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rum NEW S RELEASE FEDERAI DEPOSIT INSURANCE CORPORATION FOR IM M E D IA TE R E L E A S E FD IC M E R G E R P O L IC Y 1970-1972 P re se n ta tio n of F ran k W ille , C h airm an F e d e r a l D e p o sit In su ra n ce C o rp o r a tio n at the P r a c t ic in g Law Institute S em in a rs on Bank A cq u is itio n s and M e r g e r s and O ther A n titru st P r o b le m s D en ver H ilton H otel D e n v e r, C o lo ra d o S ep tem b er 2 2 -2 3 , 1972 A m e r ic a n a H otel New Y o r k , New Y o rk O c to b e r 1 3 -1 4 , 1972 FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St. N.W., Washington, D. C. 20429 • 202-389-4221 U nder the Bank M e r g e r A c t , the F e d e r a l D e p o sit In su ra n ce C o rp o r a tio n is the d e cid in g a g e n cy w ith r e s p e c t to m e r g e r a p p lica tion s in w h ich the re su ltin g bank is e ith e r a s t a te -c h a r t e r e d c o m m e r c ia l bank w h ich is not a m e m b e r o f the F e d e r a l R e s e r v e S y stem o r an F D IC -in su red m utual sa vin gs bank. In a d d ition , the FDIC is re q u ir e d to p ass on a ll m e r g e r a p p lica tio n s in v olv in g the a c q u is itio n o f a n on in su red institution ev en i f the re su ltin g bank m a y b e a n ation al bank o r a state m e m b e r bank. T h e s e two p r o v is io n s have re q u ir e d FDIC re v ie w and d e c is io n o f 173 m e r g e r a p p lica tio n s s in ce I b e c a m e C hairm an on A p r il 1, 1970. F o rty - eight o f th e se a p p lica tio n s in v o lv e d e ith e r "phantom b an k" m e r g e r s o r in tern a l r e o r g a n iz a tio n s , and th re e m o r e in v o lv e d the p u rch a se o f a s s e t s o f a bank that had a lr e a d y fa ile d b y a n ew ly o rg a n iz e d state non m e m b e r bank. A s to the 122 re m a in in g a p p lica tio n s , 109 (o r 89 p e rcen t) w e r e a p p rov ed and 13 (o r 11 p e rce n t) w e r e d en ied . E x ce p t in two o r th re e c a s e s w h ere an e m e r g e n c y m e r g e r was a p p rov e d on tra d itio n a l banking f a c t o r s , e v e r y one o f th e se 122 a p p li ca tion s re su lte d in a p u b lic statem ent iss u e d at the sam e tim e the F D IC 's - 2- d e c is io n w as an nou nced, d e ta ilin g the C o r p o r a t io n 's a n a ly s is , its v iew o f the m a te r ia l fa c t s , and the r e a s o n s fo r its u ltim a te d is p o s itio n o f the a p p lica tio n . I u rg e y ou to r e v ie w th e se s t a te m e n t s --o n the 109 a p p ro v a ls as w e ll a s the 13 d e n ia ls - - t o get an a c c u r a te v ie w o f how the FDIC a p p ro a ch e s the w ide v a r ie ty o f fa ctu a l c ir c u m s ta n c e s p re se n te d b y p a r tic u la r a p p lica tio n s . T h e r e a r e s im ila r fa c t s , as you know , in m any a p p lica tio n s , and the p u b lic r e c o r d o f FDIC r e a c tio n should p ro v e invalu able to you in co u n se lin g y o u r clie n ts and p re se n tin g th e ir a p p lica tio n s in the m o s t e ffe c t iv e w ay. I intend to g e n e r a liz e so m e o f ou r r e a c tio n s at th e se P L I s e m in a r s , but the d e c is io n s th e m s e lv e s a r e c le a r ly the m o s t r e lia b le guides to p r e d ic tio n . The F D IC 's 109 a p p ro v a ls during this p e rio d a r e as im p orta n t to you as the 13 d e n ia ls , but s in ce p u b lic attention has b een fo cu s e d on the d e n ia ls, a few w o rd s o f com m en t about the d en ia ls m a y b e in o r d e r . O f the 13 d e n ia ls, 7 in v olv ed banks co m p e tin g in the sam e lo c a l banking m a rk e t and, in m y v ie w , p re se n te d fa ctu a l c ir c u m s ta n c e s in d ica tin g c le a r o r p ro b a b le v io la tio n s o f S e ctio n 7 o f the C layton A c t b a se d on * C op ies o f th e se m e r g e r sta tem en ts m a y b e obtain ed as they a r e is s u e d fr o m the F D IC 's In fo rm a tio n O ffic e , 550 17th S tre e t, N. W. , W ashin gton, D. C. 20429. T h ey a r e su b seq u en tly re p rin te d on a ca len d a r y e a r b a s is in the F D IC 's A nnual R e p o r t, c o p ie s o f w h ich m a y a ls o b e obtain ed fr o m the C o r p o r a t io n 's In form a tion O ffic e . 3past bank m e r g e r d e c is io n s o f the United States S u prem e C ou rt. o f th e se d en ia ls w as app ea led to the c o u r ts . — None The rem a in in g 6 a p p li ca tion s w e r e d enied b e c a u s e o f ou r c o n c lu s io n that sig n ifica n t poten tial co m p e titio n b etw een the two banks w ould b e e lim in a ted o r that the p r o p o se d m e r g e r w ould have sig n ifica n t a d v e r s e co n s e q u e n ce s to the future c o m p e titiv e s tru ctu re o f a given state o r a g iv en banking m a rk e t, without o v e r r id in g p u b lic b e n e fits b a se d e ith e r on banking fa c t o r s o r co n sid e ra tion s ° f p u b lic need s and co n v e n ie n ce . — The F D IC , as y ou know , is b ein g M P r o p o s e d m e r g e r s o f V a lle y F id e lity Bank and T ru s t C om pany and Bank o f K n o x v ille , 1970 FDIC Annual R e p o rt 130; United Mutual Savings Bank and State Mutual Savings B an k , 1970 FDIC Annual R e p o rt 134; F ir s t -C it iz e n s Bank & T ru s t C om pany and T he L u c a m a K en ly B an k , 1971 FDIC Annual R e p o rt 159; W e stm in ste r T ru s t C o m pany and T he Union N ational Bank o f W e s tm in s te r , 1971 FDIC Annual R e p o rt 147; A n d e rs o n B anking C om pany and T he State Bank o f L a p e l, 1971 FDIC Annual R e p o rt 150; F ir s t-C it iz e n s Bank and T ru s t Com pany o f South C a ro lin a and Bank o f C h e s t e r fie ld . FDIC op in ion B 4 1 , M ay 1, 1972; and A m e r ic a n Bank and T ru s t C o. o f P a . and L ebanon County T ru s t C om pany , FDIC op in ion B -1 5 , M ay 31, 1972. 2/ P r o p o s e d m e r g e r s o f Bank o f H aw aii and H aw aiian T ru s t C om p a n y, L im it e d , 1970 FDIC Annual R e p o rt 137; W ashington Mutual Savings Bank and G ra y s H a rb o r Savings and L oan A s s o c ia t io n , 1970 FDIC Annual R e p o rt 141, a ff'd on r e c o n s id e r a tio n , 1971 FDIC Annual R e p o rt 164; T he C itize n s and Southern E m o r y Bank and T he C itizen s and Southern Bank o f T u c k e r , 1971 FDIC Annual R e p o rt 152; C on tinental Bank and Bank o f P e n n sy lv a n ia , 1971 FDIC Annual R e p o rt 155, a ff'd on r e c o n s id e r a tio n (August 18, 1972); C hittenden T ru st C om pany and L a m o ille C ounty B an k. FDIC op in ion B -1 9 , June 13, 1972 ; and T he P en n sy lv an ia Bank and T ru s t C om pany and Union Bank & T ru s t C o .. FDIC op in ion B - 24, July 14, 1972. -4 ch a llen g ed in the co u r ts on two o f th e se s ix d e n ia ls, and we a re fu lly p re p a re d to defend ou r a ctio n s in ea ch o f th em . It re m a in s to b e seen w hether S e ctio n 7 o f the C layton A c t w ill b e in te rp re te d b y the S u prem e C ou rt to extend to the fa ctu a l situations p re se n te d b y so m e o f th e se c a s e s . E ven i f S e ctio n 7 is not so exten ded , the C ou rt w ill u lt i m a te ly have to d e cid e w heth er the banking a g e n cie s n e v e rth e le s s have d is c r e t io n a r y a u th ority to deny p r o p o s e d m e r g e r tra n sa ctio n s under s im ila r c ir c u m s t a n c e s . It has b e e n said that when it c o m e s to m e r g e r s and bank s tru c tu re , the FDIC has an in stitu tion al b ia s in fa v o r o f sm a ll b a n k s, but the fa cts do not support the charge. Most o f the 8,000 nonmember c o m m e r c ia l banks r e g u la r ly exam in ed b y the C o r p o r a tio n a r e indeed sm a ll (the m edia n s iz e at y e a r -e n d 1971 b ein g $7. 2 m illio n in d e p o s its ), but the la r g e s t had $1 b illio n in d e p o sits and 118 a ll told had d e p o sits in e x c e s s o f $100 m illio n . An add ition a l 195 had tota l d e p o sits o f betw een $50 m illio n and $100 m illio n . In the c a s e o f F D IC -in su r e d m utual sa vin gs b a n k s, the m ed ia n d e p o sit s iz e w as sig n ifica n tly g re a te r 3/ W ashington Mutual Savings Bank v . F D IC , S. D. W ashington, C iv il N o. 4 5 -7 1 C 3 ; C ontinental Bank v . F D IC , E . D. P en n sy lv a n ia , C iv il N o. 7 2 -1 8 2 7 . -5 ($71. 2 m illio n ), the la r g e s t had about $3 b illio n in d e p o s its , 129 e x ce e d e d $100 m illio n in d e p o sits and 59 m o r e w e r e in the $ 5 0 -1 0 0 m illio n ra n g e. N ot on ly do banks with m o r e than $50 m illio n in d e p o sits hold 59 p e r c e n t of a ll bank d e p o s its under F D IC 's im m e d ia te s u p e r v is io n , they a cco u n t fo r a m a jo r it y o f the m e r g e r a p p lica tio n s file d with F D IC , ju s t as banks o f s im ila r la r g e s iz e a cco u n t fo r m o s t o f the m e r g e r a p p lica tio n s file d with the C o m p tr o lle r o f the C u rre n cy and the F e d e r a l R e s e r v e B o a rd . T h u s, o f the 109 m e r g e r a p p lica tio n s a p p ro v e d b y the C o rp o r a tio n s in ce A p r il 1, 1970, 68 in v o lv e d one o r m o r e banks w ith m o r e than $50 m illio n in d ep osits, a s did 11 o f the 13 d e n ia ls. T he FDIC r e c o g n iz e s that bank m e r g e r s can stim u la te co m p e titio n , stren gth en one o r b oth p a rticip a tin g banks and b rin g substantial b e n e fits to the p u b lic b y w ay o f im p r o v e d s e r v ic e and c o n v e n ie n ce . T he C orp oration is u n lik ely to a p p ro v e a m e r g e r , h o w e v e r , w h ich in ou r v ie w is s ig n ifi ca n tly a n tico m p e titiv e , u n le ss th e re a r e c o m p e llin g banking fa c t o r s o r a d em o n stra te d d e fic ie n c y in banking s e r v ic e s fo r the g e n e ra l p u b lic that cannot be c o r r e c t e d e x ce p t by the p ro p o s e d m e r g e r . C o n clu sio n s on each o f th e se ite m s a r e m a tte rs o f ju d g m en t, o f c o u r s e , but I w ould sa y that if the FDIC has an in stitu tion a l b ia s , it has v e r y little to do w ith the absolute s iz e o f banks but a g re a t d eal to do w ith the n u m b er o f m ea n in gfu l - 6 - c o m p e tito r s a v a ila b le to bank c u s to m e r s in p a r tic u la r states and in lo c a l banking m a rk e ts throughout the co u n try . — T h e se d is c u s s io n s , I h op e, w ill m ak e that c o n c e r n c le a r and how it a ffe c ts F D IC 's m e r g e r d e c is io n s . j| M ERGERS O F BANKS IN THE SAM E L O C A L M A R K E T In a s s e s s in g the m e r it s o f a ty p ica l bank m e r g e r a p p lica tio n , the FDIC f ir s t se e k s to d e te rm in e w hether the fa cts p re se n te d in d ica te a v io la tio n o f S e ctio n 7 o f the C layton A c t , a s in te rp re te d b y the United States S u prem e C ou rt in past bank m e r g e r d e c is io n s . T h e se d e c is io n s in d ica te that if a m e r g e r b etw een e x istin g banks in the sa m e lo c a l banking m a rk e t p ro d u ce s "a f ir m c o n tro llin g an undue p e rce n ta g e sh a re o f the re le v a n t m a rk e t, and re s u lts in a sig n ifica n t co n ce n tra tio n o f fir m s in that m a rk e t, " a v io la tio n o f S ection 7 is lik e ly to b e found. United States v. P h ilad elp h ia N ational B an k, 374 U. S. 321, 363 (1963), quoted with a p p ro v a l in United States v . P h illip s b u rg N ational B an k, 399 U. S. 350, 366 (1970). In P h illip s b u r g , the re su ltin g bank w ould have co n tr o lle d 19. 2 p e rce n t o f the dem and d e p o sits and 2 3 .4 p e r c e n t o f the to ta l d e p o sits held at a ll 4/ The C o r p o r a tio n h a s, fo r e x a m p le , a p p ro v e d the m e r g e r s o f the $728 m illio n G re a te r New Y o rk Savings Bank and the $250 m illio n F latbu sh Savings Bank (1970 FDIC Annual R e p o rt 111), the $608 m illio n F ra n k lin Savings Bank in the C ity o f New Y o rk and the $423 m illio n K ings H ighway Savings Bank (1971 FDIC Annual R e p o rt 6 0 ), and the $362 m illio n P ru d en tia l Savings Bank and the $178 m illio n B ro a d w a y Savings Bank (FDIC op in ion B -3 2 ) (O cto b e r 2, 1972). It w as re le v a n t to e a ch a p p ro v a l that the New Y o r k SMSA has o v e r 100 m utual th rift in stitu tio n s, in clu din g at le a s t 28 w ith m o r e than $500 m illio n in savings a cco u n ts . -7 c o m m e r c ia l bank o f f ic e s in the lo c a l m a rk e t u sed b y the C ou rt, and its cita tio n o f the V o n 's G r o c e r y and the P a b st B re w in g c a s e s —^ su g g e st that even lo w e r p e rce n ta g e s m a y con stitu te an "undue p e rce n ta g e s h a r e " in bank m e r g e r c a s e s . It a ls o a p p e a rs that the C o u r t 's r e fe r e n c e to a "s ig n ific a n t co n ce n tra tio n o f fir m s in that m a r k e t" is re la te d not to the tota l n u m ber o f banks w h ich w ould re m a in to s e r v e the m a rk e t if the p r o p o s e d m e r g e r w e r e a p p ro v e d , but to any sig n ifica n t in c r e a s e ca u sed b y the m e r g e r in the p e rce n ta g e sh a re o f the m a r k e t 's c o m m e r c ia l bank b u s in e s s and o f f ic e s th e r e a fte r co n tr o lle d b y the two o r th re e m o s t p rom in en t banks in the m a rk e t. In app lyin g th e se a n titru st sta n d a rd s, the g e o g ra p h ic d e fin itio n o f the lo c a l banking m a rk e t b e c o m e s c r it ic a l. T h is d e fin itio n m a y w e ll determ ine w h eth er two banks should b e c o n s id e r e d p r e s e n t c o m p e tito r s and what the c o n s e q u e n ce s o f th e ir p r o p o s e d m e r g e r m a y b e on the co n c e n tra tio n o f lo c a l banking r e s o u r c e s . T he S u prem e C ou rt has r e c o g n iz e d that a d e lin e a tio n o f the re le v a n t g e o g ra p h ic m a rk e t fo r th e se p u rp o se s can seld om b e p r e c i s e , and it re m a in s in m any c a s e s one o f the m o s t d iffic u lt o f a g e n cy d e te r m in a tio n s. T he C ou rt has said it is im p orta n t to c o n s id e r the p la c e s fr o m w h ich a bank d ra w s its b u s in e s s , the lo c a tio n o f its o ffic e s and w h ere it se e k s b u s in e s s , but the k ey fa c t o r in its op in ion s 5/ United States v . V o n 's G r o c e r y C o . , 384 U. S. 270 (1966); United States v . P a b st B rew in g C o . , 384 U. S. 546 (1966). - 8 - s e e m s to b e the a re a w ithin w h ich a bank c u s to m e r who is n e ith e r veryla r g e n o r v e r y s m a ll can , as a p r a c t ic a l m a tte r, turn to do his banking b u s in e s s . In P h ila d e lp h ia , fo r e x a m p le , the C ou rt stated that a "w o rk a b le c o m p r o m is e m u st b e fou n d " and u rged a " fa ir in te rm e d ia te d elin ea tion w h ich a v oid s the in d e fe n sib le e x tr e m e s o f d raw in g the m a rk e t eith er so e x p a n s iv e ly as to m ake the e ffe c t o f the m e r g e r upon co m p e titio n s e e m in s ig n ifica n t, b e c a u s e o n ly the v e r y la r g e s t bank c u s to m e r s a re taken into a cco u n t in defining the m a rk e t, o r so n a rro w ly as to p la c e [the banks in q u estion ] in d iffe re n t m a r k e ts , b e c a u s e o n ly the s m a lle s t c u s to m e r s a r e c o n s id e r e d . " United States v . P h ilad elp h ia N ational B an k, 374 U. S. 321, 361 (1963). The d is c u s s io n in P h illip s b u rg on this point w as a ls o o rie n te d to cu s to m e r co n v e n ie n ce . United States v. P h illip s b u rg N ational B an k, 399 U .S . 350, 3 6 1 -3 6 4 (1970). B e ca u s e o f this fo c u s the FDIC pays p a r tic u la r atten tion to the e a se o f tra n sp o rta tio n to and fr o m the bank sought to b e a cq u ire d . T h u s, in suburban co m m u n itie s , the a d ja cen t c ity m igh t b e in clu d ed i f com m u tation to and fr o m the c it y is r e la t iv e ly con ven ien t fo r a sig n ifica n t nu m ber o f p oten tia l bank c u s to m e r s . The a v a ila b ility o f in t e r -a r e a b u s , r a ilr o a d and subw ay tra n sp o rta tio n , and th e ir u se b y sig n ifica n t n u m b ers o f p oten tia l bank c u s to m e r s w ould b e m a té r ia l fa c t o r s in re a ch in g such a co n c lu s io n . In m any a r e a s o f the co u n try , h o w e v e r , such tra n sp o rta tio n fa c ilit ie s a r e not a v a ila b le and F D IC 's exa m in a tion is lim ite d to the e a se o f a u tom ob ile tr a v e l to and fr o m o f f ic e s o f the bank to b e a cq u ire d . In -9 s p a r s e ly populated a r e a s , w h e re the u se o f o n e 's a u to m o b ile to d riv e s ig n ifica n t d ista n ce s is a n o r m a l ro u tin e , the FDIC b e g in s its e ffo r ts to d elin e a te the lo c a l banking m a rk e t b y exam in in g the a re a w ithin about 15 m ile s fr o m ea ch o f f ic e o f the bank to b e a c q u ir e d . The re su ltin g a p p ro x im a tio n o f the a re a w ithin w h ich a p oten tial bank c u s to m e r m ight b e e x p e cte d to turn fo r a lte rn a tiv e s m ig h t then b e cut b a ck b y such natural b a r r ie r s as m o u n ta in s, r i v e r s , p a rk s o r fo r e s t s o r b y an in te rsta te high w ay o r in c o r p o r a te d a r e a that s e r v e s , s im ila r ly , as an ou ter bou n dary. In so m e c a s e s , w h ere the bank to b e a cq u ire d is in a sm a ll com m u n ity and p e o p le a re r e g u la r ly draw n to the n e a r e s t popu lation c e n te rs fo r e m p lo y m e n t, shopping o r en terta in m en t, the in itia l a re a m igh t b e e x panded to in clu d e such popu lation c e n te rs i f th ey a r e n ea r the p e r im e te r o f the 15-m ile z on e. In no even t, h o w e v e r , is the C o rp o r a tio n lik e ly to e x p e c t a d is s a t is fie d bank c u s to m e r to tr a v e l m o r e than 25 m ile s to seek out a banking a lte rn a tiv e . On the oth er hand, in a r e a s o f r e la t iv e ly high p opu lation d e n sity w h ich do not have m a s s tra n sit f a c ilit ie s , a rea son a b le d ista n ce w ithin w h ich to e x p e ct a bank c u s to m e r to seek a lte rn a tiv e s might b e sig n ifica n tly le s s than 15 m ile s . T he FDIC is attem p tin g, in sh o rt, to d elin ea te a r e a lis t ic g e o g ra p h ic a re a w ithin w h ich a p oten tial bank cu stom er m igh t turn fo r banking s e r v ic e i f he b e c o m e s d is s a t is fie d with the bank being a c q u ir e d . - 10 - Standard M e tro p o lita n S ta tistica l A r e a s , so m e o f w h ich c o v e r v e r y la rg e g e o g ra p h ic a r e a s , m a y o r m a y not b e u sed b y the FDIC to d e lin eate the re le v a n t lo c a l m a rk e t depending on w h eth er o r not the SMSA in q u estion a p p ro x im a te s the g e o g ra p h ic a re a we w ould d e r iv e fr o m ou r own p r o c e s s . If it d o e s , we a r e lik e ly to u se the SMSA as a m a tte r o f co n v e n ie n ce . If it d o e s not, the FDIC u se s the g e o g ra p h ic a re a d e riv e d by the p r o c e s s p r e v io u s ly d e s c r ib e d . M o r e o v e r , if the a r e a f r o m w hich a bank, p a r tic u la r ly a sm a ll cou n try bank, d ra w s the bulk o f its b u s in e s s is sig n ifica n tly s m a lle r than the re le v a n t g e o g ra p h ic m a rk e t a re a d e riv e d by the FDIC p r o c e s s , the C o rp o r a tio n w ill u se the la tter as m o r e co n s iste n t with the S u prem e C o u r t's co m m e n ts on the s u b je c t. A ssu m in g two banks a r e co m p e tin g w ithin a lo c a l banking m a rk e t so d efin ed , what a r e th e ir ch a n ce s o f s u c c e s s in con su m m a tin g a p r o p o s e d m erger? O b v io u s ly , the c lo s e r th e ir fa cts a r e to th o se p re se n te d in P h illip s b u r g , the m o r e u n lik ely FDIC a p p ro v a l b e c o m e s . On the oth er hand, the C o rp o r a tio n has a p p rov ed a su bstan tial n u m ber o f bank m e r g e r s betw een two banks in the sam e lo c a l m a rk e t during the p ast two and a h a lf years. T h e s e a p p ro v a ls tend to fa ll into two c a t e g o r ie s , depending on the e c o n o m ic c h a r a c t e r is t ic s o f the m a rk e t in v o lv e d . In the fir s t c a t e g o r y , the lo c a l banking m a rk e ts have b e e n o f su b stantial p opu lation and n o rm a l e c o n o m ic a c tiv ity . P roposed m erg ers of banks w ithin such m a rk e ts have b e e n a p p ro v e d with r e la tiv e e a se w h e re the two banks to g e th e r co n tr o lle d 10 p e r c e n t o r le s s o f the m a r k e t 's tota l - 11- banking r e s o u r c e s , w h e re the re su ltin g bank w ould continue to fa c e s ig n ifica n t co m p e titio n fr o m one o r m o r e banks w ith la r g e r sh a re s o f the lo c a l m a rk e t, and w h ere a s ig n ifica n t nu m ber o f banking a lte rn a tiv e s r e la t iv e to the m a r k e t 's to ta l popu lation w ould re m a in fo r a d is s a tis fie d bank c u s to m e r . —/ T he C o r p o r a tio n has a ls o a p p ro v e d two a p p lica tion s w h ere th e se sam e co n d itio n s p r e v a ile d , e x ce p t that the re su ltin g bank held m o r e than 10 p e rce n t but le s s than 15 p e r c e n t o f the tota l c o m m e r c ia l bank IP C d e p o sits in the m a rk e t. In ea ch c a s e , the m e rg in g bank was a r e la t iv e ly sm a ll bank and held su ch a sm a ll p e rce n ta g e sh a re o f the m arket's 6/ S ee, e. g. F ir s t State Bank o f O re g o n and T he M ultnom ah B an k, 1970 FDIC Annual R e p o rt 91; T he W a rw ick Savings Bank and O ran ge County Savings and L oan A s s o c ia t io n , 1970 FDIC Annual R e p o rt 107; F la tb u sh Savings Bank and The G r e a te r New Y o rk Savings B ank, 1970 FDIC Annual R e p o r t 111; T he F a r m e r s and M erch a n ts Savings Bank and The L on e T r e e Savings B an k , 1970 FDIC Annual R e p o rt 117; W e s tc h e s te r County Savings Bank and The Bank fo r Savings o f W e s t c h e s t e r , 1971 FDIC Annual R e p o rt 41; K in gs H ighw ay Savings Bank and T he F ra n k lin Savings Bank in the C ity o f New Y o r k , 1971 FDIC Annual R e p o r t 60; C ivic C en ter Bank and T ru s t C o . and T he South E ast N ational Bank o f C h ic a g o , 1971 FDIC Annual R e p o rt 83; B a r c la y Bank and T r u s t C om pany o f B o sto n and United States T ru s t C om p a n y , 1971 Annual R e p o rt 126; F ir s t Bank o f Savannah and In d u stria l Bank o f Savannah, FDIC op in ion B - 7 , A p r il 17, 1972; T r a c y C o llin s Bank and T ru s t C om pany and A m e r ic a n N ational B ank, FD IC op in ion B - 1 3 , M ay 23, 1972; C addo T ru s t and Savings Bank and T he O il C ity B an k, FDIC op in ion B -3 1 , A ugust 31, 1972» B ro a d w a y Savings Bank and P ru d en tia l Savings B ank, FDIC op in ion B - 3 2 , O c to b e r 2, 1972; and C o m m e r c ia l S e cu rity Bank and M u rra y State B ank, FDIC op in ion B -3 4 , O c to b e r 10, 1972. - 12 - total d e p o sits that the d e g r e e o f a ctu a l co m p e titio n lik e ly to be e lim inated b y the m e r g e r p r o p o s e d cou ld be c h a r a c te r iz e d as in su b stan tial. 7/ In the se co n d c a te g o r y , the lo c a l banking m a rk e ts have a ll b e e n under 40, 000 in p opu lation , e c o n o m ic a ctiv ity has b e e n slu g g ish at b e s t and in a num ber o f c a s e s su b sta n tia lly d e p r e s s e d b e c a u s e o f u n em p loy m en t, a d eclin in g p opu lation , o r in c o m e le v e ls w e ll b e lo w national o r statew ide averages. In such m a r k e ts , the FDIC has p e rm itte d the m e r g e r o f s e v e r a l v e r y sm a ll b a n k s, m o s t o f th em un der $5 m illio n in s iz e , into som ew h at la r g e r banks even though the re su ltin g bank w ould have a p e rce n ta g e sh a re o f the m a r k e t 's tota l banking r e s o u r c e s su b sta n tia lly higher than th o se en join ed b y the S u prem e C ou rt in m o r e populous and affluent m a rk e ts . —^ In e a ch such c a s e , h o w e v e r , the FDIC has 7/ South Side Bank and T ru s t C om pany and E ast Scran ton B an k, 1971 FDIC Annual R e p o rt 34; Johnstow n Bank and T ru s t C om pany and C om m u n ity N ational Bank o f P e n n sy lv a n ia , FDIC op in ion B -2 6 , A ugust 4, 1972. 8/ S ee, e. g. L in c o ln County Bank and G le a so n State B an k, 1971 FDIC Annual R e p o rt 36; M ille r s b u r g T ru s t C om pany and F a r m e r s ' State Bank o f D a lm a tia , 1971 FDIC Annual R e p o rt 109; The F ir s t State Savings Bank o f G ladw in and The State Savings Bank o f H a r r is o n , FDIC op in ion B - 6 , M a rch 31, 1972; The K entucky Bank & T r u s t C om pany and P la n te rs B ank, FDIC opin ion B - 17, June 13, 1972; C itiz e n s State Bank and T ru s t C om pany and T he F a r m e r s Bank o f L e o n a , FDIC op in ion B -2 0 , June 29, 1972; M e rch a n ts and F a r m e r s Bank and P e o p le s Bank o f D u rant, FDIC op in ion B -2 5 , July 14, 1972; and C itize n s Bank and T ru s t C om pany and The H. Y . D avis State B an k , FDIC op in ion B -3 0 , A u gu st 31, 1972. C F . C itizen s Bank and Bank o f S im p so n v i l l e , 1970 FDIC Annual R e p o rt 71; and M agnolia Bank and C itize n s Savings B ank, M a g n olia , M is s is s ip p i, 1971 FDIC Annual R e p o rt 103. -1 3 - s a tis fie d it s e lf that a re a s o n a b le n u m ber o f banking a lte r n a tiv e s , rela tiv e to the popu lation s e r v e d , w ould re m a in fo r d is s a t is fie d c u s to m e r s and that few , i f any, le s s a n tico m p e titiv e m e r g e r a lte rn a tiv e s w e r e a v a ila b le to the bank b ein g a cq u ire d . II. QUESTIONS O F DE NOVO E N TR Y An in c r e a s in g n u m ber o f the a p p lica tio n s file d with the FDIC th ese d ays p r o p o s e m e r g e r s b etw een banks w h ich a r e not c u r r e n tly op era tin g in the sa m e banking m a r k e t - - a r e fle c t io n , no doubt, o f the r e la t iv e ly c le a r r e s tr a in ts on p r o p o s e d m e r g e r s o f sig n ifica n t c o m p e tito r s w hich a r e o p e ra tin g in the sa m e lo c a l m a rk e t. In d ea lin g with th e se "m a rk e t e x te n s io n " a p p lic a tio n s , th e re is not y et any d e fin itiv e guidance fr o m the United States S u prem e C o u rt, and the bank r e g u la to r y a g e n c ie s have b e e n d e v e lo p in g ru le s o f th e ir own w h ich m a y o r m a y not p ass m u ste r when ch a llen g ed e ith e r b y the D ep a rtm en t o f J u stice o r b y app lica n t b a n k s. In m o s t such a p p lic a tio n s , a r e la t iv e ly la r g e b ra n ch bank seek s to a c q u ir e a s m a lle r bank o p e ra tin g in a lo c a l banking m a rk e t se p a ra te and d is tin ct fr o m the lo c a l m a rk e ts s e rv e d b y the la r g e r bank. In su ch c a s e s , the FDIC is lik e ly to co n fin e its c o m p e titiv e a n a ly sis to the im p a ct o f the p r o p o s e d m e r g e r in the lo c a l banking m a rk e t s e r v e d b y the sm a lle r -1 4 - bank , sin ce the m e r g e r is u n lik ely to have any p e r c e p tib le e ffe c t in m a rk ets a lre a d y s e rv e d b y the la r g e r bank. In the o c c a s io n a l c a s e w h ere an a p p lica tio n o f this type in v o lv e s two banks o f r e la t iv e ly equal s iz e w hich o p e ra te in se p a ra te m a r k e ts , the FDIC m a k es a s im ila r e x a m i nation as to the co m p e titiv e im p a ct o f th e ir p r o p o s e d m e r g e r in e a ch o f 9/ the lo c a l banking m a rk e ts s e r v e d b y the tw o b an ks. —' If the banking m a rk e t so exam in ed a p p e a rs to b e highly c o n c e n t r a t e d -that i s , b e c a u s e the bulk o f the m a r k e t 's c o m m e r c ia l bank d e p o sit and loa n b u sin e ss is held b y tw o , th re e o r fo u r b a n k s --a n d i f the bank sought to b e a cq u ire d is one o f th e se lead in g lo c a l b a n k s, the FDIC w ill attem pt to evaluate the r e a s o n a b le n e s s o f re q u ir in g the ou tsid e bank to en ter the m a rk et b y the e sta b lish m e n t o f a de novo b ra n ch , ra th e r than b y m ean s o f the m e r g e r p r o p o s e d . The ra tio n a le behind such a re q u ire m e n t w ould be to gain fo r the p u b lic the co m p e titiv e advantages o f having an add ition a l bank o f sig n ifica n t s iz e in the m a rk e t fr o m w h ich to c h o o s e its banking s e r v ic e s . When the n u m ber o f m ea n in gfu l op tion s to the banking p u b lic is as lim ite d as I have h y p o th e size d (and the r e s o u r c e s o f m o s t lo c a l 9/ S ee, e. g. L o ck Haven T ru s t C om pany and T he F ir s t N ational Bank o f State C o lle g e , 1971 FDIC Annual R e p o rt 50; and E lk County Bank and T ru s t C om pany and T he B ra d fo rd N ational B ank, FDIC op in ion B - 4 , M a rch 7, 1972. -1 5 banking m a rk e ts a r e ty p ic a lly co n ce n tra te d in tw o, th re e o r fo u r b a n k s), the FDIC has no d iffic u lty in s u b s c rib in g to the v iew that "o n e m o r e is b e tte r". T h is v ie w is r e fle c t e d not o n ly in ou r m e r g e r d e c is io n s , but a ls o in ou r d e c is io n s on de novo b ra n ch a p p lica tio n s . The FDIC in q u iry into the r e a s o n a b le n e s s o f re q u ir in g de novo entry b e g in s w ith the re le v a n t sta tu tory a u th ority fo r de^ n ovo b ra n ch in g in a p a r tic u la r sta te , but it b y no m ean s ends with the d is c o v e r y that such b ra n ch in g is le g a lly p o s s ib le . State la w , fo r e x a m p le , fre q u e n tly grants e x istin g banks w ith a h om e o f f ic e o r ev en a b ra n ch o f f ic e in a given c o m m unity p r o te c tio n a g ain st o u tsid e en try e x ce p t b y m e r g e r . If v irtu a lly all the d e s ir a b le co m m u n itie s in a p a r tic u la r banking m a rk e t a r e c lo s e d to de novo e n try b y such p r o t e c tiv e la w s , th e re b y lim itin g ou tsid e banks to u n a ttra ctiv e lo c a tio n s in s p a r s e ly populated s e ctio n s o f the m a rk e t, the FDIC w ould not c o n s id e r it re a s o n a b le to r e q u ir e o r e x p e ct de novo entry b y the o u tsid e bank. A ssu m in g no s ig n ifica n t sta tu tory b a r r i e r s , the FDIC w ould next e x a m in e the e c o n o m ic fe a s ib ilit y o f de novo b ra n ch in g w ithin the m a rk e t. Is t h e r e , in o th e r w o r d s , su ffic ie n t d e p o sit potential w ithin a re a s o n a b le p e rio d o f tim e to m ake the e sta b lish m e n t o f a de novo b r a n c h a ttra ctiv e and p r o fita b le to an o u tsid e bank? TO/ Q u estion s o f p re ce d e n t and stru c tu re o v e r a b r o a d e r a re a m ight s t ill r e s u lt , h o w e v e r , in the den ia l o f the p r o p o s e d m e r g e r . See the d is c u s s io n b e lo w at p ages 23 et seq. -1 6 O b v io u s ly , the g e n e ra l a fflu e n ce o f the a r e a , its e c o n o m ic health and the co m p e titio n an o u tsid e bank can e x p e ct to e n cou n ter in the m a rk e t a r e relev a n t to this d e te rm in a tio n . M ost de n ovo b ra n ch e s o p e ra te at a lo s s fo r the f ir s t y e a r o r two a fte r they op en , and the p r o fit to b e d e riv e d fr o m the b ra n ch in su bsequ ent y e a r s m u st b e la r g e enough to o ffs e t th e se in itia l lo s s e s and a ls o ea rn a re a so n a b le re tu rn on the b a n k 's in v e stm e n t. T aking th ese fa c t o r s into a cco u n t, the FDIC w ould not c o n s id e r it re a so n a b le to re q u ir e de novo e n try into a m a rk e t o f a v e ra g e in c o m e le v e ls w h ere the p opulation fo r ea ch e x istin g o ffic e w as 4, 000 p e rs o n s o r le s s and o n ly lim ited p opu lation grow th was p r o je c t e d o v e r the y e a r s ahead. On the oth er hand, in a fa st g row in g m a rk e t w h e re the in c o m e le v e ls a r e su b sta n tia lly ab ove the nationw ide a v e r a g e , the fa ct that the popu lation se rv e d by ea ch ex istin g o f f ic e is 4, 000 p e r s o n s o r le s s w ould not b e co n tr o llin g . A sig n ifica n t new in d u stria l park o r an unusual co n ce n tra tio n o f in d u stria l, c o m m e r c ia l o r s e r v ic e a ctiv ity w ould o b v io u s ly a ffe c t ou r v ie w s o f the d ep osit p oten tial a v a ila b le fo r a de novo o f f ic e . S im ila r ly , a p r o je c t e d grow th in the m a r k e t 's p opu lation o f 10, 000 p e r s o n s p e r y e a r w ould p r o b ab ly re s u lt in a d iffe re n t c o n c lu s io n as to the fe a s ib ilit y o f de novo b ra n ch in g than a popu lation grow th o f o n ly 1 ,0 0 0 p e r s o n s p e r y e a r o r le s s , even if the popu lation p e r o ffic e ex istin g at the tim e o f the a p p lica tio n a p p ro x im a te d 4, 000 p e r s o n s o f a v e ra g e in c o m e . -1 7 - If the ou tsid e bank seek in g to en ter a m a rk e t w e r e sig n ifica n tly s m a lle r than the la r g e s t in stitu tion s a lre a d y e sta b lish e d in that m a rk e t, the FDIC w ould g e n e r a lly not c o n s id e r it re a s o n a b le to r e q u ir e that bank to en ter de n o v o , s in ce it cou ld e a s ily find it s e lf at a substantial d is a d va n ta g e, v i s - a - v i s the e sta b lish e d b a n k s, as it seek s to p en etra te the m a rk e t. S im ila r ly , the C o r p o r a tio n w ould not c o n s id e r it re a so n a b le to r e q u ir e de novo e n try b y a bank without b ra n ch e s o r without the m a n a g e r ia l o r fin a n cia l r e s o u r c e s n e c e s s a r y to m ake a s u c c e s s fu l entry sta rtin g from scra tch . O nce sa tis fie d that de novo e n try is le g a lly p o s s ib le , e c o n o m ic a lly fe a s ib le and c o m p e titiv e ly w ithin the c a p a b ilitie s o f the ou tsid e bank, the FDIC attem pts to a s s e s s w h eth er the a b s e n c e o f de novo e n try by the bank in q u estio n w ould have any s ig n ifica n t a n tico m p e titiv e co n s e q u e n ce s ov er the lon g t e r m w ithin the m a rk e t. If, fo r e x a m p le , the ou tsid e bank which se e k s to m e r g e a le a d in g lo c a l bank is one o f a s ig n ifica n t nu m ber o f p oten tia l de novo e n tra n ts, m any o f w h om a r e o f la r g e r s iz e than the a p p lica n t and a ll o f w h om have had s u c c e s s fu l de n ovo b ra n ch in g ex p erien ce, p a r tic u la r ly in n eig h b orin g m a r k e ts , the FDIC w ould tend to dow ngrade the co m p e titiv e im p o r ta n c e o f having the a p p lica n t, as d istin ct fr o m th ese o th e r p oten tia l en tra n ts, en ter de n o v o . Our re a so n in g w ould be that even i f a d d ition a l c o m p e tito r s o f s ig n ifica n t s iz e w e r e d e s ir a b le in the m a rk et, o th e r banks a r e even m o r e lik e ly p oten tia l entrants through de novo branching - than the a p p lica n t. 18- S im ila r ly , i f the m a rk e t in q u e stio n , although highly co n cen tra ted in tw o, th re e o r fo u r banks in te r m s o f the m a rk e t sh a re s o f lo c a l d e p o sits and loa n s th ey h o ld , a ls o contained a sig n ifica n t n u m ber o f oth er la r g e banks o r o f a ffilia te s o f la r g e m ultibank holding co m p a n ie s , the FDIC w ould c o n s id e r it le s s im p orta n t that the app lica n t m ake its en try de novo ra th e r than b y m e r g e r . In the p r o c e s s o f d e te rm in in g the a ttr a c tiv e n e s s o f the m a rk e t fo r de novo en try , the ca p a city o f an a p p lica n t to en ter b y that rou te ra th er than b y m e r g e r , and the stru ctu a l im p o r ta n c e that it b e re q u ir e d to do so , the FDIC is a ls o lik e ly to fo r m a ju d gm en t as to the p r o b a b ility o f such entry i f the m e r g e r is d en ied . We w ould b a s e o u r c o n c lu s io n in this re g a rd on such fa c t o r s as r e c e n t de novo b ra n ch in g a ctiv ity on the a p p lica n t's p a rt, the p r o x im ity o f its ex istin g o f f ic e s to the m a rk e t in q u e stio n , the a t t r a c tiv e n e ss o f that m a rk e t fo r an e x p a n sio n -m in d e d bank r e la tiv e to oth er a rea s a lso open to it fo r de novo b ra n ch in g , and any past d e m o n stra tio n s o f in te r e s t b y the a p p lica n t in e n terin g the sa m e m a rk e t. In so m e a p p lic a tio n s , the m a n a gem en t o f a sig n ifica n t p oten tial entrant veh em en tly d e n ie s any intention to en ter the m a rk e t de n ovo if its p ro p o s e d m e r g e r is d en ied . And u su a lly , quite p la u sib le b u s in e s s re a s o n s can be o ffe re d to su p p ort this r e p re se n ta tio n . T he FDIC lis te n s to such r e p r e sentations - -w ith I think u n d ersta n d a b le s k e p t ic is m --a n d w eigh s them against the m o r e o b je c t iv e c r it e r ia I have m en tion ed . We r e c o g n iz e , fo r -1 9 e x a m p le , that a cq u irin g an e sta b lish e d and v ia b le bank a lr e a d y op era tin g in the d e s ir e d m a rk e t m a y be le s s e x p e n siv e and m o r e im m e d ia te ly p r o f ita b le to the o u tsid e bank than en try by de novo b ra n ch in g . But the initial o p e ra tin g lo s s e s and the in v e stm e n t in p h y s ica l fa c ilit ie s re q u ir e d fo r de novo e n try can b e quite m o d e s t and w e ll w ithin the a p p lica n t's financial ca p a b ility . M o r e o v e r , the p r io r it ie s e sta b lish e d b y a b a n k 's m anagem ent under one set o f c ir c u m s t a n c e s can w e ll change as im p orta n t c ir c u m sta n ce s chan ge. U n fo re se e n b u s in e s s d e v e lo p m e n ts m a y im p r o v e s ig n ific a n tly the d e s ir a b ilit y , as fa r as the b a n k 's m a n a gem en t is co n ce rn ed , o f one p o s s ib le m a rk e t fo r de n ovo b ra n ch in g as a g a in st o t h e r s . The a c t iv it ie s o f c o m p e tito r s m a y f o r c e a change in p re v io u s p r io r it ie s o f the b a n k 's m a n a gem en t fo r de novo b ra n ch in g , w h ile an im p ro v e m e n t in the b a n k 's p r o fit m a rg in s m a y p e rm it a m o r e a g g r e s s iv e expa n sion p r o g r a m than w as o r ig in a lly thought p o s s ib le b y its m a n a gem en t. And, o f c o u r s e , an a g e n cy den ia l o f its p r o p o s e d m e r g e r m a y r e q u ir e a r e c o n s id e ra tio n o f the b a n k 's p r e v io u s ly e x p r e s s e d intention not to en ter de n o v o . In m y v ie w , a p u b lic a g e n cy re v ie w in g a bank m e r g e r a p p lica tio n should r e a c h an independent ju d gm en t on the re la tiv e a ttr a c tiv e n e s s of a p a r tic u la r m a rk e t fo r de novo en try and the lik e lih o o d o f an a p p lica n t's en try b y that m ean s i f the m e r g e r is d en ied , even i f that judgm ent d iffe r s with the e x p r e s s intentions o f a b a n k 's m a n a gem en t. N eith er the a g e n cy n o r the a p p lica n t bank can b e ce rta in o f what the future h o ld s , but i f the en try o f a d d ition a l c o m p e tito r s o f m ea n in gfu l s iz e is im p orta n t fo r g r e a te r p u b lic c h o ic e and fo r the d é co n ce n tra tio n o f banking r e s o u r c e s in a p a r tic u la r lo c a l m a rk e t,th e re is good r e a s o n to w eigh t the s c a le s a gain st a p p rov a l o f a p r o p o s e d m e r g e r w h ich w ould sig n ifica n tly lim it the o p p o r tunities fo r such en try : a m e r g e r o n ce con su m m a ted is ir r e v e r s ib le w h erea s a denial is not. A future change in a S ta te's banking la w s, fo r e x a m p le , m igh t p e r m it Statew ide b ra n ch in g o r m e rg in g o r the o p e ra tio n o f m ultibank h oldin g co m p a n ie s on a Statew ide b a s is , w h ere bank ex p a n sion p r e v io u s ly w as lim ite d to a sin g le county o r m u lticou n ty re g io n o f the State. The e ffe c t o f this change w ould b e to in c r e a s e d r a m a tic a lly the num ber o f p oten tial entrants o f m ean in gfu l s iz e into m any lo c a l banking m a rk ets p r e v io u s ly r e s t r ic t e d to banks in the sam e county o r so m e a d ja cen t a r e a . A m e r g e r cou ld b e quite p r o p e r ly denied p r io r to the change in State la w , but a p p ro v e d su b seq u en tly. E ven w ithout a change in State law , co m p e titiv e d ev e lo p m e n ts w ithin the lo c a l banking m a rk e t o r within the b ra n ch in g a re a w h ich in clu d e s it, subsequ ent to d en ial, m igh t d icta te - 21- a r e v e r s a l o f the a g e n c y 's p r io r d e c is io n . T he lu x u ry o f re e x a m in a tio n , h o w e v e r , is not a v a ila b le i f the p r o p o s e d m e r g e r is in itia lly a p p ro v ed . A s this im p lie s , the a g e n cy m u st m ake its ju d gm en ts on the b a s is o f State law and the co m p e titiv e situ ation in a given a re a as it finds them at the tim e o f d e c is io n . Y ou m ay b e s u r p r is e d to le a rn that a fte r c o m p letin g the m any fa c e ts o f its a n a ly sis into the r e a s o n a b le n e s s o f r e q u irin g _de_novo en try ra th e r than p e rm ittin g e n try b y m ean s o f the m e r g e r p r o p o s e d , the FDIC found a sig n ifica n t lo s s o f p oten tia l c o m p e titio n b etw een the two banks in v olv ed in o n ly fo u r a p p lica tio n s fo r "m a r k e t e x te n s io n " m e r g e r s during the la st two and o n e -h a lf y e a r s . T h r e e o f th e se a p p lica tio n s re su lte d in an FDIC d e n i a l , - ^ w h ile the fou rth re su lte d in an FDIC a p p ro v a l — s o le ly b e c a u s e the p o te n tia lly a n tico m p e titiv e e ffe c t s in one lo c a l banking m a rk e t w e r e outw eighed in ou r judgm ent b y the p o te n tia lly p r o c o m p e titiv e e ffe c ts in a m u ch m o re p opulous and e c o n o m ic a lly v ig o r o u s m a r k e t .— ^ The F D IC ,in a dd ition , 11/ The C itiz e n s and Southern E m o r y Bank and The C itiz e n s and Southern Bank o f T u c k e r , 1971 FDIC Annual R e p o rt 152 (finding re la te d to o r ig in a l a cq u is itio n in 1965); C ontinental Bank and Bank o f P e n n sy lv a n ia , 1971 FDIC Annual R e p o rt 155, a ffir m e d on r e c o n s id e r a tio n , A ugust 18, 1972; and T he P en n sy lv an ia Bank and T ru st C om pan y and Union Bank & T ru st C o. , FDIC opin ion B -2 4 , July 14, 1972. 1^/ F ir s t S en eca Bank and T ru s t C om pany and L a w re n ce Savings and T ru st C om p a n y , 1971 FDIC Annual R e p o rt 116. - 22- a p p rov ed th re e oth er "m a rk e t e x te n sio n " m e r g e r s even though a cq u isitio n s b y the " m o s t lik e ly " p oten tial entrant w e r e in v olv ed b e c a u s e the a g e n cy c o n clu ded that the r e la t iv e ly sm a ll s iz e o f the a cq u ire d bank in its m a rk e t m ade the a cq u is itio n tantam ount to de novo e n t r y .— One explan ation fo r the r e la t iv e ly few c a s e s in w h ich FDIC has in s iste d o n ^ e novo e n try ra th er than en try b y m ean s o f the m e r g e r p ro p o s e d m a y lie in the fa ct that the " m o s t lik e ly " poten tial entrants into a h igh ly co n ce n tra te d lo c a l m a rk e t a r e not u su a lly State n o n m e m b e r banks at a ll, but n ation al banks w h ose a p p lica tion s m u st b e d e cid e d b y the C o m p tr o lle r o f the C u rre n cy . I p r e fe r to think the s ta tis tic s a r e so m e in d ica tio n o f the co m m o n se n se and caution FDIC b rin g s to its a n a ly sis o f the "p o te n tia l c o m p e titio n " d o c tr in e . The d is c u s s io n o f de novo e n try up to this point has a ssu m e d that the two banks seek in g to m e r g e o p e ra te in d iffe re n t banking m a rk e ts . I w ould n ote, h o w e v e r , that sig n ifica n t poten tial co m p e titio n b etw een two banks m ay be elim in a ted b y th e ir m e r g e r even if they o p e ra te in the sam e m a rk e t, sin ce de novo b ra n ch in g b y both banks in the fu tu re w ithin that sam e m a rk e t m ay b r in g them into in c r e a s in g co m p e titio n in the fu tu re. In a s s e s s in g the p ro b a b ility o f such de novo b ra n ch in g , the FDIC g o e s th rou gh an a n a ly sis 13/ Suburban T ru s t C om pany and N ational C ity Bank o f B a lt im o r e , 1970 FDIC Annual R e p o rt 63; T he C on n ecticu t Bank and T ru s t C om pany and T he C olum bus In d u stria l B an k , 1971 FDIC Annual R e p o rt 100; and Union T ru s t C om pany and T he W inthrop Bank and T ru s t C om p a n y, FDIC op in ion B -2 2 , July 14, 1972. -2 3 - s im ila r to the one I have outlin ed in "m a rk e t e x te n sio n " c a s e s . T h u s, in th re e o f the se v e n m e r g e r s denied b y FDIC b e c a u s e su bstan tial existing co m p e titio n w ould have b e e n e lim in a te d , the e lim in a tio n o f sig n ifica n t p oten tia l co m p e titio n b etw een the two banks in the fu tu re through de novo b ra n ch in g in the sa m e m a rk e t was a ls o c ite d , th e re b y p ro v id in g a su b s id ia r y r e a s o n fo r F D IC ’ s a ctio n , i - t ' m - f u t u r e ST R U C T U R E AND TH E A L T E R N A T IV E M E R G E R When an a g e n cy d en ies a bank m e r g e r b e c a u s e it e lim in a te s a su b stan tial am ount o f e x istin g co m p e titio n w ithin a lo c a l banking m a rk e t, it a cts to p r e s e r v e the n u m ber o f m ea n in g fu l c o m p e tito r s in that m arket and to p re v e n t a s ig n ifica n t in c r e a s e in the m a rk e t r e s o u r c e s held b y the a cq u irin g bank. Its d e c is io n m u st o f n e c e s s it y r e f le c t the v ie w that the m a rk e t stru ctu re p ro p o s e d b y the m e r g e r is u n d e sira b le - - e i t h e r b eca u se it is ille g a l o r b e c a u s e it m a y a d v e r s e ly a ffe c t c u s to m e r s in the m arket. W hen an a g e n cy d en ies a bank m e r g e r b e c a u s e it b e lie v e s de n ovo entry b y one bank into the m a rk et w h e re the o th e r o p e ra te s should b e req u ired in s te a d , its d e c is io n m u st o f n e c e s s it y r e f le c t the v ie w that the existin g l i . / United Mutual Savings Bank and State Mutual Savings Bank, 1970 FDIC Annual R e p o r t 134; W e stm in ste r T ru s t C om pany and The Union N ational Bank o f W e s tm in s te r , 1971 FDIC Annual R e p o rt 147; and A m e r ic a n Bank and T ru st C o. o f P a . and L eban on C ounty T ru s t C om pany (FDIC opin ion B - 15) (M ay 31, 1972). ■M stru c tu re o f that m a rk e t is not as d e s ir a b le a s one in w h ich a g re a te r -2 4 num ber o f m ea n in gfu l c o m p e tito r s a r e o ffe r in g banking s e r v ic e s to the public. It a c t s , not to p re v e n t a re d u ctio n in the nu m ber o f op tion s available to bank c u s t o m e r s , as in the f ir s t c a s e , but to e n co u ra g e an in cre a se in such o p tio n s. In b oth c a s e s , h o w e v e r , the a g e n cy is e x p re ssin g its c o n c e r n fo r the stru ctu re o f co m p e titio n in a lo c a l banking m arket and fo r the n u m ber o f m ea n in gfu l op tion s a v a ila b le to the p u b lic. T h is c o n c e r n fo r stru ctu re is in h eren t in any e ffo r t to apply a n titru st p rin cip les to p ro p o s e d bank m e r g e r s . Indeed, judgm ents about m a rk e t stru ctu re have b e e n a s s u m e d , if not e x p r e s s ly stated , in the m e r g e r d ecisio n s o f the S u prem e C ou rt fo r a lon g t i m e - - f i r s t as to in d u stria l m e r g e r s and m o r e r e c e n tly as to bank m e r g e r s . T h is b e in g the c a s e , a g e n cy e ffo r ts to m aintain o r even im p r o v e the n u m ber o f m ean in gfu l op tion s a v a ila b le to the p u blic w ithin a lo c a l banking m a rk e t have b e e n g e n e r a lly applauded as proper o b je c t iv e s o f p u b lic p o lic y even if the w is d o m o f s p e c ific d e c is io n s are debated. What is m o r e c o n t r o v e r s ia l today is w h eth er the a g e n cie s have any o b lig a tio n under S ection 7 o r , b a r r in g that, any d is c r e t io n under the Bank M e r g e r A c t , to c o n s id e r the lik e ly im p a ct o f a p ro p o s e d m e r g e r on com p etition in the future w ithin a g e o g ra p h ic a re a b r o a d e r than the lo c a l m arkets c u r r e n tly b ein g s e r v e d b y one o r m o r e o f the app lica n t banks. The FDIC b e lie v e s it has that o b lig a tio n and that the co m p e titiv e im pact o f a given m e r g e r has not b e e n fu lly an a lyzed until its lik e ly e ffe c t in that b r o a d e r a re a has a ls o b e e n a s s e s s e d . relevant fo r this p u r p o s e , and w hy? What a re a is it that w e c o n s id e r - 25 - In the 34 States w h ich p e rm it so m e fo r m o f Statew ide bankin g, i. e. , Statew ide b ra n ch in g o r m e rg in g o r Statew ide o p e ra tio n o f m ultibank holding c o m p a n ie s , the FDIC c o n s id e r s the e n tire State to b e this b r o a d e r g eog ra p h ic area. In States lik e P e n n sy lv a n ia , Indiana and K en tu cky w h ich p e rm it only m o r e lim ite d fo r m s o f b ra n ch in g , the FDIC c o n s id e r s the coun ty o r m u lti coun ty r e g io n w ithin w h ich b ra n ch in g o r m e rg in g is p e rm itte d as the a rea in add ition to the lo c a l banking m a rk e t w h ich should b e e x a m in ed . In unit banking S ta tes, no fu rth er in q u iry is n e c e s s a r y so lon g as m ultibank holding co m p a n ie s a r e not p e rm itte d . T h u s, the b r o a d e r a re a exa m in ed b y FDIC is the w id est g e o g ra p h ic a re a under State law w ithin w h ich the banks in volved in a p r o p o s e d m e r g e r m a y m e r g e , b ra n ch de novo o r have bank holding com p a n y a ffilia t e s . Why do we c o n s id e r this b r o a d e r a re a re le v a n t and im p o rta n t, even if e c o n o m is ts w ould say it is not te c h n ic a lly a "banking m a r k e t " ? sev era l rea son s. T h e re are F ir s t , the sta tu tory language o f b oth S e ctio n 7 and the Bank M e r g e r A c t p la c e s r e s tr a in ts on p ro p o s e d a cq u is itio n s the e ffe c t o f w h ich "in any s e c tio n o f the co u n try m a y b e su b sta n tia lly to le s s e n com petition ". It is not at a ll c le a r to us how the m andate given the a g e n c ie s and the cou rts u n der th is fo rm u la can b e g iv en e ffe c t u n le ss the co m p e titiv e im p a ct o f the p r o p o s a l is exa m in ed not m e r e ly in the lo c a l banking m a rk e ts w h ere the two p a r tie s have th e ir ex istin g o ffic e s but a ls o in that s e c tio n o f the cou n try w h ere they can , under State la w , have o ffic e s o r a ffilia te s in the future. - 26 - S econ dly, the S u prem e C ou rt has r e c o g n iz e d that the b ra n ch in g a re a open to two banks under State law m ay help to d efin e the re le v a n t g e o g ra p h ic 15/ m arket fo r p u rp o se s o f a s s e s s in g the co m p e titiv e im p a ct o f th e ir m e r g e r — - without a p p a ren tly r e a liz in g that in m an y States this a re a can d iffe r m a rk e d ly from the a re a in w h ich two m e rg in g banks a ctu a lly o p e ra te o f f ic e s . T h ir d ly , it is the a re a fr o m w h ich any lis t o f p oten tial entrants into a p a r tic u la r lo c a l banking m a rk e t m u st be draw n. The id e n tifica tio n o f the " m o s t lik e ly " potential en tra n ts, as w e have se e n , m a y have a c r it ic a l b e a rin g on the sig n ifica n ce to b e attached to any lo s s o f p oten tial co m p e titio n b etw een two p a rtie s to a p r o p o s e d m e r g e r , one o f w h ich m igh t re a s o n a b ly be expected to en ter the o t h e r 's m a rk e t b y de n ovo b ra n ch in g if the m e r g e r is denied. And fin a lly , s in ce the b r o a d e r a re a is the on ly a re a fr o m which new c o m p e tito r s can a r is e in the future to ch a llen g e th o se banks or bank h oldin g co m p a n ie s with sig n ifica n t co m p e titiv e advantages a lre a d y in te rm s o f fin a n cia l stren gth and m a n agem en t d iv e r s it y , the fa ilu re to place r e s tr a in ts on the a cq u is itio n o f s ig n ifica n t lo c a l banks b y the la r g e s t banks o r holding co m p a n ie s p r e s e n tly op e ra tin g in the b r o a d e r a re a can prevent s m a lle r and in te rm e d ia te s iz e banks fr o m e v e r m ounting a s e r io u s challenge to th ese la r g e r o rg a n iz a tio n s and can even s e r v e to w iden the existing gap in r e s o u r c e s b etw een th e se la r g e r o rg a n iz a tio n s and th e ir 15/ United States v . T he P h ilad elp h ia N ational B an k, 374 U. S. 321, 361 (1963). -2 7 - n e a r e s t c o m p e tit o r s . L e t m e illu s tr a te with the fo llo w in g n o t - s o - h y p o - th e tica l ex a m p le . State X has one m a jo r banking m a rk e t and 10 s m a lle r o n e s , a ll e c o n o m ic a lly se p a ra te . F iv e banks hold about 75% o f the c o m m e r c ia l bank d e p o s its and loa n s in ea ch m a rk e t, although in d ivid u al m a rk e t sh a re s m ay ra n ge fr o m 10% to 25%. T he fiv e banks in the S ta te's la r g e s t banking m arket a r e sig n ifica n tly la r g e r than any o f the oth er b a n k s, but none has m o r e than 10% o f the S ta te's tota l c o m m e r c ia l bank d e p o sits o r lo a n s . E ach is co n s id e r in g m a jo r ex p a n sion m o v e s now that the State L eg isla tu re has changed State law so as to p e r m it m ultibank h old in g co m p a n ie s , Statewide m e rg in g a n d /o r Statew ide de novo b ra n ch in g . O b v io u s ly , the co m p e titiv e stru ctu re o f c o m m e r c ia l banking in that State ten y e a r s fr o m now w ill depend in la r g e m e a s u r e on how the s u p e r v is o r y a g e n c ie s r e a c t to a c q u is itio n p r o p o s a ls p re se n te d b y the S ta te's fiv e m a jo r b a n k s. If ea ch sought to a cq u ire a lea d in g lo c a l bank in the ten s m a lle r m a r k e ts , and a ll such a cq u is itio n s w e r e a p p ro v e d , State X cou ld w e ll have on ly 5 Statew ide banks e a ch o f w h ich o p e ra te d in a ll e le v e n m a rk e ts with no sig n ifica n t co m p e titio n fr o m any s m a lle r bank and no sig n ifica n t p oten tia l entrant le ft that m ig h t s e r io u s ly ch a lle n g e th em in any m a rk e t in the fu tu re. Now so m e c u s to m e r s in ea ch o f the s m a lle r banking m a rk ets w ould p ro b a b ly find the ran ge and qu ality o f th e ir banking s e r v ic e s im p rov ed , -2 8 - with no change in the nu m ber o f m ea n in g fu l op tion s p r e v io u s ly a v a ila b le to them . O ther c u s t o m e r s , h o w e v e r , who m ig h t have had 10 o r 15 m ean in gfu l options a v a ila b le to th em p r e v io u s ly in two o r th re e a d ja ce n t m a rk ets w ould find that th e ir op tion s had b e e n re d u ce d to 5. In a d d ition , in stead o f holding 75% o f the d e p o sits and loa n s in one m a rk e t, the S ta te's 5 la r g e s t banks m igh t now hold 75% o f a ll c o m m e r c ia l bank d e p o s its and loan s in the State, and the la r g e s t m igh t have 20% o r m o r e o f the tota l. A s im ila r hypoth etical, on a s m a lle r s c a le , cou ld b e co n s tr u cte d in a State w h ich m oved to countyw ide o r re g io n a l b ra n ch banking. F ortu n a tely , stru ctu ra l chan ges in banking r a r e ly o c c u r quite so fa st or quite so s y m m e t r ic a lly . But the s c e p tr e o f Statew ide o lig o p o ly is not as fa r-fe tch e d as so m e m ay im a g in e . T he State o f V ir g in ia , fo r e x a m p le , changed its banking law s in 1962 to p e rm it Statew ide m e rg in g and Statewide bank holding co m p a n ie s. The a m icu s cu ria e b r i e f w h ich V irg in ia file d with 16/ the United States S u prem e C ou rt in the G r e e le y c a s e — points out so m e o f the things that have sin ce o c c u r r e d . T he n u m ber o f independent banking units in the State, p r e d ic ta b ly enough, d e clin e d s ig n ific a n t ly --fr o m 303 at y ea r-en d I960 to a p p ro x im a te ly 180 e a r ly in 1971. T he num ber o f co m p e titiv e alternatives in the S ta te's 50 la r g e s t c it ie s (w hich ran ge in popu lation fr o m the 5, 300 in E m p o ria to a lm o s t 308, 000 in N o rfo lk ) in c r e a s e d fr o m an a v e ra g e of 2. 82 to an a v e ra g e o f 3. 96 o v e r this sa m e p e r io d . T he d e p o sit sh a re o f 16 / United States v. F ir s t N ational B a n co rp o ra tio n et a l, D ock et No. 71-103. - 29 - the la r g e s t lo c a l bank in s ix o f the S ta te's la r g e r c it ie s (N o rfo lk , R ich m on d , A le x a n d ria , N ew p ort N ew s, L yn ch bu rg and R oan oke) d e clin e d in a range from 8 .6 to 1 7 .5 p e rce n ta g e points as oth er la rg e o rg a n iz a tio n s e n te re d th ese cities by a cq u is itio n . H ow ev er, sin ce a cq u isitio n s of lea d in g lo c a l banks have been re p e a te d ly a u th o rize d fo r the S ta te's fiv e la r g e s t banking o rg a n iz a tio n s , their sh a re o f total bank d e p o sits in the State a ls o in c r e a s e d , f r o m 27. 5% at year-end I960 to a p p ro x im a te ly 5 1 .7 % in e a r ly 1971. The b r ie f e x p r e s s e s the view that d esp ite this in c r e a s e in Statew ide co n ce n tra tio n r a tio s , co m p e titio n within lo c a l banking m a rk e ts in V irg in ia has im p r o v e d s ig n ifica n tly s in ce 1962. The b r ie f fa ils to m en tion that in 8 o f the S ta te's 15 la r g e s t c itie s three or m o r e of the S ta te 's fiv e la r g e s t banking o rg a n iz a tio n s r e p r e s e n t the majority of banking op tion s a v a ila b le to lo c a l r e s id e n ts , 17/ that in 12 of th ese sam e 15 c it ie s th ose banks w h ich a re am ong the S ta te's fiv e la r g e s t c o n tr o lle d m o re than 50%, and in m any c a s e s m o r e than 75%, of a ll lo c a l d e p o sits as of June 30, 1970» and that v e r y few lea d in g banks in any of th ese c itie s re m a in a v a ila b le fo r 17/ I. e. in A rlin g to n , C h esa p ea k e, F a lls C hurch, L y n ch bu rg , N o rfo lk , P e te r s b u r g , R oan oke and V irg in ia B each . 18/ The c itie s in v o lv e d and the p e rce n ta g e sh are of total city w id e d ep osits h eld as of June 30, 1970 by th ose banks w h ich a r e am ong the S ta te's five la r g e s t banking o rg a n iz a tio n s a re as fo llo w s : A le x a n d ria (5 5 .7 % ), C h a r lo tte s v ille (5 3 .3 % ), C h esap eak e (8 5 .5 % ), D a n ville (5 3 .2 % ), Ham pton (7 3 .0 % ), L y n ch bu rg (5 8 .7 % ), N ew p ort N ews (8 6 .2 % ), N orfolk (89. 7%), P e t e r s b u r g (89. 2%), R ich m on d (72. 0%), R oan oke (60. 8%) and V ir g in ia B each (83. 9%). - 30 - a cq u isition by so m e other banking o rg a n iz a tio n . at a ll c le a r that the a cq u isitio n 19/ n What is m o r e , it is not of th ese rem a in in g lea d banks by one o r m ore of the S ta te’ s fiv e la r g e s t o rg a n iz a tio n s w ill be p ro h ib ite d . In N orth C a ro lin a , to take another e x a m p le, w h ere the S ta te's la r g e s t banks have b een a u th o rize d n u m erou s a cqu isition s of lea d in g banks in lo c a l m a rk ets, Statew ide co n ce n tra tio n ra tio s have in c r e a s e d sig n ifica n tly in re ce n t y e a rs. In I960 the S ta te's fiv e la r g e s t banks h eld 56. 2% of the S ta te's total c o m m e r c ia l bank d e p o s its , a fig u re w h ich had r is e n to 66. 6% by y e a r -e n d 1970. Here as in V ir g in ia , the c la im has been m ade that Statew ide banking has d ra m a tica lly im p r o v e d co m p e titio n in lo c a l banking m a rk e ts throughout the State, by giving lo c a l re sid e n ts a sig n ifica n tly g re a te r n u m b er of a lte rn a tiv e s fro m w h ich to c h o o s e th eir banking s e r v ic e s . Y et the fa ct re m a in s that in 9 of the S ta te's 15 la r g e s t c it ie s two o r m o r e o r th ese sam e fiv e banks r e p r e s e n t the m a jo r ity of banking op tion s a v a ila b le to lo c a l r e s id e n ts , 20 / that in 12 of these sam e 15 c it ie s th ose banks w h ich a r e am ong the S ta te's fiv e la r g e s t con tro lle d m o r e than 50%, and in m any c a s e s m o r e than 75%, o f a ll lo c a l d e p osits 19/ In fa ct only 10 banks having a p p ro x im a te ly 15% o r m o r e o f total c it y w ide d e p o sits re m a in independent in th ese 15 c it ie s : 2 in C h a rlo tte s v ille , 1 in C h esa p eak e, 1 in D a n v ille, 1 in H am pton, 2 in P o rtsm o u th , 1 in R ich m on d and 2 in R oan ok e. 20J I. e. , in G r e e n s b o r o , W in sto n -S a le m , High P oin t, A s h e v ille , F a y e tte v ille , G astonia, W ilm in gton , B urlin gton and R o ck y M ount. - 31 21 / as o f June 30, 1 9 7 0 ,— and that v e r y few le a d in g banks in any of these 22/1 c it ie s re m a in a v a ila b le fo r a cq u isitio n by s o m e oth er banking org a n iza tion . The q u estion re m a in s w h eth er a bank a g e n cy w h ich re v ie w s the "m arket e x te n sio n " m e r g e r s of the la r g e s t banks in a State o r b ra n ch in g a re a should be c o n c e r n e d about th ese lo n g e r run s tru c tu ra l d ev e lo p m e n ts so lon g as no e x istin g co m p e titio n betw een the p a r tie s is e lim in a te d and so lon g as de novo en try by the la r g e r bank is not v ie w e d as a re a so n a b le a lte rn a tiv e . The FDIC b e lie v e s the a n sw er to this q u estion should b e " y e s " fo r a n u m b er of r e a s o n s . F ir s t , it s e e m s in co n g ru o u s to b a r m e r g e r s in a lo c a l banking m a rk e t under the an titru st law s that m ight le a d to a concentration! 1 o f a s s e ts a p p roa ch in g 19. 2% of the m a rk e t tota l and y et p e r m it s im ila r increasj in co n ce n tra tio n o v e r even b r o a d e r g e o g ra p h ic a re a s such as a State or a m u lti coun ty r e g io n a l b ra n ch in g a r e a . 23 / Is an o lig o p o ly o f la r g e r units 2 1 / The c it ie s in v o lv e d and the p e rce n ta g e sh a re o f tota l city w id e d eposits h eld by th ose banks w h ich a re am on g the S ta te 's fiv e la r g e s t a re as fo llo w s : A s h e v ille (8 6 .3 % ), B u rlin gton (89. 2%), C h a rlotte (9 4 .7 % ), D urham (52. 1%), F a y e tte v ille (6 6 .6 % ), G r e e n s b o ro (98. 9%), G reenville (8 6 .6 % ), High P oin t (6 9 .7 % ), R a le ig h (9 2 .2 % ), W ilm in gton (8 4 .0 % ), W ilso n (5 2 .3 % ), and W in s to n -S a le m (9 9 .4 % ). 2 2 / In fa ct, only 8 banks having a p p ro x im a te ly 15% o r m o r e o f total citywide d e p o sits re m a in independent in th ese 15 c it ie s : 1 in D urham , 1 in G aston ia, 1 in High P oin t, 2 in K a n n ap olis, 2 in R o ck y M ount and 1 in W ilso n (w hich a ls o has m o r e than 15% o f city w id e d e p o sits in Fayetteville).j Of th ese 8 banks, th re e r e p r e s e n t the S ta te 's seventh, ninth and tenth la r g e s t b a n k s. 2 3 / A f o r t io r i, if a la r g e bank in a p opu lou s and e c o n o m ic a lly v ib ra n t lo ca l m a rk e t, b ra n ch in g a re a o r State a lre a d y has 1 9 .2 % of the banking r e s o u r c e s in its lo c a l m a rk e t o r b ra n ch in g a r e a , it w ou ld s e e m even m o r e in co n g ru o u s to p e r m it it to a cq u ire another bank of any s iz e w ithin the sam e lo c a l m a rk e t o r b ra n ch in g a r e a , absen t m o s t unusual c ir c u m s t a n c e s . T he future grow th o f such a bank m ight p r o p e r ly be lim ite d to de n ov o ex p a n sion and in te rn a l grow th. - 32 op era tin g o v e r a la r g e r a re a som eh ow le s s o ffe n s iv e under the an titru st law s than an o lig o p o ly of s m a lle r ones o p e ra tin g in a lo c a l m a rk e t? S econ d ly , it is ob v iou s that e v e r y m e r g e r of a lea d in g lo c a l bank a p p ro v e d fo r one of the la r g e s t banks in a State o r b ra n ch in g a re a p re v e n ts som e other bank or bank h old in g com p an y f r o m a cq u irin g the sam e lo c a l bank. S in ce the la r g e s t banks in a given State o r b ra n ch in g a re a a re u su a lly the ones b e st able to m ake the m o st a ttra ctiv e o ffe r s to s m a lle r banks, such a p p ro v a ls en cou ra g e fu rth er a cq u isitio n s by the sam e banks of lea d in g banks in oth er lo c a l m a rk e ts . The e ffe c t of a s e r ie s of such m e r g e r s is to deny to in t e r m e d ia te -s iz e d banks and bank h old in g co m p a n ie s im p orta n t building b lo ck s they m a y n eed to b e c o m e tru ly e ffe c tiv e and sig n ifica n t c o m p e tito r s as against the la r g e s t banks in a givenState o r r e g io n a l b ra n ch in g a r e a . At the sam e tim e , such m e r g e r s m ay w iden the gap in r e s o u r c e s and a re a co v e ra g e betw een the la r g e s t banks and th eir n e a r e s t c o m p e tito r s in the in t e r m e d ia te -s iz e d ra n k s. By co n tra s t, a d iffe re n t m e r g e r p o lic y , w h ich p re v e n ts the a cq u isitio n of lea d in g lo c a l banks by th ose a lre a d y w e ll in the co m p e titiv e le a d w ithin the la r g e r Statew ide o r r e g io n a l a re a and e n co u ra g e s th eir a cq u isitio n in ste a d by in t e r m e d ia te -s iz e d o rg a n iz a tio n s , cou ld le a d in m y h y p o th e tica l exa m p le to 10 or 15 e ffe c tiv e Statew ide c o m p e tit io r s , ra th er than 5, and to lo c a l banking m a rk e ts in w h ich the n u m ber of m ea n in gfu l op tion s a v a ila b le to lo c a l resid en ts w as su b sta n tia lly la r g e r than the 5 such op tion s p re s e n tly a v a ila b le - 33 to them . It w ou ld attem pt, in oth er w o r d s , to m a x im iz e , ra th er than m in im iz e , the n u m b er of sig n ifica n t c o m p e titio r s in each o f the m a rk ets in v o lv e d . Such a m e r g e r p o lic y p r o c e e d s on the b a s is that p oten tia l com p etition b etw een two banking o rg a n iz a tio n s can b e c o m e a ctu a l co m p e titio n in the c o u r s e o f tim e not m e r e ly by the e n try o f one de n ov o into the m a rk ets s e r v e d by the o th e r, but by one o r m o r e a lte rn a tiv e m e r g e r s as w e ll. Thus, in m y h y p o th e tica l, if the a cq u isitio n o f a lea d in g lo c a l bank by one of the S ta te's fiv e la r g e s t w e r e d en ied , the app lica n t m ight turn to a s m a lle r , less sig n ifica n t bank in the sam e m a rk e t, w h ose a cq u isitio n w ou ld b rin g it into a ctu a l co m p e titio n with the le a d bank it had p r e v io u s ly sought to a cq u ire . The la tte r m ight in turn be a cq u ire d by a banking o rg a n iz a tio n headquartered in the sam e city as the S ta te 's fiv e la r g e s t banks, th e re b y im p r o v in g its ca p a b ilitie s in that m a rk e t as a gain st the fiv e la r g e s t . O r it cou ld be acquired by a bank h old in g com p an y o p e ra tin g ou tsid e the m a jo r city w h ich w as seeking to im p r o v e its co m p e titiv e c a p a b ilitie s b e fo r e attem ptin g to en ter the State's la r g e s t m a rk e t and to co m p e te th ere with the S ta te 's fiv e la r g e s t banks. In ea ch of th ese c a s e s , banks not p r e v io u s ly in co m p e titio n cou ld b e c o m e actual c o m p e tito r s in the fu tu re. The FDIC r e c o g n iz e s that p u rsu in g such a m e r g e r p o lic y m ay in volve a t r a d e -o f f in m any c a s e s b etw een im m e d ia te im p r o v e m e n ts in banking serv ice and co m p e titio n in a p a r tic u la r lo c a l m a rk e t and the lo n g e r - t e r m p o ssib ility 34 of even m o r e v ig o r o u s co m p e titio n and a sig n ifica n tly g re a te r nu m ber of m eaningful op tion s fo r re s id e n ts o f m any lo c a l m a rk e ts . The FDIC a ls o r e c o g n iz e s that a m e r g e r p o lic y w h ich se e k s to m a x im iz e the n u m ber of sig n ifica n t c o m p e tito r s in lo c a l m a rk e ts throughout a State o r r e g io n a l bra n ch in g a re a a s s u m e s that m o s t lo c a l m a rk e ts can p ro fita b ly a b s o r b a g re a te r n u m ber o f c o m p e tito r s than they have today - - a n a ssu m p tion the C o r p o r a tio n 's r e s e a r c h e ffo r ts and e x p e r ie n c e with de n o v o b ra n ch in g w ould in d icate to be w e ll-fo u n d e d . G iven this c h o ic e , b etw een lim ite d im p ro v e m e n ts in s e r v ic e and co m p e titio n in a p a r tic u la r lo c a l m a rk et and the lo n g e r -r u n p o s s ib ility of m uch g re a te r co m p e titio n and p u b lic c h o ic e in a la r g e r n u m b er o f lo c a l m a rk e ts , FDIC has opted fo r the la tte r , and this p o lic y is r e fle c t e d in our th ree re m a in in g d e n ia ls, ea ch of w h ich w as p r im a r ily c o n c e r n e d with 24/ som e a s p e ct o f Statew ide o r r e g io n a l s tru c tu re . 24/ Bank o f H awaii and H awaii T ru st C om pany, L im ite d , 1970 FDIC Annual R e p o rt 137; W ashington M utual Savings Bank and G rays H a rb or Savings and Loan A s s o c ia t io n , 1970 FDIC Annual R e p o rt 141, a ff'd on r e c o n s id e r a tio n , 1971 FDIC Annual R e p o rt 164; and Chittenden T ru st C om pany and L a m o ille County B ank, FDIC op in ion B -19* June 13, 1972. - 35 - D esp ite this lengthy d is c u s s io n o f the c o m p e titiv e fa c t o r s c o n s id e r e d by FDIC in its a ctio n on m e r g e r a p p lica tio n s that co m e b e fo r e it fo r d e c is io n , I w ould re s ta te in c o n c lu s io n what the s ta tis tic s of our m e r g e r d e c is io n s show that in the v a st m a jo r it y o f c a s e s , w e find no sign ifican t a n tico m p e titiv e e ffe c ts f r o m p r o p o s e d m e r g e r s , and this is tru e in both " s in g le - m a r k e t ” and "m a r k e t e x te n s io n " c a s e s . When this p r e lim in a r y c o n c lu s io n has been re a ch e d , FDIC a p p ro v a l is re a d ily given to an a p p lica tio n sin ce v irtu a lly any im p r o v e m e n t in banking s e r v ic e , even fo r lim ite d n u m b ers o f bank c u s to m e r s , w ill su ffic e as a d e m o n stra tion that p u b lic n eed s and co n v e n ie n ce w ill be s e r v e d . On the oth er hand, when a c o n tr a r y co n c lu s io n has been re a ch e d on the co m p e titiv e fa c t o r s , it is u n lik ely that an app lica n t w ill be a ble to d e m o n stra te su fficie n t benefits to the com m u n ity to w a rra n t FDIC a p p ro v a l.
@FedFRASER