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I6
Minutes for
To:
Members of the Board
From:
Office of the Secretary
November 41 1963.
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
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Federal Reserve Bank of St. Louis
Minutes of the Board of Governors of the Federal Reserve System
°II Wednesday, November 6, 1963.
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
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Farrell, Director, Division of
Bank Operations
Solomon, Director, Division of
Examinations
Shay, Assistant General Counsel
Daniels, Assistant Director, Division
of Bank Operations
Thompson, Assistant Director, Division
of Examinations
Spencer, General Assistant, Office of the
Secretary
Bakke, Senior Attorney, Legal Division
Hricko, Senior Attorney, Legal Division
Distributed items.
The following items, copies of which are
attached to these minutes under the respective item numbers indicated,
ere approved unanimously:
Item No.
Letter to Industrial Finance Company, Fayetteville,
f
A rkansas, granting a determination exempting it
tom all holding company affiliate requirements
.eb eept for the purposes of section 23A of the
'ederal Reserve Act.
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Federal Reserve Bank of St. Louis
1
382
11/6/63
-2Item No.
Letter to the Department of Justice advising that
the Board's recommendation of August 22, 1963,
regarding the question of petition for certiorari
ln the case of Saxon v. Bank of New Orleans and
Trust Company remained unchanged. (This letter was
approved in a form omitting from the distributed
draft, as gratuitous, a paragraph indicating that
the Comptroller of the Currency might have a
contrary view as to the desirability of seeking
certiorari.)
2
Report on competitive factors (Titusville-Youngsville,
t2a1U1YALlig..).
A report to the Federal Deposit Insurance Corporation
on the competitive factors involved in the proposed merger of Youngsville
National Bank, Youngsville, Pennsylvania, into The Pennsylvania Bank
and Trust Company, Titusville, Pennsylvania,was approved unanimously
for transmittal to the Corporation.
The conclusion stated therein was
as follows:
The merger of The Pennsylvania Bank and Trust Company
and Youngsville National Bank will result in elimination of
the sole unit bank in Warren County, and will create a twobank situation in that county. It will eliminate the slight
amount of competition presently existing between the two
merging institutions but would not appear to have unfavorable
competitive effects on other banks operating in the areas
served by the resulting institution.
Report on competitive factors (Stanton-Crystal, Michigan).
There had been distributed a draft of report to the Federal Deposit
Insurance Corporation on the competitive factors involved in the pro.Posed consolidation of Montcalm Central Bank, Stanton, Michigan, with
The State Bank of Crystal, Crystal, Michigan.
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Federal Reserve Bank of St. Louis
3824_
11/6/63
-3After discussion, the report was approved unanimously for
transmittal to the Corporation.
The conclusion in the report read
as follows:
While the proposed consolidation would eliminate
competition existing between the participants, a number of
near-by banks would continue to provide alternative banking
sources, and the over-all effect on competition would not
be seriously adverse.
Application of Security Savings Bank (Items 3 and 4).
Pursuant
to the decision at the meeting on October 30,
1963, there had been
distributed drafts of an order and statement reflecting approval
of the
application of Security Savings Bank, Marshalltown,
Iowa, for permission
to acquire the assets and assume the deposit liabilities of Peoples
Savings Bank, Laurel, Iowa.
The issuance of the order and statement was authorized.
Copies
of the order and statement,
as issued, are attached hereto as Items 3 and 4.
Application of Denver U. S. Bancorporation (Items 5-8).
'
i stribution had been made under date of November 4, 1963, of a proposed
°rder and statement reflecting approval by majority vote on October 9, 1963,
Of the applica
tion of Denver U. S. Bancorporation, Inc., Denver, Colorado,
Permission to become a bank holding company through the acquisition of
84res of Denver United States National Bank, Denver; Arapahoe County
44k, Littleton; and Bank of Aurora, Aurora, all in the State of Colorado
.
Mr. O'Connell reported that Governor Robertson's dissenting
St
4tement was now ready and that Governor Mitchell's concurring statement
of
approval was in process of preparation.
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Federal Reserve Bank of St. Louis
3825
11/6/63
-4After discussion, the issuance of the order and statements
was authorized.
Copies of the order and majority statement, in the
form issued, are attached hereto as Items 5 and 6; Governor Mitchell's
concurring statement is attached as Item No. 7, and Governor Robertson's
dissenting statement as Item No. 8.
Federal Reserve notes.
At the meeting on October 21, 1963,
the Board approved a telegram to the Federal Reserve Banks regarding
the issuance of new $1 Federal Reserve notes expected to be shipped to
all Federal Reserve Banks and branches during November 1963.
The
telegram pointed out that some special interest had been indicated in
the low-numbered notes of the new series, and that the Board believed
it would be undesirable to release any low-numbered notes to individuals,
regardless of their position.
The telegram went on to relate that a
suggestion had been made that such notes be retained in the archives of
the Board and the Reserve Banks, and the Reserve Banks were invited to
submit comments with regard to the disposition of the low-numbered notes.
There now had been distributed, under date of October 31, 1963,
a draft of letter to the Federal Reserve Banks with further regard to
the distribution of the low-numbered notes.
The proposed letter would
state that in light of the replies to the Board's telegram of October 21,
1963, it was believed that the best interests of the System would be
s
' erved by a program under which: (1) each Reserve Bank would hold unopened
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Federal Reserve Bank of St. Louis
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11/6/63
-5-
the first package (Nos. 1 - 4,000) of its new $1 notes until there could
be System agreement as to how the notes in this package should be
exchanged among the Banks and otherwise disposed of; (2) the question
of arrangements for exchange and other disposition of the first 4,000
notes would be referred to an appropriate System committee for
recommendations, such recommendations to be subject to the following
limitations: (3) no Federal Reserve Bank or branch would put any of
the new $1 Federal Reserve notes directly into circulation before
January 1, 1964, except through a member bank--e.g., none would
be used
at its public windows or for payrolls for its own employees; such a
Procedure would contemplate that each Federal Reserve office would
continue to use $1 silver certificates for its own purposes during this
Period; (4) no low-numbered notes or any other notes with possible
Premium value would be made available at any time to any director, officer,
Or employee of the Board or of any Federal Reserve Bank or branch; and (5)
°Ile low-numbered note from each Bank would be forwarded to the Board for
exhibit purposes, under an arrangement that would give the Board a set
°f notes all bearing the same number.
Mr. Farrell,in commenting on this matter, indicated that a draft
f a proposed press release announcing that the new $1 Federal Reserve
"tes were being placed in circulation would be enclosed with the Board's
letter and that the Reserve Banks would be invited to comment on the draft
l'elease.
The draft was now being reviewed at the Treasury Department,
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Federal Reserve Bank of St. Louis
11/6/63
-6-
and as soon as the Treasury's comments were received, the draft would
be submitted to the Board.
Following Mr. Farrell's comments, there ensued a general
discussion of possible alternative procedures for distributing the lownumbered Federal Reserve notes.
Governor Robertson stated, in summariz-
ing, that he thought the Board was in agreement that it was seeking the
best way to avoid possible repercussions resulting from any impression
that the low -numbered notes were being distributed to friends of the
System, and there was general agreement with this statement.
Chairman
Martin said that Federal Reserve of course wished to be free of any
Charge of discrimination in the distribution of the low -numbered notes.
The question was one of ascertaining the best procedure for having this
assurance.
Mr. Farrell noted that it was being proposed that the question
of arrangements for the exchange and disposition of the first 4,000
notes of each Bank be referred to an appropriate System counittee for
recommendations.
Governor Mills observed that, under such a procedure,
recommendations would come back to the Board for final discussion and
decision.
General agreement was then indicated with this procedure.
The discussion then turned to the exhibit of new low-numbered
notes that the Board would receive under the contemplated procedure,
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Federal Reserve Bank of St. Louis
:3828
11/6/63
-7-
and it was agreed that such a display would be desirable.
In this
connection, the Division of Administrative Services was authorized to
work with Messrs. Molony and Daniels in the preparation of a suitable
exhibit.
It was understood that an examination also would be made of
the condition of the specimen currency display that had been on exhibit
for a number of years in the Board's building.
At the conclusion of the discussion, the draft of letter to the
Pederal Reserve Banks was approved, with the understanding that certain
editorial
changes would be made.
In connection with this action, it was
understood that a draft of the proposed press release, to be enclosed
With the letter to the Reserve Banks, would be submitted to the Board
for
consideration prior to the letter being mailed.
Secretary's Note: A copy of the letter sent
to the Federal Reserve Banks is attached to
the minutes of the meeting of the Board on
November 7, 1963. A copy of the proposed
press release enclosed with that letter is
also attached to those minutes.
The meeting then adjourned.
Secretary's Note: Pursuant to recommendations contained in memoranda from appropriate
individuals concerned, Governor Shepardson
today approved on behalf of the Board the
following actions relating to the Board's
staff.
Salar
increase
fr„ Raymond R. Sine, Guard, Division of Administrative Services,
0,560 to $3,820 per annum, effective November 10, 1963.
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Federal Reserve Bank of St. Louis
3829
11/6/63
-8-
ASS.pptance of resignation
Dorothy Erna Kees, Clerk-Stenographer, Division of Personnel
Administration, effective at the close of business November 13, 1963.
Porei n travel
.
Reed J. Irvine, Chief, Asia, Africa, and Latin America Section,
Division of International Finance, authorization covering travel for
approximately ten days to the interior of Brazil following the meetings
°f the Technicians of Central Banks of the American Continent held
recently in Rio de Janeiro, with the understanding that he would be
allowed the usual per diem and would be reimbursed for necessary
tl'aneportation costs (not to exceed $200).
1\'\
Secretar
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Federal Reserve Bank of St. Louis
Item No. 1
11/6/63
HOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDREBB OFFICIAL CORRESPONDENCE
TO THE BOARD
November 6, 1963.
Mr. Hayden McIlroy,
Chairman of the Board,
Industrial Finance Company,
FVetteville, Arkansas.
Llear Mr. McIlroyt
This refers to the request contained in your letter dated
$3et6h
--er 9, 1963, submitted to the Federal Reserve Bank of St. Louis,
a determination by the Board of Governors of the Federal Reserve
YsteM as to the status of Industrial Finance Company ("Company") as
h°1ding company affiliate.
From the information presented, the Board understands that
Corrrn
e,a1V is engaged in the business of operating a commercial warehouse
17-1 holding investments in stock, bonds, notes, and rental investment
teal estate; that it is a holding company affiliate by reason of the
mrt that it owns 11,680 of the 20,010 outstanding shares of stock of
0„ilroY Bank, Fayetteville, Arkansas; and that it does not, directly
ol,indirectly, own or control any stock of, or manage or control, any
"r banking institution.
18
In view of these facts the Board has determined that Company
4 not engaged, directly or indirectly, as a business in holding the
t
ul.c)ek of, or managing or controlling banks, banking associations, savte banks, or trust companies within the meaning of section 2(c) of
dee Baracing Act of 1933 (12 U.S.C. 221a); and, accordingly, it is not
seenk3d to be a holding company affiliate except for the purposes of
m!tion 23A of the Federal Reserve Act and does not need a voting perfrom the Board of Governors in order to vote the bank stock which
t
however, the facts should at any time indicate that
-‘“Y• might be deemed to be so engaged, this matter should again
be
'
th,81-lbrnitted to the Board. The Board reserves the right to rescind
',18 determination and make further determination of this matter at
time on the basis of the then existing facts. Particularly,
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Federal Reserve Bank of St. Louis
3831
HOARD or GOVERNORS OF THE FEDERAL RESERVE SYSTEM
-2-
Mr Hayden McIlroy,
should future acquisitions by or activities of Company result in its
a
ttaining a position whereby the Board may deem desirable a determination that Company is engaged as a business in the holding of bank stock,
OZ the
managing or controlling of banks, the determination herein granted
nuky be rescinded.
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
Item No. 2
11/6/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
arriciAL. CORPCSPONOICMCC
TO Mt •OARO
November
6, 1963.
Mr,
Carl Eardley,
Acting Assistant Attorney General,
1711 Division,
T'i.rnited States Department of Justice,
'
r ashington, D. C. 20530
Attentions
Re:
Morton Hollander, Esq.,
Chief, Appellate Section
CE:MH:DLR - Saxon v. Bank of New Orleans and
Trust Co. (C.A.D.C., No. 1768)
near Mr. Eardley:
This is in regard to your inquiry, dated October 28, 1963,
wheth
nee, er the Board's recommendation concerning the advisability of
ih n.ng certiorari in the above-captioned case remains the sane as
1116 stated in the Board's letter to you dated August 22, 1963.
is to advise that such is the case. On the basis of the Board's
;
;▪ uerstanding of the Court's decision, the Board's previous
eic°mmendation regarding a petition for certiorari remains unchanged,
,b,nee the decision would not appear to constitute an impediment to
14
Board's performance of its duties and functions under the Bank
ding Company Act.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
Item No.
3
11/6/63
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNCRS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of '
SECURITY SAVINGS BANK
1(2. approval of acquisition of
"sets of Peoples Savings Bank
ORDER APPROVING ACQUISITION OF BANK'S ASSETS
There has come before the Board of Governors, pursuant to
the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), an application by
Security Savings Bank, Marshalltown, Iowa, a member bank of the
44eral Reserve System, for the Board's prior approval of its acquieition of assets of and assumption of deposit liabilities in Peoples
4vin8s Bank, Laurel, Iowa.
As an incident to such application,
SecuritY Savings Bank has applied, under section 9 of the Federal
ileaerve Act, for the Board's prior approval of the establishment of
e branch by that bank at the present location of Peoples Savings Bank.
ott
"of the proposed acquisition of assets and assumption of deposit
14bi1ities, in form approved by the Board of Governors, has been pubPursuant to said Bank Merger Act.
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Federal Reserve Bank of St. Louis
3834
-2-
Upon consideration of all relevant materiel, including the
reports furnished by the Comptroller of the Currency, the Federal
eposit Insurance Corporation, and the Department of Justice on the
competitive factors involved in the proposed transaction,
IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that said applications be and hereby
are approved, provided that said acquisition of assets and assumption
Of deposit liabilities and establishment of a branch shall not be
consummated (a) within seven calendar days following the date of this
(*der, or (b) later than three months after said date.
Dated at Washington, D. C., this 6th day of November, 1963.
By order of the Board of Governors.
Voting for this action: Vice Chairman Balderston, and
Governors Mills, Robertson, and Shepardson.
Absent and not voting:
Governor Mitchell.
Chairman Martin and
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(sEAL)
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Federal Reserve Bank of St. Louis
3835
Item No.
4
11/6/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY SECURITY SAVINGS BANK
FOR PRIOR APPROVAL OF ACQUISITION OF ASSETS
OF PEOPLES SAVINGS BANK
STATEMENT
Security Savings Bank, Marshalltown, Iowa ("Security Bank"),
14ith deposits of
$16.5 million,* has applied, pursuant to the Bank
/lerger Act of 1960 (12 U.S.C. 132C(c)), for the Board's prior approval
Of its acquisition of assets, and assumption of the deposit liabilities,
q Peoples Savings Bank, Laurel, Iowa ("Peoples Bank"), with deposits
°f around $900 thousand.*
Incident to such application, Security Bank also has
4PP1ied, under section 9 of the Federal Reserve Act (12 U.S.C. 321),
E(31. the Board's prior approval of the establishment of a branch at
the location of the sole office of Peoples Bank, increasing the number
Of °ffices of Security Bank to two.
Under the Act, the Board is required to consider, as to each
Of the banks
involved, (1) its financial history and condition, (2) the
4dequecY of its capital structure, (3) its future earnings prospects,
(4) the general character of its management, (5) whether its corporate
I3eposit figures as of June 29, 1963.
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Federal Reserve Bank of St. Louis
3836
-2Powers are consistent with the purposes of 12 U.S.C., Ch. 16 (the
Pederal Deposit
Insurance
Act), (6) the convenience and needs of the
community to be served, and (7) the effect of the transaction on
competition (including any tendency toward monopoly).
The Board may
11°t aPprove the transaction unless, after considering all these factors,
it finds the transaction to be in the public interest.
Banking factors. - The financial history of each bank is
satisfactory.
Each has a satisfactory asset condition and an adequate
caPital structure, and this would be true also of the acquiring bank.
Security Bank has a good earnings record and its future
earnings prospects are favorable.
been satisfactory.
The earnings of Peoples Bank have
However, the bank's total deposits have shown
°41Y relatively nominal variation in the past ten years, and its
41ture earnings prospects cannot be regarded as favorable in view particularly of the small size of the bank and the declining population
Of
the small community in which it is located. While the management
Of each bank is satisfactory, matters such as those just mentioned e°4Pled with the fact that the chief executive officer of Peoples Bank
ollrls a majority of the bank's stock - present a formidable obstacle to
the a ttraction of a qualified successor to that officer, who is near
l'etirement age and desires to be relieved of his present banking responibilities.
This difficult problem would be solved by consummation of
the
Proposal.
No inconsistency with the purposes of 12 U.S.C., Ch. 16
ls
indicated.
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Federal Reserve Bank of St. Louis
fiV^`I
-7
cfr
-3-
Convenience and needs of the communities. - Marshalltown, Iowa,
the seat of Marshall County, is located in the central part of the State
aPProximately 47 miles northeast of Des Moines.
The city's 1960 popula-
tion of over 22,500 reflects an increase of about 12 per cent since
1950. The economy
of Marshalltown is based principally on diversified
industrial activity.
Agriculture also contributes importantly to the
ac°nolmy of Marshalltown, which is surrounded by some of the most profarm land in the State.
Including Security Bank, there are
tiltee commercial banks located in Marshalltown operating four offices
there.
Laurel, Iowa, is situated 12 miles south of Marshalltown.
The ,
-ommunity is entirely dependent upon agriculture for its economic
81113"rt, except for a few Laurel residents who are employed in
Matshalltown.
From 1950 to 1960 the population of Laurel dropped from
almost 260 to less than 225, and any reversal of this trend would seem
4°Iibtful.
Peoples Bank is Laurel's only banking office.
Under the statutes of Iowa, a branch of a bank may exercise
°41Y limited banking functions, such as receiving deposits, paying
3
and performing certain clerical and routine duties.
Thus,
"--te consummation of the proposal would reduce somewhat the range of
b4-4
"
n 'ng
services available in Laurel, it does not appear that this
(:)41d have significant adverse effects on banking convenience and
4e48 in the Laurel area.
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Federal Reserve Bank of St. Louis
3838
-4-
At various points 8 to 16 miles distant from Laurel are 6 commercial
tanks, in addition to Security Bank.
To the residents of the Laurel
area who would use the Laurel office of Security Bank, there would be
available at that bank's main office a lending limit of $160,000, as
c°mPared to the $10,000 lending limit of Peoples Bank.
Accompanying
the continuing trend in Iowa of consolidating farms into larger units
iS
the growing need for larger lines of credit for agricultural pur-
P°ses.
The application indicates that the inability of Peoples Bank
adequately to serve such needs is one of the impelling reasons for the
110Posal.
There is supporting evidence in the record.
Competition. - The service area- of Peoples Bank lies within
the service area of Security Bank. However, Peoples Bank, as evidenced
by
its lack of deposit growth, has not been a significant competitor.
C°4summation of the proposal would eliminate only the nominal amount of
c.°mPetition that exists between the two institutions.
Security Bank's service area extends on a radius of approximately
30_,
miles around Marshalltown and includes 22 other banks operating 29
Offices.
Security Bank is the largest of these institutions, holding
abc'ut 14.3 per cent of the IPC deposits in its service area.
2
The other
Commercial banks in Marshalltown hold, respectively, over 11 per cent
atid 8 per cent of the area's IPC deposits.
bc,It t area from which a bank derives 75 per cent or more of its deposits,
r, demand and time, of individuals, partnerships, and corporations
(t.
deposits).
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Federal Reserve Bank of St. Louis
3S3f)
-5-
Effectuation of the proposal would not have any important
adverse effect upon the competitive situation in the area, since
Security Bank's share of deposits would be increased by only 1.1 per
cent, and it would operate only 2 of the banking offices in its service
ares.
There may well be some stimulation of competition among the banks
in the area for accounts of present customers of Peoples Bank because of
the limited services that would be available at the Laurel office of
Security Bank.
Other nonbanking financial institutions compete for business
in the areas served by the two banks, including a savings and loan
association in Marshalltown, with assets of approximately $14 million,
ceclit unions, personal loan companies, and lending institutions of the
Pederal Government.
Summary and conclusion. - The acquitiition of Peoples Bank,
4
Smell institution in a declining community, by Security Bank would
"lve Peoples Bank's management succession problem.
Such inconvenience
48 11°111d result from the statutory restrictions on the operations of
Security Bank's Laurel office would be minor in view of the relatively
84rt distances to Security Bank's main office and to other banks.
The
sall increase in size of Security Bank would not have any important
"Verse competitive effect; rather, the limited operations of the Laurel
ffice may lead to stimulation of competition for business in the Laurel
area.
Accordingly, the Board finds the proposed acquisition to be
41 the public interest.
170Ilember 6,
1963.
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Federal Reserve Bank of St. Louis
M()
Item No.
5
11/6/63
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
DENVER U. S. BANCORPORATION, INC.,
BHC-68
&3r approval of action to become a
bank holding company through acquisition
Of stock of three banks in Colorado
ORDER APPROVING APPLICATION UNDER
BANK HOLDING COMPANY ACT
There has come before the Board of Governors, pursuant
to section 3(a)(1) of the Bank Holding Company Act of 1956 (12 USC
1842) and section 222.4(a)(1) of Federal Reserve Regulation Y
(12 CFR 222.4(a)(1)), an application on behalf of Denver U. S.
Bancorporation, Inc., Denver, Colorado, for the Board's prior approval
Of action whereby Applicant would become a bank holding company
through acquisition of
a minimum of 67 per cent of the voting shares
Of
Denver United States National Bank, Denver, Colorado, and Arapahoe
County Bank, Littleton, Colorado, and a minimum of 75 per cent of the
l'tlting shares of Bank of Aurora, Aurora, Colorado.
As required by section 3(b) of the Act, the Board notified
the Comptroller of the Currency and the Colorado State Bank
CO
tarnissioner of the receipt of the application and requested their
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Federal Reserve Bank of St. Louis
3841
-2-
The Comptroller recommended approval of the application.
The
State Bank Commissioner initially replied that no objection would be
interposed to the acquisition proposed, but
subsequently advised
that the State Banking Board believed that formation of the proposed
holding company would be detrimental to the preservation of competition in the field of banking.
Notice of receipt of the application was published in the
Pederal Register on December 6, 1962 (27 Federal Register 12080),
/glitch provided an opportunity for submission of comments and views
tegarding the application.
Thereafter, a public hearing, ordered
by the Board pursuant to section 222.7(a) of the Board's Regulation Y
(12 CFR 222.7(a)), was held before a duly selected Hearing Examiner;
Proposed findings of fact and conclusions of law were submitted by
the Parties, and the Hearing Examiner's Report aud Recommended
4c1sion was filed with the Board wherein approval of the application
/las recommended.
Exceptions to the Hearing Examiner's Report and
Ilecommended Decision, with supporting brief, were filed by Protesting
ilanks, to which Applicant responded.
Upon request of Protesting Banks,
°PP°sed by Applicant, oral argument before the Board was held.
All of
the aforementioned pleadings, together with a Statement of the Departtilent of Justice in opposition to the application, were received as
114
"of the record and have been considered by the Board.
IT IS HEREBY ORDERED, for the reasons set forth in the Board's
Statement of this date, that said application be and hereby is approved,
Ilt°vided that the acquisition so approved shall not be consummated
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Federal Reserve Bank of St. Louis
_3-
(a) within seven calendar days after the date of this Order or
(b) later than three months after said date.
Dated at Washington, D. C., this 7th dny of November, 1953;
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Mills, Shepardson, and Mitchell.
Voting against this action:
Governor Robertson.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SP.AL)
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Federal Reserve Bank of St. Louis
ir,7,
38(A.1,
Item No.
6
11/6/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION OF DENVER U. S. BANCORPORATION, INC., DENVER, COLORADO,
FOR APPROVAL OF PROPOSED ACTION TO FORM A BANK HOLDING COMPANY
STATEMENT
Denver U. S. Bancorporation, Inc. ("Bancorporation" or
"APPlicant"), Denver, Colorado, has applied pursuant to section 3(a)(1)
°E the Bank Holding Company Act of 1956 ("the Act") for the Board's
aPProval of the acquisition of a minimum of 67 per cent of the voting
shares of Denver United States National Bank, Denver ("Denver U. S.
tanie\
), and of Arapahoe County Bank, Littleton ("Arapahoe Bank"),
411d a minimum of 75 per cent of the voting shares of Bank of Aurora,
Aurora ("Bank of Aurora"), all in the State of Colorado.
If the pro-
13°Bal is consummated, Bancorporation would become a bank holding
"TaPany.
Background. - Follouing the filing of the application and
Pursuant to requirement of the Act, views on the application were relUested of the Comptroller of the Currency and the Colorado State
taro.
--"` Commissioner.
Notice of receipt of the application was transmitted
writing to the U. S. Department of Justice and was published in the
Pederal Register on December 6, 1962.
By letter dated January 30,
1963, the Comptroller recommended approval of the application.
The
State Bank Commissioner, in a letter of January 3, 1963, stated that
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Federal Reserve Bank of St. Louis
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110 objection was interposed to the acquisition proposed.
In a
ubsequent letter, the Commissioner advised that on the basis of
further information that had come to the attention of the State Banking
80ard subsequent to the Commissioner's earlier letter, the Banking Board
believed that formation of the proposed holding company "would be detrimental to the preservation of competition in the field of banking".
By
letter dated February 21, 1963, the Department of Justice submitted a
Statement wherein, for reasons set forth
the Department expressed the
vio
-11 that the application should not be approved.
Following expiration
Ofthe period allowed in the published notice for receipt of connuents
°4 APplicant's proposal, the Board ordered a public hearing to be conducted in Denver before a Hearing Examiner selected for this purpose by
the United States Civil Service Commission. This hearing was not required
bv
_
but was ordered pursuant to section 222,7(a) of the Board's
4
4-ulation Y (CFR 222.7) promulgated under the Act, upon the Board's
that such hearing would be in the public interest
Of 21 Colorado-based banks that had requested participation
i41/
the hearing as parties, ten— were admitted as parties by the
lng Examiner and did participate thereafter in that capacity under
the
group designation of Protesting Banks,
Applicant, Protesting
Lank
s) and other interested persons including a representative of the
•°*.edo State Banking Board presented evidence.
Applicant and
ilai3ank of Denver, Central Bank and Trust Company, Colorado State Bank s
antY Bank and Trust Company, Mountain States Bank, National City
taj
North Denver Bank, and Southwest State Bank, all Denver banks,
L.
4-eton National Bank, Littleton, and The Peoples Bank, Aurora.
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Federal Reserve Bank of St. Louis
3845
-3Protesting Banks were additionally afforded
the opportunity for
cross_
examination of persons appearing as witnesses.
Subsequent to
the hearing, parties were afforded the opportunity to file, and did
file, proposed findings of fact and conclusions of law, with supporting
briefs and reply briefs.
On July 26, 1963, the Report and Recommended Decision of
he Hearing Examiner was filed with the Board wherein he recommended
that the
application be approved.
Exceptions to the Hearing Examiner's
ReP°rt and Recommended Decision, with brief, were filed by Protesting
8444, to which Applicant filed a reply brief.
Upon request of Pro-
testing Banks, opposed by Applicant, the Board held oral argument in
this matter
on September 20, 1963.
On the basis of the entire record, the formation of which
as been
outlined above, the matter is now before the Board for
decision.
ylews and recommendations of supervisory authorities. - As
lleeinbefore noted, the
Comptroller of the Currency recommended approval
°f the application; the Colorado State Bank Commissioner, on behalf of
the State
Banking Board, opposed approval of the application.
This
°PPosition was expressed subsequent to the expiration of the statutory
Peicld within which such expression, if made, would have required
the
eorlduet of a hearing on the application.
As it was, a public hearing
114d been ordered prior to the Board's receipt of the Commissioner's
cl1Position to approval.
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Federal Reserve Bank of St. Louis
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Statutory factors. - In acting upon this application the
Board ic required under section 3(a) of the Act to take into consideration the following five factors:
(1) the financial history and conof the Applicant and the banks concerned; (2) their prospects;
(3) the character of their management; (4) the convenience, needs, and
welfare of the
communities and area concerned; and (5) whether the
efect of the proposed acquisition would be to expand the size or extent
Of the bank
holding company system involved beyond limits consistent
Ilith adequate and sound banking, the public interest, and the preservation of competition in the field of banking.
Financial history, condition, and prospects of Applicant and
Batiks
- Applicant has no financial history.
Assuming that
Banp,
corporation acquired the proportion of the stock of each of the
till
'ee banks as proposed, its investment in subsidiary banks, measured
by
the banks' net asset values at June 30, 1962, would be approxi1114telY $20.5 million.
Denver U. S. Bank was formed in 1959 by the consolidation
47° national banks which had been organized, respectively, in 1884
44d 1
'04, Denver U. S. Bank's financial statements reflecting ineron
-ses in
its total assets, deposits, loans, and capital accounts,
Ovide
neu a continuing and satisfactory condition and growth. At
2/
ileeraber 28, 1952,— Denver U. S. Bank was the second largest bank in
e°1°rado and in Denver, with total deposits of $325.5 million. It
offer a
8
full line of commercial banking and trust services, all of
mlith are
appropriately considered to be regional in scope.
DIlless otherwise
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Federal Reserve Bank of St. Louis
indicated, all banking data noted are as of this date.
-5-
Arapahoe Bank, located in Littleton, approximately 10-1/2 miles
south of downtown
Denver, has been in operation since April 1950 and
has total deposits of $5.0 million.
Bank of Aurora, organized in 1943, is located in Aurora, a
stIburb of Denver, approximately 5-1/9 miles east of downtown Denver
hIld about 16 miles
from Arapahoe Bank.
P°sits of $8 million.
Bank of Aurora has total de-
Arnpahoe Bank and Bank of Aurora offer general
ercial banking services, but neither bank operates a trust department.
The Hearing Examiner concluded that the financial history and
c"dition of the proposed subsidiary banks are sound and their prospects
Utlder the proposed form of ownership satisfactory.
Further, he con-
luded that - although "Applicant has no financial history .
because its assets would consist primarily of the controlling shares
q the three banks • • . Applicant's financial condition and prospects
1143uldi be satisfactory".
these
findings.
The record supports and the Board concurs
These findings, however, weigh but slightly in
f;Ivor
°f approval of the application.
Contrary to Applicant's stated
e---ez, the Board considers the prospects of the three banks, operatitla
rider present ownership and control, to be satisfactory; and does
hot
concur in the apprehensions expressed as to the abilities of the
Proposed suburban subsidiaries to accrue growth capital and effect
4tvice expansion commensurate with the economic growth of the areas
Q°4cerned.
by
It is conceded by all parties to this proceeding, and
the Hearing Examiner, that the Denver fletropolitan Area,
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Federal Reserve Bank of St. Louis
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including Littleton and Aurora, has experienced scund economic
growth in the recent past; and there is indication that such growth
end
Prosperity will continue.
The operating earnings of the pro-
Posed suburban
bank subsidiaries reflect that each has participated
in and benefited by this economic prosperity.
It is the Board's opinion that, even though the transaction
here
proposed is not consummated, the two suburban banks should ex-
Perience no undue difficulty in maintaining, through continued retention of
earn4 ngs, a capital structure, considered presently to be
dequate, that would erable both institutions to satisfy the demands
°f e
conomic expansion.
Management of Applicynt and the Banks. - Respecting the
Char
acter of Applicant's management and that of the proposed subarY banks, the Board concurs in the Hearing Examiner's finding
that
the successful history and operation of Denver U. S. Bank reflect
the competency of that bank's management; that the same management
for the
most part, the designated directors and principal officers of
411Plicant hold similar positions with Denver U. S. Bank - will also
131."1 de capable and experienced direction and management to the affairs
"ADDi
-.--cant; and that Arapahoe Bank and Bank of Aurora have capable,
Nlerienced management.
Applicant, while conceding the validity of the foregoing
collo
'usions, asserts the existence of a problem in both banks in
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Federal Reserve Bank of St. Louis
-7respect to qualified management succession and, in regard to Bank of
Aurora, alleges a failure by that bank to grow in proportion to other
banks in
the area due to the ultraconservative policies of the bank's
Present management.
These problems, Applicant asserts, would be
readilY solved through consummation of Applicant's proposal.
While Applicant's assistance would undoubtedly make
Considerably less onerous the solution of the problems asserted, the
Board is unable to conclude that solutions thereto are not otherwise
1.essonably attainable.
It appears to the Board from the testimony of
record that the problem of management succession has been recently
encountered and is in process of resolution by one of the two suburban
regard;
banks; that neither has at this time a pressing need in this
and that
the record
assistance from the several sources identified in
renders substant4ally less than insoluble the problem of attracting
and
necessary, mandeveloping personnel capable of assuming, when
1:tement responsibilities.
As to the fact found by the Hearing Ex-
regarding the failure of Bank of Aurora to keep abreast
Of the growth rate of competing banks, to the extent this can be
tt
policies on
ributed to the presence of conservative operational
the Part of management, there is evidence that the management succession now in process at that bank could produce policy liberalization thmt would provide the catalyst necessary to bank's growth and
ekPansion.
Accordingly, while Applicant's proposals in regard to
Illensgement development and succession within the suburban banks are
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Federal Reserve Bank of St. Louis
3850
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Wholly consistent with approval of the application, the potential for
similar development, albeit less immediate, by the banks as presently
constituted is such that
Applicant's proposals in this respect offer
but slight
weight toward approval.
Convenience, needs, and welfare of the communities and areas
s-9J-1.E12125.1. -
The convenience, needs, and welfare most directly affected
by Applicant's proposal are those of the residents and businesses in
the Denver Metropolitan Area and, more particularly, in Denver,
Littleton, and Aurora, the areas primarily served by the banks involved.
As noted by the Hearing Examiner, the Denver Metropolitan
4e4 has experienced substantial population and economic growth in
rccent years.
'
1 000,000.
The population of the Metropolitan Area exceeds
The City of Denver, encompassing an area of 82 square
has a population of approximately 500,000.
Denver is the situs
of 60 per cent of Colorado's manufacturing industries, 400 new manuuring establishments having located therein since 1954.
Among
the industries found in Denver are the nation's largest luggage manuaoturer,
manufacturers of a wide variety of precision instruments
"
4 electronic products, a rubber plant, and an aircraft manufacturer.
Detr,
ver is also a major meat-packing and livestock distribution center.
14 sn
-ms Denver is appropriately considered to be the business,
finf,
g4cial, and commercial center of the Rocky Mountain Region.
Denver U. S. Bank's primary service area (the area from
1/140,
" aPproximately 75 per cent of its IPC deposits ("individuals,
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Federal Reserve Bank of St. Louis
3851
-9Partnerships
and corporations'] arise), corresponds closely to the
ge°graphical limits of the City and County of
Denver.
Its primary ser-
vice area designation notwithstanding, Denver U. S. Bank, like its
Ptineipal Denver competitor, First National Bank, is a regional instituti°11, competing for deposits, including those of other banks, and for
1°Eirls throughout the entire State and the Rocky Mountain Region.
Its
c°111Pctitive ability in the lending field is asserted by Applicant to be
substantially impeded by its present lending limits ($2,300,000 to a
single customer).
Its position would be measurably aided, Applicant
states) through Denver U. S. Bank's access to the additional $138,000
1.4 lo
anable funds that would be more assuredly available from Arapahoe
and Bank of Aurora as subsidiaries of the bank holding company.
The Hearing Examiner found
established by the record, and the
13c)ard concurs in his finding, that the large loan requirements described
bY APPlicant as being beyond the lending limit of Denver U. S. Bank, or
4nY other
single Denver bank, are being met in major respects by the
4r117"
' banks in participation among themselves and/or other banks within
a"outside
of Colorado.
thi8
Even assuming the fact, not established in
record, that the credit needs of large borrowers are presently
ulls t'ved, the extent to which the affiliation proposed would enable
13411r U. S. Bank to compete for a greater share of such loans is
In respect to banking service generally in the Denver area,
Y41:-cnd 1962 there were 18 insured banks located in the City and
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Federal Reserve Bank of St. Louis
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County of Denver.
These banks held combined deposits of $1,282 million,
and loans totaling $739 million.
The residents and businesses of
Denver ha7e available through these banks a complete spectrum of bankg services.
Nothing in the record suggests that the Denver banks are
Presently unable or are failing to serve in major respects the banking
requirements of the Denver area.
The Hearing Examiner made no finding as to a present lack or
inadequacy of banking service in the City of Denver.
as
His conclusions
t0 probable benefit to result from Applicant's proposal, as herein-
aftet discussed, relate to the communities served by the two proposed
suburban subsidiaries.
Similarly, on the basis of the record before it,
the Board concludes that the City of Denver's banking needs are presently
sel-ved in adequate measure and convenient form, and that approval of
tilis application would not result in any measurable benefit or increase
c"venience to the residents and businesses of that city.
Consideration must now be given to the probable effects on
the
suburban communities served, respectively, by Arapahoe Bank and
tank 0
f Aurora from their proposed affiliation within the holding
e041Pany
system.
The Hearing Examiner's several findings in this regard
tistitute, essentially, the basis for his favorable recommendation.
Littleton, the incorporated city within which Arapahoe Bank
ia
cioated, has a population of 20,000, an increase of 17,000 over its
1950
Population. Applicant projects a population for Littleton in
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Federal Reserve Bank of St. Louis
Ani
385
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1970 at 30,000.
As earlier noted, Littleton has shared in the general
Employment in Littleton
economic growth of the Denver Metropolitan Area.
is higher than the national average, and the median family income of
Littleton is one of the highest in the country.
Consistent with the
general expansion of the area,$6.7 million was expended for construe-ell during 1961. Contributing to the economic prosperity and continued
"
grel/th of the city are such companies as The Martin Company, located a
et'7 miles southwest of Littleton, the largest private employer in the
State.
In addition to several large industrial concerns located outside
but near the City of Littleton, the city itself has approximately 50
ctail outlets and 80 service establishments.
The city is now served by
t14° other banks in addition to the Arapahoe Bank.
Arapahoe Bank's
Prim
arY service area encompasses an area of approximately 2 - 2-1/2 miles
etending in all directions from Littleton.
The incorporated City of Aurora has experienced a population
increase over the last decade of some 47,000 to its present level of
o00. A population of 66,000 is projected for 1970.
'
58
has
Aurora presently
40 manufacturing industries, a producer of fishing equipment
c111111°Ying about 300 people, and an aviation concern employing approx1Mate1y
1100. In addition, Aurora has 230 retail outlets and some
service outlets.
There are three commercial banks in Aurora
including the Bank of Aurora.
The primary service area of Bank of
Aurora consists principally of Aurora and a part of the eastern porti°11
of Denver.
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Federal Reserve Bank of St. Louis
38561
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The Hearing Examiner concluded that approval of the application
4c1111c1 "have a substantial, beneficial effect in enabling the Bank of
Aur°ra, and the Arpahoe County Bank, to more adequately and better serve
the banking
needs of their respective communities."
In sum, the find-
ngs of the Hearing Examiner in support of the aforestated conclusion
were that
participation in loans with Denver U. S. Bank could be more
and more easily arranged through the holding company system than
thrugh nonaffiliated correspondent banks; that Arapahoe Bank could more
ade
luatelY respond than it presently can, because of asserted liquidity
ecilliTements, to the real estate loan demands arising within Littleton,
tidlIcAlld be afforded generally a broader base for a more liberal loan
arid irivestmPnt policy than is presently deemed advisable by the bank's
inanagement; that there will be made more certain and immediately available
a source of trust services for the two suburban communities; and
that, .n
1 respect to the Bank of Aurora, the proposed affiliation would
,
u-e a more progressive lending policy in keeping with the needs of
the c
°Traunity, provide a more complete range of services, and serve as
a lila
gllet for attracting competent, second-line management". Finally,
the He
aring Examiner concluded that approval of the application would
Previ
de a vehicle for substantially increasing, when needed, the capital
a
ilts of both suburban banks which now find it difficult, if not
411)%sible, to individually achieve.
The Board has earlier expressed its view concerning the
ies of the two suburban banks, apart from the relationship
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Federal Reserve Bank of St. Louis
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Proposed to strengthen their capital positions, if and when necessary,
and to meet successfully management succession problems that may arise.
Acc
ordingly, contrary to the conclusions of the Hearing Examiner,
the Board declines to assign significant weight to the assistance
in these reepeets tendered by Applicant's proposal.
As to the remaining bases for the Hearing Examiner's
conclusion that consummation of Applicant's proposal would better
enable the
two suburban banks to serve their respective communities,
hile unable to and that in any of the respects mentioned by the Hearing
ner a presently unserved need -exists, the Board concludes that
the Probability of more assured and convenient service through the
holding
company system has been satisfactorily established.
the
While
Proven access by the residents and businesses of Littleton and
Aux.°,'a to the banking facilities of downtown Denver, either directly
et'
tough their local banks, forecloses, in the Board's opinion, a
fiadi
it
-ng that their banking needs are now or likely will be unserved,
does
appear that certain needs could be more certainly and conveniently
SerlIrsa
'u. Protesting Banks have demonstrated the range of assistance
(4fered by the large Denver banks to their smaller city and suburban
bank co
rrespondents.
Applicant's witnesses confirmed in major respects
the rendition of such assistance. However, Applicant asserted numerous
Practical limitations involved in the correspondent relationship which
it en
deavored to show would be eliminated by the subsidiary-correspondent
elationships proposed.
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Federal Reserve Bank of St. Louis
3856-;
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The Board finds the existence of certain of these limitations
and the
likelihood of their elimination through Applicant's ownership
Of the
suburban banks to be sufficiently established in the evidence of
record as to warrant the conclusion that consummation of Applicant's
Pt°P°sal would benefit the personal and business interests of the
Lirtleton and Aurora communities.
The likelihood of this occurrence
affesrds support for approval of the application.
Effect of pronosed acquisition on adequate and scund banking,
Publi
c ?nterest, and banking competition. - In determining the probable
effects of operations of Applicant's holding company system, as proPosed, Upon
the adequacy of banking, the public interest, and the
Pres
ervation of competition, there must be defined the relevant geo"
hic market or markets and, in relation thereto, a finding as to
(1) the
Pr
extent to which competition, if any, between and among the
UCIopos_ ,
subsidiary banks would be eliminated, and (2) whether the
ne`Intration in Applicant's system of control over the three proposed
Nbsidiary banks could Lave an effect significantly adverse to banklng e°mPetition, present or potential, and thus inconsistent with the
Plikic interest.
Based upon the evidence shcwing (1) the areas within which
each of the proposed subsidiary banks does business, with emphasis
to the designated primary service area of each, (2) the geoPhic and economic characteristics of those areas, and (3) the
-ng alternatives reasonably available to the residents of those
the Board concurs in the Hearing Examiner's finding that the
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Federal Reserve Bank of St. Louis
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Denver Metropolitan Area is the principal geographic market within
which the competitive effects of this proposal must be determined,
with appropriate collateral consideration to certain aspects of the
Proposal having State-wide effect.
n
The Board concurs also in the Hearing Examiner's rejectio
as being meaningful in determining competitive effect of an area
defined by Protesting Banks and designated "Arapahoe County MetroPolitan Area".
Banks would,
Use of that area as urged by Protesting
in the Board's opinion, ignore evidence in the record of this matter
14 respect to the economic structure of the two suburban areas involved,
their proximity to downtown Denver, the availability to those suburban
ecemunities of convenient alternative sources of banking service
beyond the patently artificial area urged by Protesting Banks, and
the extent to which the business of the suburban banks has been shown
to originate outside their respective primary service areas.
competition between
Considering first the extent to which
arid among
of Aurora would
Denver U. S. Bank, Arapahoe Bank, and Bank
the record
be eliminated following their acquisition by Applicant,
eatabi-ishes that Arapahoe Bank and Bank of Aurora, some 16 miles apart,
d° not coucy-te in any significant respect.
There is no overlap of
and dollar
their c'ecisnoted primary service areas and the number
in the other's
11°1ume of dcloalt accounts in each bank originating
4ea
i2 re'4qia4.1)1°.
None of the commercial, industrial, or agricul-
the primary service area
tIlral loars made by eitIler bank originate in
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Federal Reserve Bank of St. Louis
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-16of the
other.
Accordingly, consummatf.on of Applicant's proposal would
hay
- uo measurable effect upon the minimal competition shown to exist
beWeen Arapahoe Bank and Bank of Aurora.
The Hearing Examiner reached a similar conclusion in respect
to competition between Denver U. S. Bank and, respectively, Arapahoe
'lank and
Bank of Aurora, premised upon his finding of no overlap in the
des4
4.gnated primary service area of Arapahoe Bank and that of Denver
U. s
. Bank, and but "extremely slight overlap" in the similar areas of
sank of
Aurora and Denver U. S. .13ank. His conclusion is at odds with
that
xpressed both by Protesting Banks and the U. S. Department of
Instl
-ce, the latter's views contained in its Statement made a part of
the hea,.
-lng record.
Of about $268 million of IPC deposits, involving approximately
68,0
00 accounts, held by Denver U. S. Bank, approximately 5 per cent
017.
L.rie
dollar amount and 10 per cent of the number of such accounts
oriD4
-nated in Bank of Aurora
primary service area. Approximately
1 Pet cent of the dollar amount and 2 per cent of the number of such
aze
unts at Denver U. S. Bank originated in Arapahoe Bank's area.
As
to
411°I.a Bank, approximately 20 per cent of both the total number and
(104
ar volume of its IPC accounts originated in Denver U. S. Bank's
Pritnary
service area.
1,800
The 20 per cent represented, respectively,
accounts and
$1.4 million of deposits.
Approximately 6 per cent
(400
in number) of Arapahoe Bank's number of IPC accounts and
11
P
er
cent k500,000) of its dollar volume thereof originated in
v.
/A
berry
U. S. Bank's designated area.
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Federal Reserve Bank of St. Louis
38,59
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Viewing as a percentage of the suburban banks' total number
and
dollar volume of 'PC accounts, the number and dollar volume of
similar accounts in Denver U. S. Bank originating in the suburban
bank
S
areas, such totals are not insignificant.
However, analysis
f the entire record satisfies the Board that the competition is not
as significant as it first appears.
The deposit overlap data cited
Preceded the September 1962 opening of the Colfax National Bank within
the area where
the primary service areas of Denver U. S. Bank and
'lank of
Aurora overlap.
hnic and
Also, anticipated openings of a new Aurora
a new bank in Littleton were made a matter of record in this
ease. Both of these
banks are now in operation.
It must be assumed
that in respect to a number of the accounts held by both Denver U. S.
4/11k and
Bank of Aurora which originated in the area now primarily
servad by the Colfax Bank, such accounts are and will be carried at
that bank.
To the extent this occurs, the suggestion of existing
°114)etit _
ion between Denver U. S. Bank and Bank of Aurora presented by
the earlier
cited data becomes less meaningful.
Denver U. S. Bank's deposits originating from the primary
setvice areas of Bank of Aurora and Arapahoe Bank averaged, respectively,
$1)860 and
l'°111 its
$2,150.
Considering the fact that Bank of Aurora's deposits
primary service area averaged $700, and those of Arapahoe Bank
tclItl its
similar area averaged about $575, it is questionable whether
he more
sizable accounts from those areas held by Denver U. S. Bank
11°111d be
carried at the suburban banks in any event.
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Federal Reserve Bank of St. Louis
Further, as
3860
-18APPlicant has
stated, a portion of the accounts of Denver U. S. Bank
originating
la the primary service areas of the smaller banks represents
accounts of convenience, that is, accounts of persoas living in the
suburban areas who work in downtown Denver and bank at Denver U. S.
sank.
As to these accounts, the possibility exists that the factor of
c°nvenience is
sufficiently compelling so as to remove such accounts
from the
sphere of suburban bank competition.
Another aspect of the question as to competition between and
arn0ng the
proposed subsidiary banks is the extent, if any, to which
they compete
for loans. As earlier indicated, virtually no competition
for „
'
'
c rnmercial, industrial, or agricultural loans exists between the
two
suburban banks. At June 30, 1962, of the dollar amount of commercial
and i
ridustr4 a1 loans derived by Denver U. S. Bank from the primary service
a e-a of Arapahoe Bank and that of Bank of Aurora, the totals in
oacth e
-ase are less than 1 per cent of Denver U. S. Bank's total loans
and but
1.3 per cent and 1.8 per cent, respectively, of its total com-
reial and industrial loans.
suburban banks,
Admittedly, the dollar amount of the
commercial and industrial loans originating in the
Drinlar_
Y
service area of Denver U. S. Bank is greater when measured as
ah
'age of their total of such loans made than are those of Denver
11' S
' Bank cited above. The latter fact, however, does not establish
te
-he Boarvs
satisfaction the existence of the "very substantial
t°1145Qtitien" asserted by the Department of Justice.
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Federal Reserve Bank of St. Louis
3861
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The average commercial and industrial loan made by Denver
U. S. Bank within the primary service areas of the two suburLan
bawts was,
approximately, $23,000 in Aurora and $33,030 in Littleton.
The same type of loan made by Bank of Aurora within its primary
service area averaged about $10 thousand, while that of the Arapahoe
Bank averaged about $11 thousand.
Thus, Denver U. S. Bank's average
"ftlercial and industrial loan in the above areas was more than
twice and three times the size of the average loans made, respectively,
by
Bank of Aurora and Arapahoe Bank. The foregoing fact, viewed in
t'elation to the relatively small size of the two suburban banks and
the Proximity to downtown Denver of the communities they serve, makes
r'eas0nable a finding that a substantial number of Denver U. S. Bank's
borrowers from the overlap areas would in any event seek funds directly
fr°1a1 the numerous downtown Denver banks without recourse to local
outlets.
On the basis of the foregoing analysis, it is the Board's
erotic' .
'uslon that the competition between and among the proposed subsidie
rY banks that would be eliminated by approval of this application
140uld not be substantial, and that there will remain a sufficient
rlutzbe
t of convenient, alternative banking sources as to assure an
ecle
luatY of banking service consistent with the public interest.
Turning to the effect that approval of the application
141uld have
on competition offered by banks outside the proposed
11044
rig company system, the Hearing Examiner concluded that in respect
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Federal Reserve Bank of St. Louis
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t° both the Denver Metropolitan Area and the entire State, approval
would not be inconsistent with the preservation of banking competition.
The
Hearing Examiner's conclusion was premised upon a finding that
APPlicant's control of the banks proposed would not present in any
levant market an undue concentration of banking resources.
At present, Denver U. S. Bank and First National Bank nearly
eq lly
ua
share 54 per cent of the total deposits and 53 per cent of
the total loans of all banks2/ in the City and County of Denver.
The
tw° next largest banks in Denver control, respectively, 14 and 11 per
cent) and 15 and 12 per cent of the total of such deposits and loans.
(3f the
total deposits and loans of all banks in the Denver MetroPolitan Area, Denver U. S. Bank now holds approximately 21 per cent of
each. If the application is approved, the aggregate deposits and
1°ans of Applicant's banks would represent, respectively, 21.8 per
the deposits and loans of all banks in the Metropolitan Area - an
iactease of less than one per cent over Denver U. S. Bank's present
holdings, and a lesser percentage of such deposits and loans than is
4°14 held by First National Bank.
The aggregate deposits of Applicant's
/:It.°11°sed subsidiaries would exceed by only .5 per cent the 14 per cent
the total deposits of all banks in the State represented by Denver
II• 0•
Bank's deposits.
At present two bank holding companies - First Colorado
'flares, Inc. and Uestern Bancorporation - operate a total of six
4nks
In Colorado, five of them in the Denver Metropolitan Area.
48 used herein, "all banks" refers to all insured banks.
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Federal Reserve Bank of St. Louis
The
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11: banks hold combined deposits of about $158 million, or approximatelY 7 per cent of the deposits of all banks in the State.
Approval
°I the instant application would increase to 21 per cent the total of
Such
deposits held by holding company banks.
In the Denver Metropolitan
Atea, where the five holding company subsidiaries combined control
aPPr"imatelv 9 per cent of the total deposits and loans of all banks
41 t• hat
Area, if Applicant's proposal is consummated, 31 per cent of
5Uc1 total deposits and loans would be held by bank holding company
subsiA4
The foregoing data reflects that a sizable portion of the
twcal deposits and loans of all banks in the State is concLntrated
r• e latively few banks, the largest five of which are located in
1)enver.
At the same time, however, it does not appear that any single
bank; 8
'fl institution, Denver U. S. Bank included, is dominant either
in t• he Denver Metropolitan Area or in the State as a whole, or that
aPtIt°17a1 of Applicant's proposal will so enhance the competitive
P°sition of Denver U. S. Bank in any pertinent respect as to be inimical
t
t
e Proven vigor of banking competition.
Consideration of essentially the foregoing data, the Hearing
t%am
in
er found, "compels the conclusion that approval of the instant
411Pli
cation would have little effect on the concentration of banking
ttren
gtn and power beyond that presently existing in the area involved,
or in
the State of Colorado, and pursuant to which phenomenal economic
grot7til
has been enjoyed". The Board concurs in this conclusion and in
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Federal Reserve Bank of St. Louis
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so doing notes that within the Denver Metropolitan Area, between 1956
and year-end 1962, 1 5 new banks were established, seven additional
banks were chartered, and applications filed for four additional
bank charters.
In July of this year, the Valley National Bank opened
in Littleton, the situs of Arapahoe Bank, and the Aurora National Bank
was opened in
Aurora, situs of the other suburban bank involved in
this
application.
Since year-end 1962, six additional banks have
°Pened elsewhere in the Denver Metropolitan Area.
The Board is unable, on the facts presented in this record,
to accept Protesting Banks' assertion that holding company systems'
concentration of control of banks in the Denver lietropolitan Area has
(3reclosed or unduly impeded entry into that ma:acct.
Protesting Banks further assert that approval of the
aPPlication would result in a significant reduction in the number of
ecrresPondent bank alternatives available to suburban banks in
Littleton and Aurora.
The Hearing Examiner found this contention to
be "unavailing, as a controlling adverse factor".
The Board concurs
in the Hearing Examiner's finding and, in so doing, also rejects the
contention that Denver U. S. Bank's competitive position in this regard
ill be enhanced materially at the expense of its competitors.
At the
1)ecent time Arapahoe Bank uses DeLvev U. S. Bank as its principal Denver
tc4
'?:esPondent.
Admittedly, this relationship is of recent origin and
Itt4Y be conceded to have arisen incident to the proposal under conileration.
The fact remains, however, that the correspondent
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Federal Reserve Bank of St. Louis
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relationship does now exist and that approval of the application will
not alter or affect the same.
Bank of Aurora presently uses First
National Bank of Denver as its principal city correspondent.
The
President of the First National Bank testified that loss of the Bank
of Aurora account would not be substantial or critical.
An addi-
tional fact found by the Hearing Examiner which the Board adopts as
suPPorting its position in this matter is that the other banks in
the two suburban communities, assuming that they choose not to use
/3enver U, S. Bank as a correspondent bank, would still have available
as city correspondents four large Denver banks.
41-11 be available to the smaller Denver banks.
The same alternatives
Correspondent bank
alternatives available to banks not competing with any of Applicant's
Proposed subsidiaries would, of course, remain unchanged.
The foregoing facts, as well as the evidence as to the scope
of o
peration of and range of services offered by the four other large
13etiver banks - combined they have about 600 correspondent bank accounts
l'ePresenting total deposits of $93 million - satisfy the Board that
44Y change that may occur in existing correspondent relationships
ill not measurably enhance Denver U. S. Bank's competitive position
tiot deprive the suburban banks of adequate sources of correspondent
1144king services.
A contention, asserted by all opponents of Applicant's
11°Posal,
that approval of the application would compel, as a
e°mPetitive measure, the formation of bank holding companies by
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Federal Reserve Bank of St. Louis
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other large Colorado banks.
It is possible, of course, that efforts
toward this end might be initiated by competing banks.
The Board
has previously made known its position in this regard. (Board
Statement in First Oklahoma
BEs2matao,aa,_1112., 48 Fed. Res.
Bull. 1608,
1616) For the reasons set forth in the latter case, the Board affirms
the Hearing Examiner's conclusion that the possibility of future
efforts Coward holding company formations in Colorado is not a controlling
adverse factor in the instant case
A final point briefed and argued orally before the Board
by Protesting Banks is that, on the basis of the recent decision by
the United States Court of Appeals for the District of Columbia in
lames J. Saxont Comptroller of the Currency v. Bank of New Orleans
'
and Trust Company, et
al.,
F. 2d
decided
August 14, 1963, the Board reconsider its position stated in the
14QtereAplication of Farmers and Mechanics Trust Company,
Child
Texas, 46 Fed. Res. Bull. 14, 16, wherein the Board, in
4etina upon an application by a bank holding company for approval of
it8 acquisition of stock in a bank in Texas, declined to weigh as a
Consideration adverse to approval the existence of a State statute
P"hibiting branch banking
In the Bank of New Orleans and Trust
.
, the Court of Appeals affirmed the action of a
----4ZaX case, suLa
tistrict Court in enjoining the Comptroller of the Currency from
4uthorizing the opening of a new national bank, acquisition of which
by
El bank holding company had been approved by this Board. The
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Federal Reserve Bank of St. Louis
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Comptroller's action, the Court held, was forbidden by a Louisiana
statute prohibiting branch banking by State banks, and made applicable
to
national banks by provisions of Federal law.
The Court's ultimate
decision was premised upon a specific finding that the new national
bank) in its organization, financing, management, and operation was,
to all
intents and purposes, a branch of an existing national bank.
The Board finds inapplicable to its statutory functions
under section 3 of the Bank Holding Company Act both the reasoning
4nd holding in the Bank of New Orleans case.
its
Accordingly, it believes
earlier position in the Farmers and Mechanics Trust Company matter
tc) be consistent with controlling law, and precedent for the Board's
Present action in deciding the bank holding company application now
before it.
Summary and conclusion. - As heretofore discussed, the
financial history and condition, prospects, and character of manage-'
IllatIt of Applicant and the banks concerned are consistent with approval
Of
th° application.
The extent to which it has been found that the
e°4venience and welfare of the two suburban communities principally
erned will be better served, and thus improved, weighs in favor
Of a
PProval of Applicant's proposal, The size or extent of the
baro„
holding company system proposed would not, in the Board's judgbe inconsistent with continued adequate and sound banking and
the Ptblic !nteres. Similarly, Applicant's formation is not foreseen
48
being in any significant respect inconsistent with the preserva-
tl°4 of banking competition within the Denver Metropolitan Area and
the
State of Colorado.
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Federal Reserve Bank of St. Louis
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.26..
To the extent that the findings and conclusions of the
Hearing Examiner are consistent with those contained herein, they
.re adopted.
Protesting Banks' exceptions to the Hearing Examiner's
Port and Recomended Decision have been fully considered and the
'merit of certain of those exceptions is reflected in the Board's
findings and conclusions.
To the extent not so reflected, Protesting
Banks' exceptions are denied,
On the basis of all the relevant facts as contained in the
Cord before the Board, and in the light of the factors set forth
in section 3(c) of the Act, it is the Board's judgment that the
Proposed acquisition would be consistent with the public interest
and that the application should therefore be approved.
Nov—,
,Liwer 7,
190.
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Federal Reserve Bank of St. Louis
3869
CONCURRING STATEMENT
or
Item No. 7
GOVERNOR MITCHELL
11/6/63
The basis for approval of the Denver U. S. Bancorporation
holding company application should, in my view, recognize the effect
Of the resultant merging of control and management interests on the
Particular credit and banking service markets most vulnerable to a
diminution of bank competition or a curtailment of banking service.
There is little evidence of lack of competition in most of
the major credit and depositor markets in which Denver banks are involved - notably Government securities, large issues of State and local
debt, loans to large business, residential mortp;a3es, correspondent
bank services, credit to consumers, and interest-bearing deposits.
Other financial intermediaries in Denver and elsewhere, banks in other
eities, manufacturing or retailing credit affiliates in Denver, and
the capital markets themselves all compete in one or more of these
markets with Denver banks.
The markets where the maintenance of banking competition is
Of
major concern are in the provision of demand deposit services and
ill the making of small business loans. In neither of these markets
i8
there close or comparably priced nonbank substitutes.
For depositors,
convenience
is by far the most important single consideration; location,
hours and days open for business, parking facilities, and the like are
ril()rs-1 impo,':tant than seldom-used special services.
Small businesses,
ac a result of their smallness, are typically restricted in their
credit soulces to banks located in the immediate vicinity unless they
4re Prepared to rely on supplier or customer credit with the implicit
CO
natraint on their product lines.
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Federal Reserve Bank of St. Louis
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In regard to demand deposit service, Denver appears to be
significantly flunderbanked." In the Denver metropolitan area in
1960 there were approximately 17,000 people for each bank office. In
comparable metropolitan areas where legal constraints on more convenient
banking service are not encountered the number of persons per banking
office is much less. In 1960 it was between 8,000 and 9,000 persons
in Phoenix, Arizona; San Bernardino, California; Indianapolis, Indiana;
Louisville, Kentucky; and Syracuse, New York. It was between 9,000 and
10,000 in San Jose, California; Patterson, New Jersey; Albany, New York;
Cincinnati, Ohio; Portland, Oregon; Providence, Rhode Island; and
Seattle, Washington. It was between 10,000 and 11,000 in both
Sa
cramento and San Diego, California; Jersey City, New Jersey; Buffalo,
New York; and Norfolk, Virginia. I believe these figures indicate
that
Denver banks are not providing the convenient service accorded
depositors in other large, growing metropolitan areas.
The proposal
in question will not add to the number of offices servicing the Denver
eeramunity, but it is the type of change in the banking status quo which
alaY bring about a reappraisal of the adequacy of banking facilities in
the entire metropolitan area.
Bancorporation has in the record repeatedly expressed the
illtention to cultivate its large business customers' needs more
ralioitously than in the past. However, the record has not shown that
the
Y Propose to do this at the expense of smaller businesses who do not
hay
e the credit alternatives of their large customers. Apparently their
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Federal Reserve Bank of St. Louis
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concern for large customers comes from the belief that all small
business needs are being adequately studied and met.
There is nothing
in the record to suggest that a poorer job of meeting these local needs
come about as a result of the formation of the holding company.
The majority opinion implies such needs will be better met.
Governor Robertson's dissent in this case expresses concern
cvor an increase in the concentration of deposits and loans in a few
largeDenver banks.
Entirely apart from the fact that nonbank competition
and nonlocal bank competition insures adequate competition in most credit
markets, the statistical increase in concentration really tells very
little about the competitive policy decisions in the Denver banking
"mmunitY.
The record in this case does not show the detailed character
arld extent of banking affiliations in the metropolitan area which have
a bearing upon competitive postures.
inhibit some banking competition.
Of
Clearly correspondent relations
Clearly loans by large banks to
in small banks collateralized by bank stock are hardly conducive
to vigorous competition between the two banks.
The record does not show
417 many true banking competitors there are in Denver but it is cert`linlY far less than the number of banking offices. In this particular
eases the increase in concentration appears to me to be largely
fictitious; there will be the same number of offices but with different
conn
ections.
Quite obviously a decision in this case involves weighing
4
great many factors and frequent resort to judgment.
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Federal Reserve Bank of St. Louis
In the belief
,
that bankers should have as much freedom to serve corporate purposes
as is consistent with the public interest, it is my judgment that
approval here will have that advantage, will ultimately lead to convenience benefits to depositors, and is not likely to have harmful
effects on small businesses in the outlying areas of Denver in need
of bank credit.
N
ovember 7, 1963.
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Federal Reserve Bank of St. Louis
Item No
11/6/63'
DISSENTING STATENENT OF GOVERNOR ROBERTSON
I am unable to concur in the Board's conclusion that
approval of this application would be in the public interest.
the
On
contrary, it is my opinion that the record in this case has
clearly established that the Board's action in permitting formation
of this bank holding company system will most assuredly produce
sub
stantially detrimental effects without attending benefit to the
public.
Principal among such detrimental effects will be the
elimination of competition between Denver U. S. Bank and each of
the proposed suburban subsidiaries for deposits and loans, which
ecmPetition the Board found is not insignificant.
Consummation of
the proposal will simultaneously foreclose to the businesses and
I'esidents of the two suburban areas an alternative source of banking
ser
vices.
In view of the stress laid by Applicant on its desire to
better serve its larger, regional accounts, I foresee yet another
bstantia.
I adverse consequence flowing from consummation of
APPlicant's proposal.
A major portion of the deposits derived by
the two suburban banks from their respective primary service areas
11°4 Presumably remains in and primarily serves those areas.
cant's
Of
Appli-
ownership of the suburban banks may be followed by a draining
these suburban deposits to serve the regional customers of
TT S. Bank.
Denver -.
While Denver U. S. Bank's access to these
4(iditional deposits will afford but minimal competitive advantage,
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Federal Reserve Bank of St. Louis
3874
their removal could have an adverse effect on the medium and small
size businesses seeking credit from within the two suburban
co
mmunities.
At the presamt time a major portion of the deposits and
loans of all banks in the State is concentrated in a few large
Denver banks.
Approval of this application will encourage and
facilitate
further concentration in one of two ways, and perhaps
bc)th. It is not reasonable to assume that Applicant has taken this
step without foreseeing, even at this date, the need for
ther expansion of its system if its stated goals are to be reached.
'While it is true that such future expansion can be taken only with
130ard approval,
the philosophy reflected in the Board's present
action constitutes an invitation to seek such further approval.
A
m(3te immediate threat to the present banking structure of the State
aisas, in my judgment, from the probability, reflected in the record
f this matter, that the Board's action in this case will set in
ill°ti°r1 efforts by other large Denver banks to form bank holding
"mPanies.
The Bank Holding Company Act was primarily designed to
"tittol the "expansion" of bank holding companies.
True, the Act
418° contains a provision permitt4 ng the formation of new holding
"InPanies upon approval of the Board of Governors.
However, this
1)(311ision was intended chiefly to close a "gap" that would have
other,,
w"-se existed since without this provision a company could have
aly1
acquired control of two or more banks without the need for
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Federal Reserve Bank of St. Louis
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Board approval.
That provision was never intended, in my judgment,
to be used
as a vehicle for altering the banking structure of a
State, particularly
particular
over the expressed objection of the State.
that is what is being done here.
Yet
I repeat my earlier stated convic-
tion that approval of this application will in all probability lead
to like
applications on behalf of other large banks in Denver,
different treatment of which by the Board will be made difficult by
the precedent here established.
ttansformation
The result may well be the rapid
of Colorado's banking structure from one consisting
f menY independent single unit banks to one of banks controlled by
a few
holding company systems.
In seeking to restrain the expansion and development of
bank holding companies, Congress did not, in my opinion, expect the
130ard to contribute to a transformation of a State's banking structure
Of the nature and scope foreseen in this case.
Accordingly, I would deny this application as being a
signif4 cant step in the direction of undue concentration of financial
Pclwer, and in conflict with the structure of banking ordained by the
State
of Colorado.
No
vember 7, 1963.
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