examiner, Division of
Examinations

Mr.
Mr.
Mr.
Mr.
Mr.

Continental Bank matter.

Mr. O'Connell reported that the

United States Court of Appeals for the District of Columbia had
affirmed the District Court's dismissal of the complaint against
the Board by Continental Bank and Trust Company, Salt Lake City,
Utah, in connection with the capital adequacy proceeding involving
that bank.

Presumably, the bank might next seek a writ of certi-

orari from the United States Supreme Court.


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Federal Reserve Bank of St. Louis

If that were denied,

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5/3/62

the Board could proceed with its show cause hearing, which had been
held in abeyance pending the decision by the Court of Appeals.

Mr.

O'Connell added that he did not know at this time whether or not the
Court of Appeals had issued an opinion with its ruling.
Granting of general consent to Edge financing corporation
(Item No. 1). There had been distributed a draft of letter to Bankers
International Financing Company, Inc., New York, New York, granting
general consent to the purchase and holding of stock in generally
designated types of corporations, subject to restrictions similar
to those that had been imposed in the several other cases in which
the Board had granted a general consent.
Following a brief discussion, the letter was approved
unanimously.

A copy is attached as Item No. 1.

Mr. Poundstone then withdrew from the meeting.
United Security Account Plan (Item No. 2).

Over a period of

many months the Board had given consideration to the United Security
Account Plan offered by Citizens Bank and Trust Company, Park Ridge
(Chicago), Illinois, which in effect permitted withdrawals by the
bank from savings accounts in payment of checks, a principle prohibited by section 217.1(e)(3) of the Board's Regulation Q, Payment
of Interest on Deposits, as amended January 15, 1962.

At its meeting

O1 April 23, 1962, the Board discussed various possible courses of
action and considered drafts of letters that had been submitted.

The

Federal Reserve Bank of Chicago had begun a special examination of


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5/3/62

Citizens Bank and Trust Company on February 261 1962.

However, at

the time, principally because of operating difficulties arising from
a change in accounting systems, and the breakdown of the bank's
electronic accounting equipment, the bank had not taken any action
since January 15, 1962, to carry out instructions from United Security
Account holders for withdrawals from savings accounts to cover "loans"
created by the issuance of checks.

Therefore, the Reserve Bank planned

to make a supplementary investigation of the savings department of
Citizens Bank at a later date.

At the conclusion of the discussion at

the April 23 meeting the Board agreed that, since the Chicago Reserve
Bank had begun its supplementary investigation the preceding week, the
matter would be considered further following receipt of the report of
that investigation.
There had now been distributed a memorandum dated April 271
1962, from the Legal Division, which indicated that the report of
the Chicago Reserve Bank's further investigation had been received.
The report stated that, as of April 14, "adjustments to the United
Security Accounts had been made which included withdrawals aggregating
$924,847.45 from accounts considered by the bank to be savings deposits,
and the proceeds of the withdrawals were used to retire an equal amount
of credit extended by the bank in payment of checks and the service
Charges thereon."

The Reserve Bank's examiner had expressed the view

to the bank's officers that operation of the plan, in addition to
involving apparent violations of the law and Regulation Q1 seemed


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Federal Reserve Bank of St. Louis

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5/3/62
questionable as a matter of sound banking practice, particularly
from an economic standpoint.

The bank's president reportedly had

stated to the examiner that certain pressures maae it impossible for
any officer present at the conference with the examiner to discontinue the
plan, but that it had already been decided that mail solicitation would
be discontinued and new accounts obtained only from past solicitation.
However, the examiner's report indicated that a large mailing had been
completed recently and a large volume of new account activity appeared
to be in process. The president of Citizens Bank had requested that the
bank be advised by letter of the findings of the investigation, and
stated that comments pertaining to the unprofitability of the plan would
be helpful.
Attached to the memorandum was a revised draft of letter to
Citizens Bank.

The new draft included a paragraph stating that the

Board expected the bank to (1) discontinue operation of the plan and
(2) notify all United Security Account customers that, after a specified date (allowing reasonable time), indebtedness to the bank incurred
by the drawing of checks against such accounts would no longer be
liquidated by the withdrawal of funds from the accounts.

It was noted

in the memorandum that the draft letter did not include comments with
respect to the uneconomic aspects of the plan because it was believed
that a letter from the Reserve Bank covering that point would be more
appropriate.


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Federal Reserve Bank of St. Louis

4.,411)

-5-

5/3/62

During discussion, Governor Shepardson called attention to
a statement in the memorandum that the draft letter was not in the
form usually used as the first step in a possible membership proceeding.
Mr. Hooff responded that a letter that was expected to lead
to a membership proceeding would be more formal, with references to
the pertinent statutes included.

The less formal approach used in

the draft letter was suggested because it was hoped that such a letter
would be sufficient to cause the bank to discontinue its United Security
Account plan.

Some basis for that hope was to be found in the indica-

tions that the plan would prove to be unprofitable and that certain
officers of the bank would like to see the plan discontinued.
After further discussion, the letter was approved unanimously,
subject to agreement being reached by Messrs. Moloay and Hooff on the
wording of one particular passage.

A copy of the letter, as sent, is

attached as Item No. 2.
Messrs. Molony, Farrell, Hexter, Hooff, and Benner then
Withdrew from the meeting.
Application of Morgan New York State Corporation (Items

AL2112_121_2).

There had been distributed a draft of statement reflect-

ing the unanimous decision reached by the Board on April

51

1962,

to

deny the application of Morgan New York State Corporation to become

a bank holding company through the acquisition of all of the voting
shares of Morgan Guaranty Trust Company of New York and of six
banks located in upstate New York.


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Federal Reserve Bank of St. Louis

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Mr. O'Connell commented that in drafting the statement the
Legal Division had tried to develop as comprehensively as possible
the considerations that had entered into the Board's decision, relating
them to the factual situation reflected by the record of the case.
As indicated by a reading of the portions of the statement dealing
With the first four statutory factors, considerations pertaining thereto
might seem to lean as much toward approval as disapproval.

Hence, it

Was necessary to show that adverse considerations under the fifth factor-relating to whether the size and extent of the proposed holding company
Would be consistent with adequate and sound banking, the public interest,
and the preservation of competition--carried conclusive weight.

In

this connection, the Division had endeavored to cause the statement to
reflect the apparent philosophy of the Congress, as expressed in the
legislative history of the Bank Holding Company Act.

The Legal Division

agreed that the philosophy of the Congress, as so expressed, suggested
strongly the decision that the Board had reached.

However, the relation-

ship had to be developed against the background of the factual record
Of this case.
Messrs. O'Connell and Hackley expressed the hope that the
Board) if it considered the statement generally satisfactory, would
agree to deferral of the release of the order and statement until
tomorrow afternoon in order to permit a final check for factual
accuracy and an opportunity to accommodate such changes as the Board
might desire.


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Federal Reserve Bank of St. Louis

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5/3/62

There was general agreement with the suggested timing of
public release.
During the ensuing discussion a number of suggestions were
made for minor changes in wording in various parts of the statement
for the purpose of clarification or emphasis.

One point to which

attention was given was the question whether the Board's action
should be predicated more on the degree of banking concentration
that would immediately result if the application were approved, or
on the potential danger of undue banking concentration.

The views

stated on this point revealed some conceptual variations, Governor
Mills expressing the view that there was inherent in the current
Proposal, per se, an undue concentration in the immediate sense,
While Chairman Martin indicated that his thinking was directed more
to the potential influence of the formation of the holding company
in terms of a trend toward undue concentration.

Mr. Hackley then

suggested certain revisions of one portion of the statement that
might be helpful in resolving this difficulty, and all of the members
of the Board indicated that they would favor the suggested language.
There was also general agreement with a suggestion that
there be inserted in the statement language bringing out that the
Board's conclusion was not based on a belief that the economic
Power of the proposed holding company would be abused or improperly
exercised; that instead the conclusion reflected a belief that


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Federal Reserve Bank of St. Louis

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5/3/62

approval of the application would be inconsistent with the intent
of Congress, as reflected in the fifth statutory factor.
After further discussion, the issuance of the statement
reflecting the Board's decision in regard to the application of
Morgan New York State Corporation was authorized,for release tomorrow,
along with an order in the usual form, with the understanding that the
Legal Division would make the changes in the statement agreed upon at
this meeting and also any minor editorial changes that might seem
necessary.
on May

Copies of the order and statement, as subsequently issued

4, 1962, are attached as Items 3 and 4.
There was also a discussion of the possible desirability of

Preparing a press statement in somewhat more comprehensive form than
usual.

However, after consideration of views expressed by the

Legal Division in this regard, it was agreed that the press release
covering the order and statement should be prepared in the usual form.
Secretary's Note: A copy of a concurring
statement by Governor Mitchell, released
on May 8, 1962, is attached as Item No. 5.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
the following items:
Letter to the Federal Reserve Bank of Philadelphia (attached
Item No. 6) approving the appointment of John P. Lamond as assistant
examiner.
Letter to the Federal Reserve Bank of Atlanta (attached Item
approving the designation of Alton Donald Sands as special assistant
examiner.


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Federal Reserve Bank of St. Louis

SecretarA
_-)

0

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Item No. 1
5/3/62

WASHINGTON 25, D. C.

ADDRESS arriciAL CORRESPONDENCE
TO THE BOARD

41&ftst
,
Nay 3, 1962.

N.nkers International Financing
, Company, Inc.,
t6 Wall Street,
"e14 York 15, New York.
Ge

ntlemen:

Consideration has been given by the Board of Governors to
the
1,, request contained in your letters of January 30, and April 12,
pP2) for the Board's general consent to Bankers International
-Lnancing Company, Inc. ("BIFC") to purchase and hold stock in
generally designated types of corporations.
On the basis of the information furnished as to investment
icies to be pursued by BIFC, the Board grants its general consent,
the purposes of the first sentence of Section 211.9(c) of Regulation
to BIFC to purchaa(i end to hold shares of stock of any foreign corpora4211, provided the aggregate investment in any one foreign corporation
its subsidiaries (on a combined basis) shall not exceed 5 per cent
the capital and surplus of BIFC, subject to the following conditions:

4

(1) This authorization shall he applicable only to investments made on or before December 31, 1962. Options to
acquire stocks subsequent to the termination date
(December 31, 1962) of the general consent may not be
exercised unless specifically approved by the Board or
permitted under a then effective general consent.
(2) The Board of Governors shall be informed promptly in
writing, through the Federal Reserve Bank of New York,
when any such investment is made, together with pertinent details regarding such investments, and the Board
of Governors shall be furnished within thirty days after
acquisition: (a) a balance sheet of the corporation
whose stock has been acquired, showing the financial
position of the corporation as of a recent date, together


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Federal Reserve Bank of St. Louis

SOARO

OF GOVERNORS OF THE FEDERAL

LIIIters International Financing
CQMpany, Inc.

ttiti8
RESERVE SYSTEM

-2-

with an income statement for the preceding fiscal
period; (b) a brief description of the business of
the corporation; (c) a list of officers and directors,
with addresses and principal business affiliationsv(d)
a description of the stock acquired; (e) information
concerning the rights and privileges of the various
classes of stock of the corporation outstanding; (f)
a list of all stockholders holding 5 per cent or more
of any class of stock of such corporation and their holdings; and (g) a brief description of any loan or credit
transaction with the corporation in connection with which
the stock was acquired. If, upon review of such information, the Board of Governors determines that an investment
is contrary to the investment program of BIFC as submitted
to the Board in your letters of January 30 and April 12,
1962, or is otherwise objectionable to the Board of
Governors, BIFC shall take the necessary steps to divest
itself of such investment, upon notice to that effect and
within such time as the Board may specify.
(3) Investments by BIFC under this general consent shall be
made in accordance with sound financial policies, including among others, (a) appropriate diversification of its
loan and investment portfolios so as to avoid undue concentrations in loans to, and investments in, individual
enterprises, industries, or otherwise, and (b) proper
regard to the relationship between its assets and the
maturities of its obligations.
(4) BIFC shall be expected to dispose of its holdings of stock
of such foreign corporation, as promptly as practicable,
in the event that such foreign corporation should at any
time (a) engage in the business of issuing, underwriting,
selling or distributing securities; (b) engage in the
general business of buying or selling goods, wares, merchandise, or commoditios in the United States or transact
any business in the United States except such as is incidental to its international or foreign business; or (c)
conduct its operations in a manner which, in the judgment
of the Board of Governors, is inconsistent with Section 25(a)
Of the Federal Reserve Act or'regulations thereunder.

(5) Such investments shall not be made in the shares of
financial corporations or holding companies.

(6) The investment in any such foreign corporation shall not
include more than 49 per cent of its voting shares or


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Federal Reserve Bank of St. Louis

BOARD

OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Bankers International Financing
Company, Inc.

otherwise enable BIFC to designate a majority of the
foreign corporation's board of directors or similar
management group.
(7) The aggregate equity investment (at cost) in foreign
corporations engagedin the same business (i.e., the
manufacture or mining of similar products or the carrying on of similar activities) shall not exceed 25 per
cent of BIFC's capital and surplus.
(S) The aggregate equity investment in all foreign corporations doing business in any one country, colony, possession or dependency shall not exceed 25 per cent of BIFC's
capital and surplus.
(9) Under this general consent, shares shall be acquired
only from the issuer directly.
The right is reserved to terminate this general consent upon
Iliuety days' written notice to DIFC.
Mr.As you know from the Board's letter of December 29, 1961, and
, Davies' reply of February 19, 1962, a comprehensive review is being
4
:ade
of Regulation Y. Accordingly, with regard to the precentage limitions outlined in your letter of January 30, 1962, the Board feels
44at, pending the completion of the review for the purpose of considerwhether any modifications are appropriate, it would be preferable
t? limit (1) the aggregate equity investment in any one foreign corporato 5 per cent of capital and surplus of the Foreign Financing
c°rPoration and (2) the aggregate equity investment in (a) foreign
a°rPorations engaged in the same business and (b) foreign corporations
p°14g business in any one country, to 25 per cent each of the Foreign
e'zancing Corporation's capital and surplus. Proposed investments in
a)c”sa of 5 per cent of capital and surplus of PIFC may, of course, be
uoflitted to the Board for individual consideration.

j

Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.


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BOARD OF GOVERNORS
OF THE

4400124*

**01

t7,1
N*
3

.14
1'.
Mt
6‘\ -AY
:
4* 1,

FEDERAL RESERVE SYSTEM

Item No. 2
5/3/62

WASHINGTON 25, D. C.

4*;::ttgattl

ADDRESS OFFICIAL CORRESPO
NDENCE
TO THE HOARD

May 3, 1962
Board of Directors,
Citizens Bank & Trust Company,
Park Ridge, Illinois.
Gentlemen:
From correspondence, circulars, and other media utilized
by your bank that have come
to the attention of the Board of
Governors over the past two years, the Board understands that your
bank has been advertising widely an arrangement known as the "United
Security Account" plan, whereby customers are given the privilege of
drawing checks against your bank
as an incident to the opening and
Maintenance of a savings account.
This plan has been amended several
times during the course of these two years, but the basic purpose
appears to remain unchanged—namely, the development and use of a
levice to provide for the payment of interest on an account that is,
In effect, subject to withdrawal by means of checks whenever
the
customer deems it expedient to do so.
Your bank has indicated that it does not desire to violate
anY laws or regulations. The recent examinations conducted by the
Federal Reserve Bank of Chicago disclosed that your bank is still
,ccepting and processing accounts on the basis of this plan, which
443 prohibited by section 217.1(e)(3) of Regulation Q. Accordingly,
Y°u are notified that the Board of Governors expects Citizens Bank
Trust Company to comply with this provision of the Regulation and
:do discontinue the operation of the above described United
Security
4 count plan and to notify all customers party thereto that after
a
necified date, allowing reasonable time, indebtedness incurred by
,re drawing of checks against such accounts will no longer be
-Liquidated by the withdrawal of funds
therefrom.
Very truly yours,
(Signed) Merritt Sherman

Merritt Sherman,
Secretary.


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UNITED STATES OF ANERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Item No.

5/3/62
WASEINGTOY, D. C.

In the Matter of the Application of
MOFtGAN NEW YORK STATE CORPORATION
"
f prior approval of the acquisition
c)f 100 per cent of the voting shares
Morgan Guaranty Trust Company of
'v
e York and of six banking institutions'
in
upstate New York

r

ORDER DENYING APPLICATION
UNDER BANK HOLDING COTTANY ACT
There has come before the Board of Governors, pursuant
to section 3(a)(1) of the Bank Holding Company Act of 1956
(12 U.S.C. 1842) and section 222.4(a)(1) of Federal Reserve Regulati°n Y (12 CFR 222.4(a)(1)), an application on behalf of Morgan
York State Corporation, Albany, New York, for the Board's prior
al)Proval of action whereby Morgan New York State Corporation would

ben,

'
- me a bank holding company through acquisition of 100 per cent of
th
e Voting shares of Morgan Guaranty Trust Company of New York;

Manufacturers
and Traders Trust Company, Buffalo; Lincoln Rochester
Company, Rochester; First Trust & Deposit Company, Syracuse;

the State bank or trust company into which would be converted The
Nati
onal Comercial Bank and Trust Company of Albany; the State bank

gr" trIlet

company into which would be converted First-City National Bank


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Federal Reserve Bank of St. Louis

3

V3i
—2—
Of-B
inghamton, N. Y.; and the State bank or trust company into which
lould be converted The Oneida National
Bank and Trust Company of
Central New York, Utica.
A Notice of Receipt of Application was published in the
red

eraaRerjster

on July 27, 1961 (26 Federal Register 6751)1 which

Prov.
lcted an opportunity for submission of comments and views regard—
the proposed acquisition; following receiot of comments and
&ells, the Board ordered a public oral presentation of views which
onducted before the Board on December 7, 1961, and at
which
qlpersons requestinr, opportunity to appear, and did so appear,
1,Tere
heard and were given opportunity to submit further written
•
'
sslons of views; and all comments and views received in the
c°11r2e of these proceedinrs have been considered by the Board.
l'ee°rddrigly,
IT IS ORDERED, for the reasons set forth in the Boardts
nt of this date, that said application be anu hereby is denied.
Dated at washington, D. C., this 4th day of May, 1962.
By order of the Board of Governors.
Voting for this action:

Unanimous, with all members 2resent.

Signed) ilerritt Sherman
Merritt Sherman,
Secretary.

(84L)


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t
Item No. 4
5/3/62

BOARD OF GOVERNORS
OF THE
FLDLTAL RLS1TVE SY3TE:1

APPLICATION OF NCRGAN NEW YORK STATE CORPORATION, ALBANY,
NE4 YORK, FOR PERNISSICN TO DECCHE A BANK HOLDING COMPA13Y

STATEMENT

Nature of the proposal. — Morgan New York State Corporation,
Albany, New York ("Applicant"), has filed an application with the Board
Of Governors pursuant to section 3(a)(1) of the Bank Holding Company Act
Of 1956 ("the Act"), for the Boardts approval of proposed action whereby
APplicant would become a bank holding company through the acquisition of
all the voting shares of Morgan Guaranty Trust Company of New York and of
th° following six banks located in upstate New York: Manufacturers and
Traci
Ors Trust Company, Buffalo; Lincoln Rochester Trust Company, Rochester;
' irst, Trust & Deposit Company, Syracuse; the State bank or trust company
.11t0 'thich will be converted The National Commercial Bank and Trust Company
Of Al
bany; the State bank or trust company into which will be converted
thc2 .
First-City National Bank of Binghamton, N. Y; and the State bank or
tNst
Tr'ust

company into which will be converted The Oneida National Bank and
Company of Central New York, Utica.

For convenience, the seven

'
involved, individually and as a group, are referred to at times as

"13arlio

and "Banks", respectively.

2(3111Cti111°S

The terms "District" or "Districts",

usLd herein, refer to one or more of the nine Banking Districts

illt() which the State of Now York is divided under State law.

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Federal Reserve Bank of St. Louis

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Applicant's proposal contemplates obtaining this Board's approval
°I' the aforementioned acquisitions (approval of the same by the New York
State Banking Board was granted on September 29, 1961), following which
the three proposed subsidiaries that are presently national banks, with
the approval of their stockholders and the New York Superintendent of
Barlks, will be converted into State banks or trust companies.

Thereafter,

IIIPPlicant and the seven Banks would enter into a Plan of Acquisition
Wher b

following approval by two-thirds of the stockholders of the

l*esPective banks and by the State Banking Board, Applicant would issue
214:2035172 shares of its stock in exchange for the shares of the seven
ks
Y

except for shares of any dissenting stockholders.

Dissenting

stockholders, as
provided in the Plan of Acquisition and in the Banking
Law
of the State of New York, would be paid off in cash. Assuming the
4f°1'ementioned transactions, Applicant would then own all of the voting
shar-_
of the seven Banks, other than Directors' qualifying shares.
History of the proceeding. - Pursuant to the provisions of secti°11 3(b) of the Act, the Board requested of the New York State Superintendent of Banks his views and recommendations on the application in
-on to the factors that the Board must consider as set forth in
eeti n l t
°- -,\c) of the Act. Although not required by the Act to request
the
Views and
recommendations of the Comptroller of the Currency (none
th
e -anks whose voting shares would be acquired by Applicant would be
atonal

banks), the Board invited an expression of views by the Comptroller
thast,
Ilch as three of the Banks involved are presently national banks.
'
lett-er
dated July 28, 1961) the Superintendent of Banks advised that,

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i

-3sdmultaneo,Isrith its filinc of this applicatdon, Ap91dcant also had
171-A
With the lIev York State Banking Board, parEuant to :xt-7cle
Of the New York Banking Laws, an applicat!on for approval involvi% the
co.,Incat
same proposal. The Superintr5ndent erpressed the view that any
him on the application before the Board. of Governors wculd be inapproPri:ite dnasmuch as he was requiredl)y State low to mai:e a recommendation
to -Ude nankin: Boar?" on the aPplicatfon nending before it. Thereafter/
thc Superintendent recenmended favorably to the banking Board on the application and on September 29, 1961, the Banking Board approved the save.

The

ee'ptroller of the Currency advised the Board of Governors by letter dated
Au:ust 2, 1961, that "Under the circumstances of thds particular case, we
e concluded that we shall offer no objection to the prof-,osci-.1 transaction."

ThV

Register
By Order dated October p, 1961, published in the Federal
°II October 1 11, 19611 the Board scheduled a public oral presentation of
on the application.

In the copra- of those droceed:ings, conducted

011 Lecember 71 1961, all persons who requested the oportunity to appear,
ancl did so appear, were heard and were given an opportunity to sublait
ruIther written exprcssonslidthin 15 daTs of their oral presentations.
Such written statements as were submitted, including Ap-)licant's Closing
ndlim on Lea sons for A:)rov7,1 of the ApnIication, and Rebuttal on
-- of Inee;endent Bankers Association, et al., were rece'ved and consio„ ,
10 the ioard. By letter dated January 221 1962, the Coptroller
.
°f t;le Currency e=ressod the view, contrar:: to the Awst 24, 1961 rec°Illc'adctdon of his predecessor in office, that Applicant's proposal should


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Federal Reserve Bank of St. Louis

1_ t

lic't be aqroved.

This letter and a reoiy thereto dated January 29, 1962,

filed on Applicant Is behalf, were made part of the record of this matter
and have been considered by- the Board.
Statutory factors. - In determining whether or not to approve
this application, the Board is rec_uired by section 3(c) of the Act to
consider the following factors: (1) the fin,ncial history and condition
of the pr000sed noldnr,
, company and the banks concerned; (2) their prosPects; (3) the character of their management; 04) the convenience, needs,
and Irelfore
of the cam-unities and the areas concerned; and (5) whether
Or not the effect of such acquisition or merger or consolidation would be
to epand the size or extent of the bank holding company system involved
beYond limits consistent with adequate and sound banking, the public intc'rest, and the preservaton of competition in the field of banking.
FINANCIAL HISTORY AND CONDITION, AND PnSPECTS
The first two of the statutory factors - the financial history
`nd coaditjon and the prospects of the Aoplicant and the Banks - are
clOsel'r related and may appropriately be considered together.

Hereinafter,

Unless other:rise indicated, data relating to banking offices are given as
O1

June 30, 1961; data as to deposits and loans, and related data, are

Eten as of
Decerber 31, 1960.
Applicant, incoroorated in January 1961, has but a brief financial
iStOry.

Its only asset consists of r)100 cash paid for ten shares of its

hres
ently authorized 21C00 shares of common stock.

If this application is

Anolicantts principal assets will be stock of its subsidiary
Thus, Anolicantts financial condition and prospects would parallel
those

of the banks
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Federal Reserve Bank of St. Louis

it would own,

Vorgan Guaranty Trust Comany of New York ("Norgan Guaranty")
°rCanized in

1864

as the Ncu York Guaranty and Indemnity Company,

he name being changed in 1895 to Tharanty Trust Company of New York. In
1.959,
J. P. iiorgan & Co., Incor7orated, 1;as merged into the Guaranty Trust
ear,
l'anY, the continuin7 institution changing its name to horgnn Guaranty
Trust Company of New York. Lorgan Guaranty is the fifth largest bank in
16
-4 Cork City and in :Hew York's Second Banking District, and the sixth
411est bank in the nation.
l'esources of

$4,245

At December 31, 1960, Morgan Guaranty had

million, held total deposits of a3,410 million, and

hacl caPital accounts totaling 0551 million. It operates nine banking
offi„
'
es - fiv2, including its head office, in New York City, and four
f°roiall branch
offices.
stock

It also has a New York City office at which its

transfer division is located.
hanufacturers

Traders Trust Cordpany

T") was organized

1'1892 as The
Fidelity Trust and ("allacity Company of Buffalo; its present
title
was asaamed in 1925. M esT operates 43 banking offices located in
21 c°111rfranities and in five cf the eight counties comprising the Statels
1114th
BankinL District. Its main office and 18 branch offices are locate('
ln
the Oity of Buffalo. IT ex T is the third largest bank and the second
comnercia' bank in Buffalo, and the third largest bank in the
11111th Pkn
--44ing District. At December 31, 1060, it had resources of
'

total deposits of


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Federal Reserve Bank of St. Louis

)..62 million, and capital accounts of

-6Lincoln Rochester Trust Comany ("Lincoln Iochester") was
orgarized
19456

in 1693 as the Alliance Bank; its present nam was taken in

its main office and 95 branch offices are located in the Eighth

Bankinc 1)
- strict.
ila l'.0chester.

Ten offices, incDding the main office, are located

In all, Lincoln Rochester offices are found in 15 communi-

ties and 5 of the 6 counties coprsing the Eighth Barking District.

These

(3ff-loe3 had, at DeceEber 31, 1960, total resources of :4117 million, total
clePcsits of ,377 million, and total capital accounts of 32 million.
Line°111 20chster is the largest bank in Fochester are in the Eighth Bank•
,District.
First Trust

Deposit Copany ("First Trust") commenced business

as the
Trust and Deposit Gummy of Onondaga in 1369 and adopted its
144esent title in 1919. Its main oflice, located in Syracuse, and 23 branch
offi
ces are located within the Sixth Lankinr: District. it is the second
lal'C'est, bank and the largest cormercial bank in both Syracuse and the Sixth
411"1-11E District. For nurnoses of this application, Applicant has divided
the seven counties co=ising the Si:7th Banking District into a five-county
el,ea a
lad a two-county area. First Trustls offices are located in four of
the filre counVes co-prising the former areP. 14 of its branch offices
1Co
'
)ted in and around Sirracu.se, and its remaining nine offices are
1c3cated
-- elsewhere in the four counties. First TrIlstis 24 offices had,
at
l'ecernber 31, 1960, resources of 1.96 million, total eposits of
Ca83
and capital accounts or l0 million.


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Federal Reserve Bank of St. Louis

—7—
The National Commercial Bank and Trust Company of Albany
("National Commercial"), organized in 1825, has its main office in Albany,
10 branch offices in the Albany area, and 22 branr.;11 offices in other areas
within the Fourth Banking District.

It has offices in 25 cormunities and

in 11 of the 15 counties comprising the Fourth Banking District, and is

the second largest bank in that District and in. the City of Albany-. At
December
31, 1960, the Bank had resources totaling > 49 million, total
clePosits of rj11 million, and capital accounts of /2.3 million.
First-City National Bank of Binghamton, N. 1. ("First-City
4
tion5l"), located in the Seventh Banking District, was founded in 1863.
It has its main office in Binghamton, five branch offices in the Binghamton
area, and two branch offices elsewhere in the District. First-City National
is the second
largest bank and the 1.rgest commercial bank in Binghamton,
alld the third largest bank and second largest commercial bank in the Seventh
Banking District. At Dece,aber 31, 1960, First-City National had resources
or
097 million, held total deposits of '')86 million, and had capital accounts

or 8 millions
Oneida National Baniz and Trust Company of Central New York
("0
nelda National")

in 1836, is the third largest bank and
organized
,

sec°114 :largest commercial bank in Utica, and the eighth largest bank in
the 3,-.,-th Banking District. Oneida laVonalls offices are all within two
1-Intie3 of
the Sixth Banking District, Its main office is in Utica, four
O
t its
branch offices are in the Utica area, and eight branch offices are
1°cated
elseghere within the two counties. These two counties constitute


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Federal Reserve Bank of St. Louis

AL68(
—8—
the two-county area of the Sixth Banking District earlier mentioned as
'ha
ving been designated by Applicant for purposes of this application.
At

December 31, 1960, Oneida National had resources of $126 million,

total- deposits of $112 million, and capital accounts of $11 million.
The evidence presented as to the financial condition of the
Pl'oposed subsidiary banks supports the conclusion that each is in sound
ILhancial condition, that the financial history of each has been satisfact°17, and that the prospects of each are favorable. However, in this
e°11nection, Applicant has laid considerable stress upon the projected
ec°1.1°1111c growth -within New York State and, more particularly, in the
11P8tate areas involved in the application, and urges that a substantial 4
-Lnerease in the amount of available bank credit will be an essential
Pl'el'equisite to this growth.

Then, relating the projected credit needs

to the abilities of the upstate proposed subsidiary banks to meet these
IleeC183

Applicant concludes, and urges as a ground for approval of this

aMlcation, that these Banks are and will be insufficiently capitalized
tc Illeet this demand for credit, and that Applicant's control of these
tanie
4`8 will remedy this problem. The question thus raised as to the projected credit needs of the communities concerned and as to the abilities
the Banks to meet these needs independent of the proposed affiliation
/11th
z-F-Licant is discussed hereafter in connection with the Board's
°°118ideration of the fourth statutory factor. However, Applicant's content'n
1-ns have a bearing on both the financial condition and prospects
Of
.
'i'1311-cant and the Banks involved.


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Federal Reserve Bank of St. Louis

-910Si_
Applicant alleges that, on the basis of several approaches, in-

e'ludang

an application of the "Form for Analyzing Bank Capital", used by

the Federal Reserve Banks and the Board, certain of the proposed subsidiaries
are not
as strongly capitalized as would be desirable or at least not sufficiently capitalized to meet future credit needs.

While the New York

Superintendent of Banks indicated that additional capital would be desirable for
meeting future needs, he made it clear that under Departmental
standards concerned with the present soundness of a given bank, the upState Banks are not inadequately capitalized. The Board's consideration
°f the capital position of the proposed subsidiaries, including a review
°f the

result shown by the "Form for Analyzing Bank Capital", with appro-

Priate
adjustments for factors not given effect fully in condition reports,
41dicatea that
the proposed upstate subsidiaries are not inadequately cap-eu in relation to their current position.

While it may well be that

e conditions will require additional capital, past experience has shown
an
abilitY

to obtain extra amounts of capital as they become necessary.

?Ill'ther analysis indicates that the capital position of the proposed sub"417 Banks compares favorably with the banks of the Marine Midland group
ritIlL which
Applicant's Banks would be in competition. It is the Board's
ilidEment that
the evidence supports the conclusion that none of the upstate
i8 at present inadequately capitalized and that, even with the future
"4-elPated growth in their respective areas, each should be able to con-

t'
provide

As to the prospects of the proposed subsidiary Banks, there is

rlo
ktisr

ence to support any conclusion other than that such prospects are

actory.
and

adequate capital through its own respective efforts.

Morgan Guaranty, the fifth largest bank in New York City

•
thesi
xth largest in the United States, has an impressive history of


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Federal Reserve Bank of St. Louis

-10qualified management and profitable operation. There is every reason
to believe that the future will see a continuation of such operation.
The operational anr1 growth record of each of the six upstate Banks is
s
imilarly impressive and, while their respective prospects might possibly
be somewhat more favorable were they to become subsidiaries of the Applicaht, the Board is of the opinion that the prospects of each of the Banks,
Operating independently& the Applicant's control, are satisfactory.
MANAGEMENT
Applicant's management, composed almost entirely of indiIli-duals who are officers or directors of the proposed subsidiary banks,
is experienced and well qualified. In view of Applicant's statement
that the officers and directors of the Banks are expected to remain in office,
the present sound condition of management in those Banks should continue
lf the proposal were consummated. However, equally sound management directi0
r1 can be expected if the Banks should continue their independent operati0„4
” While not contending otherwise insofar as the immediate future is
Concerned, Applicant asserts the probability of management succession
difficulties in relation to the upstate Banks and urges that such difficulties
'11 he better resolved by Applicant than by the Banks individually. In
'41
134rticular, Applicant maintains that the task, normal to any bank, of reer'lliting and training well-qualified management personnel is increased in
the
ease of the upstate Banks because of the limited opportunity to develop
aden,
"ate training programs and to provide for specialized work experience thia
lor the reason that the volume of business is insufficient to permit
-4-Lized training in particular banking services. Alluding to the


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Federal Reserve Bank of St. Louis

lb

—11-

fact that within the nel‘c

five years each of the upstate 3anks will have

several persons of branch officer rank, or higher, reaching retirement
3:e, Applicant asserts that it will be difficult for the. Banks to train
111°re than one prospective successor of an important incumbent, while the
AI32lioant could train., develop, and qualify two or more successors for
each of the respective positions.
It must be recognized that an organization such as Applicant's
could in fact facilitate the selection, training, and advancement of
Illaneger,ent personnel within each of the Banks.

However, the alternative

Whereby the Banks either would themselves develop such replacements as
would be reouired, perhaps at a slower pace, or bring into their organizations personnel already trained, perhaps at highcr cost, is not
s° formidable as to make necessary to the Banks' welfare the rejection
°f such alternative. The size and stancUng of each of the Banks in
its resPective area satisfy the Board that the Banks themselves, absent
the Proposed affiliatfon with Applicant, should be well able to meet
satisfactorily whatever management succession and personnel replacement
l'squirements are found necessary.
In summa.-y, it is the Board's conclusion that, while the
evidence reictin7 to the first three statutory factors is consistent
Ilith approval of the application, it does not lend strong affirmative
al1PDort to such approval.


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Federal Reserve Bank of St. Louis

NEFLS, AND WELFARE
CONVENIENCE, NEEDS,
AND AREAS CONCERNED
COMMUNITIES
OF THE
There are various ways in which affiliation with a holding
company can assist a bank in improving and expanding the services it
°ffers the public. It can also expand the range of, and facilitate,
the bankt s contacts among potential customers.

These considerations

taken by themselves tend to favor permitting such affiliation, but the
Ileight to be given them in a particular case depends on the extent to
Ilhich affiliation with the holding company in question will produce
such results and, more important under the fourth statutory factor, on

the demand for such improved and expanded services from the standpoint
f the convenience, needs, and welfare of the communities and areas
affected.
In respect to the fourth factor, the Applicant's case is presented principally in terms of (1) the need for increased bank credit
to be supplied through Applicant, (2) the present need for a second
ctate-1.:ide bank holding company, and (3) augmented and improved services
to be rendered by the proposed subsidiary Banks through their affiria—
n Ilith Applicant.

These considerations are related by Applicant

Principally to the upstate subsidiary Banks, insofar as their situations
1
a"37. be similar. 'Idle Morgan Guaranty would also be expected to benefit
from

the affiliatim, it stands in a distinct relationship to the other

13°scd subsidiaries, since it is essentially the source of the assisttlec to be provided the upstate Banks.


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Federal Reserve Bank of St. Louis

As to the need for increased bank credit, Applicant states
that banking resources in the areas of the upstate Banks have failed
to keep
pace with economic expansion, and asserts the probable inability
Of the
banks in those areas to meet the credit demands incident to future
eroiloillic expansion. It is said that present lending limits, as well as
a lack of liquidity created by efforts to meet growing credit needs, will
generally prevent the upstate Banks from playing the role they should in
r"tering future growth.

As earlier indicated, Applicant has submitted

the results of analyses of the Banks1 capital based upon various tests,
Uding its application of the Board's Form for Analyzing Bank Capital.
A0
e°11cling to Applicant such analyses reflect insufficient capital strength
n the Banks
-1 part to meet their financial responsibilities incident to
this
growth. Accordingly, Applicant asserts that stronger capitalization
i8

l'equired and that the recent experiences of some of the upstate Banks

in seeking to raise additional capital, while not unsuccessful, have
Th.own
that additional capital required to meet increasing credit needs
eQuld raore effectively be provided through affiliation with Applicant
and., through
it, with liorgan Guaranty.
Applicant's position as to capital insufficiency has been
ar
'
lier dealt with insofar as it relates to the financial condition and
Pr°qxcts of the upstate Banks. As the point is related also to the
gilesti°11 of the areas' convenience, needs, and welfare, the following
°b8ervation5 appear pertinent.


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Federal Reserve Bank of St. Louis

Ludt;
Morgan Guaranty is very strongly capitalized and affiliation
vith it would permit improvement in the capital positions of the upstate
The holding company would also make possible a greater flexibilitY in the mobilization of lending resources among the affiliates
according to variations in demand among the various banks at different
time's. These considerations were regarded as significant by the New
1.(3rk State Superintendent of Banks as affecting the capacity of the
11Pstate Banks to meet the credit needs of an expanding economy.

As

earlier pointed out, however, the Superintendent made it clear that under
bePartmental standards concerned with the present soundness of a given
bank) the upstate Banks are not inadequately capitalized.
Applicant urges that the capital position of the upstate Banks
could

enhanced by their affiliation with the proposed holding company

thr°11gh retention of earnings by the upstate Banks and large dividend
PaYllients to the holding company by Morgan Guaranty and through sale of
the
.
companyls own securities. Applicant is of the further opinion

that 4.,

'11.C proposed holding company would enable the upstate Banks to
their resources more effectively by the "drawing home" of corres-

inclent balances, by better portfolio and money management, and by private
Place
,
and loan participations outside and within the group.
After careful consideration of the material submitted in support
cr the0

contentions of the Applicant, the Board concludes that the organOperation of the holding company as proposed could, in general,


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Federal Reserve Bank of St. Louis

benefit the affiliating banks and improve their capacity to contrillute
to econo- lic growth, both in the areas they serve individually and in
the larger markets of the groaris operations.

This conclusion, however,

leaves open the question of how sijniZicant the benefits of the prupcsed
holding company affiljation would be, in relation both to the present
capacities of the Eanks involved and, most ionortant, to the needs of
the

public for such added benefits.
Applicant has placed censiderable emnhasis on the point that

the

banking structure upstate

Pected growth.

not adequate to handle e::-

This growth is entici,)ated partly on the basis of projec-

tj-°ns of the grolth treads of the period snce 1950 durinP; which, accord111 to the Applicant, the upstate Banks have faced subJtantial demands
credit to finance a high level of industrial activity, residential
collstruction
, and consumer needs in their areas.

Applicant has shown that

tile loan volumu of the upstate Banks has increased significantly during
this
Der'.0d and that, although capital has been raised by mergers and the
lee of eouity securities as well as from earnings, nevertheless the
lie- • ,.
''.1f-tity of the Banks, as measured in part by ratios of capital to loans,
4ac
ucen somewhat reduced. To whatever extent this may be so, it neverSs appears that the Banks have been able to grow to meet demand, and
that

the reduction in liquidity from 1950 levels is not such as to be a

nlatter

of concern from the standpoint of sound condition. Eore significantly,

the
P-Llennt has supplied little evidence that demands for bank credit in


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Federal Reserve Bank of St. Louis

Lud

-16the areas involved have not been met, whether by the Banks involved or
otherwise.

In fact, the New York State Superintendent of Banks, in

describing a need to stimulate future economic growth in the State,
Cites a shift of industry to other areas of the country in recent years,.
The Superintendent does foresee, however, as does the Applicant,
ec°nomic growth and characterizes such growth as a major objective for
the State.
would

He expresses the view that formation of the holding company

contribute materially to the provision of the banking assistance

necessary to industrial development.
Conceding that the improvement of banking services and
facilities for the stimulation of economic growth is always to be
desired, the prospect of such improvement through the establishment
Of the holding company necessarily carries less weight under the fourth
statut°rY factor than it would if it could be demonstrated that the bankindustry in the pertinent areas is or will be inadequately constituted
to Play its role without the formation of the holding company.

Unless

inadequacy is shown to exist or can reasonably be anticipated,
the f°rmation of the holding company cannot be viewed as essential to
the needs or even the convenience of the affected segments of the public.
It h.
ds not been demonstrated to the Board's satisfaction that the existing hanin7 structa-e is presently inadequate, and there seems to be
litti
basis for assuming that the Banks in question, let alone area
baw,
s generally, cannot progress to meet future challenges.
'


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Federal Reserve Bank of St. Louis

-17A further reason urged by. Applicant for approval of the
proposed holding company is an alleged present need for a second statewide bank holding company to compete with the 11 subsidiary banks of
the Marine Hidland Corporation.

These banks, with combined assets of

Over $2.6 billion, operate 179 offices throughout all of New York State's
nine Banking Districts. This point is made in the context of the recent
New York State legislation ending a "freeze" on the establishment of
tank holding companies and said to evince, in part, a policy "that no
existing bank holding company be granted a statutory monopoly".

In

this connection, the New York Superintendent of Banks has emphasized
that nothing in the legislation or its legislative history and backround affords a basis for belief that the State legislature found that
4111r existing bank holding company held or exercised monopoly power in
banking. Nevertheless, while narine iddland is not the only holding
e°14Pany system in New York, no other banking organization has comparable
PhYsical coverage of the State.
The total assets of liorgan New York Corporation would
substantially exceed those of Earine Eidland Corporation, but this
difference is almost wholly due to the difference in size between
gan Guaranty and flarine Hidland's New York City bank. As to
11Pstate banks alone, within those Districts where the two systems
13°th would have offices, the two systems would be substantially
°f like size as to both offices and deposits. From the standpoint
Ott
he size of its proposed upstate operations, Applicant's system


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Federal Reserve Bank of St. Louis

—18—
Would seem well constituted to compete on a par with the Marine Midland
eYstem for those kinds of banking business as to which broad State
coverage offers an advantage. How significant such business is, and the
eXtent to which the six upstate Banks, without the proposed affiliation,
could or do compete for and service such business, are major considerations in the Board's action on this application.
In respect to local, intradistrict, and national business,
int
erdistrict affiliations do not appear to be particularly significant.
It is not controverted, however, that there is a certain volume of business
Where

such affiliations may make a difference.

Concerns doing business in

or more Districts may be able to arrange with one system bank for
certain

services to be extended by all banks in the system as may be

necessary. The Applicant and its witnesses have cited several instances
i Which the upstate Banks have been unable to obtain or retain certain
ellSt
omers, allegedly because they required banking service on a state-wide
13481-84, Undoubtedly, some of the benefits of state-wide service could

be

Provided by the independent banks through correspondent relationships

Or
"
Pen through specific cooperative arrangements, but affiliation with
4 state-wide system would facilitate such cooperation over a broader range

°t services and could be more easily promoted through system advertising
tinder the ',image
of a unified organization.

Thus, affiliation with such

ssteill Would admittedly give the upstate Banks some advantage over
iride
Pendent banks in obtaining certain kinds of business.


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Federal Reserve Bank of St. Louis

169
—19—
So far as the convenience, needs, and welfare of the pertinent
areas are concerned, however, the immediate ouestion is whether the
Public is adequately provided with the kinds of service
state-wide or interdistrict banking relationships.

that depend on

Are present banking

facilities sufficient to meet the demand for such services? To the extent that they are, the alleged need for another state-wide banking system
ie a less favorable consideration under the fourth factor.
The Applicant does not make a stronr, case for the proposition
that the various means by which state-wide or regional industry and

e°111'lerce can now be served are inadequate to the demand. On this point,
APPlicant's contentions are put largely in terms of the advantages that
haw,.
-"e belonging to the Earine Midland system presently have over the
14%°Pc)sed Morgan New York upstate Banks in obtaining such business. Applicant does
not suggest that the liari-ne system is so free from competition

that it has not in fact actively sought to provide the best in regional
State-wide

banking service. Nevertheless, it can be assumed that if

the 131'°70sed holding company were established, it would actively seek to
er\re the regional market and, in the process, stimulate Narine 'adland
to Maintain or irprove the quantity and quality of its regional service.
)
r ublic would presumably benefit somewhat from this process but again,
in Connection with the alleged need for improved sources of credit,

keh anticipation
of benefit does not carry as much weight as it would if
Ile
re Shown that the present state of the public's convenience, needs,
11(1 1,rco
---Lare called for material improvement or that future needs for such
°Ireraent cannot be met within the existing structure.

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Federal Reserve Bank of St. Louis

Applicant describes the ways in which it believes the holding
c°111Pany could enable the subsidiary Banks, principally those upstate,
to

Provide augmented and improved services to customers, and also

the ways in which the holding company could, through the centralization
and coordination of some functions, improve the internal operations of
the banks.

According to Applicant, such benefits would result with

respect to foreign department services, trust and investment advisory
services, bank portfolio management, municipal bond service, management
411(1- Personnel recruitment and training, economies in operation, support
foli local banks, and industrial development.

In these respects, among

Others, the Applicant urges that the establishment of the proposed
hol,44
--alg company would result in improvement in the present facilities of
the several banks involved and, directly or indirectly, in benefit to
the 13ublic.
all

Once again, however, the relevant question is whether the

improvement and expansion of banking services are required to

ise't the convenience, needs, and welfare of the areas concerned.
The Applicant asserts that existing facilities are
illadsqllate to serve the needs of customers, present and future,
1)14

apart from describing what the Banks as Applicant's subsidi-

es could do that they are not now doing there is little, if any,
411
'
reni
-' evidence that the public is inconvenienced because these
1)411.1cular Banks do not now do what they might as affiliates* The
toa„
cannot assume that what is not being done needs to be done
material to the public's convenience.

On the contrary, it

appear, to some extent at least, that if relatively large

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Federal Reserve Bank of St. Louis

)

-21-

M'ospering banks with strong competitors are not providing a particular
service, that service may not be especially in demand. There is little
evidence that the upstate Banks are not now adaquately meeting the needs
tor banking services in their respectilre areas.
Thus, the Board again reaches the conclusion that while
irqTc(vement is always desirable, the need for improvement of what is
81-ready good stands in a different light than the need for correction
c)f the inadequate, and the application of the fourth factor to this
aee appears to place it more in the former light than in the latter.
This view nevertheless recognizes that the probable effects of the
r°1111ation of the holding company on the convenience, needs, and welfare
c) the communities and areas involved would weigh somewhat in favor of
aPPrw,Tal of this application.
EFFECT ON ADEQUJITE AND SOUND BANKING,
PUBLIC INTEREST, AND COTTETITION
In substance, the fifth statutory factor requires the Board
to consider whether the size and extent of the proposed holding company
11°144 be consistent with adequate and sound banking, the public interest,
the preservation of competition.

The matter of adequate and sound

141.111:ing has to some extent bebn considered above as related to the
flCial condition-and prospects of the Banks.

To the extent that

heriges in the banking structure might result from4lormation of the
hold,
4-ng company proposed, adequacy and soundness of banking must be


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Federal Reserve Bank of St. Louis

):34.
-22-

regarded as an aspect of the competitive considerations discussed
below.

The Board's concern as to the public interest is, of course, a

dominant consideration in all aspects of this matter.
The prime considerations under the fifth factor are (1) the
"tent to which common control of the resources of the affiliating
banks may limit or enhance opportunities for healthy and eMctive cornamong banking institutions in the markets involved and (2) the
effect on the public's choice of true alternatives for various banking
services and facilities.

In estimating such effects it is necessary

to consider, among other things, the extent to which the affiliating
benks now compete among themselves, the competitive positions now held
arid to be held by the affiliating banks in their own markets, and the
P"ition that the affiliating banks would hold as a group in the markets
1411el'e group resources and facilities would be pertinent.
Competition must be considered in the context of the pertinent
Inelltets, and these involve both geographical and service coverage.

The

131"°13cieed holding company, through one or more of its subsidiaries, would
be
competing in a variety of markets, from the local level of retail

banlp.
11Ig to the regional, State, and national levels of wholesale bank'
-14R, for the largest industrial and institutional customers.

The effects

(If the proposed holding company on competition at each of these levels
11111t be consid-red to gain an understanding of the over-all effect
°4 competition.


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Federal Reserve Bank of St. Louis

t

-23-

Competition among the proposed subsidiaries. - None of the
4Pstate Banks has offices in the Banking District of another, except
in the Sixth Banking District, which the Applicant divides between a
tW°-county area where Oneida National has its offices, and a fivearea where First Trust has its offices.

Eased on figures as

cf December 31, 1960, each of the upstate banks draws about 95 per cent
of its total deposits in number of accounts and dollar volume from
its cun District.

Each of the two Sixth District Banks draws a similar

Percentage of its deposits from its area of the Sixth District.

Morgan

Guaranty, in turn, drew from the Districts of the other Banks about
2 nm
1.1r cent of its total deposits originating in New York State; this
about $35 million, represented about 2 per cent of the upstate
8811Lks t total deposits originating in New York State.
Analysis of loan sources reflects a comparable picture as to
1°ans drawn by each Bank from outside its own District and from within

the Districts of the other Banks. The figures as to deposits and loans
14°111d not seem to indicate that a substantial proportion of each Bankts
total business is competitive with the other Banks.

However, the total

414°11nt of competition between the Banks as so indicated is not insignificant; moreover, these figures reflect only the extent to which choice
ani°11g the Banks is exercised, not the full extent to which such choice
is reasonably available.

Further, it may be anticipated that with the

e°ntinuation of competitive efforts of the Banks in the context of the
11'0Jected economic expansion and industrial development of the State
the .
1mPortance of competition between the Banks even in relation to
thei
r total business volume would increase.

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Federal Reserve Bank of St. Louis

-24Whether or not competition between the Banks does so increase
inthe future, it is clear that there is a degree of present and
Potential competition that would be eliminated by the formation of
the holding company.

Even though affiliated banks may actively

compete with each other to some extent, they cannot be considered to
be true alternative sources of service such as the Banks are now.
A broader consideration than the elimination of competition
between particular banks is the effect of the formation of a holding
cer4PanY on the over-all intensity of competition for the banking
b/Isitless of the affected areas. This leads, then, to consideration
f the present positions of the affiliating Banks in relation to
°ther banks and of the effects of the formation of the holding company
On the over-all banking structure, locally and beyond.
Competitive positions of the affiliating Banks in their
- The term "concentration" describes a major aspect
't the problem of determining the effect of the formation of a holding
comPanY on competition in the field of banking in the areas affected.
The
Problem of concentration involves the effect of affiliation on the
choice of sources of banking services generally, not merely
48 between

affiliating banks, and requires consideration of at least

these questions:

how many true alternative sources will remain; what

11111 be their respective capacities; and what present or potential
Ch
ange from the existing situation will there be?


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Federal Reserve Bank of St. Louis

The point has been made in this case that tYere would be
n° significant change in concentration of banking resources in the
laarlicst respective service areas following the formation of the proposed
holding company, That is, the
public in the respective areas would
have substantially
the same number of alternative sources of banking
service, and the distribution of the areas' banking resources among
the alternatives would remain largely unchanged.

This would not

be true for those customers who can now conveniently choose among
t14° or more of the affiliating Banks, but such customers do not appear
to represent a large segment of the public according to the amount of
f4terdistrict business previously described.
In the national market the upstate Banks are not significant
c°mPetitors with Morgan Guaranty.

They do, of course, have accounts of

companies operating nationwide, but rather by reason of such customers'
local o
perations than by reason of the large resources that can attract
business from across the country to the "money centers" and to banks of
11°rgan

Guaranty's size. Thus, for a substantial segment of the public,

the markets in
which the affiliating Banks principally operate, the
e°rmation of
the holding company would not result in a present reduction
in real a
lternative sources of service.
The next aspect of concentration to be discussed is the
is

ibution of
banking resources among the alternatives available in
the v
arious markets:
what effect would the formation of the holding company
114\re on the relative
competitive positions of banking institutions
t4 these mar
kets and, in the light of their present positions, how
sirlffiant would that effect be?

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Federal Reserve Bank of St. Louis

1A3JS
—26—

It can first be recoc.4hized that affiliation with other
banks in a holding company does not make each bank in the system
equivalent to
one bank with resources equal to those of the whole
sYstem. It cannot, for example, be said that Manufacturers and
Traders

in Buffalo would become the equivalent of a

$s

billion bank

after the formation of Morgan New York State Corporation.

The total

resources
of the holding company would still have to support the
a
ctivities of the same banking offices as the Bankst resources
severally

did before, and even the lending limits of the individual

offices would not be changed by affiliation as they would be by
cor
responding mergers.

On the other hand, as noted in the discussion

of the
fourth factor, there are some material respects in which the
aff
iliation of the seven Banks would afford benefits to each and its
customers that would not be otherwise so available, if at all. Thus,
the formation of the holding company would provide new competitive
"Irngth to the Banks to some degree, and affect the general overall structure of
banking in their areas accordingly.
The distribution of banking resources within the Districts
Of the

upstate Banks and the positions of the Banks therein are

indicated below, as of December 31, 1960 (except as otherwise indicated,
the
01xth District is treated as two Districts in accordance with the
APPlicantts division).
In total deposits the upstate Banks range in size from

about $86 million


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Federal Reserve Bank of St. Louis

to $451 million. Four are the second largest in

their respective Districts and two
are the largest, in terms of total
deposits of commercial banks. In four
Districts there is a larger
mutual
savings bank. The upstate Banks have in the aggregate about
22 Per
cent of the offices and 27 per cent of total deposits of
comrlercial banks in the Districts of the subsidiary Banks - the
range by District being from about 10 to about
35 per cent for offices
and from about 16
to about 38 per cent for deposits. Of offices and
total
deposits of all banks in the same Districts, the upstate Banks
hold about
20 per cent and about 17
Per cent, respectively - the
range by
District being fron about 10 to about 33 per cent for offices
and from
about 10 to about 39 per cent for deposits.
Referring to commercial banks only: In the Fourth District,
ilati°nal Commercial, the
second largest, has over $325 million in
total d
ePosits as against about $95 million for the next largest.
In the
Seventh District, First-City National, the second largest,
has
over $86
million in total deposits as against about $38 million
f(pr the
next largest. In the Eighth District, Lincoln-Rochester,

the

largest, has over
$377 million as against $217 million for the
nert largest.
In the Ninth District, Manufacturers and Traders:

the second largest, has
about S52 million as against $182 million
1.1°1
'the next
largest. In its five-county area of the Sixth District,
Trust)
the largest, has over $182 million as against about

156

million for the next largest. In its two-county area of the
5th
District, Oneida National, the second largest, has over
$111 million as against less than $20 million for the next
largest.

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Federal Reserve Bank of St. Louis

-28-

When the total deposits of the two largest commercial banks
in each of the five Banking Districts are combined (in each such
co

mbination a proposed subsidiary is included), in all but two Districts

they

amount to more than 50 per cent of the total deposits for commercial

banks in the District.
64 --

The range is from about 36 per cent to about

cent. When the total deposits of the three largest banks, in-

cludin8
mutual savings banks, in each District are combined (in each
such

combination a proposed subsidiary is included), in all but one

District they
amount to 40 per cent or more of the total for all
tanks in the
District.

The range is from about 33 per cent to about

56 Per cent. In all but the Fourth District the two largest commercial
banks and two of the three largest banks (including mutual savings banks)
are a 14arine Midland subsidiary and a proposed Morgan subsidiary. In
the
Fourth District the only Marine Midland bank is the third largest
cornriercial bank and the fifth largest bank.

In none of the five

Districts are there more than six commercial banks with more than
$40
million In total deposits; and there are at least 26 with less
than $40
million in each of the five Districts.
The picture that emerges from the foregoing statistics,
to the extent
one can be draun from figures alone, is not generally
°fle of such clear and present dominance, monopoly, or even oligopoly,
as to

reflect a prima facie unhealthy competitive situation in the

P-state banking Districts.


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Federal Reserve Bank of St. Louis

There does emerge, however, the unmistakable

Ii
-29fact that etch of the proposed subsidiaries is one of the tuo or three
largest banks in its principal area of competition and that the great
majority of banks in each District are very much amaller than the
largest ones.

These two elements conjoined describe a situation where,

aPt from the questions of imrrediate elimination of compAition or
significant increases in the size of any banks involved, the longer
range effects and the broader aspects of the philosophy of the Bank
Holding Company Act become the controlling considerations.
The existence of a significant disparity in the size of
banks within an area of competition does not necessarily involve an
'Undue
the

competitive advantage for the larger banks. In the nature of

American banking system there is room for small and large banks

alike to serve various markets well, even when their markets overlap.
It is even inherent in that system that, within some limits, the large
banks are free to increase the disparity through "natural" growth that is, growth achieved without affiliation or merger.

On the other

hand, the partial check that competition imposes on natural growth
is no obstacle to growth by acquisition or merger; legislative contl'cas have therefore been deemed appropriate to protect against any
such transactions which, without offsetting justifications, night
tend to unbalance unduly the banking structure in an rrea - to the
Prejudice of healthy competition, of adequate and sound banking, and
thus of the public interest


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Federal Reserve Bank of St. Louis

Such protection is afforded by the

1.702
-30Bank Holding Company Act of 1955, and it is the Board's responsibility
to implement that protection as intended by Congress.
Applying to this case the purpose of that Act so far as
f°1111(1 in the fifth factor, it seems clear that, whether or not existing
clisParities of competitive positions among banks in the areas and
illarkets affected reflect a presently excessive imbalance, to permit such
Pities to be increased as proposed would necessarily tend toward
such imbalance - that is, away from the balance in which healthy comPetiti°n is preserved.

The strengthening, by affiliation, of a bank

iri an
intermediate size range in its area tends to equalize competition
With larger banks while increasing its advantage over smaller banks.
The

oPposite effects must be weighed to determine the net effect on

the competitive balance. In this case, each proposed subsidiary is
in size at or near the top of the scale in its primary area of operati°n ns defined
by the Applicant.

Four have larger commercial bank

ccmPetitors,
all have competitors of considerable strength, and some of
these competitors have the support of a holding company, but the sig.fic.9nt disparities in competitive positions are very largely to be
r()Ilrld on the downside.
The proposed acquisitions would give the six upstate Banks,
Irenr1 .
-Y In the top rank in their areas, the added benefits of affiliation ,
141th the largest bank holding company in the country and with the
fifth

largest bank in New York City. Uhile independent banks in an


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Federal Reserve Bank of St. Louis

-31a may

sometimes benefit in certain ways where one of their number

Comes under outside ownership, in the present case it is inevitaole
that in aver-all effect the smaller banks would be left with a longer
*lila climb in their efforts to catch up with the bigger banks; their
eltisting competitive disadvantage would be increased.
it

The competitive

in the affected areas might still not necessarily be an

1111dIllY unbalanced one but, as noted previously, the bolstering of the
Positi°hs of the big banks necessarily has that tendency.
As to the effect of consummation of this proposal on Morgan
IlLYIs competitive position vis-a-vis the four larger New York Banks,
'
it 04„
.
--s not appear that any improvement that might follow from such
act
i°4 would involve sufficient benefit to the public to constitute a
.

8A.D0114

Ilcantly favorable consideration in this case.

The more material

elfects to be anticipated from any such improvement are, as with the
111)state

Banks, to be found in relation to smaller New York banks, so

that as to Morgan Guaranty, too, the salient tendency of the formation
(3tthe holding company would be to strengthen the position of a top
tristitution and put broad-based effective competition with it further
I

nci the reach of smaller banks.
It has been urged that in some respects the affiliation

or a c
ompetitor with a holding company tends to stimulate the efforts
Of

4.

er banks, and figures have been offered to show that to a
COrisia

erable extent smaller banks in New York State, as elsewhere,


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Federal Reserve Bank of St. Louis

-32-

sec'm well able to hold their awn in competition with the large
institutions and even to grow at a faster rate.
are

These circumstances

recognized in the observation made previously that even considerable

di2parities in size do not by themselves necessarily reflect an
undesirable competitive situation. It is also true that smaller banks
tend to be found in faster-growing areas while larger institutions tend
to be found in older, more settled urban areas.

Thus, the growth rates

of emaller banks may sometimes compare favorably with those of larger
banks, but this cannot be said to be a result of, and therefore a
P°3itive justification for, permitting the affiliation of large banks
ill holding companies.

Trends toward the equalization of competitive

111°sitions are to be encouraged, but the formation of the proposed holding company would, for the most part, impose further restraints on such
trends
Competitive effect of the proposed system as a group. Moving

from consideration of the effects of the proposed holding

c°T4PanY affiliation on the individual situations of the subsidiary
lanks, it is necessary to consider the probable effects of the
°Peration of the holding company system as a whole.
l'egar,

In this

Applicant has enphasized that the system will introduce a

nell and substantial competitive element into the regional and statee markets in which the Marine Midland system is now the most
e°113Picuaus element, being the only banking organization with
substantial physical coverage of the State through its own banking
qficee.

The importance of such geographical coverage as a distinct


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Federal Reserve Bank of St. Louis

0,1)

competitive element is, as noted previously, to be measured by the
nature of the interdistfict markets and by the extent to which those
markets cannot be adequately served by the banking industry through
Other methods.
The resources of the Marine Midland banks are not, of
e°1-Irse, any measure of the size of the markets that transcend District
1:111
"
, There seems to be no basis for assuming that the business
de'lle bY those banks respectively is not largely the banking business
c)f the Districts, counties, and communities where their offices are
'acated.

Thus, while affiliation in the Marine Midland system

Presumably assists the operations of the subsidiaries within their
l'esPective areas in ways such as those described by Applicant with
l'esPect to its own proposal, the significance of business obtained
1:7 the iiarine banks through cross-referrals and cooperative servicing
of interdistrict customers in relation to the
total business of
tllos„
Banks cannot be deduced merely from the geographical distri-" of system banking offices. Unless it should appear that the
bLls-1
'
fless so obtained represents a significant market that is beyond
the
reach of
banks not enjoying the geographical advantages of
the need for a "second state-wide holding company"
bee°r'les less apparent than it might seen on its face, and it does
becone a strong favorable competitive consideration.

In connection with the discussion of the fourth statutory
eto
r, the Board concluded that the evidence as to the need for


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Federal Reserve Bank of St. Louis

another holding comprny operating across District lines failed to
8110v that there is a significant market for servjces that can only
be adequately provided by such an organization, or that the advantages
01' i
hips
nt9rdistrict affiliation over correspondent banking relations
leave to Marine flid?and alone the furnisliin
1:et.
"

or services in an important

Relating that conclusion to competitIon, fb rioes not appear

to have been shown that Marine Midland's competiti

advantage derived

from its unique coverage of the State is such that the public interest
calls for the creation of a similar organization such as here proposed.
A e
omparison of the growth of the proposed subsidiaries with the growth
cirliarine Midland Banks in the same periods affords no basis for a
clifferent view. It can be assumed that the proposed holding company
14011Id intensify competition for Marine Midland in the provision of
)111e services, but on the record in this case, the arguments for another
state-Alicbli holding company do not seem to the Board to carry strong
Ileight under the fifth factor.
In connection with future economic expansion and industrial
clevelorment of the upstate areas as projected by Applicant, the market
specialized state-wide service may create a greater need for
1)111d-rle,' facilities of broader range. In such case

however, it would

to
be expected that the markets of the upstate Banks would expand
'l ease competition between them for interdistrict business, whereby
itIc'
Competition would become a more significant feature of banking
c°1T113etitien generally in New York State.


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Federal Reserve Bank of St. Louis

In this light the continuance

-35—
t lIle large upstate Banks as independent institutions is seen as

8

of increasing importance for the future. The effects of the

IlLer

hanges in the banking structure proposed in this application would
c°11tillue into the future, they are not likely to be undone, and the
1°rig-range influence of the proposed holding company system on banking
ecm1Detition must be appraised as must the immediate effects of its
tcThation.
In summary, formation of the proposed holding company would
strerlgthen the ccmpetitive positions of leading banks, and the resultitiR i
ncrease in their advantage over smaller institutions in this case
Ileighs more
significantly against approval than any resulting reduction
the
advantage now held by any larger competitors over the Banks
Ileighs in
favor of approval. The Board must be concerned not only with
the
immediately apparent effects the formation of a holding company
kieht
the

have, but with the long-range tendencies as well.

Thus, while

Board would not anticipate that creation of the Horgan system

'ttad

necessarily
bring about by itself an unhealthy competitive situa-

t rl
in anY of the areas affected, it must be recognized that the cornof the large Banks here involved would not only presently enhance

thelr advantageous positions but would
4tarttiai scurce of cdditional strength
t e
t0

provide a continuing and subfor each of the Banks in its

eorlpetitive efforts - a source of a kind not generally available

aller comp-titors.


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Federal Reserve Bank of St. Louis

Thus, while the efforts of the latter might be

-368timulated somewhat, the practical limits to sticcess of such efforts
140111d be further restricted for the future by approval of this proposal,
and it is the maintenance of freedom for s.daller as well as larger banks
to compete effectively and to grow by their own efforts, without being
driven towards merger or acquisition, that is the key to the preservation of
competition.

Viewing the facts of this case in that light, the

Pr°Posed acquis4 tion of the Banks by Morgan New York State Corporation
Carillot be regarded as consistent therewith.
Significance of fifth factor in the ]14-,..ht of Congressional
- In referring to the five factors set forth in section 3(c) of
the Bank Holding Company Act, the Report of the Senate Banking
arid

Currency Committee stated:
"It is upon the basis of these factors that the Federal
Reserve Board is to measure whether each application
should be granted or denied in the public interest."
(Sen. Rep. No. 1095, 84th Cong., July 25, 1955, po 10.)

k
Single

one of the statutory factors is controlling; they must all

be

-zlghed together in determining whether a particular proposal would
be Ili
'
n the public interest". Nevertheless, it seems clear that, in
1318"neirig considerations related to these factors, the Board must have
ii1111114 the over-all purposes of the statute.

The impetus for its

rie'etr'lent was the need for control of affiliations of banks
"gh the holding company device because, uncontrolled, such
aeti .
IrItY could lead to "undue concentration" of banking resources and


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Federal Reserve Bank of St. Louis

-37the attendant power to restrain or inhibit ccmpetition.
waS

Thus, it

contemplated that the Board, in passing on holding company appli-

" ns, would be concerned with the traditional supervisory considerae reflected in the first four statutory factors, but would, in
acklition, have the responsibility of ensuring that holding company
acri

would not be inimical to present and potential competi-

ti°11. In this sense, the fifth factor is of prime importance, as is
indicated by the legislative history.
It is clear from repeated statements in the Committee Reports
and the Congressional debates that Congress recognized that bank holdCompanies are not evil per se but that the concern of Congress arose
*c)inthe Potential dangers inherent in the unregulated acquisition of
c°11trol of banking resources by such companies.

This concern was ex-

Pl
'
essed. by Chairman Spence of the House Banking and Currency Committee
illexPlaining the bill on the floor of the House; and it is significant
that L.
Lae concern related not only to existing holding companies but to
the
formation of future holding companies.
"If you concentrate money and credit in the same
hands, you have an impregnable monopoly. * * * We
thlnk that the centralized concentration or economic
Power is just as dangerous as the concentration of
Political power.
. "It is more lasting. It is harder to break. We
'hank that the cortrol of the expansion and the creation
of future bank holding companies will have the effect of
'TeaKening that power. The centralization of banks, of
!
°Tanking interests, is a bad thing for the economy of the
&lotion. _ * * Even though you may point to some holding
?ompanies that have done a moderately good business,
g....12.1hE_Ema-lurlityl it is the power that is given,
1amarous:Trj101 Cong. Rec. 8021.) 'Underscoring
*11_11
.
suPPlied]

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Federal Reserve Bank of St. Louis

The need for legislation to lessen the potential dangers of
)11cearation of control of banking resources in holding companies
ila8 similarly emphasized in the Report of the House Banking and Cur1".1c1 CommitteP which stated (p. 14):
"The holding company device lends itself readily
to the amassing of vast resources obtained largely
from the public, which can be controlled by the
relatively few who comprise the management of the hold-11g company, giving them a decided advantage in acquiring additional properties and in carrying out a program
of expansion. * * *" (H. Rep. No 609, 84th Cong.,
May 20, 1955, p.
14.)
The Senate Banking and Currency Committee's Report of

jillY 25, 1955,
stated (p. 1):
"It is not the Committee's contention that bank
holding companies are evil of themselves. However,
because of the importance of the banking system to the
national economy, adequate safeguards should be provided
against undue concentration of control of banking
*„ *” WriaeFkoring supplied)

Coupled with the objective of preventing such undue concentra4°11 Of banking power was the related objective of protecting the independent
4114 banking
system.
t

Perhaps the strongest statement in this respect

he following language in the House Committee Report (p. 2):

n* *** There has been developed in this
,?ountry * * * a conception of the independent unit
uanK as an institution having its ownership and
°rigin in the local community and deriving its busi"ese chiefly from the community's industrial and
Ic„1?rnmercial activities and from the farming population
:
ltbin its vicinity or trade area. Its activities
;
rs usually fully integrated with the local economic
dnd.social organization. The bank holding company
;evice threatens to destroy this democratic grass°0te institution."


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Federal Reserve Bank of St. Louis

-39-Similar stateJtents appear frequently in the debates on the
bille

To give but one exa:ple, Representative Johnson of Lisconsin

felt that, unless the bill was enacted, "the preseat system of
rldePendent, community banks will be endanL;ered and ultimately bankiii be in thc hands of a few, with several surper bank holding
e°1,panies etencling across the country" (101 Cong. Rec. 3176)
The foregoing brief review of the history of the Act makes
tClear that, while all of the statutory factors must be considered by
the Board, the fifth factor relating to competition must be regarded
as Of special significance.

The competitive considerations were

;
s and Currency Committee's Report (2. 10):
eillPhasized in the Senate Bankin'
"* *.* It will be noted that these factors extend
ueyond the nature of those primary in im,-)ortance to bank
supervisory authorities in the exercise of their super7,1sory pouers. In most instances, safety of the depositor's
i.unds and adecluate banking service to the public in the
area where the bank operates are uppermost in the consideratlen of such bank supervisory authorities. The factors
required to be taken into consideration by the Federal
Reserve Board under this bill also require contemplation
the prevention of undue concentration of control in
tue bankin field to the detriment of public interest and
the encouragement of competition in banking * * *."
Luring the debates on the bill, Senator Bricker observed
that

the fifth factor "is the most important and requires the Federal
ND,
Board to consider the question of the public interest and
the
Pre servation of competition in the field of banking. This proviaion

the Federal Reserve Board power to prevent undue concenof banking activities and at the same time permits the

trell
-4''Llenin and expansion of banking facilities when needed." (102
Con,
-1/4 6 Rec. 6861)

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Federal Reserve Bank of St. Louis

-40As implied by Senator Bricker, it appears that the fifth
factor reflects the primary objective of Congress - control of the
N3ansi0n and creation of bank holding companies to prevent undue
Concentration and to preserve banking competition, even though in
Sorne
circumstances the strengthening and expansion of banking facilities

needed may be sufficient to outweigh a lessening of banking

omPetition.
It seems clear that the concern of Congress with respect to
the Power of holding companies to achieve "undue concentration" goes
beyond the
prevention merely of those acquisitions that would immediately
Pilt a holding company in a dominant position. It appears that Congress
a40
recognized that when a bank holding company is one of the largest
c'qarlizations in its fields of operations, it may occupy, as may any
°Ther banking organization of comparable size, a position of strength
influence, potential as well as actual, that may involve difficulI
"
te
for less well situated competitors. Therefore, the expansion of
such a
holding company and, even more, the formation of a holding
ec3r4PanY that will occupy such a position, is necessarily a step towards
e(Dneentration that weakens the relative positions of the remaining
e°1411letition, and a step whose adverse effects will continue into the
Uture
Against this legislative background, it is the Board's
on that the formation of the holding company here proposed would
e(3rIstit.
-lite such a step toward concentration, in view of the size of
the
Proposed system and its constituent banks in the various markets
/4hich they would operate both individually and as a group.

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Federal Reserve Bank of St. Louis

-141—
The Board cannot fail to attach significance to the fact that the
3
New York City
13r°N ed system would include the fifth largest bank in
(tee sixth largest in the country) and six of the largest banks in the pertinent upstate New York areas.

Size alone is not a controlling considera-

but -where, as in this case, the proposed holding company would

ti

e°111trol such a large amount of banking resources strategically located
thrcluthout the State of New York, the Board is compelled to conclude,for
the

reasons heretofore indicated, that formation of the holding conpany

11°11 have serious adverse consequences for the competitive banking
8tructure of
the State.
This is not to suggest that the economic power of the proposed
qcling company would be abused or improprly exercised; the Board's concalision is based upon its belief that the trend toward concentration that
11°1-11d result from the proposed transaction would be inconsistent with the
intent of Congress as reflected by the fifth statutory factor.
stated,
Summary and conclusion. - In view of the conclusion just
the,
4ard cannot approve the proposed transaction unless its adverse effects
'
.
011
considerations
4111g competition are so clearly outweighed by favorable
"
d to
41atethe first four statutory factors as to make it appear that con-

'ati°1r1 of the transaction would be in the public interest. To some
111111.°
eXtient, as has been noted, the proposal might contribute to the banking
coliverlience of the areas serveC. by the proposed upstate subsidiary Banks.

To s

°Iile extent also the proposed holding company mightaid in the general

e Palsi

of the economy of the State. These considerations, however, are


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Federal Reserve Bank of St. Louis

-42in the Bocrd's opinion, so persuasive as to offset the Board's
e4lelueion that, under the fifth statutory factor, the transaction would
l'es12t in the creation of a holding company the size and extent of which
w°110.d. be inconsistent with preservation of competition in the field of
441,
14.
On the basis of all the relevant facts as contained in the record
bet()re the
Board and in the light of the factors set forth in section 3(c)
q the
Act and the underlying purposes of the Act, it is the Board's judgfl.t that the transaction here proposed would not be consistent with the
interest and that the a2plicrtion should therefore be denied.

4, 1962


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Federal Reserve Bank of St. Louis

Item No. 5

5/3/62
MT THE MATTM OF TIE LPPLICLTION OF
1-1ORGAN NEa YORK STATE CORPORATION
CONCILRL:G STATETCNT OF GUTER:TOR 11ITCIELL

Amoag the issues raised in this proceeding, the overriding
One
3

-'1"e, in my judrnient, the impact of the Applicant's proposal on

ef.cic- -ericy of the allocation of credit and on the structure of comDetitive rel atioachips
The Applicants proposal is, in essence, a proposal to
e:3t''`ID3--311 a huge pool of banl:inz resources in New York- State) a
ec)ri'rrion market in credit" of sorts. Jould this proposed pooling or
CO nor::,,t" mere efficiently and competitively allocate credit
a'ternative users?
(J',10 block to efficiency which such a "co.-Jai-ion market" could
l'efacire Ilculd exist
if "regions" within the State of New York were
tl'iset17,- delimited economically, i.e., if all borrowers, depositors,
`Ind banks
as lenders were bound absolutely to the "regions" of their
clordb?„ileO thaL credit resources cculd not flow from one to another
Then a situatThn could exist in which a region would have a
114;11 clePosit density but a decrth of investment opportunities., or a
"Posit density and a great quantum of unsatisfied credit demand.
Tee
4-11:̀111{_uraV on of a ,Dool4si',_; arrangement or "cordmon mar':et" would then
ellerzate
benefits analogous to the "gains of trade":

Borrowers formerly

eglone'ly bound could then appeal inter-rejonally for funds,


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Federal Reserve Bank of St. Louis

-2dePositors would earn rewards and incur charges in proportion to
their Vroductivity and not in proportion to artificial constraints
heir supply, and owners of bank shares would realize capital gains.
"
Illahort, almost everyone would be "better off."
The increases in efficiency the Applicant asserts would result

'
'
c rl the pooling arrangement must be based, at least implicitly, on the
fl
"81111IPtion3 outlined above.

But these assumptions are at variance with

c°14it5 ons existing here. The constituent upstate banks are branching
ems broadly based in the metropolitan areas and adjacent peripheries
"
tlleY 8erVa•

They are not in the least confined in equalizing resources

lid needs within their trade area. In addition, they can readily tap
c°11tribute to banking resources that flow inter-ragionally and
Ilat14)na1lY.

Contributing to the resources needed elsewhere is nothing

"a greater participation in national or broad regional markets
111(lre th
for
vuainess, government, orconsumer credit. Tapping nonlocal resources
is la
rgelY a matter of utilizing correspondent resourcs. Those who
argue that the arrangement

proposed would function more effi-

tentl
---Sr than the credit allocation device it would seek to replace—the
elist4
'ng correspondent banking network—argue, in absence of factual
PrOof

of their case, that an eYclusive correspondent relationship is
15/%1,
than the freedom to seek the best correspondent that competitive
COl
itions can produce.


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Federal Reserve Bank of St. Louis

-3An aspect of the pooling proposal that is; in my judgment,
Tdte troublesome is the change implicit in the situs of decisionWith respect to the broad allocation of loanable funds.

Since

letIng resources are insufficient to meet all claims on them, the
r4i°11ing process must needs reflect the lending institutions' judgments
°I% t/ieir long-run advantage.

It seems likely to me that such judgment,

41841Q centrally in New York City, as I believe it would be, would result
ulfferent structure of rationing priorities than if made independlitlY by the institutions involved. By this I mean that it is likely
that„
'
41e interest of the small business loan customers would be given a

love,

'Priority by reason of the "status of size" in a very large organi-

".°11. The customers of the holding company's banks who would be likely
to e„
lidoY a higher priority - medium and large business borrowers - are
Drsci„
'elY those who have other alternatives including access to capital
r4111tet
2

and direct placements with insurance companies. Small business
Itstctliers
of the holding company do not share similar advantages.
A higher position in the scale of priorities may not be

Qtless to even these medium and large business borrowers.

Many such

111111s ccruld regard
several banks in the State and region as alternative
QN.It

sources.

Independence of such credit sources is a positive

acivarit8'gerorthe e firms because it is conducive of competition on rates
eza.
No amount of argument pleading that this pooling arrangeO 14
'
"increase services" to these borrowers can change the fact

tb-at the

icthaing of the lenders would make one credit source where seven

1-Elted
before; that competition in the real sense between these import'
43 Would henceforth be foreclosed.


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1962
Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS
octitzti**4

OF THE

r4 OW Q01,*04
444
,
Aeot,

771

FEDERAL RESERVE SYSTEM

(
P

Item No. 6

5/3/62

WASHINGTON 25, D. C.
*

k‘

r
.0

ADDRESS OFFICIAL CORRESPONDENCE

0

TO THE SOAR°

May 3, 1962

CONFIDENTIAL (FR)
Mr. Joseph M. Case,
Chief Examining Officer,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Case:
In accordance with the request contained in your
letter of April 26, 1962, the Board approves the appointment
of John P. Lamond as an assistant examiner for the Federal
Reserve Bank of Philadelphia. Please advise the effective
date of the appointment.
It is noted that Mr. Lamond is indebted to
Manufacturers and Traders Trust Company, Buffalo, New York,
a State member bank located in Federal Reserve District
NO. 2, but that he will not participate in any examination
of that bank.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.


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Federal Reserve Bank of St. Louis

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Item No. 7

5/3/62/

WASHINGTON 25. D. C.

AODRES5 OFFICIAL CORPESPONOENCE
TO THE LICARI)

May 3, 1962

Mr. Geo. W. Sheffer, Jr.,
Chief Examiner,
Federal Reserve Bank of Atlanta
Atlanta 31 Georgia.
Dear Mr. Sheffer:
In accordance with the request contained
in your letter. of April 30, 19621 the Board approves
the designation of Alton Donald Sands as a special
assistant examiner for the Federal Reserve Bank of
Atlanta for the purpose of participating in the
examination of State member banks only. The authorization heretofore given your Bank to appoint
Mr. Sands as an assistant examiner is hereby
canceled.
Very truly yours,
(Signed) Elizabeth L. Carmichael

Elizabeth L. Carmichael,
Acsistant Secretary.


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Federal Reserve Bank of St. Louis