To circumvent Georgia's longstanding stringent restrictions on
city banks' opening branches in suburban areas, appellee Citizens
& Southern National Bank (C&S National) formed a holding
company, which then embarked on a program of forming
de
facto branch banks in Atlanta's suburbs. This program included
the holding company's ownership of 5 percent of the stock of each
of the suburban banks, ownership of much of the remaining stock by
parties friendly to the C&S system of banking entities
(hereafter C&S), the suburban banks' use of the C&S
logogram and of all C&S's banking services, and close C&S
oversight of the suburban banks' operation and governance. In 1970,
Georgia amended its banking statutes so as to allow
de
jure branching upon a county-wide basis. This meant that
C&S could now absorb the 5-percent banks as true branches,
because Atlanta is contained within the two counties encompassing
the suburbs in which the 5-percent banks operated. Consequently
C&S applied to the Federal Deposit Insurance Corporation (FDIC)
under the Bank Merger Act of 1966 for permission to acquire all the
stock of six of the 5-percent banks historically operated as
de
facto branches or "correspondent associate" banks within the
C&S system. The FDIC authorized five of the proposed
acquisitions. The Government then brought suit in District Court
for injunctive relief, alleging that the five acquisitions would
lessen competition in relevant banking markets in violation of § 7
of the Clayton Act, and that the historic
de facto branch
relations between C&S and the six 5-percent banks constituted
unreasonable restraints of trade in violation of § 1 of the Sherman
Act. The court rendered judgment for C&S. Three of the
5-percent banks were formed prior to, and three after, July 1,
1966. The "grandfather" provision of the Bank Holding Company Act,
12 U.S.C. § 1849(d), as added by the 1966 amendments, provides
that
"[a]ny acquisition, merger, or consolidation of the kind
described
Page 422 U. S. 87
in [12 U.S.C. §] 1842(a). . . which was consummated at any time
prior or subsequent to May 9, 1956, and as to which no litigation
was initiated by the Attorney General prior to July 1, 1966, shall
be conclusively presumed not to have been in violation of any
antitrust laws other than"
§ 2 of the Sherman Act. Title 12 U.S.C. § 1842(a) makes it
unlawful, absent the Federal Reserve Board's prior approval, for
bank holding companies to engage in certain transactions, including
those tending to create or enlarge holding company control of
independent banks.
Held:
1. Since the Attorney General took no action by July, 1966,
against the three 5-percent banks that were formed prior to that
date, the transactions by which these banks became 5-percent banks
fall within the terms of the grandfather provision of the Bank
Holding Company Act, and therefore the correspondent associate
programs in force at these banks are immune from attack under § 1
of the Sherman Act. While C&S's formation of a
de
facto branch was a unique type of transaction, it may fairly
be characterized as an "acquisition, merger, or consolidation of
the kind described in [12 U.S.C. §] 1842(a)," and clearly falls
within the class of dealings by bank holding companies that
Congress intended, in the grandfather provision, to shield from
retroactive challenge under the antitrust laws. Pp.
422 U. S.
102-111.
2. In the face of the stringent state restrictions on branching,
C&S's program of founding new
de facto branches, and
maintaining them as such, did not infringe § 1 of the Sherman Act.
Pp.
422 U. S.
111-120.
(a) Though the Government contends that the correspondent
associate programs encompassed at least a tacit agreement to fix
interest rates and service charges so as to make the
interrelationships -- to that extent at least -- illegal
per
se, it cannot be held, in view of the mixed evidence in the
record, and of the fact that such programs, as such, were
permissible under the Sherman Act, that the District Court clearly
erred in finding that the lack of significant price competition
flowed not from a tacit agreement, but as an indirect,
unintentional, and formally discouraged result of the sharing of
expertise and information that was at the heart of the
correspondent associate program. Pp.
422 U. S.
112-114.
(b) The Government's alternative contention, that the
correspondent associate programs transcending conventional
"correspondent" relationships "unreasonably" restrained
competition
Page 422 U. S. 88
among the 5-percent banks and between these banks and C&S
National, is not persuasive, since, even if the Government had
proved that such programs restrained competition among the
defendant banks more thoroughly or effectively than would have a
conventional correspondent program (which the District Court found
not to be the case), that alone would not make out a Sherman Act
violation. Pp.
422 U. S.
114-116.
(c) Where C&S has operated the 5-percent banks as
de
facto branches in direct response to Georgia's historic
restrictions on
de jure branching, restraints of trade
integral to this particular, unusual function are not unreasonable.
To characterize the relationships at issue as an unreasonable
restraint of trade is to forget that their whole purpose and effect
were to defeat a restraint of trade, and by providing new banking
options to suburban Atlanta customers, while eliminating no
existing options, C&S's
de facto branching program has
plainly been procompetitive. Pp.
422 U. S.
116-120.
3. The proposed acquisitions will not violate § 7 of the Clayton
Act. Pp.
422 U. S.
120-122.
(a) Since C&S's program of founding and maintaining new
de facto branches in the face of Georgia's anti-branching
law did not violate the Sherman Act, and since the
de
facto branches that C&S proposes to acquire were all
founded
ab initio with C&S sponsorship, it follows
that the proposed acquisitions will extinguish no present
competitive conduct or relationships. P.
422 U. S.
121.
(b) As for future competition, there is no evidence of any
realistic prospect that denial of the acquisitions would lead the
defendant banks to compete against each other, the Clayton Act
being concerned with "probable" effects on competition, not with
"ephemeral possibilities." Pp.
422 U. S.
121-122.
372 F.
Supp. 616, affirmed.
STEWART, J., delivered the opinion of the Court, in which
BURGER, C.J., and MARSHALL, BLACKMUN, POWELL, and REHNQUIST, JJ.,
joined. BRENNAN, J., filed a dissenting opinion, in which DOUGLAS
and WHITE, JJ., joined,
post, p.
422 U. S.
130.
Page 422 U. S. 89
MR. JUSTICE STEWART delivered the opinion of the Court.
For many years, the State of Georgia restricted banks located in
cities from opening branches in suburban areas. To circumvent these
restrictions in the Atlanta area, the Citizens & Southern
National Bank (C&S National) formed the Citizens & Southern
Holding Company (C&S Holding), and the latter company embarked
on a program of forming
de facto branch banks in the
suburbs of Atlanta. This program involved, among other features,
ownership by C&S Holding of 5 percent of the stock of each of
the suburban banks (the maximum allowed by state law), ownership of
much of the remaining stock by parties friendly to C&S,
[
Footnote 1] use by the
suburban banks of the C&S logogram and of all of C&S's
banking services, and close C&S oversight of the operation and
governance of the suburban banks. The expectation on all sides --
by C&S, by the suburban banks, and by state and federal bank
regulators -- was that C&S would acquire these "5-percent
banks" outright, and convert them into
de jure branches as
soon as state law or the Atlanta city limits
Page 422 U. S. 90
were altered so as to permit the accomplishment of this end.
In 1970, Georgia amended its banking statutes to allow
de
jure branching on a county-wide basis. Because the city of
Atlanta is contained within two counties, DeKalb and Fulton, which
encompass the Atlanta suburbs in which the 5-percent banks
operated, this change in the law meant that C&S National could
now absorb the 5-percent banks as true branches. C&S
consequently applied to the Federal Deposit Insurance Corporation
(FDIC), under the Bank Merger Act of 1966, 80 Stat. 7, 12 U.S.C. §
1828, for permission to acquire all of the stock of six of the
5-percent banks historically operated by C&S as
de
facto branches. The FDIC authorized all but one of the
proposed acquisitions.
The Justice Department immediately commenced this litigation in
a Federal District Court for injunctive relief, alleging that the
five acquisitions authorized by the FDIC would lessen competition
in relevant banking markets, and thus violate § 7 of the Clayton
Act, 38 Stat. 731, as amended, 64 Stat. 1125, 15 U.S.C. § 18, and
that the historic "
de facto branch" relations between
C&S and the six 5-percent banks constituted unreasonable
restraints of trade in violation of § 1 of the Sherman Act, 26
Stat. 209, as amended, 15 U.S.C. § 1. After a trial, the court
rendered judgment for C&S on all the issues.
372 F.
Supp. 616. The Government appealed under § 2 of the Expediting
Act, 32 Stat. 823, as amended, 15 U.S.C. § 29, and we noted
probable jurisdiction. [
Footnote
2]
Page 422 U. S. 91
I
.
The Background of This Litigation
In applying the antitrust laws to banking, careful account must
be taken of the pervasive federal and state regulation
characteristic of the industry, "particularly the legal restraints
on entry unique to this line of commerce."
United States v.
Marine Bancorporation, 418 U. S. 602,
418 U. S. 606.
This admonition has special force in the present case, for the
de facto branch arrangements and the proposed acquisitions
involved here were a direct response to Georgia's historic
restrictions on branch banking.
Before 1927, Georgia permitted state-wide branching, and C&S
National, then as now headquartered in Savannah, established three
branches in the city of Atlanta. In 1927, state law was changed to
prohibit all branching. [
Footnote
3] C&S therefore decided to expand through the formation of
a bank holding company. C&S Holding was founded in 1928, and
between 1946 and 1954, this company purchased two banks, and
founded a third, in the Atlanta area. But in 1956, Georgia again
altered its statutes to prohibit a bank holding company from
acquiring more than 15 percent of a bank's stock. Georgia Bank
Holding Company Act, 1 Ga.Laws 1956, pp. 309312. A 1960 amendment,
still in force, reduced the maximum ownership level to 5 percent.
Ga.Code Ann. 13-207(a)(2) (1967 ed. and Supp. 1974).
By the 1950's, C&S National was interested primarily in
suburban expansion. The Atlanta city limits had been frozen since
1952, and the area's economic and population growth consequently
occurred primarily outside the city's boundaries. Between 1959 and
1969, C&S Holding accordingly established in the Atlanta
suburbs (in DeKalb and Fulton Counties) the six 5-percent
Page 422 U. S. 92
banks at issue in this case. Five of these banks were founded
under the sponsorship of C&S; the sixth, the Tucker Bank, had
long been an independent suburban bank when, in 1965, C&S
converted it into a 5-percent bank. [
Footnote 4]
Each of these six banks was made a "correspondent associate"
bank within the C&S system. This status involved many different
relationships between the 5-percent bank and C&S: in addition
to the 5-percent stock held by C&S Holding, substantial shares
were also held by officers, shareholders, and friendly customers of
other C&S banks, and by their family members. It was understood
from the outset that the 5-percent banks would be acquired outright
by C&S as soon as the law permitted. From at least 1965 on, the
5-percent banks used the C&S logogram on their buildings,
papers, and correspondence. C&S filed the charter applications
of the 5-percent banks
Page 422 U. S. 93
and openly assured the banks of full financial support,
assurances which were often instrumental in securing regulatory
approval of their creation. C&S chose the principal executive
officer for each 5-percent bank. The employees of these banks were
accorded the same pension and promotion rights in the C&S
system as possessed by their colleagues at C&S National and its
de jure affiliates. C&S selected the location of, and
oversaw the selection of directors for, the suburban banks. A
C&S executive served as an "advisory director" to each suburban
bank. C&S conducted surprise audits and credit checks at the
suburban banks. Each of the suburban banks provided the full
panoply of C&S banking services, and customers of any 5-percent
bank could avail themselves of these services at any of the other
5-percent banks, or at C&S National and its
de jure
branches. C&S supplied to each 5-percent bank, through manuals
and memoranda, a large quantity of information concerning every
conceivable banking procedure and problem. Included were data --
stamped "for information only" -- concerning interest rates and
service charges employed by C&S National and its
de
jure branches, but each 5-percent bank was cautioned to use
its own judgment in setting interest rates and service charges. In
sum, it is fair to say -- and the parties agree -- that, in almost
every respect save corporate form, each of the 5-percent banks was
a
de facto branch of C&S National.
Between 1966 and 1968, the Federal Reserve Board investigated
C&S's network of correspondent associate banks. The purpose of
the investigation was to determine whether C&S was exerting
such control over the 5-percent banks as to require special
"approval" of the Federal Reserve Board pursuant to § 3 of the Bank
Holding Company Act of 1956, as amended. 12 U.S.C. § 1842. The
investigation ended in an "understanding" between the Board's staff
and C&S that the "correspondent
Page 422 U. S. 94
associate" program, as the staff understood it, did not require
formal approval. [
Footnote 5]
The Justice Department participated in this investigation, and took
no action of any kind inconsistent with this "understanding."
In 1970, Georgia amended its banking statutes to permit
de
jure branching within any county in which a bank already had
an office. Ga.Code Ann. 13-203.1(a) (Supp. 1974). This allowed
C&S National to branch into those Atlanta suburbs which -- like
the city of Atlanta -- are within the confines of DeKalb and Fulton
Counties. C&S decided to convert the six 5-percent banks at
issue here into
de jure branches. C&S applied to the
FDIC for permission to acquire all of the assets, and to assume all
of the liabilities, of the 5-percent banks. [
Footnote 6] On October 4, 1971, after reviewing
reports on the proposed acquisitions from the Federal Reserve
Board, the Comptroller of the Currency, and the Justice Department,
the FDIC approved C&S's acquisition of the five suburban banks
which C&S had helped to found, but disapproved acquisition of
the Tucker Bank. Because the Tucker Bank had enjoyed an independent
existence before being converted into a 5-percent bank, the FDIC
concluded that the correspondent associate affiliation there had
been "anticompetitive in its origins," and should not be "ratified"
by approval of outright
Page 422 U. S. 95
acquisition. [
Footnote 7] As
for the five banks which C&S had helped to found, however, the
FDIC stated:
"[T]he opening of these . . .
de novo banks served the
convenience and needs of their respective communities and enhanced
competition. . . ."
The FDIC noted that the C&S system was the largest
commercial banking institution in Fulton County and in DeKalb
County. [
Footnote 8] For this
reason, it observed,
"new acquisitions of nonaffiliated banks in the same market [by
C&S] would raise the most serious competitive problems under
the Bank Merger Act as amended and under Section 7 of the Clayton
Act."
But the FDIC reasoned that the acquisitions proposed by C&S
did not raise such problems, because the banks involved in the
proposed mergers "do not compete today and never have competed";
further, there existed "no reasonable probability" that any of the
5-percent banks would break their ties with the C&S system even
if the proposed acquisitions were disapproved. Thus,
"[s]uch mergers would not alter the existing competitive
structure . . . in any way or add to the concentration of banking
resources now held by the C&S system."
II
.
The Suit in the District Court
On November 2, 1971, within the 30-day period prescribed for
such suits, 12 U.S.C. §§ 1828(c)(6) and (7),
Page 422 U. S. 96
the United States filed a complaint in the District Court for
the Northern District of Georgia, alleging that the five
acquisitions approved by the FDIC would violate § 7 of the Clayton
Act and that the ongoing correspondent associate relationships
between C&S and the six 5-percent banks which it had originally
sought to acquire constituted unreasonable restraints of trade, in
violation of § 1 of the Sherman Act. The Government sought
injunctive relief prohibiting the proposed acquisitions and
terminating the alleged violations of the Sherman Act. On January
24, 1974, after an extensive trial, the District Court entered a
judgment for the defendants.
372 F.
Supp. 616, 643.
As to the Sherman Act allegations, the District Court based its
judgment upon two separate and independent grounds. First, it held
that the 1968 "understanding" between the staff of the Federal
Reserve Board and C&S insulated the correspondent associate
relationship between C&S and the 5-percent banks from attack
under the antitrust laws.
Id. at 627. The court based this
conclusion on the following statement in
Whitney Bank v. New
Orleans Bank, 379 U. S. 411,
379 U. S.
419:
"We believe Congress intended the statutory proceedings before
the [Federal Reserve] Board to be the sole means by which questions
as to the organization or operation of a new bank by a bank holding
company may be tested."
Alternatively, assuming the Sherman Act applied, the District
Court found that the United States had failed to prove that the
correspondent associate relationships involved "collusive
price-fixing" or "any agreements not to compete or for market
division." [
Footnote 9] The
court held
Page 422 U. S. 97
"that the matters complained of are subject to the 'rule of
reason,' [and] . . . the Government has not sustained its burden of
proof as to the unreasonableness of the practices involved or with
respect to any adverse impact upon competition."
372 F. Supp. at 627-628.
The Government had conceded that it was no violation of the
Sherman Act for a large city bank to arrange a traditional
"correspondent" relationship with a smaller,
Page 422 U. S. 98
outlying bank -- a
"'mutually beneficial arrangement whereby the smaller bank
receives needed services and the larger bank obtains both the
benefit of the correspondent bank balance kept with it and the
income from the sale of its services to the smaller bank's
customers.'"
Id. at 628. Noting this concession, the District Court
observed:
"[S]uch assistance to, or sponsorship of, a smaller bank, is
desirable and necessary, and not anticompetitive. The difference
between a pure correspondent relationship and a correspondent
associate relationship as set forth in the evidence is merely one
of degree, a fine line of demarcation almost impossible for the
Court to perceive. . . ."
". . . [T]he Court finds as a fact that the relationship between
C&S National, C&S Holding, and the five percent defendant
banks, and the interchange of information between them, have been
reasonable under the circumstances, and not in violation of Section
1 of the Sherman Act."
Ibid.
Turning to the claim under § 7 of the Clayton Act, the court
found that the various defendant banks were each "engaged in
commerce," and that the relevant "line of commerce" was "commercial
banking." The court declined, however, to define the appropriate
geographic markets, stating that its "disposition of the case is
based upon factors which make a precise delineation of the market
area unnecessary." 372 F. Supp. at 629. Simply assuming the
correctness of the Government's position that the appropriate
markets were DeKalb County, Fulton County, North Fulton County, or
the Atlanta area generally, the court made detailed findings as to
the effect of the proposed acquisitions on C&S's nominal market
shares.
Id. at 629-633. [
Footnote 10] But, just as had the FDIC
Page 422 U. S. 99
before it, the court saw these increases in nominal shares as of
no competitive significance, because the 5-percent banks had always
been
de facto branches within the C&S system.
Id. at 633-638. [
Footnote 11]
Page 422 U. S. 100
III
The Issues Under the Sherman and Clayton
Acts
It is common ground in this case that the 5-percent banks have
been operated from the outset substantially as
de facto
branches of C&S, even though they are and have always been
separate corporate entities. From these agreed-upon facts, the
parties draw sharply divergent conclusions under the Sherman and
Clayton Acts. Section 1 of the Sherman Act, 15 U.S.C. § 1,
provides:
"Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the several
States . . . is declared to be illegal. . . ."
The Government contends that the relationships between C&S
and the six 5-percent banks constituted unreasonable restraints of
trade on two alternative theories: (1) the relationships
encompassed an agreement to fix interest rates and service charges
among the 5-percent banks, and between these banks and
C&S-owned banks, resulting in a "
per se" violation of
the Sherman Act; (2) the programs unreasonably restrained interbank
competition as to prices and services by extending interbank
cooperation far beyond the conventional "correspondent"
arrangements which large city banks traditionally make with small
banks in outlying markets. C&S denies that its relationships
with the 5-percent banks encompassed any agreements to fix prices,
and contends that the process of
de facto branching was a
procompetitive response to Georgia's anticompetitive ban on
de
jure branching, and thus legal under the Sherman
Page 422 U. S. 101
Act's "rule of reason." In the alternative, C&S contends
that its relationships with the 5-percent banks were subject to the
"exclusive primary jurisdiction" of the Federal Reserve Board, and
thus immune from attack under § 1 of the Sherman Act.
Section 7 of the Clayton Act, 15 U.S.C. § 18, provides:
"No corporation engaged in commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share
capital and no corporation subject to the jurisdiction of the
Federal Trade Commission shall acquire the whole or any part of the
assets of another corporation engaged also in commerce, where in
any line of commerce in any section of the country, the effect of
such acquisition may be substantially to lessen competition, or to
tend to create a monopoly. [
Footnote 12]"
The Government argues that the acquisitions of the five suburban
banks approved by the FDIC would "lessen" competition when compared
to what the situation would be if the defendant banks ceased their
alleged
Page 422 U. S. 102
violations of the Sherman Act. The Government further contends
that, even if the present relationships between C&S and the
5-percent banks do not offend the Sherman Act, since the
relationships might nevertheless change and the whole situation
become more competitive for business or state law reasons, the
proposed acquisitions violate § 7 by foreclosing this possibility.
C&S argues that the acquisitions would merely convert
de
facto into
de jure branches, with no perceptible
effect on competition compared with the present situation, which is
asserted by C&S to be lawful under the Sherman Act. C&S
urges that there is no realistic possibility of future competition
among the defendant banks. In the alternative, C&S contends
that each of the 5-percent banks operates in a distinct and
segregable market, so that the proposed acquisitions would not
lessen competition in any relevant "section of the country," and
that any anticompetitive effects of the acquisitions are
"outweighed in the public interest" because the acquisitions meet
"the convenience and needs" of banking customers in the Atlanta
area. [
Footnote 13] The
District Court did not reach these alternative contentions.
A. The Sherman Act Issues
1. The Question of Immunity
The District Court thought the correspondent associate programs
immune from Sherman Act scrutiny because they were subject to the
"exclusive primary jurisdiction" of the Federal Reserve Board under
the Bank Holding Company Act of 1956, as amended. We do not so
understand the law. The court relied on
Whitney Bank v. New
Orleans Bank, 379 U. S. 411, but
the question in that case was the wholly different one of whether
it is the Comptroller of the Currency or the
Page 422 U. S. 103
Federal Reserve Board that has jurisdiction to determine whether
transactions by a bank holding company conform with applicable
state banking law. F or guidance as to antitrust immunities,
recourse must be had directly to the provisions of the Bank Holding
Company Act, 12 U.S.C. § 1841
et seq.
The statutory scheme requires the "prior approval" of the
Federal Reserve Board for certain transactions by bank holding
companies -- including transactions tending to create or enlarge
holding company control of independent banks. 12 U.S.C. § 1842(a).
[
Footnote 14] The types of
transactions requiring Board approval were expanded by amendments
to the Act in 1966 and 1970. [
Footnote 15] Prior to
Page 422 U. S. 104
1966, it appeared that Board approval of a transaction provided
no immunity from antitrust action, for a note then set out under 12
U.S.C. § 1841 stated that nothing in the Act was to be construed as
a "defense" to an antitrust suit. The 1966 amendments to the Act
formalized this provision, but also blunted its force by
establishing an intricate procedure for accommodating the
jurisdictions of the Board and the Justice Department. [
Footnote 16] Under
Page 422 U. S. 105
the Act as amended, the Board "shall not approve" an otherwise
forbidden transaction unless it meets certain antitrust standards
derived from, but not everywhere identical to, the standards of the
Sherman Act and of § 7 of the Clayton Act. 12 U.S.C. § 1842(c). The
Board's
Page 422 U. S. 106
order granting or denying an application for prior approval is
subject to review in the courts of appeals. 12 U.S.C. § 1848.
Furthermore, an approved transaction is stayed automatically for 30
days, during which time an antitrust suit challenging the
transaction may be brought in the district court. 12 U.S.C. §
1849(b). Such a suit is governed by the modified antitrust
standards set out in § 1842(c). If the antitrust suit is not
brought within 30 days, and the transaction is consummated,
"the transaction may not thereafter be attacked in any judicial
proceeding on the ground that it alone and of itself constituted a
violation of any antitrust laws other than section 2 of Title 15 [
§ 2 of the Sherman Act], but nothing in this chapter shall exempt
any bank holding company involved in such a transaction from
complying with the antitrust laws after the consummation of such
transaction."
12 U.S.C. § 1849(b).
C&S can draw no consolation from these provisions. It is
true that the
staff of the Federal Reserve Board, in 1968,
came to an "understanding" with C&S that the correspondent
associate programs then in effect did not offend § 3 of the Bank
Holding Company Act, 12 U.S.C. § 1842(a), and thus did not require
formal Board "approval." [
Footnote 17] But this did not give rise to any
Page 422 U. S. 107
antitrust immunity. A consummated transaction acquires immunity
under § 1849(b) only when no antitrust action has been commenced
within 30 days after
Page 422 U. S. 108
the transaction has received the "approval" of the Board, in an
order which is subject to judicial review and which reflects
application by the Board. of the special antitrust standards of §
1842(c). The immunity applies only to "an acquisition, merger, or
consolidation transaction approved under section 1842 of this title
in compliance with this chapter." § 1849(b). The obvious purpose of
the complex machinery in § 1849(b) is to accord finality to formal
actions of the Board not subjected to timely challenge under the
antitrust laws. There is no indication that Congress wished to
accord a similar finality to the informal views of the Board's
staff.
We note, however, that the 1966 amendments also added a
"grandfather" provision to the Bank Holding Company Act, 12 U.S.C.
§ 1849(d):
"Any acquisition, merger, or consolidation of the kind described
in section 1842(a) of this title which was consummated at any time
prior or subsequent to May 9, 1956, and as to which no litigation
was initiated by the Attorney General prior to July 1, 1966, shall
be conclusively presumed not to have been in violation of any
antitrust laws other than section 2 of Title 15 [§ 2 of the Sherman
Act]."
Unlike § 1849(b), this provision does not state or imply that
the covered transactions must have received the formal approval of
the Federal Reserve Board. This grandfather provision is not, like
§ 1849(b), an attempt to accommodate the competing jurisdictions of
the Federal Reserve Board under § 1842 and the Justice Department
under the antitrust laws. Rather, the grandfather provision is a
simple conferral of legislative amnesty for
Page 422 U. S. 109
theretofore unchallenged transactions completed before Congress
had clarified the nature of that accommodation.
The transactions by which C&S created a correspondent
associate relationship with three of the 5-percent banks -- the
Sandy Springs, Chamblee, and Tucker banks -- were consummated prior
to July, 1966, and the Attorney General had taken no action against
those transactions by that date. Those transactions thus fall
within the terms of the grandfather provision, and the
correspondent associate programs in force at those three banks are,
therefore, immune from attack under § 1 of the Sherman Act.
While the formation by C&S of a
de facto branch was
a unique type of transaction, it may fairly be characterized as an
"acquisition, merger, or consolidation of the kind described in §
1842(a)." Forming a
de facto branch was a multifaceted
operation -- involving a multiplicity of purchases of stock by a
number of parties, the adoption of the C&S logogram by the
de facto branch, the connection of the
de facto
branch with C&S personnel and information programs, the
structuring of the bank to receive and administer all C&S
banking services, and the establishment of formal C&S influence
over the board of directors at the
de facto branch. But
even before its scope was expanded in 1970, § 1842(a) was concerned
with more than the literal "acquisition" of stock: it took broad
account of the "indirect" control of stock, and the control of
boards of directors "in any manner," by bank holding companies.
[
Footnote 18] The
grandfather provision creates immunity under § 1 of the Sherman
Act, not simply under § 7 of the Clayton Act, an indication that
its protection extends not merely to literal acquisitions, mergers,
and consolidations, but also to "restraints of trade" simultaneous
with and functionally
Page 422 U. S. 110
integral to such transactions. Though multifaceted, the
formation by C&S of a
de facto branch was a unitary
and cohesive undertaking in the sense that all the facets were
closely coordinated, simultaneously instituted, and designed to
serve the single purpose of fitting the new bank into the "C&S
system." There is virtually nothing about the present correspondent
associate programs that was not fully evident and in place from the
moment the programs were launched. There has been no increase in
C&S control, nor any change in the way it has been
exercised.
Whether these programs violated § 1842(a) -- as it applies today
or as it applied when the programs began -- is not relevant to our
inquiry. [
Footnote 19] By
its terms, the grandfather provision applies to transactions of the
kind described in § 1842(a). We cannot believe that Congress wished
to grant the benefits of the provision only to transactions that
plainly transgressed § 1842(a). Such a construction would make
application of the grandfather provision not only cumbersome and
time consuming, [
Footnote
20] but also flagrantly inequitable. The formation of a
de
facto C&S branch involved the direct and
Page 422 U. S. 111
indirect acquisition of bank stock, and the direct and indirect
assertion of control over the governance and operations of a bank,
by a bank holding company. Though unusual in form, such a
transaction quite clearly falls within the class of dealings by
bank holding companies which Congress intended, in § 1849(d), to
shield from retroactive challenge under the antitrust laws.
2. De Facto Branching Under the Sherman
Act
Three of the 5-percent banks -- the Park National, South DeKalb,
and North Fulton banks -- were formed after July 1, 1966, and their
correspondent associate relationships with C&S are therefore
beyond the reach of the grandfather provision of the Bank Holding
Company Act and subject to scrutiny under the Sherman Act.
Each of these banks was founded
ab initio through the
sponsorship of C&S. Except for that sponsorship, they would
very probably not exist. The record shows that other banking
organizations had been unsuccessful in attempting to launch new
banks in the area, and C&S affiliation and financial backing
were instrumental in convincing state and federal banking
authorities to charter these new banks. In short, these banks
represented a policy by C&S of
de facto branching
through the formation of new banking units, rather than through the
acquisition, and consequent elimination, of preexisting independent
banks. [
Footnote 21]
Of necessity, the Government's attack on this process
Page 422 U. S. 112
is highly technical. Had the new banks been
de jure
branches of C&S, the whole process would have been beyond
reproach. Branching allows established banks to extend their
services to new markets, thereby broadening the choices available
to consumers in those markets. [
Footnote 22] Having access to parent-bank financial
support, expert advice, and proved banking services, branches of
several city banks can often enter a market not yet large or
developed enough to support a variety of independent unit banks.
Branching thus offers competitive choice to markets where monopoly
or oligopoly might otherwise prevail. Furthermore, the branching
process gives to outlying customers the benefit of sophisticated
services which local unit banks might have little ability or
incentive to deliver. The Government denies none of this, nor that
C&S's program of
de facto branching was, until 1970,
the closest substitute to
de jure branching allowed under
Georgia law. Yet the Government insists that this
de facto
branching violated the Sherman Act because the parent bank and its
de facto branches were legally distinct corporate entities
and were obligated, therefore, to compete vigorously against each
other.
It is, of course, conceded that C&S's
de facto
branches have not behaved as active competitors with respect either
to each other or to C&S National and its majority-owned
affiliates. But the Government goes further, and contends that the
correspondent associate programs have actually encompassed at least
a tacit agreement to fix interest rates and service charges,
see Interstate Circuit, Inc. v. United States,
306 U. S. 208,
306 U. S. 227;
United States v. Masonite Corp., 316 U.
S. 265,
316 U. S.
275-276;
United States v. Bausch & Lomb Optical
Co., 321 U. S. 707,
321 U. S. 723;
United States v. General Motors Corp., 384 U.
S. 127,
Page 422 U. S. 113
384 U. S.
142-143, so as to make the interrelationships -- to that
extent at least -- illegal "per se."
See United States v.
Socony-Vacuum Oil Co., 310 U. S. 150,
310 U. S.
224-226, n. 59;
United States v. Parke, Davis &
Co., 362 U. S. 29,
362 U. S. 47.
C&S vigorously denies the existence of any agreement to fix
prices. The evidence in the record is mixed.
C&S did regularly notify the 5-percent banks -- as it did
its
de jure branches -- of the interest rates and service
charges in force at C&S National and its affiliates. But the
dissemination of price information is not itself a
per se
violation of the Sherman Act.
See Maple Flooring Assn. v.
United States, 268 U. S. 563;
Cement Mfrs. Protective Assn. v. United States,
268 U. S. 588;
United States v. Container Corp., 393 U.
S. 333,
393 U. S. 338
(concurring opinion). A few of the memoranda distributed by C&S
could be construed as advocating price uniformity; on the other
hand, the memoranda were, almost without exception, stamped "for
information only," and the 5-percent banks were admonished by
C&S, several times and very clearly, to use their own judgment
in setting prices; indeed, the banks were warned that the antitrust
laws required no less. The District Court observed that, in fact,
prices did not often vary significantly among the 5-percent banks
or between these banks and C&S National, but the court
attributed this to the "natural deference of the recipient to
information from one with greater expertise or better services."
372 F. Supp. at 628. And the court found as a fact that there was
no "collusive price-fixing."
Id. at 626.
Were we dealing with independent competitors having no
permissible reason for intimate and continuous cooperation and
consultation as to almost every facet of doing business, the
evidence adduced here might well preclude a finding that the
parties were not engaged in a
Page 422 U. S. 114
conspiracy to affect prices. But, as we indicate below, the
correspondent associate programs, as such, were permissible under
the Sherman Act. In this unusual light, we cannot hold clearly
erroneous the District Court's finding that the lack of significant
price competition did not flow from a tacit agreement, but instead
was an indirect, unintentional, and formally discouraged result of
the sharing of expertise and information which was at the heart of
the correspondent associate programs. Fed.Rule Civ.Proc. 52(a);
United States v. General Dynamics Corp., 415 U.
S. 486,
415 U. S.
508.
The Government argues, alternatively, that the correspondent
associate programs have gone far beyond conventional
"correspondent" relationships, and that, consequently, these
programs have "unreasonably" restrained competition among the
5-percent banks and between these banks and C&S National. The
District Court was not persuaded by this theory:
"The difference between a pure correspondent relationship and a
correspondent associate relationship as set forth in the evidence
is merely one of degree, a fine line of demarcation almost
impossible for the Court to perceive. . . . In either case, there
is the flow of information as to rates, practices, etc., which the
Government apparently applauds or at least condones in a
correspondent banking relationship."
372 F. Supp. at 628.
The court's dilemma is understandable, for in neither law nor
banking custom has there developed a clear, fixed definition of the
correspondent relationship: [
Footnote 23]
"Correspondent banking is an interbank practice whereby 'city'
correspondent banks provide a cluster
Page 422 U. S. 115
of services to smaller 'country' banks in exchange for interbank
deposits. Dating back to colonial times, correspondent banking
originally provided an extended network of independent unit banks
with a link to financial centers, and at the same time furnished
substitute central banking functions. Today, as a vital component
of the era of electronic banking, it enables city correspondents to
provide customers with a range of services that is varied,
extensive and constantly expanding; one survey lists as many as
fifty different categories."
Among the services typically provided within a conventional
correspondent arrangement are check clearing, help with bill
collections, participation in large loans, legal advice, help in
building securities portfolios, counseling as to personnel
policies, staff training, help in site selection, auditing, and the
provision of electronic data processing. Furthermore, like
C&S's program, the correspondent arrangement is often
established as a prelude to a formal merger between the two banks.
[
Footnote 24]
Nevertheless, C&S's program does appear to have gone several
steps beyond conventional correspondent arrangements.
Page 422 U. S. 116
C&S has closely advised the boards of directors of the
5-percent banks, supplied their chief executive officers, allowed
full "branch-like" use of the C&S logogram, provided all the
C&S services available at a
de jure branch, dealt with
the 5-percent banks through the C&S branch administration
department, and provided constant and detailed information on
prices and on all banking procedures. [
Footnote 25] It is conceivable that these
relationships, separately or taken together, have restrained
competition among the defendant banks more thoroughly or
effectively than would have a conventional correspondence program.
But even if the Government had proved this, which the District
Court found not to be the case, that alone would not make out a
Sherman Act violation. C&S has operated the 5-percent banks as
de facto branches as a direct response to Georgia's
historic restrictions on
de jure branching, and the
question therefore remains whether restraints of trade integral to
this particular, unusual function are unreasonable.
See Chicago
Board of Trade v. United States, 246 U.
S. 231,
246 U. S. 238.
We turn directly to that question.
The central message of the Sherman Act is that a business entity
must find new customers and higher profits through internal
expansion -- that is, by competing successfully, rather than by
arranging treaties with its competitors. This Court has held that
even commonly owned firms must compete against each other if they
hold themselves out as distinct entities. "The corporate
interrelationships of the conspirators . . . are not determinative
of the applicability of the Sherman Act."
United States v.
Yellow Cab Co., 332 U. S. 218,
332 U. S. 227.
See also Kiefer-Stewart Co. v. Joseph
E. Seagram & Sons,
Page 422 U. S. 117
Inc., 340 U. S. 211,
340 U. S. 215;
Timken Roller Bearing Co. v. United States, 341 U.
S. 593,
341 U. S. 598;
Perma Life Mufflers, Inc. v. International Parts Corp.,
392 U. S. 134,
392 U. S.
141-142.
A fortiori, independently owned firms
cannot escape competing merely by pretending to common ownership or
control, for the pretense would simply perfect the cartel. We may
also assume, though the question is a new one, that a business
entity generally cannot justify restraining trade between itself
and an independently owned entity merely on the ground that it
helped launch that entity by providing expert advice or seed
capital. Otherwise, the technique of sponsorship followed by
restraint might displace internal growth as the normal and
legitimate technique of business expansion, with unknowable
consequences.
But these general principles do not dispose of the present case.
C&S was absolutely restrained by state law from reaching the
suburban market through the preferred process of internal
expansion.
De facto branching was the closest available
substitute. [
Footnote 26]
Just last Term, in a brief presented to this Court, the Justice
Department told us that it was desirable and procompetitive for a
bank to
"[enter]
de novo into areas foreclosed to branching by
sponsoring the organization of an affiliate bank, and later
acquiring the bank. This method of expansion is legal and a well
recognized practice used by large state-wide banking organizations,
and recognized by the federal banking authorities. [
Footnote 27]"
The
Page 422 U. S. 118
Government acknowledged that such a sponsored bank could "be
affiliated with its sponsor for purposes of correspondent
relationships and other inter-bank services, including financial
support," and that it could be "formed" by the parent bank's
"officers, directors, or their associates," and could be "assisted"
by the parent firm "until acquired and converted into a branch."
[
Footnote 28] This is as
good a curbstone description as any of precisely the relationships
at issue in the present case. [
Footnote 29]
To characterize these relationships as an unreasonable restraint
of trade is to forget that their whole purpose and effect were to
defeat a restraint of trade. Georgia's anti-branching law amounted
to a compulsory market division. Accomplished through private
agreement, market division is a
per se offense under the
Sherman Act:
"This Court has reiterated time and again that '[h]orizontal
territorial limitations . . . are naked restraints of trade with no
purpose except stifling of competition.'"
United States v. Topco Associates, Inc., 405 U.
S. 596,
405 U. S. 608,
quoting
White Motor Co. v. United States, 372 U.
S. 253,
372 U. S.
263.
The obvious purpose and effect of a rigid anti-branching law are
to make the potential bank customers of suburban, small town, and
rural areas a captive market for small unit banks. [
Footnote 30] C&S devised a strategy to
circumvent
Page 422 U. S. 119
this statutory barrier. By providing new banking options to
suburban Atlanta customers while eliminating no existing options,
the
de facto branching program of C&S has plainly been
procompetitive.
The Government suggests that a "conventional" correspondent
relationship between C&S and the 5-percent banks would have
been equally procompetitive, and would have had the added virtue of
facilitating competition among the 5-percent banks and between them
and C&S National. This is mere speculation on the present
record. Moreover, it is far from clear that a conventional
correspondent relationship would have allowed C&S to put its
full range of services into the suburban market, which, in light of
the anti-branching law, was the very point of its policy and
program. Putting to one side the total lack of realism in
suggesting that C&S might have founded new banks that would
have competed vigorously with it and with each other,
cf.
United States v. Penn-Olin Chemical Co., 378 U.
S. 158 169, the Government's argument wholly disregards
C&S's ultimate goal of acquiring the new banks outright as soon
as legally possible, a goal which the Government last year thought
wholly proper. We hold that, in the face of the stringent state
restrictions on
Page 422 U. S. 120
branching, C&S's program of founding new
de facto
branches, and maintaining them as such, did not infringe § 1 of the
Sherman Act.
B. The Clayton Act Claim
In the light of the previous discussion, disposition of the
Clayton Act claim becomes relatively straightforward. The issue
under § 7 of the Clayton Act is whether the effect of the proposed
acquisitions, approved by the FDIC, "may be substantially to lessen
competition . . . in any line of commerce in any section of the
country."
The Government established that C&S is the predominant
banking institution in DeKalb County, Fulton County, North Fulton
County, and the Atlanta area generally; that, in these markets, the
commercial banking industry is quite highly concentrated in terms
of market share statistics; and, of course, that the proposed
acquisitions would increase C&S's nominal market shares.
[
Footnote 31] The District
Court did not decide whether the geographic markets proposed by the
Government were the appropriate ones. But assuming,
arguendo, that they were, the Government plainly made out
a
prima facie case of a violation of § 7 under several
decisions of this Court.
See United States v. Philadelphia
National Bank, 374 U. S. 321,
374 U. S.
362-366;
United States v. Phillipsburg National Bank
& Trust Co., 399 U. S. 350,
399 U. S.
365-367;
United States v. General Dynamics
Corp., 415 U.S. at
415 U. S. 497.
It was thus incumbent upon C&S to show that the market share
statistics gave an inaccurate account of the acquisitions' probable
effects on competition.
United States v. General Dynamics
Corp., supra at
415 U. S.
497-498;
United States v. Marine
Bancorporation, 418 U.S. at
418 U. S. 631.
The District Court, like
Page 422 U. S. 121
the FDIC before it, concluded that C&S had made the
necessary showing that these proposed acquisitions would not
"lessen" competition for the simple reason that, under the
correspondent associate program that had been continuously in
effect, no real competition had developed or was likely to develop
among the 5-percent banks or between these and C&S
National.
As to present and past competition, the Government agrees there
is and has been none. If this state of affairs were the result of
violations of the Sherman Act, we agree with the Government that
making the evil permanent through acquisition or merger would
offend the Clayton Act.
See Citizen Publishing Co. v. United
States, 394 U. S. 131,
394 U. S. 135.
But we have already concluded that C&S's program of founding
and maintaining new
de facto branches in the face of
Georgia's anti-branching law did not violate the Sherman Act, and
the
de facto branches which C&S proposes to acquire
were all founded
ab initio with C&S sponsorship. It
thus indisputably follows that the proposed acquisitions will
extinguish no present competitive conduct or relationships.
See
United States v. Trans Texas Bancorporation, 412 U.S. 946,
aff'g per curiam 1972 Trade Cas. 74,257 (WD Tex.).
As for future competition, neither the District Court nor the
FDIC could find any realistic prospect that denial of these
acquisitions would lead the defendant banks to compete against each
other. The 5-percent banks theoretically could break their ties
with C&S and its correspondent associate program, for these
banks are each independently owned, but the record shows that none
of the shareholders, directors, or officers of the 5-percent banks
expressed any inclination to do so, and there was no evidence that
the program has been other than beneficial and profitable for both
C&S and the 5-percent banks. [
Footnote 32]
Page 422 U. S. 122
The Clayton Act is concerned with "probable" effects on
competition, not with "ephemeral possibilities."
Brown Shoe Co.
v. United States, 370 U. S. 294,
370 U. S.
323.
For the reasons set out in this opinion, the judgment of the
District Court is affirmed.
It is so ordered.
[
Footnote 1]
Unless otherwise indicated, the term "C&S" refers
generically to the C&S system of banking entities, including
C&S National and its majority owned affiliates and C&S
Holding, but excluding the 5-percent banks. The defendants in this
suit -- appellees here -- are C&S National, C&S Holding,
six of the 5-percent banks, and two banks in the Atlanta area,
C&S Emory and C&S East Point, which are subsidiaries of
C&S Holding. Taken together, these will sometimes be called the
"defendant banks."
[
Footnote 2]
419 U.S. 893. Notice of appeal was filed prior to the effective
date of the Antitrust Procedures and Penalties Act, Pub.L. 93-528,
§ 7, 88 Stat. 1710. The proposed acquisitions were stayed
automatically by the filing of the suit, 12 U.S.C. § 1828(c)(7)(A).
The District Court continued the stay, and it has remained in force
pending this decision.
[
Footnote 3]
A 1929 amendment allowed branching within the home-office city
of a bank, but this was of no aid to the ambitions of C&S
National outside Savannah.
[
Footnote 4]
Founded with C&S sponsorship were: (1) The Sandy Springs
Bank, Fulton County (two offices). Founded in 1959 and operational
in 196 as the Citizens National Bank of Sandy Springs, it was
converted in 1969 from a national to a state-chartered bank and
adopted the name Citizens and Southern Bank of Sandy Springs. (2)
The Chamblee Bank, DeKalb County. Founded in 1960 as the Chamblee
National Bank, it was converted to a state-chartered bank in 1969
and adopted the name Citizens and Southern Bank of Chamblee. (3)
The North Fulton Bank, Fulton County and North Fulton County. It
was founded in 1967 as the Citizens and Southern Bank of North
Fulton, a state-chartered institution. (4) The Park National Bank,
DeKalb County. It was founded in 1967 as the Citizens and Southern
Park National Bank. (5) The South DeKalb Bank, DeKalb County (two
offices). It was founded as the Citizens and Southern South DeKalb
Bank, a state-chartered institution, in 1969.
The Citizens and Southern Bank of Tucker (two offices), in
DeKalb County, was independently founded in 1919 as the Bank of
Tucker. C&S Holding acquired 5-percent ownership in 1965, and
the bank then adopted its present name. This bank is involved in
only the Sherman Act phase of this case. Its proposed acquisition
by C&S was forbidden by the FDIC.
[
Footnote 5]
See n 17,
infra. The investigation was concerned with § 3 of the
Bank Holding Company Act of 1956, 70 Stat. 134, as amended on July
1, 1966, by Pub.L. 89-485, § 7, 80 Stat. 237, and on Dec. 31, 1970,
by Pub.L. 91-607, Tit. I, § 102, 84 Stat. 1763. 12 U.S.C. §
1842
[
Footnote 6]
The acquisitions were to be made by bank subsidiaries of C&S
Holding: C&S East Point, which proposed to acquire the Sandy
Springs and North Fulton Banks, and C&S Emory, which proposed
to acquire the Chamblee, Park National, South DeKalb, and Tucker
Banks. The FDIC was the responsible federal agency because each of
the acquiring banks is a "nonmember [of the Federal Reserve System]
insured bank." 12 U.S.C. § 1828(c)(2)(C).
[
Footnote 7]
The FDIC noted that the independent Tucker Bank had not been in
unsound financial condition when C&S assumed
de facto
control in 1965, and that it would have been better for competition
if C&S had instead sponsored a new bank in the community "just
as it did in other growing sections of DeKalb County prior to the
recent change in Georgia's branching laws."
[
Footnote 8]
See the Appendix to this opinion for the District
Court's statistical summary of the Atlanta area's banking markets,
C&S's place in these markets, and the effect of the proposed
acquisitions on the market share statistics.
[
Footnote 9]
The court stated:
"The Government contends that the following aspects of the
relationships between the defendants have restrained interstate
trade and commerce:"
"1. The routine and systematic practice of furnishing to one
another comprehensive information as to past, present and future
competitive practices and policies with a purpose of achieving
uniformity among the defendants;"
"2. The provision by C&S National to the five percent
defendants of various manuals and memoranda;"
"3. The provision by C&S National to the five percent
defendants of suggestions and advice on such matters as rates,
hours of operation, types of loan to discourage and minimum loan
rates. . . . "
"The Government also asserts, and the record shows, that the
advice and suggestions offered by C&S National are generally
followed."
"These activities, however, do not amount to collusive
price-fixing. For example, there is no suggestion that any advice
as to rates amounts to more than an expert appraisal of a market
situation from the point of view of a lending institution -- a type
of opinion to which a lending institution would naturally be
expected to pay great attention. . . ."
"The practices involved here do not conform to the accepted
definition or description of
per se antitrust violations
where no resort to context or circumstances is required (or
permitted)."
"
* * * *"
"There is no evidence of record to conclude that the utilization
by the five percent defendant banks of the services or information
received by them from C&S National or C&S Holding was a
result of any tacit or explicit combinations, rather than the
natural deference of the recipient to information from one with
greater expertise or better sources. In either case, there is the
flow of information as to rates, practices, etc., which the
Government apparently applauds or at least condones in a
correspondent banking relationship."
372 F. Supp. at 626, 627, and 628.
[
Footnote 10]
See 422 U.S.
86app|>Appendix to this opinion.
[
Footnote 11]
The court noted that "no witness (for either the Government or
the defendants) testified that the proposed mergers would have any
adverse economic or competitive implications whatever. . . ." 372
F. Supp. at 638. Competitors of the suburban 5-percent banks
"expressed the view that the proposed mergers would have no effect
whatsoever on competition as it relates to third parties."
Ibid. The court found
"as a fact that there is no presently existing substantial
competition between the five percent defendant banks and C&S
National, or
inter sese, or with third parties, which
would be affected by the proposed merger."
Id. at 642.
In the interval between the trial and the announcement of the
District Court's opinion, the Supreme Court of Georgia had ruled in
a separate suit brought by a group of independent suburban banks
that C&S was in technical violation of the state bank holding
company law with respect to the 5-percent banks in the Atlanta
suburbs. Its judgment was grounded on the fact that, in addition to
the 5-percent stock interest directly owned by C&S Holding,
substantial numbers of shares were owned by C&S officers and
directors. The state court accordingly directed the Georgia Banking
Commissioner to file suit to force divestiture of excess stock
holdings by these shareholders.
Independent Bankers Assn. v.
Dunn, 230 Ga. 345,
197 S.E.2d
129,
modified sub nom. Citizens & Southern National
Bank v. Independent Bankers Assn., 231 Ga. 421,
202 S.E.2d 78.
The District Court's opinion took notice of this state court
judgment and concluded that it would not lead to genuine
competition among the 5-percent banks or between them and C&S.
372 F. Supp. at 643. After the District Court's opinion was
announced, the State Banking Commissioner, acting pursuant to the
state court judgment, ordered C&S Holding to limit its direct
and indirect interest in the stock of correspondent associate banks
to 5 percent, and ordered C&S to
"terminate any direct or indirect supervision of the . . . five
percent banks beyond that which is available from The Citizens and
Southern National Bank or the Citizens and Southern Holding Company
to any bank that wishes to enter into a correspondent relationship
with such bank or holding company."
On June 3, 1974, the District Court amended its opinion
nunc
pro tunc to find that the Banking Commissioner's "order does
not change the underlying basis of the Court's decision that the
proposed mergers will not substantially lessen competition."
Id. at 643 n. 8.
[
Footnote 12]
Pursuant to 12 U.S.C. § 1828(c)(7)(b), referring to 12 U.S.C. §
1828(c)(5)(b), bank mergers are made subject to Clayton Act
standards unless
"the anticompetitive effects of the proposed transaction are
clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the
community to be served."
Hence, in bank merger cases brought under the Clayton Act, there
is a "
convenience and needs' defense" that "comes into play
only after a district court has made a de novo
determination of the status of a bank merger under the Clayton
Act." United States v. Marine Bancorporation, 418 U.
S. 602, 418 U. S. 626.
See also United States v. Third National Bank in
Nashville, 390 U. S. 171;
United States v. First City National Bank of Houston,
386 U. S. 361.
Because of its disposition of the case, the District Court did not
reach this additional defense which had been asserted by
C&S.
[
Footnote 13]
See n 12,
supra.
[
Footnote 14]
"It shall be unlawful, except with the prior approval of the
Board, (1) for any action to be taken that causes any company to
become a bank holding company; (2) for any action to be taken that
causes a bank to become a subsidiary of a bank holding company; (3)
for any bank holding company to acquire direct or indirect
ownership or control of any voting shares of any bank if, after
such acquisition, such company will directly or indirectly own or
control more than 5 per centum of the voting shares of such bank;
(4) for any bank holding company or subsidiary thereof, other than
a bank, to acquire all or substantially all of the assets of a
bank; or (5) for any bank holding company to merge or consolidate
with any other bank holding company. . . ."
12 U.S.C. § 1842(a).
[
Footnote 15]
Prior to the amendments of July 1, 1966, Pub.L. 8985, § 7, 80
Stat. 237, prior approval of the Board was not required for causing
a bank to become a subsidiary of a bank holding company. In
addition to adding this requirement, the 1966 amendments broadened
the definition of a subsidiary from a company in which a bank
holding company "own[s]" 25 percent of the voting shares to a
company in which a bank holding company "directly or indirectly
own[s] or control[s]" this percentage share.
Compare § 4
of the 1966 amendments, 80 Stat. 236, with § 2(d) of the Bank
Holding Company Act of 1956, 70 Stat. 133. The provision is now
codified at 12 U.S.C. § 1841(d)(1). The definition of subsidiary
has also included, from the outset of the Act, "any company the
election of a majority of whose directors is controlled in any
manner" by a bank holding company. 12 U.S.C. § 1841(d)(2). The
amendments of December 31, 1970, Pub.L. 91-607, § 101(d), 84 Stat.
1763, further enlarged the definition of subsidiary to include
"any company with respect to the management or policies of which
such bank holding company has the power, directly or indirectly, to
exercise a controlling influence, as determined by the Board, after
notice and opportunity for hearing."
12 U.S.C. § 1841(d)(3).
[
Footnote 16]
§ 11 of the 1966 amendments, Pub.L. 89-485, 80 Stat. 240. As
presently in force, 12 U.S.C. § 1849, the provision (with
subsection headings omitted) reads:
"(a) Nothing herein contained shall be interpreted or construed
as approving any act, action, or conduct which is or has been or
may be in violation of existing law, nor shall anything herein
contained constitute a defense to any action, suit, or proceeding
pending or hereafter instituted on account of any prohibited
antitrust or monopolistic act, action, or conduct, except as
specifically provided in this section."
"(b) The Board shall immediately notify the Attorney General of
any approval by it pursuant to section 1842 of this title of a
proposed acquisition, merger, or consolidation transaction, and
such transaction may not be consummated before the thirtieth
calendar day after the date of approval by the Board. Any action
brought under the antitrust laws arising out of an acquisition,
merger, or consolidation transaction approved under section 1842 of
this title shall be commenced within such thirty-day period. The
commencement of such an action shall stay the effectiveness of the
Board's approval unless the court shall otherwise specifically
order. In any such action, the court shall review
de novo
the issues presented. In any judicial proceeding attacking any
acquisition, merger, or consolidation transaction approved pursuant
to section 1842 of this title on the ground that such transaction
alone and of itself constituted a violation of any antitrust laws
other than section 2 of Title 15, the standards applied by the
court shall be identical with those that the Board is directed to
apply under section 1842 of this title. Upon the consummation of an
acquisition, merger, or consolidation transaction approved under
section 1842 of this title in compliance with this chapter and
after the termination of any antitrust litigation commenced within
the period prescribed in this section, or upon the termination of
such period if no such litigation is commenced therein, the
transaction may not thereafter be attacked in any judicial
proceeding on the ground that it alone and of itself constituted a
violation of any antitrust laws other than section 2 of Title 15,
but nothing in this chapter shall exempt any bank holding company
involved in such a transaction from complying with the antitrust
laws after the consummation of such transaction."
"(c) In any action brought under the antitrust laws arising out
of any acquisition, merger, or consolidation transaction approved
by the Board under section 1842 of this title, the Board and any
State banking supervisory agency having jurisdiction within the
State involved, may appear as a party of its own motion and as of
right, and be represented by its counsel."
"(d) Any acquisition, merger, or consolidation of the kind
described in section 1842(a) of this title which was consummated at
any time prior or subsequent to May 9, 1956, and as to which no
litigation was initiated by the Attorney General prior to July 1,
1966, shall be conclusively presumed not to have been in violation
of any antitrust laws other than section 2 of Title 15."
"(e) Any court having pending before it on or after July 1,
1966, any litigation initiated under the antitrust laws by the
Attorney General with respect to any acquisition, merger, or
consolidation of the kind described in section 1842(a) of this
title shall apply the substantive rule of law set forth in section
1842 of this title."
"(f) For the purposes of this section, the term 'antitrust laws'
means the Act of July 2, 1890 (the Sherman Antitrust Act), the Act
of October 15, 1914 (the Clayton Act), and any other Acts
in
pari materia."
[
Footnote 17]
The Secretary to the Federal Reserve Board described the
investigation and the 1968 "understanding" in a 1972 letter to the
Justice Department:
"The fact finding inquiry undertaken by Board staff into the
relationship between Citizens & Southern and the other banking
institutions referred to was begun in 1966, and continued into
1968. The principal focus of the inquiry concerned essentially two
questions: (1) whether Citizens & Southern had unlawfully
acquired a direct or indirect stock ownership in these banking
institutions in excess of 5 per cent without first having secured
the requisite prior Board approval; and (2) whether the banking
institutions had unlawfully become subsidiaries of Citizens &
Southern by virtue of the election of directors without first
having received the requisite prior Board approval. The inquiry
arose in 1966 out of information contained in Citizens &
Southern's registration statement filed with the Board and in 1968
as a result of information supplied by the Comptroller of the
Currency in connection with the merger of the Citizens and Southern
National Bank and the Citizens and Southern Bank of Augusta. The
inquiry referred to was not initiated as a result of any
application filed with the Board for approval of an acquisition,
merger, or consolidation transaction under section 3 of the Bank
Holding Company Act."
"
* * * *"
"The Board of Governors did not issue any order approving the
relationships between Citizens & Southern and the other banking
institutions under section 3 of the Bank Holding Company Act."
"
* * * *"
"There was no determination made that approval of the Board
under section 3 of the Bank Holding Company Act was required for
Citizens & Southern to retain an ownership interest of 5 per
cent or less in the banking institutions referred to or to maintain
the relationships with those banks in circumstances where Citizens
& Southern did not elect a majority of the directors of any
such bank. There was an understanding reached between members of
the Board's staff and representatives of Citizens & Southern
that, in those cases where Citizens & Southern purchased 5 per
cent or less of the stock of a bank, in some instances furnishing a
principal operating officer for such bank, as well as other
employee benefits, Citizens Southern would not be deemed to have
control of a majority of the directors of such bank on these facts
alone. Further, where the foregoing circumstances existed and where
control of additional shares was purchased by the bank's executive
officer, control of such shares purchased would not be attributed
to Citizens & Southern so long as Citizens & Southern did
not finance the purchase of such shares, directly or indirectly.
Finally, it was understood that, even though Citizens &
Southern was responsible, directly or indirectly, in placing one or
two directors on the boards of such banks, if that number did not
constitute a majority of directors of such bank, the Board's staff
would not consider that Citizens & Southern could reasonably be
held to have control of a majority of the directors of such
bank."
[
Footnote 18]
See n 15,
supra.
[
Footnote 19]
The grandfather provision creates a conclusive presumption of
compliance with the antitrust laws, but not necessarily of
compliance with the provisions of the Bank Holding Company Act.
See 12 U.S.C.§ 1849(f).
[
Footnote 20]
If the correspondent associate program had received formal Board
approval, any antitrust immunity created by the machinery in §
1849(b) could, of course, have extended only to those features of
the program clearly and expressly encompassed by the approval
order. But § 1849(d) applies even where, as here, there has been no
approval order. If the provision were construed to cover only
transactions actually violative of § 1842(a), a court applying the
provision would face the daunting -- and quite senseless -- task of
dissecting a complicated, integrated transaction, such as the
formation of a
de facto branch, into those components
which did and those which did not require prior approval of the
Board.
[
Footnote 21]
The Tucker Bank, which was not founded as a new bank by C&S,
comes within the coverage of the grandfather provision, as
explained in the previous section. De facto branching through the
de facto "acquisition" of preexisting banks might raise
questions under the Sherman Act considerably different from those
presented by the C&S practice of
de facto branching
through founding
new banks.
[
Footnote 22]
See generally M. Mayer, The Bankers 83-91 (1974).
[
Footnote 23]
Austin & Solomon, A New Antitrust Problem: Vertical
Integration in Correspondent Banking, 122 U.Pa.L.Rev. 366, 367-368
(1973).
[
Footnote 24]
Id. at 367-371. On the varieties of "service packages"
to be found in correspondent banking,
see also Knight,
Correspondent Banking, Part I: Balances and Services, Fed. Reserve
Bank of Kansas City Monthly Review (Nov.1970); Knight,
Correspondent Banking, Part II: Loan Participation and Fund Flows,
Fed. Reserve Bank of Kansas City Monthly Review (Dec.1970);
Subcommittee on Domestic Finance of the House Committee on Banking
and Currency, 88th Cong., 2d Sess., A Report on the Correspondent
Banking System (Comm.Print Dec.1964), and Correspondent Relations:
A Survey of Banker Opinion (Comm.Print Oct.1964); Nadler, Three
Score Years of Correspondent Banking, Banking 54-55 (July 1968);
Correspondent Banking Survey in Am.Banker 8-71 (Dec. 18, 1970).
[
Footnote 25]
Also, of course, C&S owns 5 percent of the stock in these
banks -- not a common facet of correspondent banking. But the
Government neither challenges C&S's 5-percent ownership as such
nor suggests that it aggravates the alleged antitrust problems.
[
Footnote 26]
This case does not require us to explore the conceivable
antitrust problems raised by correspondent banking in all
circumstances and in all its many forms. We deal here solely with
the founding and maintenance of new
de facto branch banks
in the context of a state ban on
de jure branching.
[
Footnote 27]
Brief for United States 15-16, filed in No. 73-38, O.T. 1973,
United States v. Marine Bancorporation (citations to
record omitted).
[
Footnote 28]
Id. at 16 and 17.
[
Footnote 29]
The brief noted with approval an example where the sponsored
bank had, according to state banking authorities, become a
"
satellite'" of the parent bank. Id. at 16 n.
16.
[
Footnote 30]
The banking business is, of course, riddled with state and
federal regulatory barriers to entry.
See United States v.
Marine Bancorporation, 418 U.S. at
418 U. S.
628-629. But most of these barriers --
e.g.,
chartering requirements -- at least arguably serve the overriding
public interest in maintaining customer confidence in the industry
as a whole by assuring adequate financial stability and responsible
management for all banks. Anti-branching laws, on the other hand,
are now widely recognized as a simple device to protect outlying
unit banks from the rigors of regional competition.
See
Report, President's Commission on Financial Structure and
Regulation 59-63, 113 (1971); Note, Bank Charter, Branching,
Holding Company and Merger Laws: Competition Frustrated, 71 Yale
L.J. 502, 515-516 (1962); Smith & Greenspun, Structural
Limitations on Bank Competition, 32 Law & Contemp.Prob. 40,
45-46 (1967); Comment, Bank Branching in Washington: A Need for
Reappraisal, 48 Wash.L.Rev. 611 (1973); Baker, State Branch Bank
Barriers and Future Shock -- Will the Walls Come Tumbling Down?, 91
Banking L.J. 119 (1979).
See also United States v. Marine
Bancorporation, supra at
418 U. S. 612
n. 8.
[
Footnote 31]
See 422 U.S.
86app|>Appendix to this opinion.
[
Footnote 32]
In the entire history of C&S's 5-percent program, only the
Stone Mountain Bank terminated its relationship with C&S. The
record shows that that bank was not sponsored by C&S, that a
large amount of the stock remained in the hands of a family hostile
to C&S, that the bank's shareholders never intended to merge
with C&S, and that the bank's board of directors resisted
introduction of C&S banking methods. None of these factors
exists with respect to the banks at issue in the present case.
It is true that C&S has recently been ordered by the State
Banking Commissioner to trim back its percentage ownership of the
suburban banks and to modify, in ways not yet fully clear, its
"supervision" of those banks.
See n 11,
supra. But the District Court
considered this development and concluded that it would not lead to
true competition among the defendant banks. The court explicitly
found that the changes ordered would not affect the bonds of
interbank consultation and cooperation which are at the heart of
the correspondent associate program. 372 F. Supp. at 638, 643, and
n. 8.
|
422 U.S.
86app|
APPENDIX TO OPINION OF THE COURT
The District Court summarized the structure of various banking
markets in the Atlanta area, and the statistical effects of the
proposed acquisitions, in the following way, 372 F.Supp. at
629-632:
DeKalb County
Treating C&S National, C&S Emory and C&S DeKalb as
one banking organization, there are 19 commercial banking
organizations operating offices in DeKalb
Page 422 U. S. 123
County. In terms of total deposits and total individual,
partnership and corporation ("IPC") demand deposits held by all
banking offices located in DeKalb County, the top 4 banks,
respectively, are C&S (offices of C&S National in DeKalb
County, C&S Emory and C&S DeKalb), First National Bank of
Atlanta, Trust Company of Georgia, and Fulton National Bank. In
terms of outstanding loans, the top 4 banks are C&S (offices of
C&S National in DeKalb County, C&S Emory and C&S
DeKalb), Trust Company of Georgia, Tucker and Fulton National Bank.
The shares of total deposits, total loans and total IPC demand
deposits accounted for by the four largest banks are as
follows:
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Top 2. . . . . . . . . . . 38.3% 42.7% 34.8%
Top 3. . . . . . . . . . . 51.8% 52.4% 47.3%
Top 4. . . . . . . . . . . 62.9% 61.8% 58.2%
C&S (offices of C&S National in DeKalb County, C&S
Emory and C&S DeKalb) accounts for the following shares of
total deposits, total loans and total IPC demand deposits held by
all banking offices located in DeKalb
IPC
Total Total Demand
Deposits Loans Deposits
Bank (12/31/71) (12/31/71) (6/30/72)
---- ---------- ---------- ---------
C&S. . . . . . . . . . . . 24.1% 28.5% 20.1 %
Chamblee, Park National and South DeKalb, all of whose banking
offices are located in DeKalb County, account for the following
shares of total deposits, total loans and total IPC demand deposits
held by all banking offices located in DeKalb County:
Page 422 U. S. 124
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Chamblee . . . . . . . . . 5.7% 5.7% 5.9%
Park National. . . . . . . 2.9% 1.5% 3.0%
South DeKalb. . . . . . . . 1.8% 2.5% 1.9%
----- ----- -----
10.4% 9.7% 10.8%
Depending on the unit of measurement, Chamblee is the third or
fourth largest bank headquartered in DeKalb County.
If the proposed mergers were approved, the C&S system (which
would include offices of C&S National and South DeKalb) would
account for 34.5,% of the total deposits of all the banking offices
located in DeKalb County, 38.2% of the total loans and 30.9% of the
total IPC demand deposits. C&S would also be acquiring the
third (or fourth) largest bank headquartered in DeKalb County.
If the proposed mergers were approved, the four largest banks
would account for the following shares of the DeKalb County
market:
IPC
Total Demand
Banks Deposits Loans Deposits
----- -------- ----- ---------
Top 2 after mergers. . . . 48.7% 52.4% 45.6%
Top 3 after mergers. . . . 62.2% 62.1% 58.1%
Top 4 after mergers. . . . 73.3% 71.5% 69.0%
Thus, if the proposed mergers were approved, the C&S
system's share of total deposits, for example, would increase from
about 24% to 34%, or an increase of about 40%. The share of total
deposits accounted for by the top 4 banks would increase from about
63% to 73,% while that of the top 2 and top 3 banks would increase
from 38% to 49% and from 52% to 62%, respectively.
Page 422 U. S. 125
North Fulton County
There are nine commercial banks operating offices in North
Fulton County. In terms of total deposits and total IPC demand
deposits held by all banking offices located in North Fulton
County, the top 4 banks, respectively, are Sandy Springs, Roswell
Bank, Fulton Exchange Bank and North Fulton. On June 30, 1970,
however, there were only five banks operating offices in North
Fulton County: the four banks just mentioned and Trust Company of
Georgia Bank of Sandy Springs, which is now a branch of Trust
Company of Georgia. The shares of total deposits and IPC demand
deposits accounted for by the four largest banks are as
follows:
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Top 2. . . . . . . . . . . 57.8% 66.4% 64.0%
Top 3. . . . . . . . . . . 70.1% 78.9% 80.2%
Top 4. . . . . . . . . . . 80.3% 90.7% 91.9%
As of June 30, 1972, the North Springs Office of C&S East
Point accounted for 1.7% of total IPC demand deposits held by all
banking offices located in North Fulton County.
As of June 30, 1972, Sandy Springs and North Fulton accounted
for 36.4% and 10.2%, respectively, of total IPC demand deposits
held by all banking offices located in North Fulton County. As of
June 30, 1970, they accounted for 34.4% and 11.7%, respectively, of
total deposits held by all commercial banking offices located in
North Fulton County.
If the proposed mergers were approved, the C&S system (which
would include C&S East Point's North Springs Office, North
Fulton and Sandy Springs) would
Page 422 U. S. 126
account fr 48.3% of the total IPC demand deposits held by all
commercial banking offices located in North Fulton County and the
four largest banks would account for the following shares of IPC
demand deposits in North Fulton County:
IPC
Demand
Banks Deposits
----- --------
Top 2 after mergers . . . . . . . . . . . . . . . 69.7%
Top 3 after mergers . . . . . . . . . . . . . . . 82.0%
Top 4 after mergers . . . . . . . . . . . . . . . 92.0%
Thus, if the proposed mergers were approved, the C&S
system's [
Footnote 2/1] share of
total IPC demand deposits held by all banking offices located in
North Fulton County would increase from 1.7% to 48.3%, and the
C&S system's share in this area would be twice that of the
second largest banking organization, the Roswell Bank. Two of the
four largest banks in the area would become part of the Atlanta
area's largest banking organization. In addition, the share of
total IPC demand deposits accounted for by the top 4 banks would
increase from 80.3% to 92.0%, while the shares of the top 2 and top
3 banks would increase from 57.8% to 69.7% and from 70.1% to 82.0%,
respectively.
Fulton County
Treating C&S National and C&S East Point as one banking
organization, there are 18 commercial banking organizations
operating offices in Fulton County. In terms of total loans,
deposits and IPC demand deposits held
Page 422 U. S. 127
by all banking offices located in Fulton County, the top 4
banks, respectively, are C&S (offices of C&S National in
Fulton County and C&S East Point), First National Bank of
Atlanta, Trust Company of Georgia and Fulton National Bank. The
shares of total loans, deposits and IPC demand deposits accounted
for by the four largest banks are as follows: [
Footnote 2/2]
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Top 2. . . . . . . . . . . 63.0% 55.2% 61.3%
Top 3. . . . . . . . . . . 78.8% 73.9% 78.1%
Top 4. . . . . . . . . . . 89.4% 87.0% 88.8%
C&S (offices of C&S National in Fulton County and
C&S East Point) accounts for the following shares of total
loans, deposits and IPC demand deposits held by all banking offices
located in Fulton County:
IPC
Total Total Demand
Deposits Loans Deposits
Bank (12/31/71) (12/31/71) (6/30/72)
---- ---------- ---------- ---------
C&S. . . . . . . . . . . . 37.2 % 30.8% 32.1%
Sandy Springs and North Fulton, both of whose banking offices
are located in Fulton County, account for the following shares of
total loans, deposits and IPC demand deposits held by all banking
offices located in Fulton County:
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Sandy Springs. . . . . . . .7% .8% .9%
North Fulton . . . . . . . .3% .3% .3%
---- ---- ----
1.0% 1.1% 1.2%
Page 422 U. S. 128
Depending on the unit of measurement, Sandy Springs is the
eighth or ninth largest banking organization in Fulton County.
If the proposed mergers were approved, the C&S system (which
would include offices of C&S National in Fulton County, C&S
East Point, Sandy Springs and North Fulton) would account for 38.2%
of the total loans held by all banking offices in Fulton County,
31.9% of the total deposits and 33.3% of the total IPC demand
deposits.
If the proposed mergers were approved, the four largest banks
would account for the following shares in
IPC
Total Demand
Banks Deposits Loans Deposits
----- -------- ----- ---------
Top 2 after mergers. . . . 64.0% 56.3% 62.5%
Top 3 after mergers. . . . 79.8% 75.0% 79.3%
Top 4 after mergers. . . . 90.4% 88.1% 90.0%
Atlanta Area
Treating C&S National, C&S Emory, C&S DeKalb and
C&S East Point as one banking organization, there are 31
commercial banking organizations operating offices in the Atlanta
area, six of which operate offices in both Fulton and DeKalb
Counties. In terms of total loans, deposits, and IPC demand
deposits held by all banking offices located in the Atlanta area,
the top 4 banks, respectively, are C&S (offices of C&S
National, C&S East Point, C&S Emory and C&S DeKalb),
First National Bank of Atlanta, Trust Company of Georgia and Fulton
National Bank. The shares of total loans, deposits and IPC demand
deposits accounted for by the four largest banks are as
follows:
Page 422 U. S. 129
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Top 2. . . . . . . . . . . 60.5% 53.2% 58.0%
Top 3. . . . . . . . . . . 76.2% 71.3% 74.3%
Top 4. . . . . . . . . . . 86.7% 84.2% 85.0%
C&S (offices of C&S National, C&S Emory, C&S
East Point and C&S DeKalb) accounts for the following shares of
total loans, deposits and IPC demand deposits held by all banking
offices located in the Atlanta area:
IPC
Total Total Demand
Deposits Loans Deposits
Bank (12/31/71) (12/31/71) (6/30/72)
---- ---------- ---------- ---------
C&S. . . . . . . . . . . . 36.4% 30.0% 30.6%
Chamblee, Park National, South DeKalb, Sandy Springs and North
Fulton account for the following shares of total loans deposits and
IPC demand deposits held by all banking offices located in the
Atlanta area:
IPC
Total Total Demand
Deposits Loans Deposits
Banks (12/31/71) (12/31/71) (6/30/72)
----- ---------- ---------- ---------
Chamblee. . . . . . . . . .5% .6% .8%
Park National . . . . . . .1% .3% .4%
South DeKalb. . . . . . . .2% .2% .3%
Sandy Springs. . . . . . .6% .7% .8%
North Fulton. . . . . . . .3% .2% .2%
---- ---- ----
1.7% 2.0% 2.5%
If their deposits (as of 12/31/71) were combined ($71,142,252),
these five banks would be the equivalent of the sixth largest
banking organization in the Atlanta area. Sandy Springs and
Chamblee are, alone, the tenth and eleventh largest banking
organizations in the Atlanta area, respectively.
Page 422 U. S. 130
If the proposed mergers were approved, the C&S system (which
would include the offices of C&S National in the Atlanta area,
C&S Emory, C&S DeKalb, C&S East Point, Chamblee, Park
National, South DeKalb, Sandy Springs and North Fulton) would
account for 38.2% of the total loans held by all banking offices
located in the Atlanta area, 32.0% of the total deposits and 33.0%
of the total IPC demand deposits. C&S would also be acquiring
the tenth and eleventh largest banks in the Atlanta area.
If the proposed mergers were approved, the four largest banks
would account for the following shares in the Atlanta area:
IPC
Total Demand
Banks Deposits Loans Deposits
----- -------- ----- ---------
Top 2 after mergers. . . . 62.2% 55.2% 60.5%
Top 3 after mergers. . . . 77.9% 73.3% 76.8%
Top 4 after mergers. . . . 88.4% 86.2% 87.5%
[
Footnote 2/1]
These computations consider the 5-percent defendant banks as
completely separate entities (rather than as constituting a part of
the C&S system as actually is the case), and, of course, do not
relate to competition as such, but rather to the assignment of
statistical proportions to the various entities involved.
[
Footnote 2/2]
See 422 U.S.
86fn2/1|>n. 1,
supra.
MR. JUSTICE BRENNAN, with whom MR. JUSTICE DOUGLAS and MR.
JUSTICE WHITE join, dissenting.
I agree that the District Court erred in holding that the
correspondent associate programs are immune from Sherman Act
scrutiny because they are subject to the "exclusive primary
jurisdiction" of the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended. The District Court also erred,
however, in holding that the United States did not prove the
violations of § 1 of the Sherman Act, and § 7 of the Clayton Act,
alleged, and I therefore dissent from the affirmance of its
judgment.
The issues under the Clayton and Sherman Acts, while logically
independent, are related; both present the question whether a large
commercial bank, already possessing
Page 422 U. S. 131
a substantial share of the Atlanta market, may lawfully acquire
other banks, rather than expand internally. Three banks now control
more than 75% of the commercial banking business in Atlanta.
Today's decision assures that their dominions will soon be extended
as arrangements they have made with independent banks to operate as
"
de facto branches" are solidified through merger. I
cannot agree with today's decision that the Government is powerless
to prevent this result.
I
.
The Sherman Act
The "5-percent" banks in this litigation entered into a
relationship with C&S far exceeding that of "correspondent
banking," the provision of check clearance, investment advice,
personnel training, or other specialized services in arm's-length
transactions. [
Footnote 3/1] From
the very inception of these relationships, it was contemplated
that
Page 422 U. S. 132
the 5-percent banks would seek, and C&S would provide,
advice and guidance with respect to virtually every business
decision of significance. C&S provided advisory directors --
treated by all parties as actual directors -- made available
operating manuals covering banking practices in minute detail,
[
Footnote 3/2] and maintained a
constant flow of bulletins whose contents ranged from admonitions
about the antitrust laws to exhortations to "get the rates [on
loans] up." C&S, through its Branch Supervision Department,
monitored the performance of the management of the 5-percent banks
and was instrumental in having replaced those who did not measure
up. These arrangements had the desired effect. The elaborate fabric
of "consultations," of seeking "advice and guidance," eliminated
the opportunity for rivalry among the defendant banks. The District
Court found "no presently existing substantial competition between
the five-percent banks and C&S National, or
inter
sese."
372 F.
Supp. 616, 642 (1974).
A
The Court concludes that antitrust scrutiny of the affiliation
of three 5-percent banks is foreclosed by the grandfather provision
of § 11(d) of the Bank Holding Company Act, 12 U.S.C. § 1849(d).
That holding is plainly a distorted expansion of § 11(d) beyond its
language and purpose.
The concept of an amnesty for unchallenged structural
arrangements in commercial banking first appeared
Page 422 U. S. 133
in the 1966 amendments to the Bank Merger Act, 80 Stat. 7. In
those amendments, Congress, responding in part to this Court's
decisions in
United States v. Philadelphia National Bank,
374 U. S. 321
(1963), and
United States v. First National Bank & Trust
Co. of Lexington, 376 U. S. 665
(1964), attempted to mesh antitrust considerations with review of
proposed bank mergers by the appropriate regulatory agency. The
resulting provisions, which mandate Justice Department
participation in the regulatory approval process as well as
consideration by the regulatory agencies of "competitive factors,"
and permit an antitrust suit within 30 days of regulatory approval,
appear today in the Federal Deposit Insurance Act, 12 U.S.C. §
1828.
See United States v. First City National Bank of
Houston, 386 U. S. 361
(1967);
United States v. Third National Bank in Nashville,
390 U. S. 171
(1968). The 1966 amendments also included a grandfather provision,
80 Stat. 10, that conferred immunity from antitrust challenge
(except under § 2 of the Sherman Act) upon any "merger,
consolidation, acquisition of assets, or assumption of liabilities"
consummated before June 17, 1963, the date of the decision in
Philadelphia National Bank.
A few months after enactment of the Bank Merger Act amendments,
the "antitrust" provisions were written almost verbatim into the
Bank Holding Company Act. Unlike their Merger Act counterparts, the
1966 amendments to the Bank Holding Company Act were not
principally addressed to integrating antitrust standards with the
regulatory process, but rather to expanding the Federal Reserve
Board's jurisdiction and regulatory powers. The antitrust
provisions of the Holding Company Act amendments received little
legislative attention; the brief reference to them in the
legislative history indicates that their purpose
Page 422 U. S. 134
was to "apply to bank holding company cases the same procedures
as are now provided in bank merger cases. . . ." [
Footnote 3/3] Among the provisions so borrowed from
the earlier Bank Merger Act amendments was the grandfather
provision, § 11(d).
Because of congressional preoccupation with the regulatory
features of the 1966 amendments to the Bank Holding Company Act,
interpretation of the antitrust provisions may involve as much an
attribution of congressional intent as a discernment of it. This is
particularly the case with respect to § 11(d), which was
transplanted from one regulatory statute to another with seemingly
scant attention to the differences in the regulatory environment.
Objections that grandfathering holding company acquisitions posed
policy questions different from the retroactive immunization of
mergers were quickly brushed aside, [
Footnote 3/4] and § 11(d) was swept into law along with
the other antitrust provisions. Thus, despite whatever
dissimilarity of underlying policy considerations may have been
exposed, Congress indicated that it considered the grandfather
provisions in both statutes to advance substantially similar
purposes. Accordingly, however difficult may be the discernment of
the congressional intent expressed in § 11(d), we must look for
assistance to its counterpart in the Bank Merger Act, the only
guidepost Congress has left us.
The grandfather provision of the Bank Merger Act amendments most
assuredly did not provide sanctuary
Page 422 U. S. 135
for then-unchallenged price-fixing, market division, or other
cartel activity by banks. Congressional concern was much more
narrowly directed.
Philadelphia National Bank rejected a
literal interpretation of § 7 of the Clayton Act that would have
limited its application to stock acquisitions by banks, an
interpretation that nevertheless enjoyed some acceptance prior to
the decision. Congress was concerned about the difficulty of
unscrambling pre-
Philadelphia National Bank mergers
undertaken in reliance upon the literal interpretation of § 7,
which the Court ultimately rejected, and accordingly immunized them
from suit under that section. [
Footnote
3/5] But a provision barring suit under § 1 of the Sherman Act
was also necessary to safeguard the same mergers because of our
decision in
Lexington Bank, supra. Thus, although the
resulting grandfather provision covered both the Clayton and
Sherman Acts (except Sherman Act § 2), its purpose was to shield
structural arrangements of the sort the Government challenged in
Philadelphia National Bank and was continuing to challenge
in the District Courts thereafter. [
Footnote 3/6]
Against the foregoing background, we confront the language of
the counterpart in the Bank Holding Company Act. As enacted in
1966, § 11(d) shielded an "acquisition, merger, or consolidation of
the kind described in § 3(a) of this Act." Section 3(a) provided
then, as today, that:
"(a) It shall be unlawful, except with the prior
Page 422 U. S. 136
approval of the Board, (1) for any action to be taken that
causes any company to become a bank holding company; (2) for any
action to be taken that causes a bank to become a subsidiary of a
bank holding company; (3) for any bank holding company to acquire
direct or indirect ownership or control of any voting shares of any
bank if, after such acquisition, such company will directly or
indirectly own or control more than 5 per centum of the voting
shares of such bank; (4) for any bank holding company or subsidiary
thereof, other than a bank, to acquire all or substantially all of
the assets of a bank; or (5) for any bank holding company to merge
or consolidate with any other bank holding company. [
Footnote 3/7]"
Section 3(a) is thus the operative provision of the statute
permitting the Federal Reserve Board to regulate the events therein
described.
By "grandfathering" an "acquisition, merger, or consolidation of
the kind described in § 3(a)," Congress obviously exempted from
antitrust challenge only the events for which Board approval would
have been required. None of the transactions defined by § 3(a),
however, includes those features of the "correspondent associate"
relationship that the Government is challenging under Sherman Act §
1 in this case. Clauses (4) and (5) of § 3(a) refer, respectively,
to an acquisition of assets and a merger of two holding companies.
Clause(3) refers to ownership of voting stock by a holding company;
the stock ownership by C&S is not, however, the salient feature
of the affiliative relationship, and indeed is not challenged in
this case. Clauses (1) and (2) address the creation of a holding
company-subsidiary relationship:
Page 422 U. S. 137
the definitional provisions of § 2(d) have undergone recent
expansion, but, in 1966, they designated a bank as a "subsidiary"
if a holding company either (1) directly or indirectly owned or
controlled 25% or more of its voting stock, or (2) controlled in
any manner the election of a majority of its directors. These two
conditions would often be satisfied simultaneously, and indeed,
shortly after enactment of the forerunner of this provision in
1956, it was suggested that the second condition was redundant.
See Note, The Bank Holding Company Act of 1956, 9
Stan.L.Rev. 333, 337, and n. 59 (1957). Congress, however, was
apparently concerned that stock interests could be so structured
that a holding company could elect a majority of directors without
satisfying the 25% ownership requirement. [
Footnote 3/8] Whether or not this fear was well founded,
it is clear that satisfaction of either condition required an
arrangement whereby the holding company had the power to vote
stock.
In establishing its "correspondent associates" C&S did not
engage in the transactions described by § 3(a) in 1966, and
therefore sheltered by § 11(d). Indeed, because of state law
restrictions C&S could not resort to the methods described by §
3(a) of the Holding Company Act, and turned instead to more
informal arrangements, including "understandings." While the
functional equivalent of a holding company-subsidiary relationship
could perhaps be created through informal affiliation, § 3(a), at
least until quite recently, has been
Page 422 U. S. 138
triggered by the formality of control of voting stock. To be
sure, § 2(d) has always referred to a subsidiary as one whose stock
is "directly or indirectly" owned or controlled or whose election
of directors is controlled "
in any manner" by the holding
company. [
Footnote 3/9] But there
has been no suggestion by Congress, nor by the Board, that this
language would embrace the less formal arrangements by which the
C&S banks operated in complete harmony with C&S. Indeed,
the statutory clues suggest the contrary, that Congress was
concerned with powers attached to stock, and that "indirect"
ownership or control merely referred to their exercise
derivatively, through an intermediary. [
Footnote 3/10]
Page 422 U. S. 139
In the 1970 amendments to the Holding Company Act, 84 Stat.
1760, Congress expanded the reach of § 3. The Act now defines
"control" to include a relationship whereby a company "directly or
indirectly exercises a controlling influence over the management
and policies of the bank. . . ." § 2(a)(2)(C), 12 U.S.C. §
1841(a)(2)(C). Congressional preoccupation with stock is still
evident, since there is a statutory presumption that
"any company which directly or indirectly owns, controls, or has
power to vote less than 5 per centum of any class of voting
securities of a given bank or company does not have control over
that bank or company."
§ 2(a)(3). Nevertheless, the Board has by regulation established
a rebuttable presumption of control where a company
"enters into any agreement or understanding with a bank . . .
such as a management contract, pursuant to which the company or any
of its subsidiaries exercises significant influence with respect to
the general management or overall operations of the bank. . .
."
12 CFR § 225.2(b)(3) (1975). Arguably, the Board's
interpretation would now bring within § 3 the affiliation of the
5-percent banks with C&S. But the Board's interpretation is
based upon recent legislation expanding the reach of the Board's
regulatory authority. [
Footnote
3/11] Since I do not suppose Congress intended in 1966 to
immunize transactions of the kind it had not yet brought within §
3, the 1970 amendment is relevant only because it demonstrates the
limited character
Page 422 U. S. 140
of the transactions previously embraced by § 3 and
"grandfathered" under § 11(d).
The conclusion that Congress had traditionally not brought
informal arrangements within § 3(a) was reinforced by the
provisions of § 4(a)(2) of the original Act, 70 Stat. 135, which
forbade a bank holding company to
"engage in any business other than that of banking or of
managing or controlling banks or of furnishing services to or
performing services for any bank of which it owns or controls 25
per centum or more of the voting shares."
This provision was enacted in 1956, and, as early as 1960, the
Board, by regulation, interpreted "services" to include many of the
functions C&S has performed for the 5-percent banks. Included
in the Board's interpretation are:
"(1) [e]stablishment and supervision of loaning policies; (2)
direction of the purchase and sale of investment securities; (3)
selection and training of officer personnel; (4) establishment and
enforcement of operating policies; and (5) general supervision over
all policies and practices."
12 CFR § 225.113 (1975). The differentiation of these activities
from "control or management" and their inclusion in § 4 of the Act,
rather than in § 3, vividly exposes the fallacy of today's holding
invoking § 11(d) to foreclose scrutiny of the "correspondent
associate" relationship of three of the 5-percent banks. Since §
11(d) shielded only the events then described in 3(a), the
conclusion is compelled that all the 5-percent banks are properly
before us on the Sherman Act counts. [
Footnote 3/12] Accordingly, I turn to the merits.
Page 422 U. S. 141
B
The District Court found that there were no express agreements
among the defendant banks to fix prices or divide markets that
would call for application of the
per se rule,
United
States v. Socony-Vacuum Oil Co., 310 U.
S. 150 (1940);
United States v. Sealy, Inc.,
388 U. S. 350
(1967), but it also found that the effect of the association was to
eliminate all competition among the banks involved.
The Court finds the restraints embodied in the "correspondent
associate" relationship reasonable because of state law
restrictions that blocked, for a time, the avenue of internal
expansion by C&S. If the question before us were the lawfulness
of these arrangements at their inception, this solution might be
satisfactory. The question would be a close one, however, calling
for a delicate balancing of the immediate benefits of expanded
banking services against the more distant, but nevertheless real,
danger of permitting the restraints necessary to circumvent
de
jure barriers to expansion to continue longer than the
conditions that justified them. The inquiry would, of course, have
to take into account the possibility that expansion would occur
under less restrictive conditions. New entry by an unaffiliated
bank [
Footnote 3/13] or entry
Page 422 U. S. 142
with a more limited form of sponsorship -- a period of initial
assistance, followed by a withdrawal of the sponsor's influence, at
least to a conventional correspondent relationship [
Footnote 3/14] -- might have sufficed to
provide the expansion cited here as a justification for incidental
restraints. The judicial resources consumed by such an inquiry in
any particular case would not be insubstantial, and the very
difficulty of making such judgments has, in many cases, led us to
prefer
per se rules.
United States v. Socony-Vacuum
Co., supra at
310 U. S.
220-221;
Northern Pacific R. Co. v. United
States, 356 U. S. 1,
356 U. S. 5
(1958);
United States v. Sealy, Inc., supra; United States v.
Topco Associates, Inc., 405 U. S. 596
(1972).
See also United States v. Philadelphia National
Bank, 374 U.S. at
374 U. S.
362.
The issue in this case, however, is not whether the affiliation
of the 5-percent banks was lawful at its inception, but whether it
could lawfully continue, for the Government sought only an
injunction. By the time the Government brought suit, Georgia law
permitted
Page 422 U. S. 143
C&S to branch freely in the Atlanta suburbs. Because the
rule of reason requires us to assess the lawfulness of a restraint
in light of all the circumstances,
Chicago Board of Trade v.
United States, 246 U. S. 231,
246 U. S. 238
(1918), the lawfulness of the practices at their inception, even if
assumed, could not be controlling, for changes in market conditions
can deprive once-reasonable arrangements of their justification.
United States v. Jerrold Electronics, 187 F.
Supp. 545, 560-561 (ED Pa.1960),
aff'd, 365 U.
S. 567 (1961).
See also United States v. E. I. du
Pont de Nemours & Co., 353 U. S. 586,
353 U. S.
596-598 (1957). The claimed desirability of the
challenged arrangements as a response to now-repealed restrictions
of Georgia law is therefore relevant only insofar as it may also be
claimed that continuation of such arrangements undisturbed by the
Sherman Act would be vital to their creation were Georgia to
reinstate its restrictions in the future. Put another way, we need
concern ourselves with the lawfulness of "
de facto
branches" as a response to state law restrictions only if appellees
make a convincing showing that no bank would engage in "
de
facto branching" without a guarantee of perpetual
noninterference from the antitrust laws.
Certainly it is open to C&S to argue that no rational banker
would sponsor a
de facto branch unless assured that the
resulting relationships could continue in perpetuity. But this sort
of argument has seldom carried the day in this Court,
see
United States v. Sealy, supra; United States v. Topco Associates,
supra, and I do not find it persuasive in this case. A bank
hemmed in by state anti-branching restrictions will presumably find
it profitable to take a small stock interest in an independent
bank, to offer assistance, and thereby attempt to win consumer
loyalty through an expanded use of its own name. C&S presumably
found these arrangements
Page 422 U. S. 144
profitable at their inception. The record does not show whether
C&S actually charged the 5-percent banks for such assistance as
site selection, economic surveys, equipment procurement, and other
promotional services; there is no suggestion, however, that C&S
provided these services at an ultimate loss, and presumably gains
ultimately accrued to the provider. True, C&S hoped to cement
the relationships through merger, but it is not clear that these
expectations were essential to the initial undertaking. Indeed,
C&S continued to provide assistance to certain banks as to
which there was little prospect of ultimate acquisition by C&S.
2 App. 378-379. Our concern, in any event, lies not with protecting
the expectations of C&S, but with avoiding disincentives to the
provision of desirable services. Sponsorship will be profitable to
a sponsor bank assuming that there is a demand for the services of
the sponsored bank and that the sponsor can recoup in some fashion
a return for its assistance. These conditions should be sufficient
to induce a profit-seeking bank, chafing under anti-branching
restrictions, to sponsor a new entrant even if permanent
arrangements are forbidden.
This case, therefore, does not present an occasion for
consideration whether the restraints incident to "
de facto
branching" are lawful when undertaken in response to a prohibition
of
de jure branching, a position the Court says the
Government took last Term in
United States v. Marine
Bancorporation, 418 U. S. 602
(1974). The restraints incident to the affiliation of the 5-percent
banks with C&S must be examined in light of conditions
prevailing at the time of suit, which include the ability of
C&S to branch freely in the Atlanta suburbs.
The arrangements between C&S and the 5-percent banks
resemble a "common brand" marketing agreement or a franchising
arrangement in which the franchisor
Page 422 U. S. 145
itself deals directly with consumers, as well as providing
entrepreneurial skill and other assistance to franchisees. Such
combinations may, under certain circumstances, enhance competition.
Common-brand marketing may permit a group of small firms to exploit
promotional economies, and thereby compete with larger enterprises
whose business spans several geographic submarkets. Franchising may
facilitate entry by allowing an entering firm to save on
promotional expenses and to purchase needed entrepreneurial
assistance. Restraints invariably accompany these combinations for
the purpose of promoting product uniformity, for some
standardization of product is indispensable to the success of the
scheme. Because, notwithstanding accompanying restraints, such
combinations may, on balance, enhance competition, it would be a
mistake to regard them as
per se or even presumptively
unlawful, and lower courts have not done so.
See, e.g., United
States v. Topco Associates, Inc., 319
F. Supp. 1031, 1038 (ND Ill.1970),
rev'd on other
grounds, 405 U. S. 405 U.S.
596 (1972);
Siegel v. Chicken Delight, Inc., 448 F.2d 43
(CA9 1971);
Susser v. Carvel Corp., 332 F.2d 505 (CA2
1964). But the Sherman Act limits the scope of cooperation incident
to such arrangements. The participants may not fix prices or divide
markets.
United States v. Topco Associates, Inc., supra; United
States v. Sealy, Inc., supra; United States v. Arnold, Schwinn
& Co., 388 U. S. 365
(1967). Such combinations, moreover, warrant careful scrutiny when
their participants collectively possess a dominant share of a
common market, as to which there are substantial barriers to entry,
for these conditions enhance the profitability of price collusion
among participants, and thus may tempt them to standarize price as
well as other product attributes.
Despite the acceptability generally of common-brand
Page 422 U. S. 146
or franchising arrangements, they pose particular difficulty in
the commercial banking context. Many features of a commercial
bank's services are set by regulation, thus inhibiting competition
by restricting the number of product features that individual firms
are free to vary. With interest rates on loans fixed by law, for
example, competition is confined to such "non-price" features as
collateral requirements or repayment policies. With competition
thus already delimited, few additional restraints incident to a
cooperative scheme can be tolerated before competition is
extinguished entirely. Moreover, the entry barriers posed by
regulation enhance the danger that incidental cooperation will be
extended to abolish all rivalry. These considerations suggest that
cooperative arrangements in commercial banking should be permitted
only where their competitive benefits are clear, and where the
combined market shares of the participants dispel the fear that
price collusion will accompany them.
The situation here fails to satisfy the test. The combined
shares of C&S and the 5-percent banks are substantial under any
of the alternative definitions of the geographic market cited by
the Court.
Ante at 122-130. [
Footnote 3/15] Furthermore, the cooperative
arrangements involve
Page 422 U. S. 147
not a group of small firms allied to challenge a larger rival,
United States v. Topco Associates, supra, but, instead,
the dominant firm which thereby extends its hegemony. In a market
so concentrated as is commercial banking in Atlanta, the most must
be made of opportunity for rivalry among existing firms.
Cf.
United States v. Philadelphia National Bank, 374 U.S. at
374 U. S. 372.
The 5-percent banks are now substantial, thriving enterprises,
[
Footnote 3/16] inhibited from
competing with C&S only by the "correspondent associate"
relationship. I would hold that the Government is entitled to an
injunction, specifically against the continued use by the 5-percent
banks of the C&S name, the continued use of advisory directors
furnished by C&S, and continued "consultations" between the
management of the 5-percent banks and C&S, including the flow
of memoranda for "advice and guidance."
II
.
The Clayton Act
The Court concedes that, under our prior decisions, the
Government has established a
prima facie case under § 7.
Ante at
422 U. S. 120.
But the Court affirms the District Court's determination that the
acquisitions add nothing
Page 422 U. S. 148
of anticompetitive significance to the preexisting
"correspondent associate" relationship. Since I have concluded that
the relationship itself violates the Sherman Act, I also disagree
with the Court's affirmance of the District Court on the Clayton
Act issue. Since, in my view, appellees can no longer rely upon the
affiliation to rebut the Government's
prima facie case, I
would remand to the District. Court for consideration of the
"convenience and needs" defense of 12 U.S.C. § 1828(c)(5)(B). But I
also disagree with the Court's conclusion that the acquisitions add
nothing of significance to the existing arrangements, and I would
therefore reverse even if I accepted the Court's disposition of the
Sherman Act counts. I state briefly my reasons for so
concluding.
If not acquired, the 5-percent banks have the power to break
their ties with C&S, and the likelihood that any would do so
may be expected to increase as the demand for their services grows
and as their managements acquire additional business experience.
However risky these ventures may have been at their inception, the
recent performance of the 5-percent banks attests to their present
viability. [
Footnote 3/17]
Because of the continuing population growth of the Atlanta area,
the banks may anticipate an expanding demand for their services.
These circumstances might well induce the management of a 5-percent
bank to assume a more independent posture, at least to shop around
among other large Atlanta banks for more conventional
"correspondent" services. [
Footnote
3/18]
Page 422 U. S. 149
Quite apart from what the managements of the 5-percent banks
might do, it is most improbable that C&S would long be happy
with existing arrangements if acquisition were enjoined. The record
demonstrates the aggressive, expansionist performance of C&S,
having increased its Atlanta offices from three in 1946 to more
than 100 by the time of trial. It is quite inconceivable that such
a firm would long be content to continue operations through
de
facto branches in which its interest was limited to 5%. The
formation of
de jure branches, ultimately in competition
with former "correspondent associates," would be a plausible
result.
The foregoing are not "ephemeral possibilities,"
Brown Shoe
Co. v. United States, 370 U. S. 294,
370 U. S. 323
(1962), that antitrust analysis should ignore. Section 7 was
intended, as we have repeatedly said, to "arrest anticompetitive
tendencies in their
incipiency.'" United States v.
Philadelphia National Bank, 374 U.S. at 374 U. S. 362.
In applying the § 7 standards, we are obliged to hold acquisitions
unlawful if a reasonable likelihood of a substantial lessening of
competition under future conditions is discernible. E.g.,
United States v. Continental Can Co., 378 U.
S. 441, 378 U. S. 458
(1964); FTC v. Procter & Gamble Co., 386 U.
S. 568, 386 U. S. 577
(1967); United States v. Falstaff Brewing Corp.,
410 U. S. 526,
410 U. S. 539
(1973) (Douglas, J., concurring in part). While inquiry as to
future market conditions and performance inevitably involves
speculation, fidelity to the
Page 422 U. S. 150
congressional purpose requires us to resolve reasonable doubts
in favor of the preservation of independent entities. This is
perforce true where, as here, the market is highly concentrated and
the acquiring firm is the dominant one.
My Brother WHITE reminded us in his dissent last Term in
United States v. Marine Bancorporation, 418 U.S. at
418 U. S.
653:
"In the last analysis, one's view of this case, and the rules
one devises for assessing whether this merger should be barred,
turns on the policy of § 7 of the Clayton Act to bar mergers which
may contribute to further concentration in the structure of
American business. . . . The dangers of concentration are
particularly acute in the banking business, since,"
"if the costs of banking services and credit are allowed to
become excessive by the absence of competitive pressures, virtually
all costs, in our credit economy, will be affected. . . ."
(Citations omitted.) Today's decision permits C&S, the
dominant commercial bank in Atlanta, further to entrench its
position. Two other rivals, which together with C&S control
more than 75% of the banking business in Atlanta, may now be
expected to follow suit, acquiring their own "
de facto
branches." [
Footnote 3/19] I
believe these developments exemplify the "further concentration in
the structure of American business" that § 7 was designed to
prevent. Accordingly, I would reverse the judgment of the District
Court.
[
Footnote 3/1]
Relationships labeled "correspondent banking" may call for
careful scrutiny as the sale of specialized services by the
corresponding bank shades into "consultation" by the correspondent
on every business decision of significance. Correspondent banking,
like other intra-industry interaction among firms or their top
management, provides an opportunity both for the kind of education
and sharing of expertise that ultimately enhances consumer welfare
and for "understandings" that inhibit, if not foreclose, the
rivalry that antitrust laws seek to promote. As one commentator on
commercial banking practices has observed:
"[C]ommunication, especially when it comes from those at the top
of a power hierarchy, tends to facilitate conflict resolution.
Perhaps a great deal should not be made of this, but competition is
a form of conflict and, in the present context, conflict resolution
is a form of restraint on competition."
Phillips, Competition, Confusion, and Commercial Banking, 19 J.
of Finance 32, 42 (1964).
Since the relationship of C&S to the 5-percent banks goes
well beyond ordinary "correspondent banking," this case does not
present an occasion for further examination of the lawfulness of
these more limited interconnections among firms.
[
Footnote 3/2]
The Consumer Credit Operating Bulletin, 7 App. 1024 (DX-311), is
illustrative. It explains what bank records should be established,
the methods for arranging a repayment plan, and the procedures to
be followed in perfecting a security interest. In addition, the
manual sets forth C&S practice with respect to charges for late
payments, extensions of repayment deadlines, and the notification
of a borrower's employer about repayment delinquency.
[
Footnote 3/3]
As initially enacted by the House, the amendments contained no
antitrust provisions.
See generally H.R.Rep. No. 534, 89th
Cong., 1st Sess. (1965). These were added later by the Senate
Banking and Currency Committee and subsequently adopted by both
Houses.
See S.Rep. No. 1179, 89th Cong., 2d Sess., 10
(1966).
[
Footnote 3/4]
See letter from Deputy Attorney General Clark to Sen.
Robertson, reprinted at 112 Cong.Rec. 12385 (1966), and
accompanying remarks by Sen. Robertson,
ibid.
[
Footnote 3/5]
See S.Rep. No. 299, 89th Cong., 1st Sess., 1-7 (1965);
H.R.Rep. No. 1221, 89th Cong., 2d Sess., 4 (1966); 111 Cong.Rec.
l3304-13305 (1965) (remarks of Sen. Robertson); 112 Cong.Rec. 2454
(1966) (remarks of Rep. Celler).
[
Footnote 3/6]
See United States v. Crocker-Anglo National
Bank, 223 F.
Supp. 849 (ND Cal.1963);
United States v. Manufacturers
Hanover Trust Co., 240 F.
Supp. 867 (SDNY 1965), cited in Hearings on S. 1698 before a
Subcommittee of the Senate Committee on Banking and Currency, 89th
Cong., 1st Sess., 446, 463 (1965).
[
Footnote 3/7]
Section 3(a) had been in force since enactment of the Bank
Holding Company Act in 1956. The 1966 amendment added clause (2) to
its provisions.
[
Footnote 3/8]
See H.R.Rep. No. 609, 84th Cong., 1st Sess., 12-13
(1955); 101 Cong.Rec. 8028 (1955) (remarks of Rep. Patman). In the
form initially adopted by the House, the Act would have defined as
a subsidiary a bank over which another company was found by the
Federal Reserve Board to "exercise a controlling influence." The
Senate amendment substituted the provision ultimately enacted, the
requirement of control of the election of directors.
See
S.Rep. No. 1095, 84th Cong., 1st Sess., 5 (1955).
[
Footnote 3/9]
The reference to indirect ownership, though contained in § 2(a)
of the 1956 Act (defining holding company), was inadvertently
omitted from § 2(d).
See 70 Stat. 134. The 1966 amendments
corrected the omission.
See S.Rep. No. 1179, 89th Cong.,
2d Sess., 8 (1966).
[
Footnote 3/10]
Section 2(g) of the Act defined indirect control or
ownership:
"For the purposes of this Act -- "
"(1) shares owned or controlled by any subsidiary of a bank
holding company shall be deemed to be indirectly owned or
controlled by such bank holding company;"
"(2) shares held or controlled directly or indirectly by
trustees for the benefit of (A) a company, (b) the shareholders or
members of a company, or (C) the employees (whether exclusively or
not) of a company, shall be deemed to be controlled by such
company; and"
"(3) shares transferred after January 1, 1966, by any bank
holding company (or by any company which, but for such transfer,
would be a bank holding company) directly or indirectly to any
transferee that is indebted to the transferor, or has one or more
officers, directors, trustees, or beneficiaries in common with or
subject to control by the transferor, shall be deemed to be
indirectly owned or controlled by the transferor unless the Board,
after opportunity for hearing, determines that the transferor is
not, in fact, capable of controlling the transferee."
This provision was added by the 1966 amendments to adopt
interpretations previously made by the Board. S.Rep. No. 1179,
supra, at 8.
[
Footnote 3/11]
Congress specifically noted the expansion.
See S.Rep.
No. 91-1084, p. 6 (1970); H.R.Rep. No. 91-1747, p. 12 (1970).
See also Note, The Bank Holding Company Act Amendments of
1970, 39 Geo.Wash.L.Rev. 1200, 1213-1214 (1971).
[
Footnote 3/12]
My conclusion that the affiliative relationships are not within
the terms of § 3(a), at least prior to the 1970 amendment, is
further supported by the scope and outcome of the 1968
investigation of C&S undertaken by the Federal Reserve Board
staff. The investigation was convened specifically to inquire into
a possible violation of § 3. The staff was principally concerned
with the pattern of ownership of the stock of the 5-percent banks,
especially by C&S officers and employees. Ultimately the staff
found this acceptable, so long as C&S did not finance the
purchases. There is no indication, however, that the staff
concerned itself with communications between C&S and the
5-percent banks with respect to such matters as interest rates,
loan repayment policies, or other terms of business.
[
Footnote 3/13]
There is little doubt that pent-up consumer demand for
additional banks would sooner or later induce efforts to organize
new ones. More questionable, however, is whether regulatory
authorities would respond promptly to permit new entry. In general,
regulatory policy has been thought to retard formation of new
banking institutions.
See Peltzman, Entry in Commercial
Banking, .8 J.Law & Econ. 11 (1965).
[
Footnote 3/14]
The record demonstrates that such a chain of events is possible.
Citizens & Southern Bank of Stone Mountain, organized in 1957
with C&S assistance, functioned as a correspondent associate
from 1959 until 1970. At that time, it declined an offer of
acquisition by C&S and became independent of the C&S
system. Appellees have argued that Stone Mountain represents a
unique case because a majority of voting stock remained in the
hands of a single family not intimately tied to the C&S system.
This contention is not wholly supported by the record, since, in
his trial testimony, Mr. Mills Lane, President of C&S from 1946
to 1970, referred to three other banks having a similar structure
of ownership. (2 App. 378-379, referring to Pelham, Fayetteville,
Hogansville). The example of Stone Mountain does, in any event,
demonstrate that sponsorship can occur under conditions ultimately
leading to independence of the sponsored institution.
[
Footnote 3/15]
The District Court made no finding as to the relevant geographic
market, accepting the Government's contentions
arguendo in
deciding the case. The Court apparently does the same. A report
prepared by the Government's expert witness concluded that, while
the Atlanta Standard Metropolitan Statistical Area was too large to
be considered an integral geographic market, the constituent
counties of DeKalb and Fulton were "reasonable geographic areas
within which it is appropriate to analyze the competitive effects
of the proposed mergers." 4 App. 83. This is an approximation, of
course, since the same report revealed that a number of DeKalb
residents use Fulton County banks, thus suggesting that, in certain
respects, DeKalb and Fulton County banks compete for the same
business. Accordingly, it appears that defining the geographic
market to include both DeKalb and Fulton Counties would be
justified under our cases.
See United States v. Phillipsburg
National Bank & Trust Co., 399 U.
S. 350 (1970);
United States v. Philadelphia
National Bank, 374 U. S. 321
(1963).
[
Footnote 3/16]
Three of the 5-percent banks -- Sandy Springs, Chamblee, and
Tucker -- had deposits exceeding $15 million as of January 1, 1970.
North Fulton, Park National, and South DeKalb were smaller and more
recently organized, but all have experienced vigorous growth. The
average annual rate of deposit growth for the two years preceding
January 1, 1970, was 102% for North Fulton and 50% for Park
National, in contrast to a national average rate for all commercial
bank deposits during the same period of slightly more than 10%.
South DeKalb, organized in late 1969, had more than doubled its
deposits from $1.5 to $3 million during the first half of 1970. 5
App. 422, 546.
[
Footnote 3/17]
See n 16,
supra.
[
Footnote 3/18]
Officers of both C&S and the 5-percent banks testified that
they had not contemplated a severance of relations, but this
testimony does not establish what would happen if the acquisitions
were enjoined. Had the managements testified that they would not
consider severance under any circumstances, such declarations of an
intention to eschew a course dictated by economic self-interest
would have to be viewed with skepticism.
See United States v.
Falstaff Brewing Corp., 410 U. S. 526,
410 U. S.
568-570 (1973) (MARSHALL, J., concurring in result).
Whether the 5-percent banks would have been formed at all had
their principals expected the Clayton Act to bar ultimate
acquisition by C&S is a different question. I am not troubled
by it for essentially the same reasons that have led me to conclude
above that enjoining continuation of correspondent associate
relationships would not deter sponsorship of
de facto
branches under state law restrictions on
de jure
branching.
See supra at
422 U. S.
143-144.
[
Footnote 3/19]
The record indicates that, at the time C&S applied for
regulatory approval of the acquisitions, its two largest
competitors, First National Bank of Atlanta and Trust Company of
Georgia, had sought, and in some cases had obtained, approval for
similar acquisitions of affiliated banks. 1 App. E-39.