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mm N E W S RELEASE FEDERAL DEPOSIT IN SU R AN C E CORPO RATIO N _______________ FOR IMMEDIATE RELEASE THE BANK MERGER ACT REVISITED Address o f Frank W ille , Chairman Federal Deposit Insurance Corporation March 26, 1971 Before the B r ie fin g Conference on New Developments in the Regulation o f Banking of The Federal Bar A ssociation The Foundation o f the Federal Bar A ssociation The Bureau o f National A f f a i r s , Inc. Sheraton Park Hotel Washington, D. C. FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St. N.W., Washington, D. C. 20429 202-389-4221 W e have now com p le te d ten y e a r s o f e x p e r ie n c e under the Bank M e r g e r A c t o f I960 - - a decade which has fr e q u e n tly been e x a s p e ra tin g fo r banks, s u p e r v is o r y a u th o r itie s , the A n titr u s t D iv is io n and the C ourts. W e a r e , o f c o u r s e , d ea lin g w ith d iffic u lt, and s t ill e v o lv in g , concepts of co m p etitio n . Beyond that, w e m ust take into account the e c o n o m ic s o f banking s e r v i c e in a g iven com m u n ity, the banking needs and con ven ien ce o f the public, and, o c c a s io n a lly , the o p e ra tio n a l p r o b le m s o f a bank which seeks to m e r g e . A d v i c e m ust be given , and d e c is io n s m a d e, w ithin the f r a m e w o r k of d iffe r in g state law s that have a c l e a r b e a r in g on the a lt e r n a t iv e s to m e r g e r that a r e a v a ila b le and w ithin the f r a m e w o r k o f a c o m p le x r e g u la t o r y s tru ctu re in which a m u lt ip lic it y o f a g e n c ie s at both F e d e r a l and State le v e ls can in flu en ce the fin al re s u lt. I think it h a r d ly a s u r p r is e , under th ese c ir c u m s ta n c e s , that proposed m e r g e r s w hich ap p ea r on t h e ir fa c e to p r e s e n t s i m i l a r facts m a y u ltim a te ly have quite d iffe r e n t fates. A n explanation o f why th ese d iffe r e n c e s o c c u r is not an e n d o rs e m e n t of the p re s e n t s y s te m . I b e l i e v e , in fa ct, that the p r e s e n t d iv is io n o f a d m in is tr a tiv e a u th o rity o v e r bank m e r g e r s has had s e v e r a l unfortunate con sequ en ces: it has o b stru cted the d e v e lo p m e n t o f a ra tio n a l and con sisten t public p o lic y on bank m e r g e r s ; it has en cou raged d i s r e s p e c t fo r the standards o f co m p e titio n set fo rth in the A c t and in S u p rem e Court d e c is io n s ; and it has a g g ra v a te d p r o b le m s o f c o m p e t it iv e im b a la n c e within the n ation's dual banking s y stem . - 2 - But i f the past ten y e a r s have exp o sed the d e fic ie n c ie s in h eren t in a t r i p a r t i t e a d m in is tra tio n o f bank m e r g e r p o lic y am on g the th r e e F e d e r a l bank a g e n c ie s , they have a ls o seen a num ber o f substantive bank m e r g e r is s u e s s ettled , p a r t ic u la r ly in the y e a r s sin ce 1966. T h e standards o f S ection 7 o f the Clayton A c t a r e a p p lic a b le in d e te r m in in g w h eth er the e ffe c t o f a p ro p o s e d bank m e r g e r " m a y be su b stan tially to le s s e n c o m p e titio n " in any se c tio n o f the country within the m e a n in g o f the Bank M e r g e r A c t . A p ro p o s e d m e r g e r found to "h a v e a n tic o m p e titiv e e ffe c ts as judged b y the standards n o r m a lly a p plied in a n titru st a c t io n s " m a y n e v e r t h e le s s be approved i f the d e c id in g a g e n c y finds that th ese a n tic o m p e titiv e e ffe c ts " a r e c l e a r l y outw eighed in the public in t e r e s t b y the p ro b a b le e ffe c t o f the tra n sa ctio n in m e e t in g the co n ven ien ce and needs o f the c om m u n ity to be s e r v e d . " — On this is s u e , the burden o f p r o o f has been p laced b y the S u p rem e Court on the banks in v o lv e d , w ith the r e q u ir e m e n t that they show that the expected b en efits in t e r m s o f co n ven ien ce and needs o f the co m m u n ity to be s e r v e d cannot r e a s o n a b ly be a c h ie v e d through o th e r, le s s a n t ic o m p e t it iv e , m ean s. 2/ W h e r e a s p r i o r to 1966, it was u n c le a r what w e ig h t the d e c id in g a g e n c y was to p la c e on its a n a ly s is o f the v a r io u s c o m p e t it iv e fa c t o r s , as d is tin c t f r o m banking fa c t o r s and co n ven ien ce and n eeds, it now a p p e a rs that the c o m p e titiv e fa c t o r s a r e to be a s s ig n e d a p r i m a r y w e ig h t, although the oth er 1 1 United States v. F i r s t N a tion a l C ity Bank o f Houston, 386 U. S. 361 (1967). 2/ United States v. T h ir d N a tio n a l Bank in N a s h v i l l e , 390 U. S. 171 (1968). -3 fa c t o r s m ust s t ill be c o n s id e r e d . T h e on ly d iffic u lt y w it h that is that som e c o m p e titiv e e ffe c ts o f a m e r g e r m a y be p ro c o m p e t it iv e w h ile oth er c o m p e titiv e e ffe c ts o f the sam e m e r g e r m a y be anti c o m p e titiv e . In the P h illip s b u r g c a se d ecid ed la s t June, the S u prem e C ou rt f o r the f i r s t tim e c o n s id e r e d the p ro p o s e d m e r g e r o f s m a ll banks in a banking m a r ket o f lim it e d population.^/ But the C o u r t's opinion, in s o m e r e s p e c ts unanimous and in oth er r e s p e c t s d ivid e d 5-2 (with two ju s tic e s ab sta in in g), is l i k e l y to a ffe c t a l l bank m e r g e r a c t iv it y in the y e a r s ahead. T h e fa ct that one bank was $25 m illio n and the oth er $17 m illio n in a s s e t s iz e m a y a c tu a lly be the le a s t im p o rta n t a s p e c t o f the c a s e , ex c e p t as a r e m in d e r that a lm o s t 85% o f a ll banks in the United States a r e b e lo w $25 m i l l i o n in a s s e t s iz e . That the C ou rt was u n w illin g to w r it e into the Bank M e r g e r A c t o r the Clayton A c t a lo o p h o le o f that m agnitude is not s u r p r is in g when both acts s e e m to r e q u ir e a c o m p e titiv e a n a ly s is based on r e l a t i v e s iz e and in flu en ce w ith ih a g iven m a rk e t. O f g r e a t e r im p o r ta n c e , it s e e m s to m e , was the C o u r t's tre a tm e n t o f the r e le v a n t product m a r k e t o r " lin e o f c o m m e r c e " is s u e , its d e te rm in a tio n o f the r e le v a n t g e o g r a p h ic m a r k e ts fo r a s s e s s in g c o m p e titiv e im p a c t and com m u n ity con ven ien ce and needs, and its v ie w s as to the share o f a m a r ket w hich constitutes a v io la t io n o f S ection 7 o f the C layton A c t fo r pu rposes o f the Bank M e r g e r A c t. 3/ United States y, P h illip s b u r g N a tion a l B a n k , June 29, 1970). U. S . ____ (decided -4 In 1963, as you know, the C ourt had d e te r m in e d that the a p p r o p r ia te lin e o f c o m m e r c e f o r judging the p ro p o s e d m e r g e r o f two l a r g e , f u l l - s e r v i c e c o m m e r c i a l banks in the m e t r o p o lit a n P h ila d e lp h ia a r e a w as " c o m m e r c i a l b a n k in g ", without r e g a r d to the c o m p e titio n w h ich such banks w e r e conceded to fa c e f r o m a v a r i e t y o f non-bank s o u rc e s in one o r m o r e o f the loan, deposit o r tru s t s e r v i c e s w h ich they o f f e r e d th e ir c u s t o m e r s . —^ In P h i l l i p s b u r g , the C ou rt r e a f f i r m e d that d e te r m in a tio n , although the banks in v o lv e d depended m uch m o r e h e a v ily on t im e and savin gs d ep o sits f r o m r e t a i l c u s to m e r s and m a d e m a n y m o r e m o r t g a g e loans to in dividu als than the b ig c ity banks in the P h ila d e lp h ia c a s e . D e sp ite the g r e a t e r s i m i l a r i t y o f the banks in P h illipsbu rg with mutual t h r ift institu tion s, the C ou rt found that the " c l u s t e r o f products and s e r v i c e s t e r m e d c o m m e r c i a l b a n k in g" had an e c o n o m ic s ig n ific a n c e w e ll beyond the in d ivid u a l products and s e r v i c e s in v o lv e d , so that it was not a p p r o p r ia te to c o n s id e r the extent to which savin gs banks, savin gs and loan a s s o c ia tio n s o r o th e r fin a n cia l institutions p r o v id e d s e r v i c e s in the sam e g e o g r a p h ic m a r k e t s i m i l a r to the s e r v i c e s o f f e r e d b y the m e r g in g banks. W h a te v e r v ie w s b a n k e rs , e c o n o m is ts , la w y e r s o r the a g e n c ie s t h e m s e lv e s m a y have as to the m e r i t s o f the C o u rt's v i e w , I r e g a r d it as settled that in the ty p ic a l c o m m e r c i a l bank m e r g e r c a s e , the d e c i s i v e lin e o f c o m m e r c e f o r a s s e s s in g c o m p e t it iv e im p a c t within the m e a n in g o f the Bank M e r g e r A c t is lim it e d to the products and s e r v i c e s p r o v id e d on ly b y c o m m e r c i a l banks in the r e le v a n t g e o g r a p h ic m a r k e t. 4/ A s i m i l a r a n a ly s is would United States v. P h ila d e lp h ia N a tio n a l B a n k , 374 U. S. 321 (1963). 15se e m to r e q u ir e that in a m e r g e r o f m utual t h r ift institutions th ey a ls o be trea ted s e p a r a t e ly f r o m oth er fin a n c ia l institutions w h e r e the " c lu s t e r o f products and s e r v i c e s " they can o f f e r includes d ep o sit accounts at in t e r e s t rates h ig h er than the ra te s c o m m e r c i a l banks and c e r ta in oth er types o f financial institutions can o f f e r on the sam e accounts. On the oth er hand, w h ere s p e c ia l lo c a l c ir c u m s ta n c e s p r e v a i l (as, fo r e x a m p le , in a state w here mutual savin gs banks g e n e r a l l y c o n tro l c o m m e r c i a l bank a f f i l i a t e s ) , a com bined line o f c o m m e r c e m a y be a p p r o p r ia te . O r, i f mutual savings banks o r savin gs and loan a s s o c ia tio n s obtain u n lim ited checking account pow ers in the future, the C o u r t's " l in e o f c o m m e r c e " a n a ly s is m a y have to be re e x a m in e d b eca u se o f its past em p h asis on the e c o n o m ic im p o rta n c e o f the demand d ep o sit function and its uniqueness to c o m m e r c i a l banking. A s im ila r r e e x a m in a tio n m ig h t fo llo w the e lim in a tio n o f d iffe r e n c e s in ra tes authorized and paid on savings accounts in mutual t h r ift institutions. Absent such lo c a l c irc u m s ta n c e s or changes in the p o w e rs o f fin a n cia l in stitu tions, the s ep a ra tio n o f c o m m e r c i a l banks f r o m oth er institutions that co m p ete with them on ly in p a rt a p p e a rs to be r e q u ir e d " b y the standards n o r m a lly applied in an titru st a c t io n s " which now a r e in c o r p o r a te d in the Bank M e r g e r Act. The C o u rt in P h i l l i p s b u r g a ls o r e a f f i r m e d its 1963 ap p roach to the definition o f the r e le v a n t g e o g r a p h ic m a r k e t within which c o m p e t it iv e i m pact should be a s s e s s e d . T h is s t r e s s e d the " m a r k e t a r e a in which the s e lle r o p e ra te s and to which the p u rc h a s e r can p r a c t ic a b ly turn fo r su pplies. " - 6 - The " m a r k e t a r e a in which the s e l l e r o p e r a t e s " is lo c a te d by r e f e r e n c e to the p la c e s f r o m which it draw s its b u s in e s s , the p la c e s w h e r e its o ffic e s a r e situated, and the p la ces w h e r e it seeks its banking bu sin ess. A t lea st two, and p o s s ib ly a l a r g e r num ber o f g e o g ra p h ic m a r k e t s , m a y be relevan t under a re a s o n a b le a p p lic a tio n o f this standard. The obvious ones a r e the g e o g r a p h ic a r e a s f r o m w hich the two banks d e r i v e the bulk o f th e ir banking b u sin ess. F r e q u e n tly th ese a r e the sam e fo r both banks, as in P h illip s b u r g , o r they m a y o v e r la p in part. I f the o f f ic e s o f the two banks a r e lo ca ted at s o m e dista n ce f r o m each o th e r, and one bank is s ig n ific a n tly l a r g e r than the o th e r, the tra d e a r e a o f the s m a l l e r bank w i l l undoubtedly be exam in ed more c l o s e l y than the tra d e a r e a o f the l a r g e r bank, sin ce it is in that a r e a that such a m e r g e r w i l l u su a lly be found to have its g r e a t e s t c o m p e titiv e impact. T h is d is c u s s io n would not be c o m p le te without noting fu rth e r that the C ourt found a m e r g e r p ro p o s a l a n tic o m p e titiv e w ithin the m ean in g of the C layton A c t , and hence w ithin the m e a n in g o f the Bank M e r g e r A c t , w h ere one bank c o n tr o lle d only 11. 3% o f the total demand d ep osits w ithin a relevant g e o g r a p h ic m a r k e t and the oth er bank c o n tr o lle d on ly 7. 9% o f such deposits in the sa m e m a r k e t , f o r a com bin ed tota l o f 19. 2%. T h is was a sh are o f the m a r k e t su b sta n tia lly b e lo w that found a n tic o m p e titiv e in p r i o r bank m e r g e r c a s e s , but c o m p le t e ly co n s is te n t w ith Clayton A c t p re c e d e n ts in nonbank m e r g e r c a s e s , som e o f which in v o lv e d m uch l o w e r p e r c e n ta g e s than those in P h illip s b u r g . -7 G iven the v ie w that th ese fig u r e s e s ta b lis h a p rim a fa c ie case o f a n tic o m p e titiv e n e s s , and given the h ea vy burden banks have o f p ro v in g com m unity co n ven ien ce and needs to ju s t ify an a n tic o m p e titiv e m e r g e r , it is u n lik ely that m an y m e r g e r s o f v ia b le banks a lr e a d y co m p etin g in the same m a r k e t can be ju s tifie d . In this connection, it is w o rth noting that the Court in P h illip s b u r g fu rth e r held that " c o n v e n ie n c e and n e e d s " m a y not be evaluated in an a r e a s m a l l e r than the g e o g ra p h ic m a r k e t used in a s s e s s in g c o m p e titiv e im p act. F u r t h e r m o r e , it is not enough to show that the p rop osed m e r g e r would b e n e fit m e m b e r s o f the public in te r e s te d , for e x a m p le , on ly in l a r g e loan and tru s t s e r v i c e s ; the m e r g in g banks must also show that a ll s e e k e r s o f banking s e r v i c e s in the r e le v a n t a r e a would benefit. T h e fin al hurdle is that the banks m ust a ls o e s ta b lis h that these benefits cannot r e a s o n a b ly be a c h ie v e d b y som e o th e r, le s s a n tic o m p e titiv e , m eans. The P h illip s b u r g d e c is io n has le ft a num ber o f p r a c t ic a l p r o b le m s in the a re a s it d is c u s s e d and a num ber o f basic substantive issu es y e t to be re s o lv e d by the Court. F o r e x a m p le : - - T h e C o u rt's d is c u s s io n o f the r e le v a n t g e o g ra p h ic m a r k e t fo r p u rposes o f c o m p e titiv e a n a lysis s t ill le a v e s c o n s id e r a b le a g en cy d is c r e t io n in defin in g the ex a ct g e o g r a p h ic extent o f that m a r k e t, p a r t ic u la r ly in m e tr o p o lita n a r e a s w h e r e state law lim it s the righ t to bran ch to an a r e a s m a l l e r than the d ra w o f the banks in v o lv e d fo r dep osit and loan bu sin ess. W e have been adm onished that the r e le v a n t m a r k e t m u st be n e ith e r so b ro a d as to m i n i m i z e obvious - 8 - a n tic o m p e titiv e e ffe c t s nor so n a r r o w as to ig n o r e , u n r e a lis t ic a lly , the c o m p e t it iv e in flu en ces a c tu a lly at w o r k w ithin the m a r k e t. M o r e o v e r , in m any banking m a r k e t s , the in clu sio n o r ex c lu s io n o f d ep osit and loan fig u r e s f o r o f f i c e s o r institutions o f the sam e type on the p e r ip h e r y o f the c o r e a r e a o f the m a r k e t, can m ak e a substantial d if f e r e n c e in o n e 's v ie w o f the p ro b a b le c o m p e t it iv e e f f e c t o f a given m e r g e r , e v e n in a n a ly zin g p r e s e n t o r d i r e c t com p etition . - - I n actual situations p re s e n te d to it fo r d e c is io n , the S u prem e Court m a y o r m a y not a d h e re to its dictum in the P h illip s b u r g ca se that c itie s "w ith a population e x c e e d in g 10, 000 and t h e ir e n v ir o n s " can be v ie w e d as an " e c o n o m i c a l l y s ig n ific a n t " sectio n o f the country f o r p u rp oses o f a p plyin g n o r m a l an titru st standards. I f the C ou rt fo llo w s this dictum , w i l l it go b e lo w 10,000 p eop le in an a p p r o p r ia te case? - - M any banking m a r k e ts have had h i s t o r i c a l l y on ly th r e e , fo u r, fiv e o r s ix banks. W i l l the C ou rt a d h e re to its v i e w that 19. 2% o f such a m a r k e t is a n t ic o m p e t it iv e on its fa c e ? W i l l the C ou rt go l o w e r than 19. 2% in oth er c a ses by a p plyin g the v e r y low c o n cen tra tio n r a tio s o f S ection 7 ca s e s outside the bank m e r g e r fie ld ? - - W h e r e the r e le v a n t g e o g r a p h ic a r e a of actu al, e x is tin g c o m p etitio n is not the sam e as the a r e a o f poten tial co m p e titio n under State la w , m u st the c o m p e t it iv e im p a c t o f the p r o p o s e d m e r g e r be -9 s e p a r a t e ly a s s e s s e d within both a r e a ? In States w h e r e branch banking is a u th o rize d on ly on a countywide o r r e g io n a l b a s is , is the c o m p e titiv e s tru ctu re o f the e n tire State n e v e r t h e le s s r e le v a n t i f S tatew ide holding com p an ies a r e p o s s ib le , or i f Statew ide m e r g e r s a r e p e r m itte d , but de novo bra n ch in g is lim it e d to the s m a ller area? I f such l a r g e and populous a r e a s a r e r e le v a n t, should not the c o n cen tra tio n r a tio s fo r p r im a fa c ie a n t ic o m p e titiv e n e s s be s ig n ific a n tly lo w e r ? - - I f the potential fo r future c o m p e titio n b etw een the two m e r g in g institu tion s, e ith e r through de novo bran ch in g o r through an a lt e r n a t iv e m e r g e r , is conceded to be a r e le v a n t c o m p e titiv e fa c t o r , what w e ig h t should be a ss ig n e d to an a n tic o m p e titiv e e ffe c t in this a r e a when th e r e a r e p r o c o m p e t it iv e e ffe c ts in the a r e a o f d i r e c t and im m e d ia t e co m p etitio n ? - - Should not c o n s id e ra tio n be g iv e n as w e l l to the p re c e d e n t e ffe c t an a p p r o v a l m a y have on the long ran ge s tru ctu re o f c o m p etition in a given m a r k e t, p a r t ic u la r ly i f it can lead to a l a r g e m a r k e t dom inated by only a handful o f banks? - - T o what extent m ust the d e c id in g a g e n c y exa m in e the a l t e r n a tiv e s which m a y be a v a ila b le , e ith e r in t e r n a lly o r b y outside a s s is ta n c e , to p r o v id e the a lle g e d b e n e fits in banking s e r v i c e o r to s o lv e an o p e ra tin g p r o b le m i f the p ro p o s e d m e r g e r a p p e a rs to be a n tic o m p e titiv e ? - 10 - It is ap p aren t f r o m re a d in g the d e c is io n s and the c o m p e t it iv e fa c to r s r e p o r t s o f the th r e e F e d e r a l a g e n c ie s that t h e ir d is a g r e e m e n t s on one or m o r e o f th e s e ite m s w i l l continue. Individu al v i e w s , m o r e o v e r , on the w e ig h t to be g iven each fa c t o r in a r r i v i n g at a fin al d e c is io n to a p p ro v e o r d is a p p r o v e , even i f such fa c t o r s a r e c o n s id e r e d , w i l l continue to v a r y , sin ce it is in this a r e a that s u b je c tiv e v ie w s and p e rs o n a l e x p e r ie n c e o f the public o f f i c i a l s in v o lv e d can so e a s i l y in flu en ce the fin al ou tcom e. You have been d is c u s s in g am ong oth er things at this c o n fe r e n c e the Bank H olding Com pany A c t o f 1956 and its m o s t re c e n t am endm ents e n acted la s t y e a r . In the bank holding com pany a r e a , the d iv is io n of au th ority b e tw e e n the th r e e F e d e r a l a g e n c ie s has, o f c o u r s e , not been fo llo w e d . Instead the final a u th o rity has been a s s ig n e d to the F e d e r a l R e s e r v e B o a rd , a solution which I supported both as N ew Y o r k State Superintendent o f Banks and as C h a irm a n o f the F e d e r a l D ep o sit Insu ran ce C o rp o ra tio n . I b e lie v e d then, as I do in the bank m e r g e r fie ld , that the in te r e s ts o f f a ir n e s s , p r e d ic t a b ilit y and r a t io n a lity a ll r e q u ir e a sin g le a g e n c y with the p o w e r to d e c id e m a tte r s so b a s ic to a bank's c o m p e t it iv e position . W h ile individu al m e m b e r s o f the B o a rd of G o v e r n o r s m a y d is a g r e e w ith a p a r tic u la r d e cisio n , I a m confident that a c on sisten t trend of d e c is io n s w i l l be evid en t under the Bank H olding Com pany A c t , even though such c o n s is te n c y has so fa r eluded the banking in d u stry and the s u p e r v is o r y a g e n c ie s under the Bank M e r g e r A ct. - 11 - With th e s e two e x p e r ie n c e s to ch oose f r o m , I b e lie v e the tim e has c o m e fo r the C o n g r e s s and a ll in t e r e s t e d p a r tie s to r e e x a m in e the d iv is io n of au th ority am ong the th r e e F e d e r a l banking a g e n c ie s which has been r e q u ir e d by the Bank M e r g e r A c t but not by the Bank H old in g C om pan y A c t . In m y v ie w , the a r e a o f bank m e r g e r s is ju st as im p orta n t, i f not m o r e im p orta n t, to a bank's c o m p e t it iv e p o s itio n in its m a r k e t than its a b ilit y to a c q u ir e non bank a f f i l i a t e s through a holding com p an y p a ren t. T h e Bank M e r g e r A c t i t s e l f in d ica tes that a d e s i r e fo r u n ifo r m standards is the re a s o n the two nondeciding a g e n c ie s , as w e ll as the D ep a rtm en t o f J u stice, have been g iv e n an opportunity to submit t h e ir v ie w s on the c o m p e titiv e fa c t o r s o f a m e r g e r p r o p o s a l to the oth er a g e n c y D It w as the C o n g r e s s io n a l v ie w , as e x p r e s s e d in the Senate r e p o r t that p r e c e d e d the e n a c t m ent o f the o r i g i n a l A c t in I960, that the C o m p t r o l l e r of the C u r r e n c y , the F e d e r a l R e s e r v e B o a rd and the F e d e r a l D e p o s it In su ran ce C o r p o r a tio n " . . . m u s t r e v i e w a p p lica tio n s with the sam e attitude, and m ust g iv e the sam e w e ig h t to the v a r io u s banking and c o m p e titiv e fa c t o r s . T h e C o m p t r o lle r m ust not be m o r e le n ie n t in a p p r o v ing m e r g e r s so as to a t tr a c t m e r g in g State banks into the national banking s y s te m . T h e B o a rd and the F D IC lik e w i s e m u st not be m o r e len ien t in a p p ro v in g m e r g e r s so as to tem p t national banks to le a v e the national banking s y s te m . T h e State banking s y s te m and the N a tio n a l banking s y s te m m ust d e v e lo p and co m p e te with each oth er on th e ir own m e r i t s , without p r e s s u r e in eith er d ir e c tio n f r o m the a d m in is tr a tio n o f the [A c t ] , " - 12 - T h e C o m m itte e R e p o r t in the House a g r e e d that e v e r y e f f o r t "m u s t be m a d e to avoid a situation w h e r e one F e d e r a l a g e n c y is 'tough' about m e r g e r s and another is 'e a s y ', w h e r e t h e r e m ig h t be an inducem ent to a r r a n g e m e r g e r s so as to re s u lt in the kind of bank w h e r e a p p r o v a l could be e a s i l y obtained. " W h ile the House lim it e d the r e p o r t s o f the nondeciding a g e n c ie s to c o m p e t it iv e fa c t o r s , they fu rth e r stated the v ie w that " T h e p r o b le m o f obtaining u n ifo r m it y is p a r t ic u la r ly acute in r e g a r d to the c o m p e t it iv e f a c t o r s , and it is exp e c te d that this u n ifo r m it y can be obtained without asking the oth er two banking a g e n c ie s fo r r e p o r t s on the banking fa c t o r s . . . " It r e c o g n iz e d the m e r i t in a su ggestion m ade at that tim e that a sin g le a g e n c y be a u th o riz e d to a p p r o v e a ll m e r g e r s , but r e a f f i r m e d its b e l i e f that the consultation p ro v id e d in the fin a l A c t would ach ieve the pu rposes o f that su ggestion . A r e v i e w of the n e a r ly 1700 m e r g e r p ro p o s a ls brou ght to a fin a l, public d e c is io n by one o f the th r e e F e d e r a l bank a g e n c ie s under the Bank M e r g e r A c t w i l l show that this C o n g r e s s io n a l d e s i r e f o r u n ifo r m ity o f r e s u lt has not been a c h ie v e d under the Bank M e r g e r A c t . I would t h e r e f o r e su g g e s t that the C o n g r e s s undertake a r e e x a m in a tio n o f the a d m in is t r a t iv e p r o v is io n s and e x p e r ie n c e under the Bank M e r g e r A c t w ith a v i e w to d e te r m in in g w h eth er the p attern e s ta b lish ed in the Bank Holding C om pany A c t should be adopted as w e l l in the bank m e r g e r fie ld . T h e r e are, o f c o u r s e , a num ber o f w ays in w hich g r e a t e r u n ifo r m it y o f re s u lt could be a c h ie v e d . - 13A study p r e p a r e d f o r , and r e c e n t ly r e le a s e d by, the C o n fe r e n c e o f State Bank S u p e r v is o r s r e c o m m e n d s that the Bank M e r g e r A c t be re p e a le d , on the ground that, as in t e r p r e t e d , it is d u p lic a tiv e o f the C layton A c t m a c h in e r y a v a ila b le to the A n titru s t D iv is io n . X think this su ggestion both p r e m a tu re and u n r e a lis t ic ; p r e m a tu r e b ec a u s e the full im p a c t o f the Bank M e r g e r A c t A m en d m en ts o f 1966 has not been d e te rm in e d b y S u prem e Court d e c is io n , and u n r e a lis tic b e ca u se the A n titr u s t D iv is io n has so m any c o n flictin g demands fo r an a llo c a tio n o f th e ir lim it e d r e s o u r c e s o v e r the full range o f m e r g e r a c t iv it y within A m e r i c a n bu sin ess and finance. The C ongress, m o r e o v e r , in both the Bank M e r g e r A c t and the Bank H oldin g C om pany A c t , has e x p r e s s e d a d e s i r e fo r thorough a g e n c y r e v i e w and c o n tro l o f a l l a p p li cations on the part o f banks to expand - - b y m e r g e r w ith oth er banks o r by holding com pany a ffilia t io n w ith banks and nonbank b u s in e s s e s c l o s e l y r e lated to banking o r m an agin g o r c o n tr o llin g banks. A n o th e r p o s s ib ilit y is the a s s ig n m e n t o f a l l bank m e r g e r a u th o rity at the F e d e r a l l e v e l to the B o a rd o f G o v e r n o r s o f the F e d e r a l R e s e r v e S ystem , pending m o r e c o m p le te changes in the p r e s e n t stru ctu re o f bank re g u la tio n at that l e v e l . G iven the e x is tin g r e s p o n s ib ilit ie s o f the B o a r d , h o w e v e r , and the new ones added b y the Bank H oldin g Com pany A c t A m e n d m e n ts of 1970, the B o a rd i t s e l f m ig h t c o n s id e r this p r o p o s a l not to be a d m in is t r a t iv e ly fe a s ib le at the p re s e n t tim e . - 14I think a m o r e p r a c t ic a l in t e r i m step m ig h t be the a s s ig n m e n t to the F e d e r a l R e s e r v e B o a rd o f a l l a u th o rity o v e r p r o p o s e d m e r g e r s in v o lv in g a s u b s id ia r y bank o f a bank holding com pany, i r r e s p e c t i v e o f the c l a s s i fic a tio n o f the r e s u ltin g bank as a national bank, a State m e m b e r bank or a State n o n m e m b e r bank in su red b y the F D IC . T h is would be con sisten t with the B o a r d 's past a u th o rity o v e r d i r e c t a cq u is itio n s o f banks by a holding com pany and con sisten t a ls o with its new a u th o rity o v e r the exp an sion o f bank holding com p an ies into a r e a s c l o s e l y r e la te d to banking o r c o n tr o llin g o r m an agin g banks. T h e a s s ig n m e n t o f such m e r g e r au th ority should be m a n a gea b le fo r the B o a rd and would en com pass within its scope, on a con sisten t b a s is , the m e r g e r a c t i v i t y o f the l a r g e r , exp an sion -m in d ed banks in the country, m o s t o f w hich have b e c o m e s u b s id ia r ie s o f e ith e r one-bank o r m u lti-b a n k holding com p a n ies. I have id e n tifie d this p r o b le m o f a d m in is tr a tio n under the Bank M e r g e r A c t and p r o p o s e d a p a r tia l but s ig n ific a n t r e m e d y , not in the ex p ecta tio n of e a r l y C o n g r e s s io n a l a ction , but in the hope o f s ta rtin g a s e r io u s discu ssion that m a y lead in tim e to m o r e u n ifo r m re su lts in actual m e r g e r d e c is io n s under the A c t. I b e l i e v e this to be r e q u ir e d b e f o r e the public in t e r e s t in a t r u ly c o m p e t it iv e banking s tru ctu re in this c ou n try can be a c h ie v e d . #############
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