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For Release on Delivery
STATEMENT BY CHAIRMAN MARTIN OF THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
BEFORE THESUBCOMMITTEEiON ANTITRUST AND MONOPOLY OF THE
COMMITTEE ON THE JUDICIARY OF THE SENATE ON JUNE 24,

1955

Mr. Chairman and Members of the Committee:
We are pleased to come before you at the invitation of
your Chairman to give you our views and such information as we may
have with regard to the matter of bank mergers and consolidations.
Bank mergers and consolidations are not, of course, evil
per se. They are authorized by Federal and State statutes and are
carried out under the supervision of Federal or State banking authorities.

In passing upon bank mergers and consolidations many factors

have to be considered by the supervisory authorities as having a
bearing on the public interest, and, since competition is an important
element in the maintenance of sound banking, it is one of the significant factors which must be taken into account.
According to our information, a total of 100 bank mergers,
consolidations, and absorptions took place in 1952, the largest yearly
number since 1939. The number grew to 116 in 1953 and 207 in 1954.
For the first four months of 1955, the figure was 81, indicating that,
if growth continues at the same rate, this year's total may reach
around 240

Since 1933, the merger movement has been the major factor

in the gradual decline in the total number of banks•

This is in con-

trast with the 10-year period just prior to 1933 when bank suspensions




-2-

were more numerous than mergers and were the major factor in reducing
the number of commercial banks by about one-half.
In general, consolidations have taken place between
r e l a t i v e l y small banks or through the absorption of small banks by
much l a r g e r bankst

In the 5-year period from 1950 to 1954, both

inclusive, there was a decrease of 598 banks as the r e s u l t of mergers,
consolidations, and absorptions*

Of t h i s number 274 were absorbed by

large banks having t o t a l a s s e t s of $100 million or morej and of the
banks so absorbed 153 had t o t a l a s s e t s of l e s s than $10 million, 88 had
a s s e t s of from $10 million to $50 million, and 33 had a s s e t s of more
than $50 m i l l i o n .
The reasons for which banks in recent years have decided to
merge or consolidate have varied widely.. However, we understand t h a t
frequently the reasons have been the favorable p r i c e s a t which the
smaller banks may be purchased, the desire by l a r g e c i t y banks for
banking o u t l e t s in suburban a r e a s , and the need for stronger successor
management in the case of many r e l a t i v e l y small banks.
Whatever the cause, the current trend in bank mergers and
consolidations is a matter which deserves careful consideration and
one to which the Board of Governors has given a g r e a t deal of thought
in recent months.

Before indicating the views of the Board regarding

t h i s problem, i t may be helpful to describe b r i e f l y the nature of the
Board's r e s p o n s i b i l i t i e s and experience in t h i s general f i e l d under
existing provisions of law.




-3Present responsibilities of the Federal Reserve
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.
National banks and State banks which are members of the
Federal Reserve System are prohibited from purchasing corporate stocks
and many States similarly prohibit stock purchases by State banks.
Consequently, this provision of the Clayton Act as presently in force
is of little significance as applied to banks. As a practical matter,
it applies only where a nonbanking corporation - a bank holding company
acquires the stock of banks.
In only one case has the Board instituted proceedings under
the Clayton Act. This proceeding was brought because of the acquisition over the years of numerous banks by 'Transamerica Corporation in
the States of California, Oregon, Washington, Arizona and Nevada.
After extensive hearings, in which it was shown that Transamerica
banks had 40 per cent of all bank offices in the five-State area
and held 40 per cent of all deposits in that area, the Board
entered an order requiring Transamerica to dispose of its stock




holdings in all but one of these banks. Upon review of this
matter, the United States Court of Appeals for the Third Circuit
set aside the Board's order, holding that there had not been a
determination of the five-State area as the effective area of
competition and that there was insufficient evidence of competition or
lessening of competition between the banks which had been acquired by
Transamerica.

Petition for certiorari was denied by the United States

Supreme Court.
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,
although such considerations are not specifically mentioned in the
law itself.
In the first place, under legislation enacted in 1933, the
Board exercises some, although not extensive, functions with respect
to bank holding companies. If a bank holding company controls a bank
which is a member of the Federal Reserve System and wishes to vote its
stock in that bank, it must first obtain from the Board a voting permit
and comply with certain requirements and conditions* However, this
law does not prevent or limit the acquisition of bank stocks by holding
companies and does not effectively restrict the ability of such companies
to expand the number of banks controlled by them*

Bills to provide

more effective regulation of bank holding companies have been under
consideration for some years and the latest such bill has recently been
passed by the House of Representatives and is now pending before the




-5Senate Banking and Currency Committee*

Under that bill, a bank holding

company would be required to obtain the prior consent of the Board
of Governors before acquiring additional bank stocks and, in determining whether to give its consent, the Board would be required to consider certain factors including the effect of the proposed acquisition
upon the preservation 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 18(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 consolidations 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. Of course, there are other
statutes which require the Comptroller of the Currency to act in the
case of national banks. It should be emphasized that, in view of
the limited nature of the authority under section 18(c), many mergers
and consolidations do not have to be passed upon in advance by any
Federal bank supervisory agency. A notable recent example was the
merger of The Chase National Bank and the Bank of the Manhattan Company
of New York City where the capital and surplus of the resulting bank
were such that prior approval of the merger was not required under
section 18(c)*




-6S t i l l other provisions of e x i s t i n g law require t h e advance
approval of the establishment of branches by national banks, S t a t e
member banks, and non-member insured banks by the Comptroller of the
Currency, the Board of Governors, and the FDIC, r e s p e c t i v e l y .

Although

many mergers and consolidations do not as such require p r i o r approval,
i t i s frequently the case t h a t a merger or consolidation involves the
acquisition of one or more branches by the r e s u l t i n g bankj and in cases
where the r e s u l t i n g bank i s a S t a t e member bank, the a c q u i s i t i o n of such
branches must be approved by the Board. The Chase-Manhattan merger was
a s i t u a t i o n of t h i s kind. W h i l e the merger i t s e l f was not required to
be approved by the Board, i t was necessary for the Board to pass upon
the establishment as branches of the r e s u l t i n g i n s t i t u t i o n of the offices
previously operated as branches of The Chase National Bank.
Having in mind the policy of Congress as evidenced in the
a n t i t r u s t laws, the Board of Governors, in passing on the types of
transactions above mentioned, considers the p o s s i b l e existence of any
undue lessening of competition among banks.

In t r a n s m i t t i n g to the

Board applications for branches of State member banks, the Federal
Reserve Banks are expected to consider whether the establishment of a
p a r t i c u l a r branch w i l l tend to create a monopoly or an undesirable comp e t i t i v e advantage in r e l a t i o n to o t h e r banks in the area involved.
The Federal Reserve Banks likewise consider the competitive f a c t o r s
in transmitting to the Board applications for approval of mergers and
consolidations and for voting permits of bank holding companies.




-7At the same time, as previously indicated, lessening of
competition and tendency toward monopoly are not the only factors
which must be considered in connection with various banking transactions including mergers and consolidations.

There are other factors

which also have an important bearing upon the public interest and
which must be taken into account in such cases, such as the adequacy
of a bank's capital structure, the competency of its management, its
future earnings prospects, and the needs of the community.

The Board

must, of course, give proper weight to these factors in discharging its
functions under the law; and it is understood that similar factors are
considered by the Comptroller of the Currency and the FDIC in performing
their respective statutory responsibilities.

There have been in the

past and there can well be in the future instances in which the over-all
public interest would clearly be served by a merger or consolidation
even though it may incidentally tend to lessen competition.
It should also be borne in mind that, in the light of existing
provisions of Federal law relating to bank mergers and consolidations,
Congress has apparently contemplated that not all such mergers and
consolidations are objectionable but, on the contrary, that there may
be many such transactions which, subject to supervisory approval, are
justified and desirable in the public interest.
Pending proposals
Various proposals have recently been made in Congress for
the purpose of providing such measures of restraint as may be necessary
to prevent monopolistic tendencies as the result of bank mergers and
consolidations.



-8One of these proposals in the form of a bill recentlyintroduced in the Senate would amend section 7 of the Clayton Act to
cover acquisitions of bank assets as well as bank stocks, but would
further provide that, if any of the banks involved have capital, surplus, and undivided profits aggregating more than $1 million, the
transaction could not be consummated until 90 days after advance notice
to the Attorney General and the Federal Trade Commission. Under this
proposal the failure of the Attorney General or the Trade Commission
to interpose objection to the proposed transaction within the 90-day
period would not constitute a bar to the subsequent initiation of any
proceedings with respect to the transaction under any provisions of
law. Another proposal, which has been under consideration in the House,
would amend section 7 of the Clayton Act to make it applicable to
acquisitions of bank assets, but would not contain any provision for
advance referral to the Attorney General or the Federal Trade Commission.
Other proposals on this subject would follow the approach
of amending section 18(c) of the Federal Deposit Insurance Act so as
to make the prior consent of the bank supervisory agencies necessary
in all cases of bank mergers and consolidations, whether or not the
capital or surplus of the resulting bank is less than the capital or
surplus, respectively, of the banks involved. One of these proposals
would require the banking agencies to consider, among other factors,
whether the proposed transaction would unduly lessen competition or
tend unduly to create a monopoly. Another such proposal would make it
mandatory upon the appropriate bank supervisory agency to refuse its
consent to any proposed bank merger or consolidation if its effect would
be substantially to lessen competition or tend to create a monopoly.



-9~
Enforcement authority under the Clayton Act
The Board feels that section 7 of the Clayton Antitrust Act
in its present form is not an appropriate and practical means of controlling or restricting monopolistic tendencies in the banking field.
This view is based not only on the result of the Transamerica proceeding
but more particularly on the fact that the present law applies only to
acquisitions of bank stocks and not to mergers and consolidations and
upon the fact that more effective control in this matter, the Board
believes, can be obtained through a requirement of advance approval by
some Government agency of all mergers and consolidations of banks.
The Board favors the general objective of recent proposals
to amend section 7 of the Clayton Act to make it applicable to acquisitions of bank assets. However, these proposals 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 where applicable to banks, banking associations, and trust companies. As
previously indicated, that authority is now limited by reason of the
law's applicability only to acquisitions of stock. Under the present
proposals to amend the Clayton Act, the Board's responsibilities would
extend to all types of bank mergers and consolidations, whether carried
out

under Federal or State statutes or effectuated through purchases

of assets or assumption of liabilities. This would result in a substantial enlargement of the Board's responsibilities in the antitrust
field; and the Board would be called upon to consider the competitive
or monopolistic aspects of all such transactions, even though they had




-10previously been approved by the other bank supervisory agencies, the
Comptroller of the Currency and the FDIC, after consideration by those
agencies of other aspects of the particular transactions.
The principal responsibilities and functions of the System
lie in the fields of monetary and credit regulation and bank supervision.

The prosecuting and adjudicatory functions incident to the en-

forcement of the antitrust laws are only indirectly related to the Board*s
principal responsibilities.

Such functions are of a character quite

different from the administrative functions normally exercised by the
Board in passing in advance upon particular transactions in the bank
supervisory field. In other words, the enforcement of the antitrust
laws and the function of bank supervision represent, we believe, different spheres of governmental operation.
In the circumstances, the Board recommends that the enforcement
of the provisions of section 7 of the Clayton Act relating to the acquisition either of the stocks or assets of banks should not be vested
in the Board. At present the Attorney General, under section 15 of
the Clayton Act, has a concurrent jurisdiction with the Board in the
enforcement of the provisions of that Act insofar as they relate to
banks.

He is vested with authority to direct the various United States

District Attorneys to institute proceedings in the courts to prevent
and restrain any violations of that Act.

It would be the Board's proposal

to vest in the Attorney General exclusive authority to enforce all
aspects of section 7 of the Clayton Act relating to banks by means of
such proceedings.




-11Advance consideration of mergers and consolidations
At the same time, the Board believes that the possible
competitive and monopolistic effects of bank mergers and consolidations
should not be left solely for after-the-fact consideration, but that
there should be an opportunity to consider this matter in advance in
each particular case.
As previously indicated, the three Federal bank supervisory
agencies under section 18(c) of the Federal Deposit Insurance Act are
now required to pass in advance upon mergers and consolidations of
banks where the capital or surplus of the resulting bank will be less
than the aggregate capital or surplus of the merging banks • It is the
Board's opinion that the objectives of legislation on this subject
would be more effectively accomplished if this requirement were extended
to apply to all bank mergers and consolidations, whether or not they
result in a diminution of capital or surplus. This might be done either
by amending the provisions of the Federal Deposit Insurance Act or
by an appropriate amendment to the Clayton Act, which would require
the prior approval of any bank merger or consolidation by the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System,
or the Federal Deposit Insurance Corporation, depending upon whether
the resulting bank will be a national bank, a State member bank, or a
non-member insured bank.
In addition, however, the Board would recommend a further provision in order to require due consideration of the possible monopolistic




-12-

effects of bank mergers and consolidations. Each of the bank supervisory agencies should be authorized in its discretion to request the
views of the Attorney General in any particular case coining before it,
if the banking agency feels that there is a substantial question as to
whether the proposed merger or consolidation would bring about an undue
lessening of competition or tendency to monopoly. If the Attorney
General should then indicate his view that the proposed transaction
would have such a monopolistic effect, the Bank supervisory agency
would be precluded from giving its consent to the merger or consolidation in question.

However, it should be clearly provided that, if the

Attorney General has not been previously consulted by the appropriate
bank supervisory agency and has not indicated an absence of objection
on his part, he would continue to have full authority to institute proceedings under the Clayton Act, if he should deem it desirable, with
respect to any situation resulting from the particular merger or consolidation.
There is one other point we would like to mention. Existing
law as well as some of the proposals under consideration use the phrase
"substantially to lessen competition or to tend to create a monopoly".
The Board would suggest that in any bill relating to bank mergers or
consolidations the test should be whether the transaction would "unduly11
lessen competition or "unduly" tend to create a monopoly.

If there were

a town in which there were only three or four banks and there were a merger
between two of them, it seems possible or likely that there should be a




-13substantial lessening of bank competition, but it might well be that
the merger was desirable or necessary in the public interest because of
other reasons. The use of the word "unduly" instead of "substantially"
would permit such a desirable merger to take place.
It is the Board's belief that legislation along the lines
here suggested - vesting exclusive jurisdiction in the Attorney General
to enforce section 7 of the Clayton Act with respect to banks and providing for prior approval by the banking agencies of all bank mergers
and consolidations as outlined above - would provide effective safeguards
against the development of undue monopolistic tendencies in the banking
field and, at the same time, continue in the bank supervisory agencies,
in accordance with the pattern of present law, responsibility for consideration of all the ordinary banking aspects of mergers and consolidations .