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Mr. Chairman and Members of the Committee:
Before discussing the bills now pending before this Committee
that would affect bank mergers, it may be helpful to describe briefly
the nature of the Board's functions and responsibilities in this general
field under existing law,
At present the Board is vested with authority to enforce the
provisions of the Clayton Antitrust Act where applicable to banks.
Section 7 of that Act prohibits any corporation from acquiring the
stock of other corporations engaged in commerce where, in any line of
commerce in any section of the country, the effect may be substantially
to lessen competition or tend to create a monopoly.

However, as far as

banks are concerned, this section applies only to acquisitions of stock•
It does not apply to acquisitions of bank assets and does not cover bank
mergers and consolidations.
Apart from the Clayton Act, the Board has other functions
under present law which involve consideration of the competitive
aspects of banking and possible tendencies toward monopoly in the
banking field.

Under the Bank Holding Company Act, enacted last year,

every bank holding company that proposes to acquire additional banks
must first obtain the Board!s consent, and in determining whether to


give such consent the Board is required to consider certain factors,
Including the effect of the proposed acquisition upon the preserva¬
tion of competition in the field of banking.
Other provisions of existing law which vest limited
authority in this general field in the bank supervisory agencies are
those of section l8(c) of the Federal Deposit Insurance Act. Under
that section, the Board, the Comptroller of the Currency, and the
Federal Deposit Insurance Corporation, in their respective areas of
authority, are required to pass in advance upon mergers and consolida¬
tions of banks, but only in cases in which the capital stock or
surplus of the resulting bank will be less than the aggregate capital
stock or aggregate surplus, respectively, of the banks involved.
Effect of Pending Bills
It is understood that two bills relating to bank mergers
are now before the Committee—H. R. 264 and H. R. 2l43. The Federal
Reserve is directly concerned with these bills only as they apply to

In general, as far as banks are concerned, the pending bills

would amend section 7 of the Clayton Act so as to bring acquisitions
of bank assets under the coverage of that section, in addition to the
present coverage of acquisitions of bank stock. The bills would also
require prior notice of any proposed bank merger to be given to the
Attorney General and to the Board of Governors at least 60 days
(H. R. 2143) or 90 days (H. R. 264) before the merger is to take
effect if the combined capital accounts of the merging banks exceed
$10 million.

-3The Board of Governors favors the principle of subjecting
bark mergers and consolidations to federal supervision and control,
with a requirement for consideration of the competitive effects of
such mergers.

It questions, however, whether the approach embodied

in the pending bills constitutes the most desirable method of
achieving that objective.
Desirability of Advance Approval
It is the Board's opinion that the law should require bank
mergers to be approved in advance by a Federal supervisory agency.
As previously indicated, under section 18(c) of the Federal Deposit
Insurance Act the Federal bank supervisory agencies—the Board, the
Comptroller of the Currency, and the FDIC—are now required to pass
in advance upon mergers and consolidations of banks only where there
is a resulting diminution of capital or surplus.

The Comptroller of

the Currency has additional authority as to approval of mergers
involving national banks.

However, because of the limited nature of

the present authority, many bank mergers do not have to be approved
in advance by any Federal agency.

The Hoard believes it would be

desirable to extend this authority so as to require advance approval
for every bank merger and consolidation, irrespective of diminution
of capital, to be given by the Comptroller of the Currency where the
resulting institution will be a national bank, by the Board where the
resulting institution will be a State member bank of the Federal
Reserve System, and by the FDIC where the resulting institution will
be a nonmember insured bank.

The pending tills require 60-day or 90-day advance notice
of mergers, but do not require advance approval. The Board questions
whether, in the case of banks, the advance notice procedure would be
as desirable or as effective as provision for advance approval.


would be helpful to the banks involved to have advance consent by the
Government, since this would give them, in proper cases, greater
assurance that the proposed action is not inconsistent with law.
Also it would eliminate any necessity for an effort on the part of
the Government to enjoin a bank merger or to dissolve one after it
had once taken place. There are obvious difficulties in attempting
to unscramble the assets and liabilities of constituent banks after
a merger has occurred, and particularly so after a lapse of several
months or more. Furthermore, in many cases it is not necessary for
a Government agency to have as much time as 60 or 90 days in which to
consider proposed bank mergers and the competitive aspects of such
Enforcement Authority
The pending bills would leave unchanged those provisions
of the Clayton Act which now vest in the Board of Governors authority
to enforce the provisions of section 7 of that Act where applicable
to banks. Under present law, that authority is limited by reason of
the statute's applicability only to acquisitions of bank stock.
Under the proposed amendment to section 7, however, the Board's
responsibilities would extend to all types of bank mergers, whether
carried out under Federal or State statutes.

This would result in

-5a substantial enlargement of the Board's responsibilities in the
antitrust field. The Board would be called upon to consider the com¬
petitive or monopolistic aspects of every such transaction even though
it had previously been considered and approved by one of the other
Federal bank supervisory agencies or by the appropriate State authority.
The principal functions of the Federal Reserve System lie
in the fields of monetary and credit policy and bank supervision. The
Board of Governors and the other bank supervisory agencies are believed
to be qualified by experience to determine whether approval should be
given with respect to proposed mergers.

However, the prosecuting and

adjudicatory functions involved in the enforcement of the antitrust
laws are only indirectly related to the Board's principal responsibili¬

They are of a character quite different from the functions

normally exercised by the Board in passing upon particular transactions
in the bank supervisory field.

In other words, enforcement of the anti¬

trust laws and the function of bank supervision represent, we believe,
different spheres of governmental operations.
Under present law, in addition to the Board's authority to
bring proceedings for the enforcement of section 7 of the Clayton
Act where applicable to banks, the Attorney General has an injunctive
authority; and the Board believes for the reasons indicated that the
enforcement of this section, whether with respect to acquisitions of
bank stocks or acquisitions of bank assets, is a function which should
not be vested in the Board,

-6Consideration of Effects on Competition
Under the pending bills, any bank merger which might
substantially lessen competition or tend to create a monopoly would
be prohibited This would seem to mean that the effect on competition
would be the controlling factor in all cases, to the exclusion of con¬
sideration of other factors-which may well have an important bearing upon
the maintenance of sound banking.
Banking, more than any other type of business, directly
affects credit conditions and the basic economy of the country.

If a

nonbanking business becomes insolvent, its stockholders and creditors

If a bank fails, however, the effect is felt not only by its

stockholders and creditors but also by its depositors, and by
businesses and individuals in the community that must have banking
facilities in order to carry on their activities. For these reasons,
banks are governed by special statutes and are carefully regulated,
examined, and supervised by governmental authorities.
The Federal bank supervisory agencies, in passing upon
applications and proposals within their respective jurisdictions,
give consideration to the competitive aspects involved. However,
they also take into account such matters as the adequacy of a bank's
capital structure, the condition of its assets, the competency of its
management, its future earnings prospects, and the needs of the community.
Thus, the Board, in acting upon applications for the approval of
branches, bank mergers within its jurisdiction under section 18(c) of
the Federal Deposit Insurance Act, and voting permits required to be


obtained by holding company affiliates, considers the possible effect
of the proposed transaction upon competition among banks but in all
such cases the Board also considers the banking factors above mentioned.
The same is true under the recently enacted Bank Holding
Company Act. That Act specifically requires the Board, in passing upon
applications by bank holding companies for the acquisition of bank
stocks or assets, to consider whether the proposed acquisition would
be consistent with adequate and sound banking, the public interest,
and the preservation of competition in the field of banking; but the
Act also requires the Board to consider the financial history and
condition of the holding company and the banks involved, their prospects
and the character of their management, and the needs of the community
There have been in the past and there will doubtless be in
the future instances in which the over-all public interest would
clearly be served by a bank merger or consolidation even though it
might incidentally tend to substantially lessen competition.

The Board

believes that, at least in the field of banking, the test should be
whether or not a merger would result in an "undue" rather than a
"substantial" lessening of competition.
For these reasons, and in keeping with the practice followed
in passing upon other types of banking transactions, the Board believes
that it would be desirable that, in addition to providing for the prior
approval of bank mergers by the appropriate Federal supervisory agency,
that agency should be specifically required to consider whether the

-8effects of the proposed merger might be to lessen competition unduly
or to tend unduly to create a monopoly, but with the added stipula¬
tion that the agency should also consider such factors as the
financial condition, adequacy of capital, and character of management
of the bank, together with the needs of the community.
In order to maintain uniform policies as far as possible,
each supervisory agency should be required to consult the other two
before passing on a proposed merger. Moreover, it would be desirable
to authorize the agencies to request the views of the Attorney General
as to the effect on competition.

This would enable the supervisory

agency, whenever it was in doubt, to ascertain the attitude of the
Department of Justice regarding the competitive or monopolistic
aspects of the proposed merger befora deciding "whether to grant its
To restate its views, the Board is of the opinion that
appropriate and effective legislation with respect to bank mergers
should embody two requirements: (1) bank mergers should be made subject
to the advance approval of the Comptroller of the Currency, the Board
of Governors, or the FDIC, depending upon the nature of the resulting
bank, regardless of whether there is to be a diminution in capital
structure, and (2) in acting upon bank mergers the Federal supervisory
agency concerned should be required to consider whether the proposed
transaction would unduly lessen competition, as well as the financial
condition, adequacy of capital and character of management of the

-9institution resulting from the mergerj and, where the competitive
factor is significant, the agency should have authority to request the
opinion of the Attorney General on that point.
The proposed Financial Institutions Act of 1957, introduced
a few days ago, would embody these basic principles. That bill would
require a bank merger to have the prior approval of one of the three
Federal banking agencies, irrespective of diminution of bank capital or
surplus• It would expressly require the banking agency concerned to
consider the competitive aspects of each transaction, as well as the
banking factors involved, and—in the interest of uniform standards—
to seek the views of each of the other two banking agencies with respect
to the question of competition. In addition the banking agency would
be authorized to request the opinion of the Attorney General with
respect to that question.
Legislation of this kind, the Board believes, would effectively
accomplish the basic objective of providing means for controlling bank
mergers and preventing mergers that would unduly lessen competition in
the banking field.