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86th Congress, 2d Session

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House Report No. 1416

REGULATION OF BANK MERGERS

REPORT
OF THE

COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
EIGHTY-SIXTH CONGRESS
SECOND SESSION
ON

S. 1062

MARCH 23, 1960.—Committed to the Committee of the Whole House
on the State of the Union and ordered to be printed
UNITED STATES
GOVERNMENT P R I N T I N G O F F I C E
63084




W A S H I N G T O N : 1960

COMMITTEE ON BANKINCx AND CURRENCY
B R E N T S P E N C E , Kentucky, Chairman
C L A R E N C E E. KILBURN, New York
PAUL BROWN, Georgia
GORDON L. McDONOUGH, California
W R I G H T P A T M A N , Texas
WILLIAM B. WIDNALL, New Jersey
A L B E R T RAINS, Alabama
EDGAR W. H I E S T A N D , California
ABRAHAM J. M U L T E R , New York
P E R K I N S BASS, New Hampshire
H U G H J. ADDONIZIO, New Jersey
E U G E N E SILER, Kentucky
WILLIAM A. B A R R E T T , Pennsylvania
PAUL A. FINO, New York
LEONOR K. SULLIVAN, Missouri
F L O R E N C E P . D W Y E R , New Jersey
H E N R Y S. REUSS, Wisconsin
E D W A R D J. D E R W I N S K I , Illinois
M A R T H A W. G R I F F I T H S , Michigan
SEYMOUR H A L P E R N , New York
THOMAS L. ASHLEY, Ohio
WILLIAM H . M I L L I K E N , J R . , Pennsylvania
CHARLES A. VANIK, Ohio
J. T. R U T H E R F O R D , Texas
J O S E P H W. BARR, Indiana
JAMES A. B U R K E , Massachusetts
WILLIAM S. M O O R H E A D , Pennsylvania
C L E M M I L L E R , California
BYRON L. JOHNSON, Colorado
D A N I E L K. I N O U Y E , Hawaii
ROBERT L. CARDON, Clerk and General Counsel
JOHN E. BARRIERE, Majority Staff Member
ORMAN S. FINK, Minority Staff Member
ROBERT R. POSTON, Counsel

SUBCOMMITTEE N O . 2
PAUL BROWN, Georgia, Chairman
ABRAHAM J. M U L T E R , New York
WILLIAM A. B A R R E T T , Pennsylvania
CHARLES A. VANIK, Ohio
J O S E P H W. BARR, Indiana
W r ILLIAM S. M O O R H E A D , Pennsylvania
II




EDGAR W. H I E S T A N D , California
PAUL A. FINO, New York
E D W A R D J. D E R W I N S K I , Illinois

CONTENTS
Page

What the bill would do
The committee amendment
Need for improved controls over bank mergers
Mergers covered by the bill
Present Federal banking laws on bank mergers
National banks
Federal Reserve member banks
Insured State nonmember banks
Summary
Control over bank mergers under antitrust laws
.Special standards needed to control bank mergers
The competitive factor
Reports from the other banking agencies
Reports from the Attorney General
Reports to the Congress
Publication of notice of proposed mergers
Compliance with State law
Changes in existing law




2
3
3
5
6
6
7
7
7
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9
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12
13
14
14
15
15

nx




8 6 T H CONGRESS )

2d Session

HOUSE OF EEPEESENTATIVES

J

(
(

KEPORT

No. 1416

REGULATION OF BANK M E R G E R S

MARCH 23, 1960.—Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

Mr. SPENCE, from the Committee on Banking and Currency, submitted the following

REPORT
[To accompany S. 1062]
The Committee on Banking and Currency, to whom was referred
the bill (S. 1062) to amend the Federal Deposit Insurance Act to
provide safeguards against mergers and consolidations of banks which
might lessen competition unduly or tend unduly to create a monopoly
in the field of banking, having considered the same, report favorably
thereon with an amendment and recommend t h a t the bill as amended
do pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu thereof the
following:
That subsection (c) of section 18 of the Federal Deposit Insurance Act is amended
by striking out the third sentence and inserting in lieu thereof the following: "No
insured bank shall merge or consolidate with any other insured bank or, either
directly or indirectly, acquire the assets of, or assume liability to pay any deposits
made in, any other insured bank without the prior written consent (i) of the
Comptroller of the Currency if the acquiring, assuming, or resulting bank is to
-be a national bank or a District bank, or (ii) of the Board of Governors of the
Federal Reserve System if the acquiring, assuming, or resulting bank is to be a
State member bank (except a District bank), or (iii) of the Corporation if the
acquiring, assuming, or resulting bank is to be a nonmember insured bank (except
a District bank). Notice of any proposed merger, consolidation, acquisition of
assets, or assumption of liabilities, in a form approved by the Comptroller, the
Board, or the Corporation, as the case may be, shall (except in a case where the
.* furnishing of reports under the seventh sentence of this subsection is not required)
be published, at appropriate intervals during a period (prior to the approval or
disapproval of the transaction) at least as long as the period allowed under such
sentence for furnishing such reports, in a newspaper of general circulation in the
community or communities where the main offices of the banks involved are
located (or, if there is no such newspaper in any such community, then in the
newspaper of general circulation published nearest thereto). In granting or
withholding consent under this subsection, the Comptroller, the Board, or the
Corporation, as the case may be, shall consider the financial history and condition




1

2

REGULATION OF BANK MERGERS

of each of the banks involved, the adequacy of its capital structure, its future
earnings prospects, the general character of its management, the convenience and
needs of the community to be served, and whether or not its corporate powers
are consistent with the purposes of this Act. In the case of a merger, consolidation, acquisition of assets, or assumption of liabilities, the appropriate agency
shall also take into consideration the effect of the transaction on competition
(including any tendency toward monopoly), and shall not approve the transaction unless, after considering all of such factors, it finds the transaction to be
in the public interest. In the interests of uniform standards, before acting on a
merger, consolidation, acquisition of assets, or assumption of liabilities under
this subsection, the agency (unless it finds that it must act immediately in order
to prevent the probable failure of one of the banks involved) shall request a report
on the competitive factors involved from the Attorney General and the other
two banking agencies referred to in this subsection (which report shall be furnished
within thirty calendar days of the date on which it is requested, or within ten
calendar days of such date if the requesting agency advises the Attorney General
land the other two banking agencies that an emergency exists requiring expeditious
action). The Comptroller, the Board, and the Corporation shall each include in
its annual report to the Congress a description of each merger, consolidation,
acquisition of assets, or assumption of liabilities approved by it during the period
covered by the report, along with the following information: the name and total
resources of each bank involved; whether a report has been submitted by the
Attorney General hereunder, and, if so, a summary by the Attorney General of
the substance of such report; and a statement by the Comptroller, the Board, or
the Corporation, as the case m.ay be, of the basis for its approval."
Amend the title so as to read: "An Act to amend the Federal Deposit Insurance
Act to require Federal approval for mergers and consolidations of insured banks."
WHAT

THE

BILL

WOULD

DO

The bill as reported by your committee prohibits mergers 1 of
federally insured banks without the approval of the appropriate
Federal bank supervisory agency. If the merger is to result 2 in a
national bank or a District of Columbia bank, approval must be
obtained from the Comptroller of the Currency; if it is to result in a
State bank that is a member of the Federal Reserve System, approval
must be obtained from the Federal Reserve Board; if it is to result
in an insured nonmember State bank, approval must be obtained
from the Federal Deposit Insurance Corporation. In acting on a
merger application, the agency having jurisdiction over the transaction will consider the following factors: The financial history and
condition of each of the banks involved, the adequacy of its capital
structure, its future earnings prospects, the general character of its
management, the convenience and needs of the community to
be served, whether the bank's corporate powers are consistent with
the purposes of the Federal Deposit Insurance Act, and the effect of the
transaction on competition (including any tendency toward monopoly).
Approval will not be given unless, after considering all such factors,
the agency finds the transaction to be in the public interest. Except
where immediate action is needed to save a failing bank, the agency
having jurisdiction over the transaction wil] request a report on the
competitive factors involved from the other two banking agencies
and from the Attorney General.
i For ease of reading this report ignores the technical distinctions between a true merger and other
. transactions by which two banks may end up as one through consolidation, acquisition of assets, or assumption of liabilities. The bill, however, covers all such cases.
2 As indicated in footnote 1, this report ignores certain technical distinctions. The report uses "resulting
bank" to include what is more accurately described in the bill as the "acquiring, assuming, or resulting
bank."

£



REGULATION OF BANK MERGERS

3

THE COMMITTEE AMENDMENT

Your committee has agreed upon an amendment to the bill, striking out all after the enacting clause and inserting substitute provisions
worked out by Subcommittee No. 2 of this committee, under the able
chairmanship of Hon. Paul Brown. The principal effect of the substitute amendment relates to the standard used in acting on mergers.
Both the Senate bill and the committee substitute require the appropriate banking agency to consider the six banking factors listed first
in the preceding paragraph. The Senate bill added a seventh factor
to be considered: whether the transaction would "unduly lessen competition or tend unduly to create a monopoly/' The committee substitute requires consideration of the six banking factors plus "the effect
of the transaction on competition (including any tendency toward
monopoly)"; it also bars approval unless, after weighing all these
factors, the agency finds the transaction to be in the public interest.
The committee substitute also makes certain changes in the procedures for obtaining reports from the other banking agencies and the
Attorney General, and for reporting actions on bank mergers to Congress. These changes are explained more fully in the discussion of
the reporting provisions of the bill (beginning p. 12).
The committee substitute also provides for notice of proposed mergers to be published in newspapers. This provision is explained on
page 14.
NEED FOR IMPROVED CONTROLS OVER BANK MERGERS

Vigorous competition between strong, aggressive, and sound banks
is highly desirable. Competition in banking takes many forms—competition for deposits by individuals and corporations and by personal
and business depositors; competition for individual, business, and
governmental loans; competition for services of various sorts. Competition for deposits increases the amounts available for loans for the
development and growth of the Nation's industry and commerce.
Competition for loans gives the borrowers better terms and better
service and furthers the development of industry and commerce.
Vigorous competition in banking stimulates competition in the entire
economy, in industry, commerce, and trade. There is no question
that competition is desirable in banking, and that competitive factors
should be considered in all aspects of the supervision and regulation
of banks.
The number of commercial banks in the United States has been
slowly but steadily declining in the past 10 years. On January 1,
1950, there were 14,174 commercial banks in the country, but on
December 31, 1959, the number had dropped to 13,460, a loss of 714
banks for the period. This occurred in spite of a tremendous increase
in the country's need for banking services, and despite the fact that
887 new banks were chartered during the period. The net loss resulted from a strong trend toward mergers; on the average, 150 banks
per year ceased to exist as separate institutions during this period.
The 1,503 banks which disappeared represent more than 10 percent
of all the banks in the country.




4

REGULATION OF BANK MERGERS

Annual figures for this period, as furnished by the Comptroller of
the Currency during the hearings on this bill, are as follows:
All commercial

banks,

1950-59

Jan. 1,1950:
Total number of commercial banks
Less:
New banks chartered during 1950
Banks absorbed by merger during 1950
Other banks discontinuing business during 1950

14,174
91
13

j.

Total commercial banks, Dec. 31, 1950

_

Jan. 1,1951:
Total number of commercial banks
New banks chartered during 1951
Less:
Banks absorbed by merger during 1951
Other banks discontinuing business during 1951

84
10

Total commercial banks, Dec. 31, 1951

_

__

_.

Total commercial banks, Dec. 31,1952

_

99
12

_
__„_.

94

71

Ill

__

_
115
7

65

122

72
216
6

Total commercial banks, Dec. 31, 1954

14,067

-57

222

14,010

-150

_ 13,860

Jan. 1,1955:
Total number of commercial banks
New banks chartered during 1955
Less:
Banks absorbed by merger during 1955
O ther banks discontinuing business during 1956

--- 13,860
115
225
13

238

Total commercial banks, Dec. 31,1955

-123
13,737

Jan. 1,1956:
Total number of commercial banks
New banks chartered during 1956
_
Less:
Banks absorbed by merger during 1956
Other banks discontinuing business during 1956




-40

—_ 14,010

Jan. 1,1954:
Total number of commercial banks
New banks chartered during 1954
Less:
Banks absorbed by merger during 1954
Other banks discontinuing business during 1954

Total commercial banks Dec. 31, 1957

14,107

14,067

Total commercial banks, Dec. 31,1953

Jan. 1,1957:
Total number of commercial banks
New banks chartered during 1957
Less:
Banks absorbed by merger during 1957
Other banks discontinuing business during 1957

-30

__ 14,107

._.

Jan. 1,1953:
Total number of commercial banks
New banks chartered during 1953
Less:
Banks absorbed by merger during 1953
Other banks discontinuing business during 1953

Total commercial banks Dec. 31, 1956

-37

__ 14,137
64

i

_

104

._ 14,137

;

Jan. 1,1952:
Total number of commercial banks
New banks chartered during 1952
___
Less:
Banks absorbed by merger during 1952
O ther banks discontinuing business during 1952

67

-

—
__

-

186
13

-- 13,737
122
199

_

_

-77
13*660

-_

165
3

88
168

13,660

-80
13,580

REGULATION OF BANK MERGERS
All commercial banks,

5

1950-59—Continued

Jan. 1, 1958:
Total number of commercial banks
New banks chartered during 1958
Less:
Banks absorbed by merger during 1958
_
Other banks discontinuing business during 1958

100
151
15

166

Total commercial banks Dec. 31, 1958

13,580

-66
13,514

Jan. 1, 1959:
Total number of commercial banks
New banks chartered during 1959
_
Less:
Banks absorbed by merger during 1959
Other banks discontinuing business during 1959

_

123
171
6

177

Total commercial banks Dec. 31, 1959

13,514

-54
13,460

SUMMARY

Total number of commercial banks Jan. 1 1950
_
New banks chartered during period 1950-59
_
Less:
Banks absorbed by merger during period 1950-59
Other banks discontinuing business during period 1950-59
Total commercial banks Dec. 31, 1959

14,174
887
1,503
98

1,601
_

-714
13,460

The large numbers of mergers in recent years, the vast resources
involved in these mergers, and the increases in the size of the largest
banks, particularly those which have grown through mergers, all give
rise to concern for the maintenance of vigorous competition in the
banking system and in the industry and commerce served by the banking system. The reduction in the number of banks and the loss of
competition between merged banks also give rise to concern. There
are differing views about the effect and the significance of the mergers
which have taken place. But there is general agreement that legislation providing for uniform and effective regulation of mergers is required for the future.
Controls over bank mergers are incomplete and confusing, particularly with respect to the competitive factors involved. There are
gaps in the controls exercised by the Federal banking agencies under
banking statutes, and even where Federal approval is required before
a merger may be completed, the standards are not clearly spelled out.
Only two State statutes regulating bank mergers specifically authorize
consideration of competition as a factor in approving or disapproving
a merger, although in other States this factor is undoubtedly considered
under some other standards. The Federal antitrust laws are also
inadequate to the task of regulating bank mergers; while the Attorney
General may move against bank mergers to a limited extent under the
Sherman Act, the Clayton Act offers little help.
MERGERS COVERED BY THE BILL

S. 1062 would apply to all bank mergers involving a bank insured by
FDIC—National banks, State member banks, and insured nonmember
banks. This would cover the vast majority of American banks.
Approximately 95 percent of the banks in the United States are
insured, and the insured banks hold over 97 percent of the total assets
of all banks in the United States. The coverage of the bill can be
judged by the following chart, showing a breakdown of bank mergers
H. Kept. 1416,8G-2




2

6

REGULATION OF BANK MERGERS

for the past 3 years as to type of bank, which was furnished by the
Federal Deposit Insurance Corporation:
Distribution of absorbed commercial banks by class and size of bank;
absorptions,
consolidations, and mergers in the United States (continental United States and
other areas), 1957-59
N U M B E R OF ABSORBED C O M M E R C I A L BANKS i
Insured
Classification

Total
National

All a b s o r b e d commercial b a n k s , 1957-59- __
I n c l u d e d a t b e g i n n i n g of y e a r of a b sorption among the—
100 largest c o m m e r c i a l b a n k s
2d 100 largest commercial b a n k s
3d 100 largest commercial b a n k s
W i t h assets over $10,000,000, b u t n o t
a m o n g 300 largest b a n k s 3 _. _
W i t h assets of $10,000,000 or less

State,
members
Federal
Reserve
System

472

188

92

4
3
3

2
1

4
1
2

138
324

71
114

41
44

Not
members
Federal
Reserve
System

Noninsured 2

176

16

26
150

16

ASSETS (IN THOUSANDS) OF ABSORBED C O M M E R C I A L BANKS *
$2, 720, 491

$3, 997,298

2, 498, 468
504, 959
313,158

354, 731
122, 304

2, 498, 468
150,228
190,854

3, 299, 556
1,221, 628

1, 742, 981
500, 475

973, 571
184,177

All a b s o r b e d commercial b a n k s , 1957-59- _ . $7, 837. 769
I n c l u d e d at b e g i n n i n g of y e a r of a b sorption among the—
100 largest c o m m e r c i a l b a n k s
2d 100 largest c o m m e r c i a l b a n k s _ 3d 100 largest commercial b a n k s
W i t h assets over $10,000,000, b u t n o t
a m o n g 300 largest b a n k s 3__ __
W i t h assets of $10,000,000 or less _

$1,094, 544

$25,436

583,004
511, 540

25, 436

F l For 1957 and 1958 from table 101, Annual Report of the Federal Deposit Insurance Corporation for the
indicated year; for 1959 from tabulations to be included in the annual report for 1959.
2
Includes banks of deposit and trust companies not regularly engaged in deposit banking.
| T h e largest 300 banks included those with assets of more than $86,000,000 in 1957; $89,000,000 in 1958;
and $95,000,000 in 1959 (at beginning of year).
* From "Polk's Bank Directory"; data as of nearest available midyear or yearend date prior to absorption.

PRESENT FEDERAL BANKING LAWS ON BANK MERGERS

National banks
Where a proposed merger will result in a national bank, it can
normally be completed only if the Comptroller of the Currency approves. But the statute governing such mergers sets forth no standards for the Comptroller to follow in acting on such proposals. In
addition, there are special cases where, due to the form the transaction
takes, approval is not directly required. That is, if the transaction
is not a merger or consolidation in the technical sense, but takes the
form of a national bank purchasing the assets and assuming the
liabilities of another bank, the Comptroller's approval is not directly
required unless the capital stock or surplus of the assuming bank will
be less than the aggregate capital or surplus of the combining banks.
Where there is no such diminution, the Comptroller can exercise
indirect control through his power to approve the necessary increase
in the capital of the assuming bank, and if one of the banks is to be
continued as a branch, his approval is also required. The bill, however, would remove any confusion or doubt about the Comptroller's




REGULATION OOP BANK > MERGERS

7

power to act directly in these cases, and would s^t forth the standards
on which he is to act, including the competitive factor specifically.
Federal Reserve member banks
The only direct authority the Federal Reserve Board has over
mergers of member banks derives from section 18(c) of the Federal
Deposit Insurance Act, which requires advance approval of the Board
before a merger may take place which will result in a member bank
witli a smaller capital or surplus than the combined capital or surplus
of the banks involved in the transaction. In most cases the resulting
bank can be provided with capital and surplus as high as those of the
merging banks. This means that usually the absorbing bank has it
in its own power to prevent the Board from reviewing the merger
directly.
The Board exercises an indirect control over mergers where one of
the banks involved will continue as a branch of the resulting member
bank, since the Board's approval is required before such a branch
may be established. I n such a case, the Board considers what effect
the branch will have on competition, but the Board's authority to do
so has been challenged in recent litigation; it was upheld in the trial
court but appeal has been taken. 3
In 1959, out of 42 mergers resulting in member banks, 19 mergers,
involving total resources of almost $2 billion, did not require direct
approval of the Board.
Insured State nonmember banks
The Federal Deposit Insurance Corporation's approval is required
before any bank whose deposits it insures may merge with any noninsured bank. I t also has, with respect to insured nonmember banks,
the same power the Federal Reserve Board has with respect to member banks, in merger cases involving diminution of capital or surplus.
Its power to exercise indirect control by approving or disapproving
establishment of branches is also comparable to that of the Federal
Reserve Board.
In the past 5 years there have been 162 mergers resulting in a
State nonmember bank; in 66 of these F D I C approval was not required. In 1959, F D I C passed on 23 of 40 possible cases; in the 17
cases not requiring F D I C approval, total assets of $106 million were
involved—75 percent more than the assets involved in the cases where
approval was required.
The Chairman of the Board of Directors of the Federal Deposit
Insurance Corporation, a former chairman and long-time member of
the Banking and Currency Committee, Hon. Jesse P . Wolcott,
summed up this state of affairs as follows: "There is no question,
then, that our present act is largely ineffective when it comes to control of bank mergers."
Summary
The effect of the gaps in Federal banking laws on mergers in recent
years is summarized in the following material furnished by the
Comptroller of the Currency:
3 Old Kent Bank & Trust Co. v. Martin et al. (U.S. District Court for the District of Columbia, Civil
Action No. 1993-58).




8

BmVhATIOK

OF BANK MERGERS

Recapitulation of consolidations, mergers, assumptions, not requiring approval of
• appropriate Federal bank supervisory agency, 1955 through 1959
I. State bank member of Federal Reserve System the continuing bank: Approval
of Board of Governors of Federal Reserve System not required because the
total capital stock or surplus of the resulting or assuming bank was not less
than the aggregate capital stock or aggregate surplus, respectively, of all
the merging or consolidating banks or all of the parties to the assumption
of liabilities.
Requiring
Board
approval

Year

1955
1956
1957
1958
1959
Total.

Not requiring
Board
approval

Total resources,
cases not requiring Board's
approval

Total

38
30
21
21
23

30
24
20
23
19

68
54
41
44
42

$6,431,058, 718
214,314,252
276, 574,435
523,258, 520
1, 988,983, 797

133

116

249

9,434,189, 722

II. State bank insured by Federal Deposit Insurance Corporation, but not a
member of Federal Reserve System, the continuing bank: Approval of
Federal Deposit Insurance Corporation not required because the total
capital stock or surplus of the resulting or assuming bank was not less than
the aggregate capital stock or aggregate surplus, respectively, of all the
merging or consolidating banks or all of the parties to the assumption of
liabilities.
Requiring
FDIC
approval

Year

1955
1956
1957
1958
1959

_

_
_
_

Total

_

_

_.
__

Not requiring
FDIC
approval

Total resources, cases
not requiring
FDIC
approval

Total

25
16
14
18
25

9
11
21
8
17

34
27
35
26
40

$28, 592, 419
30,472,858
286, 765, 741
92,336,858
105,621,323

98

66

162

543,789,199

III. National bank the continuing bank: Approval of Comptroller of the Currency not required to assumption of liabilities cases only because the
capital stock or surplus of the assuming national bank was not less than the
aggregate capital stock or aggregate surplus, respectively, of all the parties
to the assumption of liabilities. While the Comptroller had no authority
to approve or disapprove these transactions because there was no diminution in capital or surplus, the increase in capital by the resulting national
bank did require the approval of the Comptroller. (Comptroller of the
Currency required to approve or disapprove all consolidations or mergers
where the continuing bank is a national bank under the provisions of
specific statutes.)

Year

1956..
1955._
1957
1958-.
1959Total

Consolidations
and mergers
requiring
Comptroller's
approval

Requiring
Comptroller's
approval

Not requiring
Comptroller's
approval

73
69
62
53
73

51
32
20
30
11

2
4
1

330

U44

i Includes 3 District of Columbia nonnational banks.



Total resources,
cases not
requiring
Comptroller's
approval

Assumption cases
Total

$13,490,703
36,950,783
1,285,741

2

126
105
83
83
86

9

483

71,084,412

19,357,185

REGULATION OF BANK MERGERS

9

CONTROL OVER BANK MERGERS UNDER ANTITRUST LAWS

The Sherman Antitrust Act prohibits any contract, combination,
or conspiracy in restraint of interstate or foreign trade or commerce,
and makes it illegal to monopolize, or to combine, conspire, or attempt
to monopolize, any part of such trade or commerce. Section 7 of the
Clayton Act prohibits acquisitions of bank stock "where in any line
of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a
monopoly." Because section 7 is limited, insofar as banks are concerned, to cases where a merger is accomplished through acquisition
of stock, and because bank mergers are accomplished by asset acquisitions rather than stock acquisitions, the act offers "little help," in the
words of Hon. 'Robert A. Bicks, acting head of the Antitrust Division,
in controlling bank mergers. Although the Sherman Act applies to
asset acquisitions as well as to stock acquisitions, it has been of little
use in controlling bank mergers. I t has been used only once in court
(in a proceeding initiated in March 1959) against a bank merger.
S. 1062 would not in any way affect the applicability of the Sherman
Act or the Clayton Act to bank mergers.
SPECIAL STANDARDS NEEDED TO CONTROL BANK MERGERS

Sad experiences in our history have demonstrated that to maintain
a sound banking system in this country banks must be regulated much
more strictly than ordinary businesses. A bank charter may be obtained only after the supervisory authorities are convinced that there
is a need for the bank in the community and its prospects of success
are good. Once it is in operation, it is subjected to careful and continuing supervision, in order to avoid "wildcat banking" and other
excesses which did much to bring on panics in earlier days.
This point is brought out in the following quotation from "Banking
Under the Antitrust Laws," by A. A. Berle (49 Columbia Law Review
(1949) 589, at 592):
Operations in deposit banking not only affect the commercial field, but also determine in great measure the supply
of credit, the volume of money, the value of the dollar, and
even, perhaps, the stability of the currency system. Within
this area considerations differing from and far more powerful
than mere preservation of competition may be operating
under direct sanction of law. I t is the theory, in ordinary
commercial fields, that competition is the desirable check on
price levels—the process by which the efficient are rewarded
by survival, and the inefficient eliminated by failure. The
price of business failures is not regarded as too high for the
community to pay in view of advantages to consumers,
stimulus toward greater efficiency, and freedom of enterprise.
But it is doubtful (to say the least) whether any such assumption is indulged in with respect to deposit banks; certainly the theory is not there accepted to the full extent of
its logic. A bank failure is a community disaster, however,
wherever, and whenever it occurs.
Because banking is a licensed and strictly supervised industry that
offers problems acutely different from other types of business, the



10

REGULATION OF BANK

MERGERS

bill vests the ultimate authority to pass on mergers in the Federal
bank supervisory agencies, which have a thorough knowledge of the
banks, their personnel, and their types of business. For the same
reason, the bill requires consideration of the six banking factors now
listed in section 6 of the Federal Deposit Insurance Act. Thus the
supervisory agency would consider the financial history and condition
of each of the banks involved, the adequacy of its capital structure,
its future earnings prospects, the general character of its management,
the convenience and needs of the community to be served, and whether
or not its corporate powers are consistent with the purposes of the
Federal Deposit Insurance Act.
Reference to these factors, while essential, would not alone suffice,
because the section 6 standards do not give sufficient weight to the
factor of competition.
THE COMPETITIVE FACTOR

The most difficult task your committee faced in considering the bill
was in framing a standard to guide the supervisory agencies in weighing the effects of a proposed merger on competition. But out of the
hearings one principle emerged, on which all witnesses seemed to
agree, as a starting point: Some bank mergers are in the public interest, even though they lessen competition to a degree. Thus, most
witnesses agreed that a bank merger would serve the public interest,
even though it might lessen competition substantially, where there is
a reasonable probability of the ultimate failure of the bank to be
acquired; or where because of inadequate or incompetent management
the acquired bank's future prospects are unfavorable and can be
corrected only by a merger with the resulting bank; or where the
acquired bank is a problem bank with inadequate capital or unsound
assets and the merger is the only practicable means of solving the
problem; or where several banks in a small town are compelled by
an overbanked situation to resort to unsound competitive practices,
which may eventually have an adverse effect on the condition of such
banks, and the merger would correct this situation.
Recognizing that other factors may outweigh an adverse effect on
competition, the Senate bill provided that the banking agency acting
on a proposed merger should consider whether it would "unduly lessen
competition or tend unduly to create a monopoly." In the Senate
Banking and Currency Committee's report this language was interpreted as follows:
The word "unduly" is used to show that any lessening of
competition or tendency to monopoly which may be found by
the agency—whether "appreciable," "perceptible," "slight,"
"substantial," "serious," or "great"—must be weighed and
considered by the banking agency as just one of the several
factors which will go to form its balanced judgment, on the
basis of all of the factors involved.
Several witnesses before Subcommittee No, 2 objected to this language, on the ground that it is too ambiguous. They argued that the
Clayton Act test should be applied because it has acquired more
definite meaning through a long series of court interpretations. Your
committee notes, however, that there have been relatively few cases




REGULATION OF BANK MERGERS

11

interpreting the Clayton Act since it was substantially changed in
1950, and that in one of these few cases it was interpreted as banning
mergers having a given effect on competition, regardless of the benefits
flowing from the merger. To meet this objection, the suggestion was
made to apply the Clayton Act test generally, but write in specific
exemptions to allow approval of mergers in the cases referred to above,
involving probable failures, management problems, inadequate capital
or unsound assets, or overbanked communities. This course seems
unnecessarily hazardous, however, in view of the wide variety of
situations in which a merger may be proposed in all good faith as a
means of providing better banking service. Your committee concluded that it would be unwise to attempt to anticipate all possible
situations where a merger would benefit the public, and incorporate
them in a rigid, specific list of exemptions.
Your committee is convinced the Senate's approach is basically
sound. Where demonstrable benefits would flow from a proposed
merger, these should be weighed against any adverse effect on competition. Your committee feels, however, that the language of the
Senate bill can be improved, to insure that the intent indicated in
the legislative history of the bill in the Senate will be properly carried
out. Your committee concurs with the Senate committee report's
repeatedly expressed intent to allow approval of bank mergers that
would be in the public interest, and with the following description of
the process by which this question should be decided:
The decision in most cases can be expected to be clear.
In many cases the proposed merger will not reduce competition at all and there will be sound and convincing banking
reasons for authorizing the merger. In other cases the proposed merger will clearly increase and strengthen competition, and there will be no banking factors which might lead
to rejection of the merger. In still other cases, there will be
serious danger of very considerable reduction in competition,
and few or no sound banking reasons to approve the merger.
In any of these cases, there need be little hesitation in
approving or denying the application.
The committee recognizes that in a relatively small number
of cases, the balancing of the various factors will be difficult—
some banking factors may be favorable, some may be unfavorable; some competitive factors may be favorable, others
unfavorable.
In such cases, the decision will not be simple. Full consideration will have to be given to the basic purposes of the
statute; to promote a sound banking system, in the interest
of the Government, borrowers, depositors, and the public;
and to promote competition as an indispensable element in
a sound banking system.
We are concerned, however, with some indications that under the
Senate bill a merger could be approved even though it "unduly"
lessened competition. While this result presumably was not intended,
there are conflicting statements on this question in the legislative
history of the bill in the Senate, and in the record of our hearings.
Doubts on this score should obviously be removed. We are convinced, also, that approval of a merger should depend on a positive



12

REGULATION OF BANK MERGERS

showing of some benefit to be derived from it. As previously indicated, your committee is not prepared to say that the cases enumerated
in the hearings are the only instances in which a merger is in the
public interest, nor are we prepared to devise a specific and exclusive
list of situations in which a merger should be approved. We do,
however, reject the philosophy that doubts are to be resolved in favor
of bank mergers. At the risk of saying the same thing another way,
we feel the burden should be on the proponents of a merger to show
t h a t it is in the public interest, if it is to be approved. After ah\the
factors have been weighed, the transaction should be approved only
if the supervisory agency is satisfied that, on balance, its effect will be
beneficial. For these reasons, we recommend adoption of the committee substitute.
REPORTS FROM THE OTHER BANKING AGENCIES

The bill divides responsibility over bank mergers among three
separate agencies. This arrangement is a sound one, because as a
general rule it will mean that the decision will be made by the Federal
agency most thoroughly familiar with the banks involved. At the
same time, it poses a practical problem, which was forcibly brought
out during the hearings by the National Association of Supervisors of
State ; Banks. In the-wards of Hon. Robert Myers, ^secretary of
banking of the Commonwealth of Pennsylvania:
Unless there is uniformity of application of the standards
relating to merger approval to be applied by the Federal
agencies to bank mergers, the equality of competitive position
between the two banking systems so necessary for the continued existence of the dual system, which Congress has
always carefully tried to preserve, will be impaired.
Your committee agrees that every effort must be made to avoid a
situation where one Federal agency is "tough" about mergers and
another one is "easy," where there might be an inducement to arrange
mergers so as to result in the kind of bank where approval could be
easily obtained. To help guard against this kind of development, the
bill provides that the agency having jurisdiction over a proposed
merger shall request a report from the other two banking agencies on
the competitive factors involved, unless it must act immediately to
prevent a bank failure. The committee substitute differs from the
Senate bill as to the mechanics of this consultation. Following a
suggestion made by Chairman Martin of the Federal Reserve Board,
the procedure for obtaining the views of the other two banking
agencies is made to conform with the procedure for obtaining a report
from the Attorney General. T h a t is, under the committee substitute
(but not under the Senate bill) the supervisory agency having jurisdiction over the transaction can act to save a failing bank without
seeking the views of the other banking agencies; and the other banking
agencies are required to submit their views within 30 days (or within
10 days if an emergency exists requiring expeditious action). The
committee substitute also provides that the report shall be requested
on the competitive factors, rather than on all factors to be considered.




REGULATION OF BANK MERGERS

13

The problem of obtaining uniformity is particularly acute in regard
to the competitive factors, and it is expected that this uniformity can
be obtained without asking the other two banking agencies for reports
on the banking factors, which could result in an unnecessary Federal
encroachment on supervision of State banks. I t is expected, however,
that the other banking agencies will be furnished with any available
information needed to render a competent opinion on the competitive
factors involved.
The State bank supervisors expressed considerable concern whether
the system of consultation called for by S. 1062 would achieve the
necessary uniform standards, and therefore recommended that ultimate approval of all mergers involving insured banks be placed in
the hands of one agency, the Federal Deposit Insurance Corporation.
Under this recommendation, all mergers where a national bank
survives would be approved by the Comptroller and the Federal
Deposit Insurance Corporation, and a merger with a State insured
bank surviving would be approved by the State bank supervisor and
the F D I C . The committee recognizes considerable merit in the
State bank super visors' recommendation but believes that the consultation provided for by S. 1062 will achieve their purposes.
The State bank supervisors also recommended that the Comptroller
of the Currency should not be consulted as to a merger involving
just State insured banks, on the grounds that such consultation is
inconsistent with the principles of the dual banking system. Your
committee, however, believes the development of uniform standards
in the administration of S. 1062 is of fundamental importance in preserving the dual banking system, and that such consultation is essential
to the development of such uniform standards.
REPORTS FROM THE ATTORNEY GENERAL

The committee substitute retains a feature of the Senate bill
which should prove most helpful in providing effective control of
bank mergers. That is, it would require the appropriate bank
supervisory agency to seek the views of the Attorney General as
to the competitive factors involved in a proposed merger before acting
on it. As in the case of the report from the other banking agencies,
the report need not be sought where immediate action is needed
to save a failing bank. Normally, the report must be filed within
30 days, but provision is made for filing within 10 days in an emergency. I t should be emphasized that the report from the Attorney
General is purely advisory, just as the reports from the other banking
agencies are. The banking agency has the power and responsibilityto approve or disapprove. At the same time, the Justice Department's long years of experience in the antitrust field have qualified
them to render valuable advice to the bank supervisory agencies in
regulating bank mergers. Your committee is happy to note t h a t
Chairman Martin of the Federal Reserve Board indicated he would
give careful weight to the Attorney General's report. The cooperation between the Federal Reserve Board and the Attorney General
in the administration of the Bank Holding Company Act of 1956
has been most commendable.




14

REGULATION OF BANK MERGERS
REPORTS TO THE CONGRESS

The bill provides that each of the three bank supervisory agencies
shall include in its annual report to the Congress a description of the
mergers it has approved during the period covered by the report. The
report is to include the following information: The name and total
resources of each bank involved; whether a report has been submitted
by the Attorney General and, if so, a summary of its substance
prepared by him; and a statement by the banking agency involved
of the basis for approval. While the bill does not attempt to specify
the particular factual situations in which mergers may be approved,
this reporting requirement will provide the Congress with the
opportunity to review how the standards specified in the bill are
being applied, on a case-by-case basis.
The committee substitute differs from the Senate bill in two respects
as to these reports. First, the Senate bill requires a special report on
mergers, to be submitted semiannually. The committee substitute
provides, instead, for including this information in the agency's
annual report. Your committee recommends this change because it
does not appear that special reports every 6 months are necessary to
apprise Congress adequately of developments in this field. The second
change makes it clear that the summary of the Attorney General's
report on a merger shall be prepared by the Attorney General. Your
committee feels it is not advisable to have the views of one agency
on such involved matters summarized by a different agency.
PUBLICATION OF NOTICE OF PROPOSED MERGERS

Your committee included in the bill as reported a provision requiring
t h a t notice of a proposed merger be published in a newspaper of
general circulation in the community or communities where the
main offices of the banks involved are located. This requirement is
geared to the time limits specified for reports from the other banking
agencies and the Attorney General, so as not to occasion any unnecessary delay. T h a t is, in the normal case, notice must be published at
appropriate intervals for at least 30 days before the banking agency
finally approves or disapproves the merger; in an emergency, this may
be shortened to 10 days. The bill does not require any such notice
where a merger is needed to save a failing bank. This makes no substantial change in existing law for most mergers resulting in national
banks, inasmuch as such notice is already required to run for at least
4 weeks under the act of November 7, 1918, as revised by section 20
of Public Law 86-230 (12 U.S.C. 215), which applies to all such
mergers except those in the form of an acquisition of assets and assumption of liabilities. Thus, for most national bank mergers, the
only change the bill makes is to add 2 days to the notice period in
some cases.
Notice is also required now for mergers resulting in State banks,
under the laws of many States.
This requirement will not, therefore, occasion any delay, or impose
any unnecessary burden on the persons seeking to arrange a bank
merger. I t will, however, provide a means by which the people of
the community served by the banks involved may be given an
opportunity to consider the effects of a proposed merger and express
their views concerning it in cases where they are sufficiently interested.



REGULATION OF BANK MERGERS

15

COMPLIANCE WITH STATE LAW

In the case of every merger where the resulting bank will be a State
bank, approval by the appropriate State supervisor or other banking
authority will, of course, have to be obtained, in accordance with the
applicable State law,4 before the Federal Reserve Board or the F D I C
will have an opportunity to review an application under this bill.
If the State supervisor refuses his approval of the merger, no application to the Federal Reserve Board or to the F D I C would even be
considered. There is, therefore, no possibility that the Board or the
F D I C would approve a merger which the appropriate State authorities had finally rejected.
The only possibility of conflict is that the Board or the F D I C
might deny an application for a merger which the State supervisor
had approved. This kind of conflict is not new under the dual system
of banking, however regrettable any specific instance may be. Under
the Board's or the F D I C ' s standards, the Board may always deny
membership, and the F D I C may always deny insurance, to a State
bank chartered by the appropriate State authority. The bank may
still proceed to operate as a State-chartered bank, without membership or without F D I C insurance, so long as the State supervisor
authorizes it to do so.
CHANGES IN EXISTING LAW

In compliance with clause 3 of rule X I I I of the Rules of the House
of Representatives, changes in existing law made by the bill, as
passed by the Senate, are shown as follows (existing law proposed to
be omitted is enclosed in black brackets, new matter is printed in
italic, existing law in which no change is proposed is shown in roman):
SUBSECTION (C) OF SECTION 18 OF THE F E D E R A L D E P O S I T
INSURANCE ACT

(c) Without prior written consent by the Corporation, no insured
bank shall (1) merge or consolidate with any noninsured bank or
institution or convert into a noninsured bank or institution or (2) assume liability to pay any deposits made in, or similar liabilities of, any
noninsured bank or institution or (3) transfer assets to any noninsured
bank or institution in consideration of the assumption of liabilities for
any portion of the deposits made in such insured bank. N o insured
bank shall convert into an insured State bank if its capital stock or its
surplus will be less than the capital stock or surplus, respectively, of
the converting bank at the time of the shareholders' meeting approving
such conversion, without prior written consent by the Comptroller of
the Currency if the resulting bank is to be a District bank, or by the
Board of Governors of the Federal Reserve System if the resulting
bank is to be a State member bank (except a District bank), or by the
Corporation if the resulting bank is to be a State nonmember insured
bank (except a District bank). [ N o insured bank shall (i) merge
or consolidate with an insured State bank under the charter of a State
bank or (ii) assume liability to pay any deposits made in another
insured bank, if the capital stock or surplus of the resulting or assuming bank will be less than the aggregate capital stock or aggregate surplus, respectively, of all the merging or consolidating banks
or of all the parties to the assumption of liabilities, at the time of the
*This is specifically required by statute in virtually all States.



16

REGULATION OF BANK MERGERS

shareholders' meeting which authorized the merger or consolidation
or at the time of the assumption of liabilities, unless the Comptroller
of the Currency shall give prior written consent if the assuming bank
is to be a national bank or the assuming or resulting bank is to be
a District bank; or unless the Board of Governors of the Federal
Reserve System gives prior written consent if the assuming or resulting bank is to be a State member bank (except a District bank); or
unless the Corporation gives prior written consent if the assuming
or resulting bank is to be a nonmember insured bank (except a District
b a n k ) . ] No insured bank shall merge or consolidate with any other
insured bank or, either directly or indirectly, acquire the assets of, or
assume liability to pay any deposits made in, any other insured bank
without the prior written consent (i) of the Comptroller of the Currency
if the acquiring, assuming, or resulting bank is to be a national bank or a
district bank, or (ii) of the Board of Governors of the Federal Reserve
System if the acquiring, assuming, or resulting bank is to be a State
member bank (except a district bank), or (Hi) of the Corporation if the
acquiring, assuming, or resulting bank is to be a nonmember insured
bank (except a district bank). In granting or withholding consent under
this subsection, the Comptroller, the Board, or the Corporation, as the
case may be, shall consider the factors enumerated in section 6 of this
Act. In the case of a merger, consolidation, acquisition of assets or
assumption of liabilities, the appropriate agency shall also take into
consideration whether the effect thereof may be to lessen competition
unduly or to tend unduly to create a monopoly, and, in the interests of
uniform standards, it shall not take action as to any such transaction
without first seeking the views of each of the other two banking agencies
referred to herein with respect to such question. In the case of a merger,
consolidation, acquisition of assets, or assumption of liabilities, the
appropriate agency shall request a report from the Attorney General
on the competitive factors involved in the merger. The Attorney General
shall furnish such report to such agency within thirty calendar days of the
request: Provided, however, That in case the agency finds an emergency
exists the agency may advise the Attorney General thereof and may
there upon shorten the period for the Attorney General to report to ten
calendar days: Provided further, That where the agency finds that an
emergency makes necessary immediate action in order to prevent the
probable failure of one of the merging banks, the appropriate agency
may act without obtaining such report from the Attorney General: And
provided further, That the Comptroller, the Board, and the Corporation
shall each submit to the Congress a semiannual report with respect to
each merger, consolidation, acquisition of assets, or assumption of liabilities approved by the Comptroller, the Board, or the Corporation, as
the case may be, which shall include the following information: the name
of the receiving bank; the name of the absorbed bank; the total resources
of the receiving bank; the total resources of the absorbed bank; whether a
report has been submitted by the Attorney General hereunder; and if
approval has been given, a summary of the substance of the report made
by the Attorney General, and a statement by the Comptroller, the Board,
or the Corporation, as the case may be, in justification of its findings.
Xo
insured State nonmemoer bank (except a District bank) shall, without the prior consent of the Corporation, reduce the amount or retire
any part of its common or preferred capital stock, or retire anygpart
of its capital notes or debentures.




o