Appellees, a national bank and a state bank, are the second and
third largest of the 42 commercial banks in the metropolitan area
consisting of Philadelphia and its three contiguous counties, and
they have branches throughout that area. Appellees' boards of
directors approved an agreement for their consolidation, under
which the national bank's stockholders would retain their stock
certificates, which would represent shares in the consolidated
bank, while the state bank's stockholders would surrender their
shares in exchange for shares in the consolidated bank. After
obtaining reports, as required by the Bank Merger Act of 1960, from
the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation and the Attorney General, all of whom
advised that the proposed merger would substantially lessen
competition in the area, the Comptroller of the Currency approved
it. The United States sued to enjoin consummation of the proposed
consolidation on the ground,
inter alia, that it would
violate § 7 of the Clayton Act.
Held: the proposed consolidation of appellee banks is
forbidden by § 7 of the Clayton Act, and it must be enjoined. Pp.
323-372.
1. By the amendments to § 7 of the Clayton Act enacted in 1950,
Congress intended to close a loophole in the original section by
broadening its scope so as to cover the entire range of corporate
amalgamations, from pure stock acquisitions to pure acquisitions of
assets, and it did not intend to exclude bank mergers. Pp.
374 U. S.
335-349.
2. The Bank Merger Act of 1960, by directing the banking
agencies to consider competitive factors before approving mergers,
did not immunize mergers approved by them from operation of the
federal antitrust laws; and the doctrine of primary jurisdiction is
not applicable here.
California v. Federal Power
Commission, 369 U. S. 482. Pp.
374 U. S.
350-355.
3. The proposed consolidation of appellee banks would violate §
7 of the Clayton Act, and it must be enjoined. Pp.
374 U.S. 355-372.
Page 374 U. S. 322
(a) The "line of commerce" here involved is commercial banking.
Pp.
374 U.S. 355-357.
(b) The "section of the country" which is relevant here is the
metropolitan area consisting of Philadelphia and its three
contiguous counties. Pp.
374 U. S.
357-362.
(c) The consolidated bank would control such an undue percentage
share of the relevant market (at least 30%) and the consolidation
would result in such a significant increase in the concentration of
commercial banking facilities in the area (33%) that the result
would be inherently likely to lessen competition substantially, and
there is no evidence in the record to show that it would not do so.
Pp.
374 U. S.
362-367.
(d) The facts that commercial banking is subject to a high
degree of governmental regulation and that it deals with the
intangibles of credit and services, rather than in the manufacture
or sale of tangible commodities, do not immunize it from the
anticompetitive effects of undue concentration. Pp.
374 U. S.
368-370.
(e) This proposed consolidation cannot be justified on the
theory that only through mergers can banks follow their customers
to be suburbs and retain their business, since this can be
accomplished by establishing new branches in the suburbs. P.
374 U. S.
370.
(f) This proposed consolidation cannot be justified on the
ground that the increased lending limit would enable the
consolidated bank to compete with the large out-of-state banks,
particularly the New York banks, for very large loans. Pp.
374 U. S.
370-371.
(g) This proposed consolidation cannot be justified on the
ground that Philadelphia needs a bank larger than it now has in
order to bring business to the area and stimulate its economic
development. P.
374 U. S.
371.
(h) This Court rejects appellees' pervasive suggestion that
application of the procompetitive policy of § 7 to the banking
industry will have dire, although unspecified, consequences for the
national economy. Pp.
374 U. S.
371-372.
201 F.
Supp. 348, reversed.
Page 374 U. S. 323
MR. JUSTICE BRENNAN delivered the opinion of the Court.
The United States, appellant here, brought this civil action in
the United States District Court for the Eastern District of
Pennsylvania under § 4 of the Sherman Act, 15 U.S.C. § 4, and § 15
of the Clayton Act, 15 U.S.C. § 25, to enjoin a proposed merger of
The Philadelphia National Bank (PNB) and Girard Trust Corn Exchange
Bank (Girard), appellees here. The complaint charged violations of
§ 1 of the Sherman Act, 15 U.S.C. § 1, and § 7 of the Clayton Act,
15 U.S.C. § 18. [
Footnote 1]
From a judgment for appellees after trial,
see 201 F.
Supp. 348, the United States appealed to this Court under § 2
of the Expediting Act, 15 U.S.C. § 29. Probable jurisdiction was
noted. 369 U.S. 883. We reverse the judgment of the District Court.
We hold that the merger of appellees is forbidden by § 7 of the
Page 374 U. S. 324
Clayton Act and so must be enjoined; we need not, and therefore
do not, reach the further question of alleged violation of § 1 of
the Sherman Act.
I
. THE FACTS AND PROCEEDINGS BELOW.
A. The Background: Commercial Banking in the United
States
Because this is the first case which has required this Court to
consider the application of the antitrust laws to the commercial
banking industry, and because aspects of the industry and of the
degree of governmental regulation of it will recur throughout our
discussion, we deem it appropriate to begin with a brief background
description. [
Footnote 2]
Page 374 U. S. 325
Commercial banking in this country is primarily unit banking.
That is, control of commercial banking is diffused throughout a
very large number of independent, local banks -- 13,460 of them in
1960 -- rather than concentrated in a handful of nationwide banks,
as, for example, in England and Germany. There are, to be sure, in
addition to the independent banks, some 10,000 branch banks; but
branching, which is controlled largely by state law -- and
prohibited altogether by some States -- enables a bank to extend
itself only to state lines, and often not that far. [
Footnote 3] It is also the case, of course,
that many banks place loans and solicit deposits outside their home
area. But, with these qualifications, it remains true that ours is
essentially a decentralized system of community banks. Recent
years, however, have witnessed a definite trend toward
concentration. Thus, during the decade ending in 1960, the number
of commercial banks in the United
Page 374 U. S. 326
States declined by 714, despite the chartering of 887 new banks
and a very substantial increase in the Nation's credit needs during
the period. Of the 1,601 independent banks which thus disappeared,
1,503, with combined total resources of well over $25,000,000,000,
disappeared as the result of mergers.
Commercial banks are unique among financial institutions in that
they alone are permitted by law to accept demand deposits. This
distinctive power gives commercial banking a key role in the
national economy. For banks do not merely deal in, but are actually
a source of, money and credit; when a bank makes a loan by
crediting the borrower's demand deposit account, it augments the
Nation's credit supply. [
Footnote
4] Furthermore, the power to accept demand deposits makes banks
the intermediaries in most financial transactions (since transfers
of substantial moneys are almost always by check, rather than by
cash) and, concomitantly, the repositories of very substantial
individual and corporate funds. The banks' use of these funds is
conditioned by the fact that their working capital consists very
largely of demand deposits, which makes liquidity the guiding
principle of bank lending and investing policies; thus it is that
banks are the chief source of the country's short-term business
credit.
Banking operations are varied and complex; "commercial banking"
describes a congeries of services and credit devices. [
Footnote 5] But among them the creation
of additional
Page 374 U. S. 327
money and credit, the management of the checking account system,
and the furnishing of short-term business loans would appear to be
the most important. For the proper discharge of these functions is
indispensable to a healthy national economy, as the role of bank
failures in depression periods attests. It is therefore not
surprising that commercial banking in the United States is subject
to a variety of governmental controls, state and federal. Federal
regulation is the more extensive, and our focus will be upon it. It
extends not only to the national banks,
i.e., banks
chartered under federal law and supervised by the Comptroller of
the Currency,
see 12 U.S.C. § 21
et seq. For many
state banks,
see 12 U.S.C. § 321, as well as virtually all
the national banks, 12 U.S.C. § 222, are members of the Federal
Reserve System (FRS), and more than 95% of all banks,
see
12 U.S.C. § 1815, are insured by the Federal Deposit Insurance
Corporation (FDIC). State member and nonmember insured banks are
subject to a federal regulatory scheme almost as elaborate as that
which governs the national banks.
The governmental controls of American banking are manifold.
First, the Federal Reserve System, through its open-market
operations,
see 12 U.S.C. §§ 263(c), 353-359, control of
the rediscount rate,
see 12 U.S.C. § 357, and
modifications of reserve requirements,
see 12 U.S.C.
Page 374 U. S. 328
§§ 462, 462b, regulates the supply of money and credit in the
economy, and thereby indirectly regulates the interest rates of
bank loans. This is not, however, rate regulation. The Reserve
System's activities are only designed to influence the prime,
i.e., minimum, bank interest rate. There is no federal
control of the maximum, although all banks, state and national, are
subject to state usury laws where applicable.
See 12
U.S.C. § 85. In the range between the maximum fixed by state usury
laws and the practical minimum set by federal fiscal policies
(there is no law against undercutting the prime rate, but bankers
seldom do), bankers are free to price their loans as they choose.
Moreover, charges for other banking services, such as service
charges for checking privileges, are free of governmental
regulation, state or federal.
Entry, branching, and acquisitions are covered by a network of
state and federal statutes. A charter for a new bank, state or
national, will not be granted unless the invested capital and
management of the applicant, and its prospects for doing sufficient
business to operate at a reasonable profit, give adequate
protection against undue competition and possible failure.
See,
e.g., 12 U.S.C. §§ 26, 27, 51; 12 CFR § 4.1(b); Pa.Stat.Ann.,
Tit. 7, § 819-306. Failure to meet these standards may cause the
FDIC to refuse an application for insurance, 12 U.S.C. §§ 1815,
1816, and may cause the FDIC, Federal Reserve Board (FRB), and
Comptroller to refuse permission to branch to insured, member, and
national banks, respectively. 12 U.S.C. §§ 36, 321, 1828(d).
Permission to merge, consolidate, acquire assets, or assume
liabilities may be refused by the agencies on the same grounds. 12
U.S.C. (1958 ed., Supp. IV) § 1828(c),
note 8 infra. Furthermore, national banks appear
to be subject to state geographical limitations on branching.
See 12 U.S.C. § 36(c).
Page 374 U. S. 329
Banks are also subject to a number of specific provisions aimed
at ensuring sound banking practices. For example, member banks of
the Federal Reserve System may not pay interest on demand deposits,
12 U.S.C. § 371a, may not invest in common stocks or hold for their
own account investment securities of any one obligor in excess of
10% of the bank's unimpaired capital and surplus,
see 12
U.S.C. §§ 24 Seventh, 335, and may not pay interest on time or
savings deposits above the rate fixed by the FRB, 12 U.S.C. § 371b.
The payment of interest on deposits by nonmember insured banks is
also federally regulated. 12 U.S.C. (1958 ed., Supp. IV) § 1828(g);
12 CFR, 1962 Supp., Part 329. In the case of national banks, the
10% limit on the obligations of a single obligor includes loans as
well as investment securities.
See 12 U.S.C. § 84.
Pennsylvania imposes the same limitation upon banks chartered under
its laws, such as Girard. Pa.Stat.Ann. (1961 Supp.), Tit. 7, §
819-1006.
But perhaps the most effective weapon of federal regulation of
banking is the broad visitorial power of federal bank examiners.
Whenever the agencies deem it necessary, they may order "a thorough
examination of all the affairs of the bank," whether it be a member
of the FRS or a nonmember insured bank. 12 U.S.C. §§ 325, 481, 483,
1820(b); 12 CFR § 4.2. Such examinations are frequent and
intensive. In addition, the banks are required to furnish detailed
periodic reports of their operations to the supervisory agencies.
12 U.S.C. §§ 161, 324, 1820(e). In this way, the agencies maintain
virtually a day-to-day surveillance of the American banking system.
And should they discover unsound banking practices, they are
equipped with a formidable array of sanctions. If, in the judgment
of the FRB, a member bank is making "undue use of bank credit," the
Board may suspend the bank from the use of the credit facilities of
the FRS. 12 U.S.C. § 301. The FDIC has an even more formidable
Page 374 U. S. 330
power. If it finds "unsafe or unsound practices" in the conduct
of the business of any insured bank, it may terminate the bank's
insured status. 12 U.S.C. § 1818(a). Such involuntary termination
severs the bank's membership in the FRS, if it is a state bank, and
throws it into receivership if it is a national bank. 12 U.S.C. §
1818(b). Lesser, but nevertheless drastic, sanctions include
publication of the results of bank examinations. 12 U.S.C. §§ 481,
1828(f). As a result of the existence of this panoply of sanctions,
recommendations by the agencies concerning banking practices tend
to be followed by bankers without the necessity of formal
compliance proceedings. 1 Davis, Administrative Law (1958), §
4.04.
Federal supervision of banking has been called
"[p]robably the outstanding example in the federal government of
regulation of an entire industry through methods of supervision. .
. . The system may be one of the most successful [systems of
economic regulation,] if not the most successful."
Id., § 4.04, at 247. To the efficacy of this system we
may owe, in part, the virtual disappearance of bank failures from
the American economic scene. [
Footnote 6]
B. The Proposed Merger of PNB and Girard
The Philadelphia National Bank and Girard Trust Corn Exchange
Bank are, respectively, the second and third largest of the 42
commercial banks with head offices in the Philadelphia metropolitan
area, which consists of the City of Philadelphia and its three
contiguous counties in Pennsylvania. The home county of both banks
is the
Page 374 U. S. 331
city itself; Pennsylvania law, however, permits branching into
the counties contiguous to the home county, Pa.Stat.Ann. (1961
Supp.), Tit. 7, § 819-204.1, and both banks have offices throughout
the four-county area. PNB, a national bank, has assets of over
$1,000,000,000, making it (as of 1959) the twenty-first largest
bank in the Nation. Girard, a state bank, is a member of the FRS
and is insured by the FDIC; it has assets of about $750,000,000.
Were the proposed merger to be consummated, the resulting bank
would be the largest in the four-county area, with (approximately)
36% of the area banks' total assets, 36% of deposits, and 34% of
net loans. It and the second largest (First Pennsylvania Bank and
Trust Company, now the largest) would have between them 59% of the
total assets, 58% of deposits, and 58% of the net loans, while,
after the merger, the four largest banks in the area would have 78%
of total assets, 77% of deposits, and 78% of net loans.
The present size of both PNB and Girard is in part the result of
mergers. Indeed, the trend toward concentration is noticeable in
the Philadelphia area generally, in which the number of commercial
banks has declined from 108 in 1947 to the present 42. Since 1950,
PNB has acquired nine formerly independent banks, and Girard six;
and these acquisitions have accounted for 59% and 85% of the
respective banks' asset growth during the period, 63% and 91% of
their deposit growth, and 12% and 37% of their loan growth. During
this period, the seven largest banks in the area increased their
combined share of the area's total commercial bank resources from
about 61% to about 90%.
In November, 1960, the boards of directors of the two banks
approved a proposed agreement for their consolidation under the PNB
charter. By the terms of the agreement, PNB's stockholders were to
retain their share certificates, which would be deemed to represent
an equal
Page 374 U. S. 332
number of shares in the consolidated bank, while Girard's
stockholders would surrender their shares in exchange for shares in
the consolidated bank, receiving 1.2875 such shares for each Girard
share. Such a consolidation is authorized, subject to the approval
of the Comptroller of the Currency, by 12 U.S.C. (1958 ed., Supp.
IV) § 215. [
Footnote 7] But
under the Bank Merger Act of 1960, 12 U.S.C. (1963 ed., Supp. IV) §
1828(c), the Comptroller may not give his approval until he has
received reports from the other two banking agencies and the
Attorney General respecting the probable effects of the proposed
transaction on competition. [
Footnote 8] All three reports advised that the
proposed
Page 374 U. S. 333
merger would have substantial anticompetitive effects in the
Philadelphia metropolitan area. However, on February 24, 1961, the
Comptroller approved the merger. No opinion was rendered at that
time. But, as required by § 1828(c), the Comptroller explained the
basis for his decision to approve the merger in a statement to be
included in his annual report to Congress. As to effect upon
competition, he reasoned that,
"[s]ince there will remain an adequate number of alternative
sources of banking service in Philadelphia, and in view of the
beneficial effects of this consolidation upon international and
national competition, it was concluded that the over-all effect
upon competition would not be unfavorable."
He also stated that the consolidated bank
"would be far better able to serve the convenience and needs of
its community by being of material assistance to its city and state
in their efforts to attract new industry and to retain existing
industry."
The day after the Comptroller approved the
Page 374 U. S. 334
merger, the United States commenced the present action. No steps
have been taken to consummate the merger pending the outcome of
this litigation.
C. The Trial and the District Court's
Decision
The Government's case in the District Court relied chiefly on
statistical evidence bearing upon market structure and on testimony
by economists and bankers to the effect that, notwithstanding the
intensive governmental regulation of banking, there was a
substantial area for the free play of competitive forces; that
concentration of commercial banking, which the proposed merger
would increase, was inimical to that free play; that the principal
anticompetitive effect of the merger would be felt in the area in
which the banks had their offices, thus making the four-county
metropolitan area the relevant geographical market; and that
commercial banking was the relevant product market. The defendants,
in addition to offering contrary evidence on these points,
attempted to show business justifications for the merger. They
conceded that both banks were economically strong and had sound
management, but offered the testimony of bankers to show that the
resulting bank, with its greater prestige and increased lending
limit, [
Footnote 9] would be
better able to compete with large out-of-state (particularly New
York) banks, would attract new business to Philadelphia, and in
general would promote the economic development of the metropolitan
area. [
Footnote 10]
Page 374 U. S. 335
Upon this record, the District Court held that: (1) the passage
of the Bank Merger Act of 1960 did not repeal by implication the
antitrust laws insofar as they may apply to bank mergers; (2) § 7
of the Clayton Act is inapplicable to bank mergers, because banks
are not corporations "subject to the jurisdiction of the Federal
Trade Commission"; (3) but, assuming that § 7 is applicable, the
four-county Philadelphia metropolitan area is not the relevant
geographical market, because PNB and Girard actively compete with
other banks for bank business throughout the greater part of the
northeastern United States; (4) but even assuming that § 7 is
applicable, and that the four-county area is the relevant market,
there is no reasonable probability that competition among
commercial banks in the area will be substantially lessened as the
result of the merger; (5) since the merger does not violate § 7 of
the Clayton Act,
a fortiori it does not violate § 1 of the
Sherman Act; (6) the merger will benefit the Philadelphia
metropolitan area economically. The District Court also ruled that,
for the purposes of § 7, commercial banking is a line of commerce;
the appellees do not contest this ruling.
II
. THE APPLICABILITY OF SECTION 7 OF THE
CLAYTON ACT TO BANK MERGERS
A. The Original Section and the 1950
Amendment
By its terms, the present § 7 reaches acquisitions of corporate
stock or share capital by any corporation engaged
Page 374 U. S. 336
in commerce, but it reaches acquisitions of corporate assets
only by corporations "subject to the jurisdiction of the Federal
Trade Commission." The FTC, under § 5 of the Federal Trade
Commission Act, has no jurisdiction over banks. 15 U.S.C. §
45(a)(6). [
Footnote 11]
Therefore, if the proposed merger be deemed an assets acquisition,
it is not within § 7. [
Footnote
12] Appellant argues vigorously that a merger is crucially
different from a pure assets acquisition, [
Footnote 13] and
Page 374 U. S. 337
appellees argue with equal vigor that it is crucially different
from a pure stock acquisition. [
Footnote 14] Both positions, we think, have merit; a
merger fits neither category neatly. Since the literal terms of § 7
thus do not dispose of our question, we must determine whether a
congressional design to embrace bank mergers is revealed in the
history of the statute. The question appears to be one of first
impression; we have been directed to no previous case in which a
merger or consolidation was challenged under § 7 of the Clayton
Act, as amended, where the acquiring corporation was not subject to
the FTC's jurisdiction.
When it was first enacted in 1914, § 7 referred only to
corporate acquisitions of stock and share capital; it was silent as
to assets acquisitions and as to mergers and consolidations.
Page 374 U. S. 338
Act of October 15, 1914, c. 323, § 7, 38 Stat. 731-732,
note 18 infra. It is true
that the omission may not have been an oversight. Congress'
principal concern was with the activities of holding companies, and
specifically with the practice whereby corporations secretly
acquired control of their competitors by purchasing the stock of
those companies. Although assets acquisitions and mergers were
known forms of corporate amalgamation at the time, their no less
dangerously anticompetitive effects may not have been fully
apparent to the Congress. [
Footnote 15] Still, the statutory language, read in the
light of the overriding congressional purpose to control corporate
concentrations tending to monopoly, lent itself to a construction
whereby § 7 would have reached at least mergers and consolidations.
It would hardly have done violence to the language so to have
interpreted the vague term "share capital,"
see 30
Geo.Wash.L.Rev. 1024, 1027-1028 (1962), or to have adopted the view
that:
"where the assets are exchanged for the stock of the purchasing
company, assuming that the two companies were previously in
competition, it is apparent that the seller has acquired stock in a
competing company . . . [and] therefore that, in effecting the
merger, section 7 was violated, and hence the distribution of the
stock received by the selling company to its shareholders and its
subsequent dissolution are no bar to proceedings by the government
to set aside the purchase."
Handler, Industrial Mergers and the Anti-Trust Laws, 32
Col.L.Rev. 179, 266 (1932). [
Footnote 16]
But the courts found mergers to be beyond the reach of § 7, even
when the merger technique had supplanted
Page 374 U. S. 339
stock acquisitions as the prevalent mode of corporate
amalgamation.
United States v. Celanese Corp. of
America, 91 F. Supp.
14 (D.C.S.D.N.Y.1950);
see Thatcher Mfg. Co. v. Federal
Trade Comm'n and Swift & Co. v. Federal Trade Comm'n,
decided together with
Federal Trade Comm'n v. Western Meat
Co., 272 U. S. 554;
Arrow-Hart & Hegeman Elec. Co. v. Federal Trade
Comm'n, 291 U. S. 587.
[
Footnote 17] As a result, §
7 became largely
Page 374 U. S. 340
a dead letter. Comment, 68 Yale L.J. 1627, 1629-1630 (1959);
see Federal Trade Commission, The Merger Movement: A
Summary Report (1948), 1, 3-6; Henderson, The Federal Trade
Commission (1924), 40. Meanwhile, this Court's decision in
United States v. Columbia Steel Co., 334 U.
S. 495, stirred concern whether the Sherman Act alone
was a check against corporate acquisitions. Note, 52 Col.L.Rev.
766, 768 (1952).
It was against this background that Congress in 1950 amended § 7
to include an assets acquisition provision. Act of December 29,
1950 (Celler-Kefauver Antimerger Act), c. 1184, 64 Stat. 1125-1126,
15 U.S.C. § 18. [
Footnote
18]
Page 374 U. S. 341
The legislative history is silent on the specific questions why
the amendment made no explicit reference to mergers, why assets
acquisitions by corporations not subject to FTC jurisdiction were
not included, and what these omissions signify. Nevertheless, the
basic congressional design clearly emerges and from that design the
answers to these questions may be inferred. Congress primarily
sought to bring mergers within § 7, and thereby close what it
regarded as a loophole in the section. [
Footnote 19] But, in addition, it sought to reach
transactions such as that involved in
Columbia Steel,
which was a simple purchase
Page 374 U. S. 342
of assets and not a merger. [
Footnote 20] In other words, Congress contemplated that
the 1950 amendment would give § 7 a reach which would bring the
entire range of corporate amalgamations, from pure stock
acquisitions to pure assets acquisitions, within the scope of § 7.
Thus, the stock acquisition and assets acquisition provisions, read
together, reach mergers, which fit neither category perfectly, but
lie somewhere between the two ends of the spectrum.
See
pp.
374 U. S.
336-337, and notes
13 14
supra. So construed, the specific exception for acquiring
corporations not subject to the FTC's jurisdiction excludes from
the coverage of § 7 only assets acquisitions by such corporations
when not accomplished by merger.
Page 374 U. S. 343
This construction is supported by a number of specific
considerations.
First. Any other construction would be illogical, and
disrespectful of the plain congressional purpose in amending § 7,
because it would create a large loophole in a statute designed to
close a loophole. It is unquestioned that the stock acquisition
provision of § 7 embraces every corporation engaged in commerce,
including banks. And it is plain that Congress, in amending § 7,
considered a distinction for antitrust purposes between acquisition
of corporate control by purchase of stock and acquisition by merger
unsupportable in reason, and sought to overrule the decisions of
this Court which had recognized such a distinction. [
Footnote 21] If, therefore, mergers in
industries outside
Page 374 U. S. 344
the FTC's jurisdiction were deemed beyond the reach of § 7, the
result would be precisely that difference in treatment which
Congress rejected. On the other hand, excluding from the section
assets acquisitions not by merger in those industries does not
appear to create a lacuna of practical importance. [
Footnote 22]
Page 374 U. S. 345
Second. The Congress which debated the bill to amend §
7 was fully aware of the important differences between a merger and
a pure purchase of assets. For example, Senator Kilgore,
remarked:
"When you talk about mergers, you are talking about a stock
transaction. . . ."
"
* * * *"
". . . [A]ctually what you do is merge the stockholdings of both
corporations, and instead of that -- I am thinking in practical
terms -- you merge the corporate entities of the two corporations
and you get one corporation out of it, and you issue stock in the
one corporation in lieu of the stock in the other corporation,
whereupon the stock of the corporation which had been merged is
canceled by the new corporation, and you have one corporation
handling the operation of two. So it really is a stock transaction
in the final wind-up, regardless of what you call it. But what I
call a purchase of assets is where you purchase physical assets,
things upon which you could lay your hand, either in the records or
on the ground. . . ."
Hearings before a Subcommittee of
Page 374 U. S. 346
the Senate Committee on the Judiciary on Corporate Mergers and
Acquisitions, 81st Cong., 1st and 2d Sess. 176; to the same effect,
see, e.g., id. at 100, 139, 320-325.
Plainly, acquisition of "assets," as used in amended § 7, was
not meant to be a simple equivalent of acquisition by merger, but
was intended rather to ensure against the blunting of the
antimerger thrust of the section by evasive transactions such as
had rendered the original section ineffectual. Thus, the stock
acquisition provision of § 7, though reenacted
in haec
verba by the 1950 amendment, must be deemed expanded in its
new context to include, at the very least, acquisitions by merger
or consolidation, transactions which entail a transfer of stock of
the parties, while the assets acquisition provision clearly reaches
corporate acquisitions involving no such transfer.
And see
note 22 supra. This
seems to be the point of Congressman Patman's remark, typical of
many, that:
"What this bill does is to put all corporate mergers on the same
footing, whether the result of the acquisitions of stock or the
acquisition of physical assets."
Hearings,
supra, at 126. To the same effect is the
House Report on the bill to amend § 7:
"The bill retains language of the present statute, which is
broad enough to prevent evasion of the central purpose. It covers
not only purchase of assets or stock but also any other method of
acquisition. . . . It forbids not only direct acquisitions, but
also indirect acquisitions. . . ."
H.R.Rep.No.1191, 81st Cong., 1st Sess. 8-9.
Third. The legislative history shows that the objective
of including the phrase "corporation subject to the jurisdiction of
the Federal Trade Commission" in § 7 was not to limit the
amalgamations to be covered by the amended statute, but to make
explicit the role of the FTC in administering the section. The
predominant focus of the hearings,
Page 374 U. S. 347
debates, and committee reports was upon the powers of the FTC.
The decisions of this Court which had uncovered the loophole in the
original § 7 --
Thatcher, Swift, and
Arrow-Hart
-- had not rested directly upon the substantive coverage of § 7,
but rather upon the limited scope of the FTC's divestiture powers
under § 11.
See note
17 supra. There were intimations that the courts'
power to enforce § 7 might be far greater.
See Thatcher Mfg.
Co. v. Federal Trade Comm'n, supra, at
272 U. S. 561;
Swift & Co. v. Federal Trade Comm'n, supra, at
272 U. S. 563;
Federal Trade Comm'n v. Eastman Kodak Co., 274 U.
S. 619,
274 U. S. 624;
Arrow-Hart & Hegeman Elec. Co. v. Federal Trade Comm'n,
supra, at
291 U. S.
598-599; Irvine, The Uncertainties of Section 7 of the
Clayton Act, 14 Cornell L.Q. 28 (1928). Thus, the loophole was
sometimes viewed as primarily a gap in the FTC's jurisdiction.
[
Footnote 23] Furthermore,
although the Clayton Act has always provided for dual enforcement
by court and agency,
see 15 U.S.C. § 25;
United States
v. W. T. Grant Co., 345 U. S. 629;
United States Alkali Export Assn. v. United States,
325 U. S. 196,
325 U. S. 208,
prior to the 1950 amendment, enforcement of § 7 was left largely to
the FTC. Martin, Mergers and the Clayton Act (1959), 205, 219;
Montague, The Celler Anti-Merger Act: An Administrative Problem in
an Economic Crisis, 37 A.B.A.J. 253
Page 374 U. S. 348
(1951). And the impetus to amend § 7 came in large part from the
FTC.
See, e.g., Martin,
supra, 187-194; Federal
Trade Commission, Annual Reports, 1928, pp. 18-19; 1940, pp. 12-13;
1948, pp. 11-22; The Merger Movement: A Summary Report (1948).
Congress in 1950 clearly intended to remove all question concerning
the FTC's remedial power over corporate acquisitions, and therefore
explicitly enlarged the FTC's jurisdiction. Congress' choice of
this means of underscoring the FTC's role in enforcing § 7 provides
no basis for a construction which would undercut the dominant
congressional purpose of eliminating the difference in treatment
accorded stock acquisitions and mergers by the original § 7 as
construed.
Fourth. It is settled law that "[i]mmunity from the
antitrust laws is not lightly implied."
California v. Federal
Power Comm'n, 369 U. S. 482,
369 U. S. 485.
Cf. United States v. Borden Co., 308 U.
S. 188,
308 U. S.
198-199;
United States v. Southern Pac. Co.,
259 U. S. 214,
259 U. S.
239-240. This canon of construction, which reflects the
felt indispensable role of antitrust policy in the maintenance of a
free economy, is controlling here. For there is no indication in
the legislative history to the 1950 amendment of § 7 that Congress
wished to confer a special dispensation upon the banking industry;
if Congress had so wished, moreover, surely it would have exempted
the industry from the stock acquisition as well as the assets
acquisition provision.
Of course, our construction of the amended § 7 is not foreclosed
because, after the passage of the amendment, some members of
Congress, and for a time the Justice Department, voiced the view
that bank mergers were still beyond the reach of the section.
[
Footnote 24] "[T]he views
of a subsequent
Page 374 U. S. 349
Congress form a hazardous basis for inferring the intent of an
earlier one."
United States v. Price, 361 U.
S. 304,
361 U. S. 313;
see Rainwater v. United States, 356 U.
S. 590,
356 U. S. 593;
United States v. United Mine Workers, 330 U.
S. 258,
330 U. S. 282;
cf. United States v. E. I. Du Pont De Nemours & Co.,
353 U. S. 586,
353 U. S. 590.
This holds true even though misunderstanding of the scope of § 7
may have played some part in the passage of the Bank Merger Act of
1960. [
Footnote 25] There is
a question, to which we shall shortly turn, whether there exists
such inconsistency between the Bank Merger Act and § 7, as we now
construe it, as to require a holding that § 7 must be deemed
repealed
pro tanto; but that is a different question from
whether misunderstanding of the scope of § 7 is relevant to our
task of defining what scope Congress gave the section in 1950. When
Congress enacted the Bank Merger Act, the applicability of § 7 to
bank mergers was still to be authoritatively determined; it was a
subject of speculation. Thus, this is not a case in which our
"earlier decisions are part of the arch on which the new
structure rests, [and] we [must] refrain from disturbing them lest
we change the design that Congress fashioned."
State Board of Ins. v. Todd Shipyards Corp.,
370 U. S. 451,
370 U. S. 458.
Cf. note 17
supra. The design fashioned in the Bank Merger Act was
predicated upon uncertainty as to the scope of § 7, and we do no
violence to that design by dispelling the uncertainty.
Page 374 U. S. 350
B. The Effect of the Bank Merger Act of
1960
Appellees contended below that the Bank Merger Act, by directing
the banking agencies to consider competitive factors before
approving mergers, 12 U.S.C. (1958 ed., Supp. IV) § 1828(c),
note 8 supra,
immunizes approved mergers from challenge under the federal
antitrust laws. [
Footnote
26] We think the District Court was correct in rejecting this
contention. No express immunity is conferred by the Act. [
Footnote 27] Repeals of the
antitrust laws by implication from a regulatory statute are
strongly disfavored, [
Footnote
28] and
Page 374 U. S. 351
have only been found in cases of plain repugnancy between the
antitrust and regulatory provisions. [
Footnote 29] Two recent cases,
Pan American World
Airways v. United States, 371 U. S. 296, and
California v. Federal Power Comm'n, 369 U.
S. 482, illustrate this principle. In
Pan
American, the Court held that because the Civil Aeronautics
Board had been given broad powers to enforce the competitive
standard clearly delineated by the Civil Aeronautics Act, and to
immunize a variety of transactions from the operation of the
antitrust laws, the Sherman Act could not be applied to facts
composing the precise ingredients of a case subject to the Board's
broad regulatory and remedial powers; in contrast, the banking
agencies have authority neither to enforce the antitrust laws
against mergers,
cf. note 22 supra, nor to grant immunity from those
laws.
In the California case, on the other hand, the Court held that
the FPC's approval of a merger did not confer immunity from § 7 of
the Clayton Act, even though, as in the instant case, the agency
had taken the competitive factor into account in passing upon the
merger application.
See 369 U.S. at
369 U. S.
484-485,
369 U. S.
487-488. We think California is controlling here.
Although the Comptroller was required to consider effect upon
competition in passing upon appellees' merger application, he was
not required to give this factor any particular weight; he was not
even required to (and did not) hold a hearing before approving the
application; and there is no specific provision for judicial review
of his decision. [
Footnote
30] Plainly, the
Page 374 U. S. 352
range and scope of administrative powers under the Bank Merger
Act bear little resemblance to those involved in
Pan
American.
Nor did Congress, in passing the Bank Merger Act, embrace the
view that federal regulation of banking is so comprehensive that
enforcement of the antitrust laws would be either unnecessary, in
light of the completeness of the regulatory structure, or
disruptive of that structure. On the contrary, the legislative
history of the Act seems clearly to refute any suggestion that
applicability of the antitrust laws was to be affected. Both the
House and Senate Committee Reports stated that the Act would not
affect in any way the applicability of the antitrust laws to bank
acquisitions. H.R.Rep. No. 1416, 86th Cong., 2d Sess. 9; S.Rep. No.
196, 86th Cong., 1st Sess. 3.
See also, e.g., 105
Cong.Rec. 8131 (remarks of Senator Rebertson, the Act's sponsor).
Moreover, bank regulation is in most respects less complete than
public utility regulation, to which interstate rail and air
carriers, among others, are subject. Rate regulation in the banking
industry is limited and largely indirect,
see p.
374 U. S. 328,
supra; banks are under no duty not to discriminate in
their services; and though the location of bank offices is
regulated, banks may do business -- place loans and solicit
deposits -- where they please. The fact that the banking agencies
maintain a close surveillance of the industry with a view toward
preventing unsound practices that might impair liquidity or lead to
insolvency does not make federal banking regulation all-pervasive,
although it does minimize the hazards of intense competition.
Indeed, that there are so many direct public controls over unsound
competitive practices in the industry refutes the argument that
private controls of competition are necessary in the public
interest and ought therefore to be immune from scrutiny under the
antitrust laws.
Cf. Kaysen and Turner, Antitrust Policy
(1959), 206.
Page 374 U. S. 353
We note, finally, that the doctrine of "primary jurisdiction" is
not applicable here. That doctrine requires judicial abstention in
cases where protection of the integrity of a regulatory scheme
dictates preliminary resort to the agency which administers the
scheme.
See Far East Conference v. United States,
342 U. S. 570;
Great Northern R. Co. v. Merchants Elevator Co.,
259 U. S. 285;
Schwartz, Legal Restriction of Competition in the Regulated
Industries: An Abdication of Judicial Responsibility, 67
Harv.L.Rev. 436, 464 (1954). [
Footnote 31] Court jurisdiction is not thereby ousted,
but only postponed.
See General Am. Tank Car Corp. v. El Dorado
Terminal Co., 308 U. S. 422,
308 U. S. 433;
Federal Maritime Bd. v. Isbrandtsen Co., 356 U.
S. 481,
356 U. S.
498-499; 3 Davis, Administrative Law (1958), 1-55. Thus,
even if we were to assume the applicability of the doctrine to
merger application proceedings before the banking agencies,
[
Footnote 32] the present
action would not be barred, for the agency proceeding was completed
before the antitrust action was commenced.
Cf. United States v.
Western Pac. R. Co., 352 U. S. 59,
352 U. S. 69;
Retail Clerks Int'l Assn. v. Schermerhorn, 373 U.
S. 746,
373 U. S. 756.
We recognize that the practical effect of applying the doctrine of
primary
Page 374 U. S. 354
jurisdiction has sometimes been to channel judicial enforcement
of antitrust policy into appellate review of the agency's decision,
see Federal Maritime Bd. v. Isbrandtsen Co., supra; cf. D. L.
Piazza Co. v. West Coast Line, Inc., 210 F.2d 947 (C.A.2d
Cir., 1954), or even to preclude such enforcement entirely if the
agency has the power to approve the challenged activities,
see
United States Nav. Co. v. Cunard S.S. Co., 284 U.
S. 474;
cf. United States v. Railway Express
Agency, 101 F.
Supp. 1008 (D.C.D.Del.1951);
but see Federal Maritime Bd.
v. Isbrandtsen Co., supra. But here there may be no power of
judicial review of the administrative decision approving the
merger, and such approval does not, in any event, confer immunity
from the antitrust laws,
see pp.
374 U. S.
350-352,
supra. Furthermore, the considerations
that militate against finding a repeal of the antitrust laws by
implication from the existence of a regulatory scheme also argue
persuasively against attenuating, by postponing, the courts'
jurisdiction to enforce those laws.
It should be unnecessary to add that, in holding as we do that
the Bank Merger Act of 1960 does not preclude application of § 7 of
the Clayton Act to bank mergers, we deprive the later statute of
none of its intended force. Congress plainly did not intend the
1960 Act to extinguish other sources of federal restraint of bank
acquisitions having anticompetitive effects. For example, Congress
certainly knew that bank mergers would continue subject to the
Sherman Act,
see p.
374 U. S. 352,
supra, as well as that pure stock acquisitions by banks
would continue subject to § 7 of the Clayton Act. If, in addition,
bank mergers are subject to § 7, we do not see how the objectives
of the 1960 Act are thereby thwarted. It is not as if the Clayton
and Sherman Acts embodied approaches to antitrust policy
inconsistent with or unrelated to each other. The Sherman Act, of
course, forbids mergers effecting an unreasonable restraint of
trade.
See, e.g., 193 U. S. S.
355� Securities Co. v. United States,
193 U.
S. 197; United States v. Union Pac. R. Co.,
226 U. S. 61;
indeed, there is presently pending before this Court a challenge to
a bank merger predicated solely on the Sherman Act. United
States v. First Nat. Bank & Trust Co. of Lexington,@ 374 U.S.
824. And the tests of illegality under the Sherman and Clayton Acts
are complementary.
"[T]he public policy announced by § 7 of the Clayton Act is to
be taken into consideration in determining whether acquisition of
assets . . . violates the prohibitions of the Sherman Act against
unreasonable restraints."
United States v. Columbia Steel Co., 334 U.
S. 495,
334 U. S. 507,
n. 7;
see Note, 52 Col.L.Rev. 766, 768, n. 10 (1952). To
be sure, not every violation of § 7, as amended, would necessarily
be a violation of the Sherman Act; our point is simply that, since
Congress passed the 1960 Act with no intention of displacing the
enforcement of the Sherman Act against bank mergers -- or even of §
7 against pure stock acquisitions by banks -- continued application
of § 7 to bank mergers cannot be repugnant to the design of the
1960 Act. It would be anomalous to conclude that Congress, while
intending the Sherman Act to remain fully applicable to bank
mergers and § 7 of the Clayton Act to remain fully applicable to
pure stock acquisitions by banks, nevertheless intended § 7 to be
completely inapplicable to bank mergers.
III
. THE LAWFULNESS OF THE PROPOSED MERGER
UNDER SECTION 7.
The statutory test is whether the effect of the merger "may be
substantially to lessen competition" "in any line of commerce in
any section of the country." We analyzed the test in detail in
Brown Shoe Co. v. United States, 370 U.
S. 294, and that analysis need not be repeated or
extended here, for the instant case presents only a straightforward
problem of application to particular facts.
Page 374 U. S. 356
We have no difficulty in determining the "line of commerce"
(relevant product or services market) and "section of the country"
(relevant geographical market) in which to appraise the probable
competitive effects of appellees' proposed merger. We agree with
the District Court that the cluster of products (various kinds of
credit) and services (such as checking accounts and trust
administration) denoted by the term "commercial banking,"
see note 5
supra, composes a distinct line of commerce. Some
commercial banking products or services are so distinctive that
they are entirely free of effective competition from products or
services of other financial institutions; the checking account is
in this category. Others enjoy such cost advantages as to be
insulated within a broad range from substitutes furnished by other
institutions. For example, commercial banks compete with small loan
companies in the personal loan market; but the small loan
companies' rates are invariably much higher than the banks', in
part, it seems, because the companies' working capital consists in
substantial part of bank loans. [
Footnote 33] Finally, there are banking facilities
which,
Page 374 U. S. 357
although, in terms of cost and price, they are freely
competitive with the facilities provided by other financial
institutions, nevertheless enjoy a settled consumer preference,
insulating them, to a marked degree, from competition; this seems
to be the case with savings deposits. [
Footnote 34] In sum, it is clear that commercial
banking is a market "sufficiently inclusive to be meaningful in
terms of trade realities."
Crown Zellerbach Corp. v. Federal
Trade Comm'n, 296 F.2d 800, 811 (C.A.9th Cir., 1961).
We part company with the District Court on the determination of
the appropriate "section of the country." The proper question to be
asked in this case is not where the parties to the merger do
business, or even where they compete, but where, within the area of
competitive overlap, the effect of the merger on competition will
be direct and immediate.
See Bock, Mergers and Markets
(1960) 42. This depends upon "the geographic structure of
supplier-customer relations." Kaysen and Turner, Antitrust
Page 374 U. S. 358
Policy (1959), 102. In banking, as in most service industries,
convenience of location is essential to effective competition.
Individuals and corporations typically confer the bulk of their
patronage on banks in their local community; they find it
impractical to conduct their banking business at a distance.
[
Footnote 35]
See
Transamerica Corp. v. Board of Govs. of Fed. Res. Sys., 206
F.2d 163, 169 (C.A.3d Cir., 1953). The factor of inconvenience
localizes banking competition as effectively as high transportation
costs in other industries.
See, e.g., American
Page 374 U. S. 359
Crystal Sugar Co. v. Cuban-American Sugar
Co., 152 F.
Supp. 387, 398 (D.C.S.D.N.Y.1957),
aff'd, 259 F.2d 524
(C.A.2d Cir., 1958). Therefore, since, as we recently said in a
related context, the
"area of effective competition in the known line of commerce
must be charted by careful selection of the market area in which
the seller operates,
and to which the purchaser can practicably
turn for supplies,"
Tampa Elec. Co. v. Nashville Coal Co., 365 U.
S. 320,
365 U. S. 327
(emphasis supplied);
see Standard Oil Co. of Cal. v. United
States, 337 U. S. 293,
337 U. S. 299
and
337 U. S. 300,
n. 5, the four-county area in which appellees' offices are located
would seem to be the relevant geographical market.
Cf. Brown
Shoe Co., supra, at
370 U. S.
338-339. In fact, the vast bulk of appellees' business
originates in the four-county area. [
Footnote 36] Theoretically, we should be concerned with
the possibility that bank offices on the perimeter of the area may
be in
Page 374 U. S. 360
effective competition with bank offices within; actually, this
seems to be a factor of little significance. [
Footnote 37]
We recognize that the area in which appellees have their offices
does not delineate with perfect accuracy an appropriate "section of
the country" in which to appraise the effect of the merger upon
competition. Large borrowers and large depositors, the record
shows, may find it practical to do a large part of their banking
business outside their home community; very small borrowers and
depositors may, as a practical matter, be confined to bank offices
in their immediate neighborhood; and customers
Page 374 U. S. 361
of intermediate size, it would appear, deal with banks within an
area intermediate between these extremes.
See notes
35-37 supra. So
also, some banking services are evidently more local in nature than
others. But that, in banking, the relevant geographical market is a
function of each separate customer's economic scale means simply
that a workable compromise must be found -- some fair intermediate
delineation which avoids the indefensible extremes of drawing the
market either so expansively as to make the effect of the merger
upon competition seem insignificant, because only the very largest
bank customers are taken into account in defining the market, or so
narrowly as to place appellees in different markets, because only
the smallest customers are considered. We think that the
four-County Philadelphia metropolitan area, which state law
apparently recognizes as a meaningful banking community in allowing
Philadelphia banks to branch within it, and which would seem
roughly to delineate the area in which bank customers that are
neither very large nor very small find it practical to do their
banking business, is a more appropriate "section of the country" in
which to appraise the instant merger than any larger or smaller or
different area.
Cf. Hale and Hale, Market Power: Size and
Shape Under the Sherman Act (1958), 119. We are helped to this
conclusion by the fact that the three federal banking agencies
regard the area in which banks have their offices as an "area of
effective competition." Not only did the FDIC and FRB, in the
reports they submitted to the Comptroller of the Currency in
connection with appellees' application for permission to merge, so
hold, but the Comptroller, in his statement approving the merger,
agreed:
"With respect to the effect upon competition, there are three
separate levels and effective areas of competition involved. These
are the national level for national
Page 374 U. S. 362
accounts, the regional or sectional area, and the local area of
the City of Philadelphia and the immediately surrounding area."
Having determined the relevant market, we come to the ultimate
question under § 7: whether the effect of the merger "may be
substantially to lessen competition" in the relevant market.
Clearly, this is not the kind of question which is susceptible of a
ready and precise answer in most cases. It requires not merely an
appraisal of the immediate impact of the merger upon competition,
but a prediction of its impact upon competitive conditions in the
future; this is what is meant when it is said that the amended § 7
was intended to arrest anticompetitive tendencies in their
"incipiency."
See Brown Shoe Co., supra, at
370 U. S. 317,
370 U. S. 322.
Such a prediction is sound only if it is based upon a firm
understanding of the structure of the relevant market; yet the
relevant economic data are both complex and elusive.
See
generally Bok, Section 7 of the Clayton Act and the Merging of
Law and Economics, 74 Harv.L.Rev. 226 (1960). And unless
businessmen can assess the legal consequences of a merger with some
confidence, sound business planning is retarded.
See Crown
Zellerbach Corp. v. Federal Trade Comm'n, 296 F.2d 800,
826-827 (C.A.9th Cir., 1961). So also, we must be alert to the
danger of subverting congressional intent by permitting a too-broad
economic investigation.
Standard Oil Co. v. United States,
337 U. S. 293,
337 U. S. 313.
And so, in any case in which it is possible, without doing violence
to the congressional objective embodied in § 7, to simplify the
test of illegality, the courts ought to do so in the interest of
sound and practical judicial administration.
See Union Carbide
Corp., Trade Reg. Rep., FTC Complaints and Orders, 1961-1963,
15503, at 20375-20376 (concurring opinion). This is such a
case.
We noted in
Brown Shoe Co., supra, at
370 U. S. 315,
that
"[t]he dominant theme pervading congressional consideration
of
Page 374 U. S. 363
the 1950 amendments [to § 7] was a fear of what was considered
to be a rising tide of economic concentration in the American
economy."
This intense congressional concern with the trend toward
concentration warrants dispensing, in certain cases, with elaborate
proof of market structure, market behavior, or probable
anticompetitive effects. Specifically, we think that a merger which
produces a firm controlling an undue percentage share of the
relevant market, and results in a significant increase in the
concentration of firms in that market is so inherently likely to
lessen competition substantially that it must be enjoined in the
absence of evidence clearly showing that the merger is not likely
to have such anticompetitive effects.
See United States v.
Koppers Co., 202 F.
Supp. 437 (D.C.W.D.Pa.1962).
Such a test lightens the burden of proving illegality only with
respect to mergers whose size makes them inherently suspect in
light of Congress' design in § 7 to prevent undue concentration.
Furthermore, the test is fully consonant with economic theory.
[
Footnote 38] That
"[c]ompetition is likely to be greatest when there are many
sellers, none of which has any significant market share," [
Footnote 39] is common ground among
most economists, and was undoubtedly a premise of congressional
reasoning about the antimerger statute.
Page 374 U. S. 364
The merger of appellees will result in a single bank's
controlling at least 30% of the commercial banking business in the
four-county Philadelphia metropolitan area. [
Footnote 40] Without attempting to specify the
smallest market share which would still be considered to threaten
undue concentration, we are clear that 30% presents that threat.
[
Footnote 41]
Page 374 U. S. 365
Further, whereas presently the two largest banks in the area
(First Pennsylvania and PNB) control between them approximately 44%
of the area's commercial banking business, the two largest after
the merger (PNB-Girard and First Pennsylvania) will control 59%.
Plainly, we think, this increase of more than 33% in concentration
must be regarded as significant. [
Footnote 42]
Our conclusion that these percentages raise an inference that
the effect of the contemplated merger of appellees may be
substantially to lessen competition is not an arbitrary one,
although neither the terms of § 7 nor the legislative history
suggests that any particular percentage share was deemed critical.
The House Report states that the tests of illegality under amended
§ 7
"are intended to be similar to those which the courts have
applied in interpreting the same language as used in other sections
of the Clayton Act."
H.R.Rep.No.1191, 81st Cong., 1st Sess. 8. Accordingly, we have
relied upon decisions under these other sections in applying § 7.
See Brown Shoe Co., supra, passim; cf. United States v. E. I.
Du Pont De Nemours & Co., 353 U.
S. 586,
353 U. S. 595,
and n. 15. In
Standard Oil Co. v. United States,
337 U. S. 293,
cited in S.Rep.No.1775, 81st Cong., 2d Sess. 6, this Court held
violative of § 3 of the Clayton Act exclusive contracts �
41 and S. 366� whereby the defendant
company, which accounted for 23% of the sales in the relevant
market and, together with six other firms, accounted for 65% of
such sales, maintained control over outlets through which
approximately 7% of the sales were made. In
Federal Trade
Comm'n v. Motion Picture Adv. Serv. Co., 344 U.
S. 392, we held unlawful, under § 1 of the Sherman Act
and § 5 of the Federal Trade Commission Act, rather than under § 3
of the Clayton Act, exclusive arrangements whereby the four major
firms in the industry had foreclosed 75% of the relevant market;
the respondent's market share, evidently, was 20%. Kessler and
Stern, Competition, Contract, and Vertical Integration, 69 Yale
L.J. 1, 53 n. 231 (1959). In the instant case, by way of
comparison, the four largest banks after the merger will foreclose
78% of the relevant market. P.
41 and S. 331|>331,
supra. And in
Standard Fashion Co. v. Magrane-Houston Co., 258 U.
S. 346, the Court held violative of § 3 a series of
exclusive contracts whereby a single manufacturer controlled 40% of
the industry's retail outlets. Doubtless these cases turned to some
extent upon whether, "by the nature of the market, there is room
for newcomers."
Federal Trade Comm'n v. Motion Picture Adv.
Serv. Co., supra, at
344 U. S. 395.
But they remain highly suggestive in the present context, for, as
we noted in
Brown Shoe Co., supra, at
370 U. S. 332,
n. 55, integration by merger is more suspect than integration by
contract, because of the greater permanence of the former. The
market share and market concentration figures in the contract
integration cases, taken together with scholarly opinion,
see notes
41 and |
41 and S. 321fn42|>42,
supra, support, we believe, the inference we draw in the
instant case from the figures disclosed by the record.
There is nothing in the record of this case to rebut the
inherently anticompetitive tendency manifested by these
percentages. There was, to be sure, testimony by bank officers to
the effect that competition among banks in
Page 374 U. S. 367
Philadelphia was vigorous and would continue to be vigorous
after the merger. We think, however, that the District Court's
reliance on such evidence was misplaced. This lay evidence on so
complex an economic-legal problem as the substantiality of the
effect of this merger upon competition was entitled to little
weight, in view of the witnesses' failure to give concrete reasons
for their conclusions. [
Footnote
43]
Of equally little value, we think, are the assurances offered by
appellees' witnesses that customers dissatisfied with the services
of the resulting bank may readily turn to the 40 other banks in the
Philadelphia area. In every case short of outright monopoly, the
disgruntled customer has alternatives; even in tightly
oligopolistic markets, there may be small firms operating. A
fundamental purpose of amending § 7 was to arrest the trend toward
concentration, the tendency to monopoly, before the consumer's
alternatives disappeared through merger, and that purpose would be
ill-served if the law stayed its hand until 10, or 20, or 30 more
Philadelphia banks were absorbed. This is not a fanciful
eventuality, in view of the strong trend toward mergers evident in
the area,
see p.
374 U. S. 331,
supra; and we might note also that entry of new
competitors into the banking field is far from easy. [
Footnote 44]
Page 374 U. S. 368
So also, we reject the position that commercial banking, because
it is subject to a high degree of governmental regulation, or
because it deals in the intangibles of credit and services, rather
than in the manufacture or sale of tangible commodities, is somehow
immune from the anticompetitive effects of undue concentration.
Competition among banks exists at every level -- price, variety of
credit arrangements, convenience of location, attractiveness of
physical surroundings, credit information, investment advice,
service charges, personal accommodations, advertising,
miscellaneous special and extra services -- and it is keen; on
this, appellees' own witnesses were emphatic. [
Footnote 45]
Page 374 U. S. 369
There is no reason to think that concentration is less inimical
to the free play of competition in banking than in other service
industries. On the contrary, it is in all probability more
inimical. For example, banks compete to fill the credit needs of
businessmen. Small businessman especially are, as a practical
matter, confined to their locality for the satisfaction of their
credit needs.
See note
35 supra. If the number of banks in the locality is
reduced, the vigor of competition for filling the marginal small
business borrower's needs is likely to diminish.
Page 374 U. S. 370
At the same time, his concomitantly greater difficulty in
obtaining credit is likely to put him at a disadvantage
vis-a-vis larger businesses with which he competes. In
this fashion, concentration in banking accelerates concentration
generally.
We turn now to three affirmative justifications which appellees
offer for the proposed merger. The first is that only through
mergers can banks follow their customers to the suburbs and retain
their business. This justification does not seem particularly
related to the instant merger, but, in any event, it has no merit.
There is an alternative to the merger route: the opening of new
branches in the areas to which the customers have moved --
so-called
de novo branching. Appellees do not contend that
they are unable to expand thus, by opening new offices rather than
acquiring existing ones, and surely one premise of an anti-merger
statute such as § 7 is that corporate growth by internal expansion
is socially preferable to growth by acquisition.
Second, it is suggested that the increased lending limit of the
resulting bank will enable it to compete with the large
out-of-state bank, particularly the New York banks, for very large
loans. We reject this application of the concept of "countervailing
power."
Cf. Kiefer-Stewart Co. v. Joseph E. Seagram &
Sons, 340 U. S. 211. If
anticompetitive effects in one market could be justified by
procompetitive consequences in another, the logical upshot would be
that every firm in an industry could, without violating § 7, embark
on a series of mergers that would make it, in the end, as large as
the industry leader. For if all the commercial banks in the
Philadelphia area merged into one, it would be smaller than the
largest bank in New York City. This is not a case, plainly, where
two small firms in a market propose to merge in order to be able to
compete more successfully with the leading firms in that
Page 374 U. S. 371
market. Nor is it a case in which lack of adequate banking
facilities is causing hardships to individuals or businesses in the
community. The present two largest banks in Philadelphia have
lending limits of $8,000,000 each. The only business located in the
Philadelphia area which find such limits inadequate are large
enough readily to obtain bank credit in other cities.
This brings us to appellees' final contention, that Philadelphia
needs a bank larger than it now has in order to bring business to
the area and stimulate its economic development.
See p.
374 U. S. 334
and
note 10 supra.
We are clear, however, that a merger the effect of which "may be
substantially to lessen competition" is not saved because, on some
ultimate reckoning of social or economic debits and credits, it may
be deemed beneficial. A value choice of such magnitude is beyond
the ordinary limits of judicial competence, and, in any event, has
been made for us already, by Congress when it enacted the amended §
7. Congress determined to preserve our traditionally competitive
economy. It therefore proscribed anticompetitive mergers, the
benign and the malignant alike, fully aware, we must assume, that
some price might have to be paid.
In holding as we do that the merger of appellees would violate §
7, and must therefore be enjoined, we reject appellees' pervasive
suggestion that application of the procompetitive policy of § 7 to
the banking industry will have dire, although unspecified,
consequences for the national economy. Concededly, PNB and Girard
are healthy and strong; they are not undercapitalized or
overloaned; they have no management problems; the Philadelphia area
is not overbanked; ruinous competition is not in the offing.
Section 7 does not mandate cut-throat competition in the banking
industry, and does not exclude defenses based on dangers to
liquidity or
Page 374 U. S. 372
solvency, if, to avert them, a merger is necessary. [
Footnote 46] It does require,
however, that the forces of competition be allowed to operate
within the broad framework of governmental regulation of the
industry. The fact that banking is a highly regulated industry
critical to the Nation's welfare makes the play of competition not
less important, but more so. At the price of some repetition, we
note that, if the businessman is denied credit because his banking
alternatives have been eliminated by mergers, the whole edifice of
an entrepreneurial system is threatened; 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; and unless competition is allowed to
fulfill its role as an economic regulator in the banking industry,
the result may well be even more governmental regulation. Subject
to narrow qualifications, it is surely the case that competition is
our fundamental national economic policy, offering as it does the
only alternative to the cartelization or governmental regimentation
of large portions of the economy.
Cf. Northern Pac. R. Co. v.
United States, 356 U. S. 1,
356 U. S. 4. There
is no warrant for declining to enforce it in the instant case.
The judgment of the District Court is reversed, and the case
remanded with direction to enter judgment enjoining the proposed
merger.
It is so ordered.
MR. JUSTICE WHITE took no part in the consideration or decision
of this case.
Page 374 U. S. 373
[
Footnote 1]
Section 1 of the Sherman Act provides in pertinent part:
"Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is declared to be illegal."
Section 7 of the Clayton Act, as amended in 1950 by the
Celler-Kefauver Antimerger Act, provides in pertinent part:
"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 2]
The discussion in this portion of the opinion draws upon
undisputed evidence of record in the case, supplemented by
pertinent reference materials.
See Board of Govs. of the
Fed.Res.System, Financing Small Business (Comm. print 1958); The
Federal Reserve System (3d ed. 1954); Concentration of Banking in
the United States (Comm. print 1952); Bogen, The Competitive
Position of Commercial Banks (1959); Commission on Money and
Credit, Money and Credit (1961); Freeman, The Problems of Adequate
Bank Capital (1952); Hart, Money, Debt, and Economic Activity (2d
ed. 1953); Lent, The Changing Structure of Commercial Banking
(1960); Sayers, Modern Banking (5th ed. 1960); Staff of House
Select Comm. on Small Business, 86th Cong., 2d Sess., Banking
Concentration and Small Business (1960); U.S. Attorney General's
Comm. on Administrative Procedure, Federal Control of Banking
(S.Doc. No. 186, 76th Cong., 3d Sess., 1940); Fox, Supervision of
Banking by the Comptroller of the Currency, in Public
Administration and Policy Formation (Redford ed. 1956), 117;
Stokes, Public Convenience and Advantage in Applications for New
Banks and Branches, 74 Banking L.J. 921 (1957). For materials which
focus specifically on the question of competition in the banking
industry,
see also Alhadeff, Monopoly and Competition in
Banking (1954); Chapman, Concentration of Banking (1934); Horvitz,
Concentration and Competition in New England Banking (1958);
Lawrence, Banking Concentration in the United States (1930); Berle,
Banking Under the Anti-Trust Laws, 49 Col.L.Rev. 589 (1949);
Chandler, Monopolistic Elements in Commercial Banking, 46
J.Pol.Econ. 1 (1938); Gruis, Antitrust Laws and Their Application
to Banking, 24 Geo.Wash.L.Rev. 89 (1955); Funk, Antitrust
Legislation Affecting Bank Mergers, 12 Bus.Law 496 (1957);
Klebaner, Federal Control of Commercial Bank Mergers, 37 Ind.L.J.
287 (1962); Wemple and Cutler, The Federal Bank Merger Law and the
Antitrust Laws, 16 Bus.Law. 994 (1961); Comment, Bank Charter,
Branching, Holding Company and Merger Laws: Competition Frustrated,
71 Yale L.J. 502 (1962); Note, Federal Regulation of Bank Mergers:
The Opposing Views of the Federal Banking Agencies and the
Department of Justice, 75 Harv.L.Rev. 756 (1962).
[
Footnote 3]
In addition, there is a certain amount of bank holding company
activity. The Bank Holding Company Act of 1956, 12 U.S.C. §§
1841-1848, brought bank holding companies under stringent federal
regulation. As of 1958, the 43 registered bank holding companies
controlled 5.7% of all banking offices and 7.4% of all deposits.
Lent, The Changing Structure of Commercial Banking (1960), 19.
See also Comment,
supra, note 2 71 Yale L.J. at 516-522.
[
Footnote 4]
Such creation is not, to be sure, pure sleight of hand. A bank
may not make a loan without adequate reserves. Nevertheless, the
element of bank money creation is real.
E.g., Samuelson,
Economics (5th ed. 1961), 331-343.
[
Footnote 5]
The principal banking "products" are, of course, various types
of credit, for example: unsecured personal and business loans,
mortgage loans, loans secured by securities or accounts receivable,
automobile installment and consumer goods installment loans,
tuition financing, bank credit cards, revolving credit funds.
Banking services include: acceptance of demand deposits from
individuals, corporations, governmental agencies, and other banks;
acceptance of time and savings deposits; estate and trust planning
and trusteeship services; lock boxes and safety-deposit boxes;
account reconciliation services; foreign department services
(acceptances and letters of credit); correspondent services;
investment advice. It should be noted that many other institutions
are in the business of supplying credit, and so more or less in
competition with commercial banks (
see further, pp.
374 U. S.
356-357,
infra), for example: mutual savings
banks, savings and loan associations, credit unions, personal
finance companies, sales finance companies, private businessmen
(through the furnishing of trade credit), factors, direct-lending
government agencies, the Post Office, Small Business Investment
Corporations, life insurance companies.
[
Footnote 6]
In 1957, for example, there were three bank suspensions in the
entire country by reason of financial difficulties; in 1960, two;
and in 1961, nine. Of these nine, four involved state banks which
were neither members of the FRS nor insured by the FDIC. 1961
Annual Report of the Comptroller of the Currency 286. In a typical
year in the 1920's, roughly 600 banks failed throughout the
country, about 100 of them national banks.
See S.Rep.No.
196, Regulation of Bank Mergers, 86th Cong., 1st Sess. 17-18.
[
Footnote 7]
The proposed "merger" of appellees is technically a
consolidation, since the resulting bank will be a different entity
from either of the constituent banks, whereas if the transaction
were a merger, Girard would disappear into PNB and PNB would
survive. However, the proposed transaction resembles a merger very
closely, in that PNB's shareholders are not to surrender their
present share certificates and the resulting bank is to operate
under PNB's charter. In any event, the statute treats mergers and
consolidations essentially alike,
compare 12 U.S.C. (1958
ed., Supp. IV) § 215 with § 215a, and it is not suggested that the
legal question of the instant case would be affected by whether the
transaction is technically a merger or a consolidation. Therefore,
throughout this opinion we use the term "merger."
[
Footnote 8]
Section 1828(c) provides in pertinent part:
"No insured [by FDIC] bank shall merge or consolidate with any
other insured bank or, either directly or indirectly, acquire the
assets of, or assume liability to pay any deposits made in, any
other insured bank without the prior written consent (i) of the
Comptroller of the Currency if the acquiring, assuming, or
resulting bank is to be a national bank or a District [of Columbia]
bank, or (ii) of the Board of Governors of the Federal Reserve
System if the acquiring, assuming, or resulting bank is to be a
State member bank (except a District bank), or (iii) of the
[Federal Deposit Insurance] Corporation if the acquiring, assuming,
or resulting bank is to be a non-member insured bank (except a
District bank). . . . In granting or withholding consent under this
subsection, the Comptroller, the Board, or the Corporation, as the
case may be, shall consider the financial history and condition of
each of the banks involved, the adequacy of its capital structure,
its future earnings prospects, the general character of its
management, the convenience and needs of the community to be
served, and whether or not its corporate powers are consistent with
the purposes of this chapter. In the case of a merger,
consolidation, acquisition of assets, or assumption of liabilities,
the appropriate agency shall also take into consideration the
effect of the transaction on competition (including any tendency
toward monopoly), and shall not approve the transaction unless,
after considering all of such factors, it finds the transaction to
be in the public interest. In the interests of uniform standards,
before acting on a merger, consolidation, acquisition of assets, or
assumption of liabilities under this subsection, the agency (unless
it finds that it must act immediately in order to prevent the
probable failure of one of the banks involved) shall request a
report on the competitive factors involved from the Attorney
General and the other two banking agencies referred to in this
subsection. . . . The Comptroller, the Board, and the Corporation
shall each include in its annual report to the Congress a
description of each merger, consolidation, acquisition of assets,
or assumption of liabilities approved by it during the period
covered by the report, along with the following information: . . .
a statement by the Comptroller, the Board, or the Corporation, as
the case may be, of the basis for its approval."
[
Footnote 9]
See 12 U.S.C. § 84, p. 329,
supra. The
resulting bank would have a lending limit of $15,000,000, of which
$1,000,000 would not be attributable to the merger but to unrelated
accounting factors.
[
Footnote 10]
There was evidence that Philadelphia, although it ranks fourth
or fifth among the Nation's urban areas in terms of general
commercial activity, ranks only ninth in terms of the size of its
largest bank, and that some large business firms which have their
head offices in Philadelphia must seek elsewhere to satisfy their
banking needs because of the inadequate lending limits of
Philadelphia's banks; First Pennsylvania and PNB, currently the two
largest banks in Philadelphia, each have a lending limit of
$8,000,000. Girard's is $6,000,000.
Appellees offered testimony that the merger would enable certain
economies of scale, specifically, that it would enable the
formation of a more elaborate foreign department than either bank
is presently able to maintain. But this attempted justification,
which was not mentioned by the District Court in its opinion and
has not been developed with any fullness before this Court, we
consider abandoned.
[
Footnote 11]
We reject the argument that § 11 of the Clayton Act, as amended,
15 U.S.C. § 21, confers jurisdiction over banks upon the FTC. That
section provides in pertinent part:
"Authority to enforce compliance with sections 13, 14, 18, and
19 of this title (§§ 2, 3, 7, and 8 of the Clayton Act, as amended)
by the persons respectively subject thereto is vested . . . in the
Federal Reserve Board where applicable to banks, banking
associations, and trust companies; and in the Federal Trade
Commission where applicable to all other character of commerce. . .
."
The argument is that, since the FRB has no authority to enforce
the Clayton Act against bank mergers,
see note 22 infra, bank mergers must
fall into the residual category of "all other character of
commerce," and so be subject to the FTC. However, there is no
intimation in the legislative history of the 1950 amendment to §§ 7
and 11 that the FTC's traditional lack of jurisdiction over banks
was to be disturbed. Moreover, it is clear from the language of §
11 that "banks, banking associations, and trust companies" are
meant to comprise a distinct "character of commerce," and so cannot
be part of the "other character of commerce" reserved to the
FTC.
The exclusion of banks from the FTC's jurisdiction appears to
have been motivated by the fact that banks were already subject to
extensive federal administrative controls.
See T. C. Hurst
& Son v. Federal Trade Comm'n, 268 F. 874, 877
(D.C.E.D.Va.1920).
[
Footnote 12]
No argument is made in this case that banking is not commerce,
and therefore that § 7 is inapplicable; plainly, such an argument
would have no merit.
See Transamerica Corp. v. Board of Govs.
of Fed. Res. Sys., 206 F.2d 163, 166 (C.A.3d Cir., 1953);
cf. United States v. South-Eastern Underwriters Assn.,
322 U. S. 533.
[
Footnote 13]
"A merger necessarily involves the complete disappearance of one
of the merging corporations. A sale of assets, on the other hand,
may involve no more than a substitution of cash for some part of
the selling company's properties, with no change in corporate
structure and no change in stockholder interests. Shareholders of
merging corporations surrender their interests in those
corporations in exchange for their very different rights in the
resulting corporation. In an asset acquisition, however, the
shareholders of the selling corporation obtain no interest in the
purchasing corporation and retain no interest in the assets
transferred. In a merger, unlike an asset acquisition, the
resulting firm automatically acquires all the rights, powers,
franchises, liabilities, and fiduciary rights and obligations of
the merging firms. In a merger, but not in an asset acquisition,
there is the likelihood of a continuity of management and other
personnel. Finally, a merger, like a stock acquisition, necessarily
involves the acquisition by one corporation of an immediate voice
in the management of the business of another corporation; no voice
in the decisions of another corporation is acquired by purchase of
some part of its assets."
Brief for the United States, 75-76.
[
Footnote 14]
"[A] merger such as appellees' may be effected upon the
affirmative vote of the holders of only two-thirds of the
outstanding stock of each bank . . . , but, if PNB were acquiring
all of the Girard stock, each Girard shareholder could decide for
himself whether to transfer his shares. A merger requires public
notice, whereas stock can be acquired privately. A shareholder
dissenting from a merger has the right to receive the appraised
value of his shares . . . , whereas no shareholder has a comparable
right in an acquisition of stock. Furthermore the corporate
existence of a merged company is terminated by a merger, but
remains unaffected by an acquisition of stock."
Brief for Appellees, 30-31.
[
Footnote 15]
The legislative history of the 1914 Act is reviewed in
Brown
Shoe Co. v. United States, 370 U. S. 294,
370 U. S.
313-314, and notes 22-24.
[
Footnote 16]
In the case of an acquisition like the instant one, in which
shares in the acquired corporation are to be exchanged for shares
in the resulting corporation,
a fortiori we discern no
difficulty in conceptualizing the transaction as a "stock
acquisition."
Compare note 13 supra.
[
Footnote 17]
Statements to the same effect may be found in,
e.g., Brown
Shoe Co., supra, at
370 U. S.
313-314,
370 U. S. 316;
United States v. E. I. Du Pont De Nemours & Co.,
353 U. S. 586,
353 U. S. 592;
United States v. Columbia Steel Co., 334 U.
S. 495,
334 U. S. 507
n. 7;
United States v. Columbia Pictures
Corp., 189 F.
Supp. 153, 182 (D.C.S.D.N.Y.1960).
See also 33
Op.Atty.Gen. 225, 241 (1922); Hernacki, Mergerism and Section 7 of
the Clayton Act, 20 Geo.Wash. L.Rev. 659, 676-677 (1952); Wemple
and Cutler, The Federal Bank Merger Law and the Antitrust Laws, 16
Bus.Law. 994, 999-1000 (1961); Note, Section 7 of the Clayton Act:
A Legislative History, 52 Col.L.Rev. 766, 768-769 (1952).
Actually, the holdings in the three cases that reached this
Court,
Thatcher, Swift, and
Arrow-Hart, were
quite narrow.
See generally Note, 26 Col.L.Rev. 594-596
(1926). They were based not on a lack of substantive power under §
7, but on the enforcement section, § 11, which limited the FTC's
remedial powers to
"an order requiring such person to cease and desist from such
violations [of §§ 2, 3, 7, and 8 of the Clayton Act], and divest
itself of the stock held or rid itself of the directors chosen
contrary to the provisions of sections seven and eight of this
Act."
38 Stat. 735. Faced with Congress' evident refusal to confer
upon the FTC the ordinary powers of a court of equity, this Court
held that, unless the assets were acquired after the FTC's order of
stock divestiture had been issued (which was the case in
Federal Trade Comm'n v. Western Meat Co., supra, where the
Commission was sustained), the Commission could not order a
divestiture of assets.
Compare Board of Govs. of Fed. Res. Sys.
v. Transamerica Corp., 184 F.2d 311 (C.A.9th Cir., 1950),
with Federal Trade Comm'n v. International Paper Co., 241
F.2d 372 (C.A.2d Cir., 1956). Since, under this Court's decisions,
the FTC was powerless even where the transfer of assets was an
evasive maneuver aimed at defeating the FTC's remedial jurisdiction
over stock acquisitions violative of § 7,
a fortiori the
Commission was powerless against the typical merger.
See
Arrow-Hart & Hegeman Elec. Co. v. Federal Trade Comm'n,
supra, at
291 U. S. 595,
291 U. S.
598-599. As part of the 1950 amendments to the Clayton
Act, § 11 was amended to read: "an order requiring such person to .
. . divest itself of the stock, or other share capital, or assets,
held. . . ." 15 U.S.C. § 21. Whether, as an original matter,
Thatcher, Swift, and
Arrow-Hart were correctly
decided is no longer an open question, since they were the explicit
premise of the 1950 amendment to § 7.
See State Bd. of Ins. v.
Todd Shipyards Corp., 370 U. S. 451,
370 U. S. 458,
p.
374 U. S. 349,
infra.
The question of the FTC's remedial powers under § 11 of the
Clayton Act is to be distinguished from that of its remedial powers
under § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(b).
In
Federal Trade Comm'n v. Eastman Kodak Co., 274 U.
S. 619, the Court, relying on
Thatcher and
Swift, held that the Commission had no power to order
divestiture in § 5 proceedings.
But cf. Gilbertville Trucking
Co. v. United States, 371 U. S. 115,
371 U. S.
129-131;
Pan American World Airways v. United
States, 371 U. S. 296,
371 U. S. 312,
and n. 17.
[
Footnote 18]
See note 1
supra, for text of amended § 7. The original § 7 read in
pertinent part:
"no corporation engaged in commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share
capital of another corporation engaged also in commerce, where the
effect of such acquisition may be to substantially lessen
competition between the corporation whose stock is so acquired and
the corporation making the acquisition, or to restrain such
commerce in any section or community, or tend to create a monopoly
of any line of commerce."
The passage of the 1950 amendment followed many years of
unsuccessful attempts to enact legislation plugging the assets
acquisition loophole.
See Note, 52 Col.L.Rev. 766-767,
notes 3 and 4 (1952). To be sure, the 1950 amendment was intended
not only to enlarge the number of transactions covered by § 7, but
also to change the test of illegality. The legislative history
pertinent to the latter point is reviewed in
Brown Shoe Co.,
supra, at
370 U. S.
315-323, and is not directly relevant to the present
discussion.
[
Footnote 19]
"The purpose of the proposed legislation (the 1950 amendments to
§ 7) is to prevent corporations from acquiring another corporation
by means of the acquisition of its assets, whereunder
[
sic] the present law it is prohibited from acquiring the
stock of said corporation. Since the acquisition of stock is
significant chiefly because it is likely to result in control of
the underlying assets, failure to prohibit direct purchase of the
same assets has been inconsistent and paradoxical as to the
over-all effect of existing law."
S.Rep. No. 1775, 81st Cong., 2d Sess. 2, U.S.Code Congressional
Service 1950, p. 4293. This theme pervaded congressional
consideration of the proposed amendments.
See, e.g.,
H.R.Rep. No. 1191, 81st Cong., 1st Sess.,
passim; Hearing
before Subcommittee No. 3 of the House Committee on the Judiciary
on Amending Sections 7 and 11 of the Clayton Act, 81st Cong., 1st
Sess., ser. 10, pp. 11-13, 28-29, 39, 117; Hearings before a
Subcommittee of the Senate Committee on the Judiciary on Corporate
Mergers and Acquisitions, 81st Cong., 1st and 2d Sess. 4-5, 15, 20,
62-63, 126-129, 139, 321; 95 Cong.Rec. 11485 (Congressman Celler,
sponsor of the bill to amend § 7 in the House: "this bill seeks to
plug a loophole in the present antitrust laws. . . . It is time to
stop, look, and listen and to call a halt to the merger movement
that is going on in this country"), 11493-11494, 11497, 11502; 96
Cong.Rec. 16433, 16443.
[
Footnote 20]
Columbia Steel involved the cash purchase by United
States Steel Corporation of the physical assets of Consolidated
Steel Corporation; there was no exchange of shares and no
alteration of Consolidated's corporate identity.
See
Transcript of Record,
United States v. Columbia Steel Co.,
334 U. S. 495 (No.
461, October Term, 1947), pp. 453-475. As a result of the purchase,
in its horizontal aspect, U.S. Steel controlled about 24% of the
structural steel fabricating market in an 11-state western area.
This Court held that the acquisition could not be reached under § 7
of the Clayton Act,
see 334 U.S. at
334 U. S. 507,
n. 7, and did not violate the Sherman Act. It should be noted,
however, that the Court regarded the 24% market share figure
proposed by the Government as a "doubtful assumption," and also
pointed to "unusual conditions" tending to mitigate the
anticompetitive effect of the acquisition. 334 U.S. at
334 U. S. 529.
Columbia Steel was repeatedly cited by Congressmen
considering the amendment of § 7 as an example of what they
conceived to be the inability of the Sherman Act, as then
construed, to deal with the problems of corporate concentration.
See, e.g., H.R.Rep. No. 1191, 81st Cong., 1st Sess. 10-11,
and n. 16; Hearing before Subcommittee No. 3 of the House Committee
on the Judiciary on Amending Sections 7 and 11 of the Clayton Act,
81st Cong., 1st Sess., ser. 10, pp. 28, 73; Hearings before a
Subcommittee of the Senate Committee on the Judiciary on Corporate
Mergers and Acquisitions, 81st Cong., 1st and 2d Sess. 24; 96
Cong.Rec. 16453 (Senator Kefauver, Senate sponsor of the bill to
amend § 7: "the
Columbia Steel Co. case is a vivid
illustration of the necessity for the proposed amendment of the
Clayton Act"), 16503; and
cf. 96 Cong.Rec.
16498-16499.
[
Footnote 21]
See note 19
supra. The congressional attitude toward this Court's
Thatcher, Swift, and
Arrow-Hart decisions is
typified in this remark of Senator O'Conor's:
"The Court, in effect, said that the [Federal Trade] Commission
was quite free to use the power which Congress had conferred upon
it, so long as it confined the use of that power to ordering the
divestiture of pieces of paper which happened to be worthless."
96 Cong.Rec. 16433. Senator O'Mahoney remarked, for example,
that there was
"no doubt of the fundamental fact that an innocent defect in the
drafting of section 7 of the Clayton Act back in 1914 had resulted
in creating a great opportunity for escape by flagrant violators of
the law."
96 Cong.Rec. 16443. After sharply criticizing this Court's
decisions, the Senator continued:
"I take it the record is perfectly clear that what this bill
purports to do is to correct an omission in the original Clayton
Act. When the authors of the Clayton Act and the Congress which
passed it enacted the bill into law, they thought they were giving
the Federal Trade Commission administrative authority to prevent
monopolistic mergers. . . ."
Ibid. So also, Senator Kefauver observed:
"it would have been much better for the economy of the country
to have repealed sections 7 and 11 of the Clayton Act, rather than
let this wide-open loophole to remain. Most of the large and
monopolistic mergers which have become detrimental to the
free-enterprise system of our Nation have occurred by way of this
plain evasion of the intent of the original Clayton Act."
96 Cong.Rec. 16451.
[
Footnote 22]
A cash purchase of another bank's assets would not seem to be a
fully effective method of corporate acquisition. In other
industries, a cash purchase of plant, inventory, patents, trade
secrets, and the like will often directly enhance the competitive
position of the acquiring corporation, as in
Columbia Steel
Co. But a bank desiring to increase its share of banking
business through corporate acquisition would ordinarily need to
acquire the other bank's deposits and capital, not merely its
assets. For more deposits mean more working capital, and additions
to capital and surplus increase the lending limit. A cash purchase,
in effect, only substitutes cash for cash, since bank assets
consist principally of cash and very liquid securities and loans
receivable, and adds nothing to the acquiring bank's capital and
surplus or to its working capital. True, an exchange of its stock
for assets would achieve the acquiring bank's objectives. We are
clear, however, that, in light of Congress' overriding purpose, in
amending § 7, to close the loophole in the original section, if
such an exchange (or other clearly evasive transaction) were
tantamount in its effects to a merger, the exchange would not be an
"assets" acquisition within the meaning of § 7, but would be
treated as a transaction subject to that section.
We have not overlooked the fact that there are corporations in
other industries not subject to the FTC's jurisdiction. Chief among
these are air carriers subject to the Civil Aeronautics Board and
other carriers subject to the Interstate Commerce Commission. Both
agencies have been given, expressly, broad powers to exempt mergers
and acquisitions in whatever form from the antitrust laws.
See 49 U.S.C. §§ 1378, 1384; 49 U.S.C. § 5(11) and (13).
Therefore, the exclusion of assets acquisitions in such industries
from § 7 would seem to have little significance.
Section 11 of the Clayton Act, 15 U.S.C. § 21, vests the FRB
with authority to enforce § 7 "where applicable to banks." This
provision has been in the Act since it was first passed in 1914,
and was not changed by the 1950 amendments. The Bank Merger Act of
1960, assigning roles in merger applications to the FDIC and the
Comptroller of the Currency as well as to the FRB, plainly
supplanted, we think, whatever authority the FRB may have acquired
under § 11, by virtue of the amendment of § 7, to enforce § 7
against bank mergers. Since the Bank Merger Act applies only to
mergers, consolidations, acquisitions of assets, and assumptions of
liabilities, but not to outright stock acquisitions, the FRB's
authority under § 11 as it existed before the 1950 amendment of § 7
remains unaffected.
See, e.g., Transamerica Corp. v. Board of
Govs. of Fed. Res. Sys., 206 F.2d 163 (C.A.3d Cir., 1953).
Nothing in this opinion, of course, limits the power of the FTC,
under §§ 7 and 11, as amended, to reach any transaction, including
mergers and consolidations, in the broad range between and
including pure stock and pure assets acquisitions, where the
acquiring corporation is subject to the FTC's jurisdiction,
see 15 U.S.C. § 45(a)(6), and to order divestiture of the
stock, share capital, or assets acquired in the transaction,
see 15 U.S.C. § 21.
[
Footnote 23]
See, e.g., statement of Assistant Attorney General
Bergson:
"If it [§ 7] is to have any significant effect for the future,
it is essential that it be amended so that the Federal Trade
Commission will be in a position to deal with the merger problem as
it exists today."
Hearing before Subcommittee No. 3 of the House Committee on the
Judiciary on Amending Sections 7 and 11 of the Clayton Act, 81st
Cong, 1st Sess., ser. 10, p. 28.
See also 96 Cong.Rec.
16437, 16452-16453; 95 Cong.Rec. 11490-11491, 11499, 11504
(Representative Byrne: "the suggested amendment to sections 7 and
11 of the Clayton Act would merely give the [Federal Trade]
Commission the same power in regard to asset acquisitions that it
already possesses over acquisitions of stock. This would close the
loophole and restore meaning to the statute.").
[
Footnote 24]
See, e.g., Staff of Subcommittee No. 5 of House
Committee on the Judiciary, 82d Cong., 2d Sess., Bank Mergers and
Concentration of Banking Facilities (1952) vii; H.R. 5948, printed
in 102 Cong.Rec. 2108-2109 (1956); Hearings before a Subcommittee
of the Senate Committee on Banking and Currency on the Financial
Institutions Act of 1957, 85th Cong., 1st Sess., pt. 2, p. 1030
(testimony of Attorney General Brownell); H.R.Rep. No. 1416,
Regulation of Bank Mergers, 86th Cong., 2d Sess. 9; S.Rep. No. 196,
Regulation of Bank Mergers, 86th Cong., 1st Sess. 1-2, 5.
[
Footnote 25]
See, e.g., remarks of Representative Spence:
"The Clayton Act is ineffective as to bank mergers because, in
the case of banks, it covers only stock acquisitions, and bank
mergers are not accomplished that way."
106 Cong.Rec. 7257 (1960).
See also note 24 supra.
[
Footnote 26]
This contention was abandoned on appeal. We consider it,
nevertheless, because it touches the proper relations of the
judicial and administrative spheres.
United States v. Western
Pac. R. Co., 352 U. S. 59,
352 U. S.
63.
[
Footnote 27]
Contrast this with the express exemption provisions of,
e.g., the Federal Aviation Act, 49 U.S.C. § 1384; Federal
Communications Act, 47 U.S.C. §§ 221(a), 222(c)(1); Interstate
Commerce Act, 49 U.S.C. §§ 5(11), 5b(9), 22; Shipping Act, 46
U.S.C. (1958 ed. Supp. III) § 814; Webb-Pomerene Act, 15 U.S.C. §
62; and the Clayton Act itself, § 7, 15 U.S.C. § 18.
[
Footnote 28]
See United States v. Trans-Missouri Freight Assn.,
166 U. S. 290,
166 U. S.
314-315;
United States v. Joint Traffic Assn.,
171 U. S. 505;
Northern Securities Co. v. United States, 193 U.
S. 197,
193 U. S. 343
(plurality opinion),
193 U. S.
374-376 (dissenting opinion);
United States v.
Pacific & Arctic Ry. & Nav. Co., 228 U. S.
87,
228 U. S. 105,
228 U. S. 107;
Keogh v. Chicago & N.W. R. Co., 260 U.
S. 156,
260 U. S.
161-162;
Central Transfer Co. v. Terminal Railroad
Assn., 288 U. S. 469,
288 U. S.
474-475;
Terminal Warehouse Co. v. Pennsylvania R.
Co., 297 U. S. 500,
297 U. S.
513-515;
United States v. Borden Co.,
308 U. S. 188,
308 U. S.
197-206;
United States v. Socony-Vacuum Oil
Co., 310 U. S. 150,
310 U. S. 226-
228;
Georgia v. Pennsylvania R. Co., 324 U.
S. 439,
324 U. S.
456-457;
United States Alkali Export Assn. v. United
States, 325 U. S. 196,
325 U. S.
205-206;
Allen Bradley Co. v. Local Union No.
3, 325 U. S. 797,
325 U. S.
809-810;
Northern Pac. R. Co. v. United States,
356 U. S. 1;
United States v. Radio Corp. of America, 358 U.
S. 334;
Maryland & Va. Milk Producers Assn. v.
United States, 362 U. S. 458,
362 U. S.
464-467;
California v. Federal Power Comm'n,
369 U. S. 482;
Pan American World Airways v. United States, 371 U.
S. 296,
371 U. S. 304,
371 U. S. 305;
Silver v. New York Stock Exchange, 373 U.
S. 341.
[
Footnote 29]
See, e.g., Keogh v. Chicago & N.W.R. Co., supra, at
260 U. S. 163;
Pan American World Airways v. United States, supra, at
371 U. S.
309-310.
Cf. Texas & Pac. R. Co. v. Abilene
Cotton Oil Co., 204 U. S. 426.
[
Footnote 30]
With respect to the question (upon which we intimate no view)
whether judicial review of the Comptroller's decision is possible
notwithstanding the absence of a specific provision,
see
Note, 75 Harv.L.Rev. 756, 762-763 (1962); Note, 37 N.Y.U.L.Rev.
735, 750, n. 95 (1962);
cf. 1 Davis, Administrative Law
(1958), § 4.04.
[
Footnote 31]
See generally Jaffe, Primary Jurisdiction Reconsidered.
The Anti-Trust Laws, 102 U. of Pa.L.Rev. 577 (1954); Latta, Primary
Jurisdiction in the Regulated Industries and the Antitrust Laws, 30
U. of Cin.L.Rev. 261 (1961); Note, Regulated Industries and the
Antitrust Laws: Substantive and Procedural Coordination, 58
Col.L.Rev. 673 (1958).
[
Footnote 32]
In
California v. Federal Power Comm'n, supra, the Court
held that the FPC must stay its proceeding on a merger application
until the completion of a pending antitrust suit by the Justice
Department;
a fortiori, the court entertaining the suit
would not be required to abstain pending consideration of the
merger application by the FPC. We need not and do not consider the
question whether the
California decision would control
here had the Comptroller been denied an opportunity to approve the
merger before the antitrust suit was commenced.
[
Footnote 33]
Cf. United States v. Aluminum Co. of America, 148 F.2d
416, 425 (C.A.2d Cir., 1945). In the instant case, unlike
Aluminum Co., there is virtually no time lag between the
banks' furnishing competing financial institutions (small loan
companies, for example) with the raw material,
i.e.,
money, and the institutions' selling the finished product,
i.e., loans; hence the instant case, compared with
Aluminum Co. in this respect, is
a fortiori. As
one banker testified quite frankly in the instant case in response
to the question:
"Do you feel that you are in substantial competition with these
institutions [personal finance and sales finance companies] that
you lend . . . such money to for loans that you want to make?"
"Oh, no, we definitely do not. If we did, we would stop making
the loans to them." (R. 298.) The reason for the competitive
disadvantage of most lending institutions
vis-a-vis banks
is that only banks obtain the bulk of their working capital without
having to pay interest or comparable charges thereon, by virtue of
their unique power to accept demand deposits. The critical area of
short-term commercial credit,
see pp.
374 U. S.
326-327,
supra, appears to be one in which
banks have little effective competition, save in the case of very
large companies which can meet their financing needs from retained
earnings or from issuing securities or paper.
[
Footnote 34]
As one witness for the defendants testified:
"We have had in Philadelphia for 50 years or more the mutual
savings banks offering 1/2 percent, and in some instances more than
1/2 percent, higher interest than the commercial banks.
Nevertheless, the rate of increase in savings accounts in
commercial banks has kept pace with, and, in many of the banks,
exceeded, the rate of increase of the mutual banks paying 3 1/2
percent. . . ."
"I have made some inquiries. There are four banks on the corner
of Broad and Chestnut. Three of them are commercial banks -- all
offering 3 percent, and one is a mutual savings bank offering 3
1/2. As far as I have been able to discover, there isn't anybody in
Philadelphia who will take the trouble to walk across Broad Street
to get 1/2 of 1 per cent more interest. If you ask me why, I will
say I do not know. Habit, custom, personal relationships,
convenience, doing all your banking under one roof appear to be
factors superior to changes in the interest rate level."
(R. 1388-1389.)
[
Footnote 35]
Consider the following colloquy between governmental counsel and
a witness for the defendants:
"Q. What do you consider to be the area of a branch office?"
"A. Well, there is no set rule on that. We hope to have an area
from 1 1/2 to 2 miles."
"However, we have opened branches directly in the communities
where other banks are established, in fact, across the street from
them, because it is not only a question of getting new business,
it's a question of servicing and retaining the accounts that we now
have."
"
* * * *"
"Q. And your business is not necessarily dependent upon it [the
customer] being within a mile or two of a branch, is it?"
"A. To a large degree, it is, because we found that we were
losing deposit accounts regularly from our in-town offices because
other banks were opening or had offices in other sections of the
city; and, in order to retain those accounts and to get additional
business, we felt it was necessary to establish branches."
(R. 1815.)
As far as the customer for a bank loan is concerned,
"the size of his market is somewhat dependent upon his own size,
how well he is known, and so on. For example, for small business
concerns known primarily locally, they may consider that their
market is a strictly local one, and they may be forced by
circumstances to do business with banks in a nearby geographic
relationship to them. On the other hand, as business increase in
size, the scope of their business activities, their national
reputation, the alternatives they have available to them will be
spread again over a very large area, possibly as large as the
entire United States."
(R. 1372.) (Defendants' testimony on direct examination.)
[
Footnote 36]
The figures for PNB and Girard respectively are: 54% and 63% of
the dollar volume of their commercial and industrial loans
originate in the four-county area; 75% and 70%, personal loans; 74%
and 84%, real estate loans; 41% and 62%, lines of credit; 94% and
72%, personal trusts; 81% and 94%, time and savings deposits; 56%
and 77%, demand deposits; 93% and 87%, demand deposits of
individuals. Actually, these figures may be too low. The evidence
discloses that most of the business done outside the area is with
large borrowers and large depositors; appellees do not, by and
large, deal with small businessmen and average individuals not
located in the four-county area. For example, of appellees'
combined total business demand deposits under $10,000, 94%
originate in the four-county area. This reinforces the thesis that
the smaller the customer, the smaller is his banking market
geographically.
See note 35 supra.
The appellees concede that the four-county area has sufficient
commercial importance to qualify, under
Brown Shoe Co.,
supra, at
370 U. S.
336-337, as a "section of the country" within the
meaning of § 7.
See Maryland & Va. Milk Producers Assn. v.
United States, 362 U. S. 458,
362 U. S. 469;
cf. United States v. Yellow Cab Co., 332 U.
S. 218,
332 U. S. 226;
Indiana Farmer's Guide Publishing Co. v. Prairie Farmer
Publishing Co., 293 U. S. 268,
293 U. S.
279.
[
Footnote 37]
Appellees suggest not that bank offices skirting the four-county
area provide meaningful alternatives to bank customers within the
area, but that such alternatives are provided by large banks, from
New York and elsewhere, which solicit business in the Philadelphia
area. There is no evidence of the amount of business done in the
area by banks with offices outside the area; it may be that such
figures are unobtainable. In any event, it would seem from the
local orientation of banking insofar as smaller customers are
concerned,
see notes
35
and |
35 and S.
321fn36|>36,
supra, that competition from outside the
area would only be important to the larger borrowers and
depositors. If so, the four-county area remains a valid
geographical market in which to assess the anticompetitive effect
of the proposed merger upon the banking facilities available to the
smaller customer -- a perfectly good "line of commerce," in light
of Congress' evident concern, in enacting the 1950 amendments to §
7, with preserving small business.
See Brown Shoe Co.,
supra, at
370 U. S.
315-316. As a practical matter, the small businessman
can only satisfy his credit needs at local banks. To be sure, there
is still some artificiality in deeming the four-county area the
relevant "section of the country" so far as businessmen located
near the perimeter are concerned. But such fuzziness would seem
inherent in any attempt to delineate the relevant geographical
market. Note, 52 Col.L.Rev. 766, 778-779, n. 77 (1952). And it is
notable that, outside the four-county area, appellees' business
rapidly thins out. Thus, the other six counties of the Delaware
Valley account for only 2% of appellees' combined individual demand
deposits; 4%, demand deposits of partnerships and corporations; 7%,
loans; 2%, savings deposits; 4%, business time deposits.
[
Footnote 38]
See Kaysen and Turner, Antitrust Policy (1959), 133;
Stigler, Mergers and Preventive Antitrust Policy, 104 U. of
Pa.L.Rev. 176, 182 (1955); Bok,
supra, at 308-316, 328.
Cf. Markham, Merger Policy Under the New Section 7: A
Six-Year Appraisal, 43 Va.L.Rev. 489, 521-522 (1957).
[
Footnote 39]
Comment, "Substantially to Lessen Competition . . . ": Current
Problems of Horizontal Mergers, 68 Yale L.J. 1627, 1638-1639
(1959);
see, e.g., Machlup, The Economics of Sellers'
Competition (1952), 84-93, 333-336; Bain, Barriers to New
Competition (1956), 27.
Cf. Mason, Market Power and
Business Conduct: Some Comments, 46-2 Am.Econ.Rev. (1956), 471.
[
Footnote 40]
See p.
374 U. S. 331,
supra. We note three factors that cause us to shade the
percentages given earlier in this opinion, in seeking to calculate
market share. (1) The percentages took no account of banks which do
business in the four-county area but have no offices there;
however, this seems to be a factor of little importance, at least
insofar as smaller customers are concerned,
see note 37 supra. (2) The
percentages took no account of banks which have offices in the
four-county area, but not their home offices there; however, there
seem to be only two such offices and appellees in this Court make
no reference to this omission. (3) There are no percentages for the
amount of business of banks located in the area, other than
appellees, which originates in the area. Appellees contend that,
since most of the 40 other banks are smaller, they do a more
concentratedly local business than appellees, and hence account for
a relatively larger proportion of such business. If so, we doubt
much correction is needed. The five largest banks in the
four-county area at present control some 78% of the area banks'
assets. Thus, even if the small banks have a somewhat different
pattern of business, it is difficult to see how that would
substantially diminish the appellees' share of the local banking
business.
No evidence was introduced as to the quantitative significance
of these three factors, and appellees do not contend that, as a
practical matter, such evidence could have been obtained. Under the
circumstances, we think a downward correction of the percentages to
30% produces a conservative estimate of appellees' market
share.
[
Footnote 41]
Kaysen and Turner,
supra, note 38 suggest that 20% should be the line of
prima
facie unlawfulness; Stigler suggests that any acquisition by a
firm controlling 20% of the market after the merger is
presumptively unlawful; Markham mentions 25%. Bok's principal test
is increase in market concentration, and he suggests a figure of 7%
or 8%.
And consult note
20 supra. We intimate no view on the validity of such
tests, for we have no need to consider percentages smaller than
those in the case at bar, but we note that such tests are more
rigorous than is required to dispose of the instant case. Needless
to say, the fact that a merger results in a less-than-30% market
share, or in a less substantial increase in concentration than in
the instant case, does not raise an inference that the merger is
not violative of § 7.
See, e.g., Brown Shoe Co.,
supra.
[
Footnote 42]
See note 41
supra. It is no answer that, among the three presently
largest firms (First Pennsylvania, PNB, and Girard), there will be
no increase in concentration. If this argument were valid, then,
once a market had become unduly concentrated, further concentration
would be legally privileges. On the contrary, if concentration is
already great, the importance of preventing even slight increases
in concentration and so preserving the possibility of eventual
deconcentration is correspondingly great. Comment,
note 39 supra, at 1644.
[
Footnote 43]
The fact that some of the bank officers who testified
represented small banks in competition with appellees does not
substantially enhance the probative value of their testimony. The
test of a competitive market is not only whether small competitors
flourish, but also whether consumers are well served.
See
United States v. Bethlehem Steel Corp., 168 F.
Supp. 576, 588, 592 (D.C.S.D.N.Y.1958). "[C]ongressional
concern [was] with the protection of
competition, not
competitors."
Brown Shoe Co., supra, at
370 U. S. 320.
In an oligopolistic market, small companies may be perfectly
content to follow the high prices set by the dominant firms, yet
the market may be profoundly anticompetitive.
[
Footnote 44]
Entry is, of course, wholly a matter of governmental grace.
See p.
374 U. S. 328,
supra. In the 10-year period ending in 1961, only one new
bank opened in the Philadelphia four-county area. That was in 1951.
At the end of 10 years, the new bank controlled only one-third of
1% of the area's deposits.
[
Footnote 45]
The following colloquy is representative:
"Q. Mr. Jennings, what is the nature of competition among
commercial banks?"
"A. Keen, highly competitive. I think, from my own observation,
that I have never known competition among banks to be keener than
it is today. . . ."
"Q. In what area does competition exist? . . ."
"A. I think the stiffest, sternest competition of all is in the
field to obtain demand deposits and loans. . . ."
"Q. What form does the competition take?"
"A. It takes many forms. If we are dealing with the deposits of
large corporations, wealthy individuals, I would say that most, if
not all, of the major banks of the country are competing for such
deposits. The same would hold true as regards loans to those
corporations or wealthy individuals."
"If we go into the field of smaller loans, smaller deposits, the
competition is more regional -- wide but nevertheless regional --
and there the large banks as well as the small banks are after that
business with everything they have."
"Q. What form does the competition take? Is it competition in
price?"
"A. No, I wouldn't say that it is competition as to price. After
all, interest rates are regulated at the top level by the laws of
the 50 states. Interest rates at the bottom level have no legal
limitation, but, for practical purposes, the prime rate . . .
furnishes a very effective floor. I would say that the area of
competition for interest rates would range between, let us say, the
prime rate of 4 1/2 and 6 percent for normal loans exclusive of
consumer loans, where higher rates are permitted."
"In the area of service charges, I would say that banks are
competitive in that field. They base their service charges
primarily on their costs, but they have to maintain a weather eye
to windward as to what the competitors are charging in the service
charge field. The minute they get out of line in connection with
service charges, they find their customers will start to protest,
and, if something isn't done, some of the customers will leave them
for a differential in service charges of any significance."
"I do not believe that competition is really affected by the
price area. I think it is affected largely by the quality and the
caliber of service that banks give and whether or not they feel
they are being received in the right way, whether they are welcome
in the bank. Personalities enter into it very heavily, but I do not
think price as such is a major factor in banking competition. It is
there, it is a factor, but not major."
(R. 1940-1942.)
It should be noted that, besides competition in interest rates,
there is a great deal of indirect price competition in the banking
industry. For example, the amount of compensating balance a bank
requires of a borrower (
i.e., the amount the borrower must
always retain in his demand deposit account with the bank) affects
the real cost of the loan, and varies considerably in the bank's
discretion.
[
Footnote 46]
Thus, arguably, the so-called failing company defense,
see
International Shoe Co. v. Federal Trade Comm'n, 280 U.
S. 291,
280 U. S.
299-303, might have somewhat larger contours as applied
to bank mergers because of the greater public impact of a bank
failure compared with ordinary business failures. But the question
what defenses in § 7 actions must be allowed in order to avert
unsound banking conditions is not before us, and we intimate no
view upon it.
MR. JUSTICE HARLAN, whom MR. JUSTICE STEWART joins,
dissenting.
I suspect that no one will be more surprised than the Government
to find that the Clayton Act has carried the day for its case in
this Court.
In response to an apparently accelerating trend toward
concentration in the commercial banking system in this country, a
trend which existing laws were evidently ill-suited to control,
numerous bills were introduced in Congress from 1955 to 1960.
[
Footnote 2/1] During this period,
the Department of Justice and the federal banking agencies
[
Footnote 2/2] advocated divergent
methods of dealing with the competitive aspects of bank mergers,
the former urging the extension of § 7 of the Clayton Act to cover
such mergers and the latter supporting a regulatory scheme under
which the effect of a bank merger on competition would be only one
of the factors to be considered in determining whether the merger
would be in the public interest. The Justice Department's proposals
were repeatedly rejected by Congress, and the regulatory approach
of the banking agencies was adopted in the Bank Merger Act of 1960.
See infra, pp.
374 U. S.
379-383.
Sweeping aside the "design fashioned in the Bank Merger Act" as
"predicated upon uncertainty as to the scope of § 7" of the Clayton
Act (
ante, p.
374 U. S.
349), the Court today holds § 7 to be applicable to bank
mergers, and concludes that it has been violated in this case. I
respectfully submit that this holding, which sanctions a remedy
Page 374 U. S. 374
regarded by Congress as inimical to the best interests of the
banking industry and the public, and which will in large measure
serve to frustrate the objectives of the Bank Merger Act, finds no
justification in either the terms of the 1950 amendment of the
Clayton Act or the history of the statute.
I
The key to this case is found in the special position occupied
by commercial banking in the economy of this country. With respect
to both the nature of the operations performed and the degree of
governmental supervision involved, it is fundamentally different
from ordinary manufacturing and mercantile businesses.
The unique powers of commercial banks to accept demand deposits,
provide checking account services, and lend against fractional
reserves permit the banking system as a whole to create a supply of
"money," a function which is indispensable to the maintenance of
the structure of our national economy. And the amount of the funds
held by commercial banks is very large indeed; demand deposits
alone represent approximately three-fourths of the money supply in
the United States. [
Footnote 2/3]
Since a bank's assets must be sufficiently liquid to accommodate
demand withdrawals, short-term commercial and industrial loans are
the major element in bank portfolios, thus making commercial banks
the principal source of short-term business credit. Many other
services are also provided by banks, but, in these more or less
collateral areas, they receive more active competition from other
financial institutions. [
Footnote
2/4]
Page 374 U. S. 375
Deposit banking operations affect not only the volume of money
and credit, but also the value of the dollar and the stability of
the currency system. In this field, considerations other than
simply the preservation of competition are relevant. Moreover,
commercial banks are entrusted with the safekeeping of large
amounts of funds belonging to individuals and corporations. Unlike
the ordinary investor, these depositors do not regard their funds
as subject to a risk of loss and, at least in the case of demand
depositors, they do not receive a return for taking such a risk. A
bank failure is a community disaster; its impact first strikes the
bank's depositors most heavily, and then spreads throughout the
economic life of the community. [
Footnote 2/5] Safety and soundness of banking practices
are thus critical factors in any banking system.
The extensive blanket of state and federal regulation of
commercial banking, much of which is aimed at limiting competition,
reflects these factors. Since the Court's opinion describes, at
some length, aspects of the supervision exercised by the federal
banking agencies (
ante, pp.
374 U. S.
327-330), I do no more here than point out that, in my
opinion, such regulation evidences a plain design grounded on solid
economic considerations to deal with banking as a specialized
field.
This view is confirmed by the Bank Merger Act of 1960 and its
history.
Federal legislation dealing with bank mergers [
Footnote 2/6] dates from 1918, when Congress
provided that, subject to the
Page 374 U. S. 376
approval of the Comptroller of the Currency, two or more
national banks could consolidate to form a new national bank;
[
Footnote 2/7] similar provision
was made in 1927 for the consolidation of a state and a national
bank resulting in a national bank. [
Footnote 2/8] In 1952, mergers of national and state
banks into national banks were authorized, also conditioned on
approval by the Comptroller of the Currency. [
Footnote 2/9] In 1950, Congress authorized the
theretofore prohibited [
Footnote
2/10] merger or consolidation of a national bank with a state
bank when the assuming or resulting bank would be a state bank.
[
Footnote 2/11] In addition, the
Federal Deposit Insurance Act was amended to require the approval
of the FDIC for all mergers and consolidations between insured and
noninsured banks, and of specified federal banking agencies for
conversions of insured banks into insured state banks if the
conversion would result in the capital stock or surplus of the
newly formed bank being less than that of the converting bank.
[
Footnote 2/12] The Act further
required insured banks merging with insured state banks to secure
the approval of the Comptroller of the Currency if the assuming
bank would be a national bank, and the
Page 374 U. S. 377
approval of the Board of Governors of the Federal Reserve System
and the FDIC, respectively, if the assuming or resulting bank would
be a state member bank or nonmember insured bank. [
Footnote 2/13]
None of this legislation prescribed standards by which the
appropriate federal banking agencies were to be guided in
determining the significance to be attributed to the
anticompetitive effects of a proposed merger. As previously noted
(
supra, p.
374 U. S.
373), Congress became increasingly concerned with this
problem in the 1950's. The antitrust laws apparently provided no
solution; in only one case prior to 1960,
United States v.
Firstamerica Corp., Civil No. 38139, N.D.Cal., March 30, 1959,
settled by consent decree, had either the Sherman or Clayton Act
been invoked to attack a commercial bank merger.
Indeed, the inapplicability to bank mergers of § 7 of the
Clayton Act, even after it was amended in 1950, was, for a time, an
explicit premise on which the Department of Justice performed its
antitrust duties. In passing upon an application for informal
clearance of a bank merger in 1955, the Department stated:
"After a complete consideration of this matter, we have
concluded that this Department would not have jurisdiction to
proceed under section 7 of the Clayton Act. For this reason, this
Department does not presently plan to take any action on this
matter."
"Hearings before the Antitrust Subcommittee of the House
Committee on the Judiciary, 84th Cong., 1st Sess., Ser. 3, pt. 3,
p. 2141 (1955).
Page 374 U. S. 378
And in testifying before the Senate Committee on Banking and
Currency in 1957 Attorney General Brownell, speaking of bank
mergers, noted:"
"On the basis of these provisions, the Department of Justice has
concluded, and all apparently agree, that asset acquisitions by
banks are not covered by section 7 (of the Clayton Act) as amended
in 1950."
Hearings on the Financial Institutions Act of 1957 before a
Subcommittee of the Senate Committee on Banking and Currency, 85th
Cong., 1st Sess., pt. 2, p. 1030 (1957). Similar statements were
repeatedly made to Congress by Justice Department representatives
in the years prior to the enactment of the Bank Merger Act.
[
Footnote 2/14]
The inapplicability of § 7 to bank mergers was also an explicit
basis on which Congress acted in passing the Bank Merger Act of
1960. The Senate Report on S. 1062, the bill that was finally
enacted, stated:
"Since bank mergers are customarily, if not invariably, carried
out by asset acquisitions, they are exempt from section 7 of the
Clayton Act. (Stock acquisitions by bank holding companies, as
distinguished from mergers and consolidations, are subject to both
the Bank Holding Company Act of 1956 and sec. 7 of the Clayton
Act.)"
S.Rep. No. 196, 86th Cong., 1st Sess. 1-2 (1959).
"In 1950, (64 Stat. 1125) section 7 of the Clayton Act was
amended to correct these deficiencies. Acquisitions of assets were
included within the section,
Page 374 U. S. 379
in addition to stock acquisitions, but only in the case of
corporations subject to the jurisdiction of the Federal Trade
Commission (banks, being subject to the jurisdiction of the Federal
Reserve Board for purposes of the Clayton Act by virtue of section
11 of that act, were not affected)."
Id. at 5. [
Footnote
2/15]
During the floor debates, Representative Spence, the Chairman of
the House Committee on Banking and Currency, recognized the same
difficulty:
"The Clayton Act is ineffective as to bank mergers because, in
the case of banks, it covers only stock acquisitions and bank
mergers are not accomplished that way."
106 Cong.Rec. 7257 (1960). [
Footnote 2/16]
But instead of extending the scope of § 7 to cover bank mergers,
as numerous proposed amendments to that section were designed to
accomplish, [
Footnote 2/17]
Congress made the
Page 374 U. S. 380
deliberate policy judgment that
"it is impossible to subject bank mergers to the simple rule of
section 7 of the Clayton Act. Under that act, a merger would be
barred if it might tend substantially to lessen competition,
regardless of the effects on the public interest."
105 Cong.Rec. 8076 (1959) (remarks of Senator Robertson, a
sponsor of S. 1062). Because of the peculiar nature of the
commercial banking industry, its crucial role in the economy, and
its intimate connection with the fiscal and monetary operations of
the Government, Congress rejected the notion that the general
economic and business premises of the Clayton Act should be the
only considerations applicable to this field. Unrestricted bank
competition was thought to have been a major cause of the panic of
1907 and of the bank failures of the 1930's, [
Footnote 2/18] and was regarded as a highly
undesirable condition to impose on banks in the future:
"Banking is too important to depositors, to borrowers, to the
Government, and the public generally to permit unregulated and
unrestricted competition in that field. "
Page 374 U. S. 381
"The antitrust laws have reflected an awareness of the
difference between banking and other regulated industries, on the
one hand, and ordinary unregulated industries and commercial
enterprises, on the other hand."
106 Cong.Rec. 9711 (1960) (remarks of Senator Fulbright, a
sponsor of S. 1062).
"It is this distinction between banking and other businesses
which justifies different treatment for bank mergers and other
mergers. It was this distinction that led the Senate to reject the
flat prohibition of the Clayton Act test which applies to other
mergers."
Id. at 9712. [
Footnote
2/19]
Thus, the Committee on Banking and Currency recommended
"continuance of the existing exemption from section 7 of the
Clayton Act." 105 Cong.Rec. 8076 (1959). Congress accepted this
recommendation; it decided to handle the problem of concentration
in commercial banking "through banking laws, specially framed to
fit the particular needs of the field. . . ." S.Rep. No. 196, 86th
Cong., 1st Sess. 18 (1959). As finally enacted in 1960, the Bank
Merger Act embodies the regulatory approach advocated by the
banking agencies, vesting in them responsibility for its
administration and placing the scheme within the framework of
existing banking laws as an amendment to § 18(c) of the Federal
Deposit Insurance Act, 12 U.S.C. (Supp. IV, 1963), § 1828(c).
[
Footnote 2/20] It maintains the
latter Act's requirement of advance approval by the appropriate
federal agency for mergers between insured banks and between
insured and noninsured
Page 374 U. S. 382
banks (
supra, pp.
374 U. S.
375-377), but establishes that such approval is
necessary in every merger of this type. To aid the respective
agencies in determining whether to approve a merger, and in "the
interests of uniform standards" (12 U.S.C. (Supp. IV, 1963) §
1828(c)), the Act requires the two agencies not making the
particular decision and the Attorney General to submit to the
immediately responsible agency reports on the competitive factors
involved. It further provides that, in addition to considering the
banking factors examined by the FDIC in connection with
applications to become an insured bank, which focus primarily on
matters of safety and soundness, [
Footnote 2/21] the approving agency
"shall also take into consideration the effect of the
transaction on competition (including any tendency toward
monopoly), and shall not approve the transaction unless, after
considering all of such factors, it finds the transaction to be in
the public interest."
12 U.S.C. (Supp. IV, 1963) § 1828(c).
The congressional purpose clearly emerges from the terms of the
statute and from the committee reports, hearings, and floor debates
on the bills. Time and again it was repeated that effect on
competition was not to be the controlling factor in determining
whether to approve a bank merger, that a merger could be approved
as being in the public interest even though it would cause a
substantial lessening of competition. The following statement is
typical:
"The committee wants to make crystal clear its intention that
the various banking factors in any particular
Page 374 U. S. 383
case may be held to outweigh the competitive factors, and that
the competitive factors, however favorable or unfavorable, are not,
in and of themselves, controlling on the decision. And, of course,
the banking agencies are not bound in their consideration of the
competitive factors by the report of the Attorney General."
S.Rep. No. 196, 86th Cong., 1st Sess. 24 (1959); id., at 19, 21.
[
Footnote 2/22]
The foregoing statement also shows that it was the congressional
intention to place the responsibility for approval squarely on the
banking agencies; the report of the Attorney General on the
competitive aspects of a merger was to be advisory only. [
Footnote 2/23] And there was deliberately
omitted any attempt to specify or restrict the kinds of
circumstances in which the agencies might properly determine that a
proposed merger would be in the public interest notwithstanding its
adverse effect on competition. [
Footnote 2/24]
Page 374 U. S. 384
What Congress has chosen to do about mergers and their effect on
competition in the highly specialized field of commercial banking
could not be more "crystal clear." (
Supra, p.
374 U. S.
382.) But in the face of overwhelming evidence to the
contrary, the Court, with perfect equanimity, finds "uncertainty"
in the foundations of the Bank Merger Act (
ante, p.
374 U. S. 349)
and, on this premise, puts it aside as irrelevant to the task of
construing the scope of § 7 of the Clayton Act.
I am unable to conceive of a more inappropriate case in which to
overturn the considered opinion of all concerned as to the reach of
prior legislation. [
Footnote
2/25] For 10 years, everyone -- the department responsible for
antitrust law enforcement, the banking industry, the Congress, and
the bar proceeded on the assumption that the 1950 amendment of the
Clayton Act did not affect bank mergers. This assumption provided a
major impetus to the enactment of remedial legislation, and
Congress, when it finally settled on what it thought was the
solution to the problem at hand, emphatically rejected the remedy
now brought to life by the Court.
The result is, of course, that the Bank Merger Act is almost
completely nullified; its enactment turns out to have been an
exorbitant waste of congressional time and energy. As the present
case illustrates, the Attorney General's report to the designated
banking agency is no longer truly advisory, for if the agency's
decision is not
Page 374 U. S. 385
satisfactory, a § 7 suit may be commenced immediately. [
Footnote 2/26] The bank merger's legality
will then be judged solely from its competitive aspects,
unencumbered by any considerations peculiar to banking. [
Footnote 2/27] And if such a suit were
deemed to lie after a bank merger has been consummated, there would
then be introduced into this field, for the first time to any
significant extent, the threat of divestiture of assets and all the
complexities and disruption attendant upon the use of that
sanction. [
Footnote 2/28] The
only vestige of the Bank Merger Act which remains is that the
banking agencies will have an initial veto. [
Footnote 2/29]
Page 374 U. S. 386
This frustration of a manifest congressional design is, in my
view, a most unwarranted intrusion upon the legislative domain. I
submit that
whatever may have been the congressional
purpose in 1950, Congress has now so plainly pronounced its current
judgment that bank mergers are not within the reach of § 7 that
this Court is duty bound to effectuate its choice.
But I need not rest on this proposition, for, as will now be
shown, there is nothing in the 1950 amendment to § 7 or its
legislative history to support the conclusion that Congress even
then intended to subject bank mergers to this provision of the
Clayton Act.
II
Prior to 1950, § 7 of the Clayton Act read, in pertinent part,
as follows:
"That no corporation engaged in commerce shall acquire, directly
or indirectly, the whole or any part of the stock or other share
capital of another corporation engaged also in commerce, where the
effect of
Page 374 U. S. 387
such acquisition may be to substantially lessen competition
between the corporation whose stock is so acquired and the
corporation making the acquisition, or to restrain such commerce in
any section or community, or tend to create a monopoly of any line
of commerce."
In 1950, this section was amended to read (the major amendments
being indicated in italics):
"That 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."
If Congress did intend the 1950 amendment to reach bank mergers,
it certainly went at the matter in a very peculiar way. While
prohibiting asset acquisitions having the anticompetitive effects
described in § 7, it limited the applicability of that provision to
corporations subject to the jurisdiction of the Federal Trade
Commission, which does not include banks. And it reenacted the
stock acquisition provision in the very same language which -- as
it was fully aware -- had been interpreted not to reach the type of
merger customarily used in the banking industry.
See
infra, pp.
374 U. S.
389-393. In the past, this Court has drawn the normal
inference that such a reenactment indicates congressional adoption
of the prior judicial statutory construction.
E.g., United
States v. Dixon, 347 U. S. 381;
Overstreet v. North Shore Corp., 318 U.
S. 125,
318 U. S.
131-132.
Page 374 U. S. 388
In this instance, however, the Court holds that the stock
acquisition provision underwent an expansive metamorphosis, so that
it now embraces all mergers or consolidations involving an exchange
of stock. Since bank mergers usually, if not always, do involve
exchanges of stock, the effect of this construction is to rob the
Federal Trade Commission provision relating to asset acquisitions
of all force as a substantive limitation upon the scope of § 7;
according to the Court, the purpose of that provision was merely to
ensure the Commission's role in the enforcement of § 7.
Ante, pp.
374 U. S.
346-348. In short, under this reasoning, bank mergers to
all intents and purposes are fully within the reach of § 7.
A more circumspect look at the 1950 amendment of § 7 and its
background will show that this construction is not tenable.
The language of the stock acquisition provision itself is hardly
congenial to the Court's interpretation. The PNB-Girard merger is
technically a consolidation, governed by § 20 of the national
banking laws, 12 U.S.C. (Supp. IV, 1963) § 215. Under that section,
the corporate existence of both PNB and Girard, all of their
rights, franchises, assets, and liabilities, would be automatically
vested in the resulting bank, which would operate under the PNB
charter. PNB itself would acquire nothing. Rather, the two banks
would be creating a new entity by the amalgamation of their
properties, and the subsequent conversion of Girard stock (which
would then represent ownership in a nonfunctioning entity) into
stock of the resulting bank would simply be part of the mechanics
by which ownership in the new entity would be reflected. Clearly
this is not a case of a corporation acquiring the stock of another
functioning corporation, which is the only situation where "the
effect of . . . [a stock] acquisition may be substantially
to lessen competition." (Emphasis added.)
Page 374 U. S. 389
There are further crucial differences between a merger and a
stock acquisition. A merger normally requires public notice and the
approval of the holders of two-thirds of the outstanding shares of
each corporation, and dissenting shareholders have the right to
receive in cash the appraised value of their shares. [
Footnote 2/30] A purchase of stock may be
done privately, and the only approval involved is that of the
individual parties to the transaction. Unlike a merged company, a
corporation whose stock is acquired usually remains in business as
a subsidiary of the acquiring corporation. [
Footnote 2/31]
The Government, however, contends that a merger more closely
resembles a stock acquisition than an asset acquisition because of
one similarity of central importance: the acquisition by one
corporation of an immediate voice in the management of the business
of another corporation. But this is obviously true
a
fortiori of asset acquisitions of sufficient magnitude to fall
within the prohibition of § 7; if a corporation buys the plants,
equipment, inventory, etc., of another corporation, it acquires
absolute control over, not merely a voice in the management of,
another business.
The legislative history of the 1950 amendment also
unquestionably negates any inference that Congress intended
Page 374 U. S. 390
to reach bank mergers. It is true that the purpose was "to plug
a loophole" in § 7 (95 Cong.Rec. 11485 (1949) (remarks of
Representative Celler)). But simply to state this board proposition
does not answer the precise questions presented here: what was the
nature of the loophole sought to be closed; what were the means
chosen to close it?
The answer to the latter question is unmistakably indicated by
the relationship between the 1950 amendment and previous judicial
decisions. In
Arrow-Hart & Hegeman Elec. Co. v. Federal
Trade Comm'n, 291 U. S. 587,
this Court, by a divided vote, ruled on the scope of the Federal
Trade Commission's remedial powers under the original Clayton Act.
After the Commission had issued a § 7 complaint against a holding
company which had been formed by the stockholders of two
manufacturing corporations, steps were taken to avoid the
Commission's jurisdiction. Two new holding companies were formed,
each acquired all the common stock of one of the manufacturing
companies, and each issued its stock directly to the stockholders
of the original holding company. This company then dissolved and
the two new holding companies and their respective manufacturing
subsidiaries merged into one corporation. This Court held that the
Commission had no authority, after the merger, to order the
resulting corporation to divest itself of assets. An essential part
of this holding was that the merger in question, which was
technically a consolidation similar to that here planned by PNB and
Girard, was not a stock acquisition within the prohibitions of §
7:
"If the merger of the two manufacturing corporations and the
combination of their assets was in any respect a violation of any
antitrust law, as to which we express no opinion, it was
necessarily a violation of statutory prohibitions other
Page 374 U. S. 391
than those found in the Clayton Act."
291 U.S. at
291 U. S. 599;
see id., at
291 U. S. 595.
[
Footnote 2/32]
This decision, along with two others earlier handed down by this
Court (
Thatcher Mfg. Co. v. Federal Trade Comm'n and Swift
& Co. v. Federal Trade Comm'n, decided together with
Federal Trade Comm'n v. Western Meat Co., 272 U.
S. 554), perhaps provided more of a spur to enactment of
the "assets" amendment to § 7 than any other single factor. These
decisions were universally regarded as opening the unfortunate
loophole whereby § 7 could be evaded through the use of an asset
acquisition. Representative Celler expressed the view of Congress
in this fashion:
"The result of these decisions has so weakened sections 7 and 11
. . . as to give to the Federal Trade Commission and the Department
of Justice merely a paper sword to prevent improper mergers."
95 Cong.Rec. 11485 (1949). [
Footnote 2/33]
Page 374 U. S. 392
Since this Court's decisions were cast in terms of the scope of
the Federal Trade Commission's jurisdiction, Congress, in amending
§ 7 so as to close that gap, emphasized its expectation -- made
plain in the committee reports, hearings, and debates -- that the
Commission would assume the principal role in enforcing the
section. [
Footnote 2/34] Implicit
here is that no change in the enforcement powers of the other
agencies named in § 11 was contemplated. [
Footnote 2/35] Of more importance, the legislative
history demonstrates that it was the asset acquisition provision
that was designed to plug the loophole created by
Thatcher,
Swift, and
Arrow. Although
Arrow, unlike
Thatcher and
Swift, involved a consolidation of
the same type as the PNB-Girard merger, the members of Congress
drew no distinction among these cases, invariably discussing all
three of them in the same breath as examples of asset acquisitions.
[
Footnote 2/36] Indeed, the House
report stated that
"the Supreme Court . . . held [in
Arrow] that if an
acquiring corporation secured
title to the physical assets
of a corporation whose stock it had acquired before the Federal
Trade Commission issues its final order, the Commission lacks power
to direct divestiture of the physical assets. . . ."
H.R.Rep.No.1191, 81st Cong., 1st Sess. 5 (1949). (Emphasis
added.)
And, on the Senate floor, it was pointed out that "the
method by which . . . [the merger in
Arrow] had
been
Page 374 U. S. 393
accomplished was an innocent one. . . ." 96 Cong.Rec. 16505
(1950). (Emphasis added.) Clearly the understanding of Congress was
that a consolidation of two corporations was an acquisition of
assets. [
Footnote 2/37]
Nor did Congress act inadvertently or without purpose in
limiting the asset acquisition provision to corporations subject to
the jurisdiction of the Federal Trade Commission, thereby excluding
bank mergers. The reports, hearings, and debates on the 1950
amendment reveal that Congress was then concerned with the rising
tide of industrial concentration --
i.e., "the external
expansion . . . through mergers, acquisitions, and consolidations"
[
Footnote 2/38] of corporations
engaged in manufacturing, mining, merchandising, and of other
kindred commercial endeavors. Specialized areas of the economy such
as banking were not even considered. Thus, the Federal Trade
Commission's 1948 report on mergers recounted the statistics on
concentration in a multitude of industries --
e.g., steel,
cement, electrical equipment, food and dairy products, tobacco,
textiles, paper, chemicals, rubber -- but included not one figure
on banking concentration. [
Footnote
2/39] This report was repeatedly cited and heavily relied on by
members of Congress and others to demonstrate the magnitude
Page 374 U. S. 394
of the merger movement and the economic dangers it presented.
[
Footnote 2/40] In the committee
hearings, the focus was exclusively upon amalgamation in the
ordinary commercial fields, [
Footnote
2/41] and, similarly, the Senate and House reports spoke solely
of industrial concentration as the evil to be remedied. [
Footnote 2/42] On the floor of the House,
Representative Celler indicated the extent of concentration of
industrial power:
"Four companies now have 64 percent of the steel business, four
have 82 percent of the copper business, two have 90 percent of the
aluminum business, three have 85 percent of the automobile
business, two have 80 percent of the electric lamp business, four
have 75 percent of the electric refrigerator business, two have 80
percent of the glass business, four have 90 percent of the
cigarette business, and so forth."
"The antitrust laws are a complete bust unless we pass this
bill."
95 Cong.Rec. 11485 (1949). The legislatory history is thus
singularly devoid of any evidence that Congress sought to deal with
the special problem of banking concentration.
I do not mean to suggest, of course, that § 7 of the Clayton Act
is thereby rendered applicable only to ordinary commercial and
industrial corporations and not to firms in any "regulated" sector
of the economy. The
Page 374 U. S. 395
point is that, when Congress included in § 7 asset acquisitions
by corporations subject to the Federal Trade Commission's
jurisdiction, and at the same time continued in § 11 the Federal
Reserve Board's jurisdiction over banks, it was not acting
irrationally. Rather, the absence of any mention of banks in the
legislative history of the 1950 amendment, viewed in light of the
prior congressional treatment of banking as a distinctive area with
special characteristics and needs, compels the conclusion that bank
mergers were simply not then regarded as part of the loophole to be
plugged. [
Footnote 2/43]
This conclusion is confirmed by a number of additional
considerations. It was not until after the passage of the 1950
amendment of § 7 that Representative Celler, its cosponsor,
requested the staff of the Antitrust Subcommittee of the House
Committee on the Judiciary "to prepare a report indicating the
concentration existing in our banking system." Staff of
Subcommittee No. 5, House Committee on the Judiciary, 82d Cong., 2d
Sess., Report on Bank Mergers and Concentration of Banking
Facilities III (1952). The introduction to the report reveals
that:
"On March 21, 1945, the Board of Governors of the Federal
Reserve System wrote to the chairman of the Committee on the
Judiciary requesting that the provisions of H.R. 2357,
Seventy-ninth Congress, first session, one of the early
predecessors of the Celler Antimerger Act, be extended so as to
include corporations subject to the jurisdiction of the Federal
Reserve Board under section 11 of the Clayton Act. Because of the
revisions made in subsequent versions of antimerger bills, however,
it became impracticable
Page 374 U. S. 396
to include within the scope of the act corporations other than
those subject to regulation by the Federal Trade Commission. Banks,
which are placed squarely within the authority of the Federal
Reserve Board by section 11 of the Clayton Act, are therefore
circumscribed insofar as mergers are concerned only by the old
provisions of section 7, and certain additional statutes which do
not presently concern themselves substantively with the question of
competition in the field of banking."
Id. at VII. It is also worth noting that, in 1956,
Representative Celler himself introduced another amendment to § 7,
explaining that
"all the bill (H.R. 5948) does is plug a loophole in the present
law dealing with bank mergers. . . . This loophole exists because
section 7 of the Clayton Act prohibits bank mergers . . . only if
such mergers are accomplished by stock acquisition."
102 Cong.Rec. 2109 (1956). The bill read in pertinent part:
"[N]o bank . . . shall acquire . . . the whole or any part of the
assets of another corporation engaged also in commerce. . . ."
Ibid. The amendment passed the House but was defeated in
the Senate.
For all these reasons, I think the conclusion is inescapable
that § 7 of the Clayton Act does not apply to the PNB-Girard
merger. The Court's contrary conclusion seems to me little better
than a
tour de force. [
Footnote 2/44]
[
Footnote 2/1]
See Wemple and Cutler, The Federal Bank Merger Law and
the Antitrust Laws, 16 Bus.Law 994, 995 (1961). Many of the bills
are summarized in Funk, Antitrust Legislation Affecting Bank
Mergers, 75 Banking L.J. 369 (1958).
[
Footnote 2/2]
These agencies and the areas of their primary supervisory
responsibility are: (1) the Comptroller of the Currency -- national
banks; (2) the Federal Reserve System -- state Reserve-member
banks; (3) the FDIC -- insured nonmember banks.
[
Footnote 2/3]
Samuelson, Economics (5th ed. 1961), p. 311.
[
Footnote 2/4]
For example, savings and loan associations, credit unions, and
other institutions compete with banks in installment lending to
individuals, and banks are in competition with individuals in the
personal trust field.
[
Footnote 2/5]
Since bank insolvencies destroy sources of credit, not only
borrowers but also others who rely on the borrowers' ability to
secure loans may be adversely affected.
See Berle, Banking
Under the Anti-Trust Laws, 49 Col.L.Rev. 589, 592 (1949).
[
Footnote 2/6]
The term "merger" is generally used throughout this opinion to
designate any form of corporate amalgamation.
See note 7 in the Court's opinion
ante, p.
374 U. S. 332.
Occasionally, however, as in the above paragraph, the terms
"merger" and "consolidation" are used in their technical sense.
[
Footnote 2/7]
40 Stat. 1043, as amended, 12 U.S.C. (Supp. IV, 1963) § 215.
[
Footnote 2/8]
44 Stat. 1225, as amended, 12 U.S.C. (Supp. IV, 1963) § 215.
[
Footnote 2/9]
66 Stat. 599, as amended, 12 U.S.C. (Supp. IV, 1963) § 215a.
[
Footnote 2/10]
See Paton, Conversion, Merger and Consolidation
Legislation -- "Two-Way Street" For National and State Banks, 71
Banking L.J. 15 (1954).
[
Footnote 2/11]
64 Stat. 455, as amended, 12 U.S.C. § 214a.
[
Footnote 2/12]
64 Stat. 457;
see 64 Stat. 892 (now 74 Stat. 129, 12
U.S.C. (Supp. IV, 1963) § 1828(c)).
[
Footnote 2/13]
Ibid. However, under the Act, insured banks merging
with insured state banks did not have to obtain approval unless the
capital stock or surplus of the resulting or assuming bank would be
less than the aggregate capital stock or surplus of all the merging
banks.
[
Footnote 2/14]
See Hearings before the Antitrust Subcommittee of the
House Committee on the Judiciary, 84th Cong., 1st Sess., Ser. 3,
pt. 1, pp. 243-244 (1955); Hearings on S. 3911 before a
Subcommittee of the Senate Committee on Banking and Currency, 84th
Cong., 2d Sess. 60-61, 84 (1956); Hearings on S. 1062 before the
Senate Committee on Banking and Currency, 86th Cong., 1st Sess. 9
(1959).
[
Footnote 2/15]
See also H.R.Rep. No. 1416, 86th Cong., 2d Sess. 5
(1960) ("The Federal antitrust laws are also inadequate to the task
of regulating bank mergers; while the Attorney General may move
against bank mergers to a limited extent under the Sherman Act, the
Clayton Act offers little help.");
id. at 9 ("Because
section 7 [of the Clayton Act] is limited, insofar as banks are
concerned, to cases where a merger is accomplished through
acquisition of stock, and because bank mergers are accomplished by
asset acquisitions, rather than stock acquisitions, the act offers
"little help," in the words of Hon. Robert A. Bicks, acting head of
the Antitrust Division, in controlling bank mergers.").
[
Footnote 2/16]
In the Senate, a sponsor of S. 1062, Senator Fulbright, reported
that the
"1950 amendment to section 7 of the Clayton Act, which, for the
first time, imposed controls over mergers by means other than stock
acquisitions, did not apply to bank mergers, which are practically
invariably accomplished by means other than stock acquisition.
Accordingly, for all practical purposes, bank mergers have been and
still are exempt from section 7 of the Clayton Act."
106 Cong.Rec. 9711 (1960).
[
Footnote 2/17]
E.g., H.R. 5948, 84th Cong. 1st Sess. (1955); S. 198,
85th Cong., 1st Sess. (1957); S. 722, 85th Cong., 1st Sess. (1957);
see 374
U.S. 321fn2/1|>note 1,
supra.
[
Footnote 2/18]
S.Rep. No. 196, 86th Cong., 1st Sess. 17 (1959):
"Time and again, the Nation has suffered from the results of
unregulated and uncontrolled competition in the field of banking,
and from insufficiently regulated competition. . . . The rapid
increase in the number of small weak banks, to such a large number
that the Comptroller could not effectively supervise them or
control any but the worst abuses was one of the factors which led
to the panic of 1907."
"The banking collapse in the early 1930's again was in large
part the result of insufficient regulation and control of banks --
in effect, the result of too much competition."
See also 105 Cong.Rec. 8076 (1959):
"But unlimited and unrestricted competition in banking is just
not possible. We have had too many panics and banking crises and
bank failures, largely as the result of excessive competition in
banking, to consider for a moment going back to the days of free
banking or unregulated banking."
[
Footnote 2/19]
See also S.Rep. No. 196, 86th Cong., 1st Sess. 16
(1959):
"But it is impossible to require unrestricted competition in the
field of banking, and it would be impossible to subject banks to
the rules applicable to ordinary industrial and commercial
concerns, not subject to regulation and not vested with a public
interest."
[
Footnote 2/20]
For the pertinent text of the statute,
see note 8 in the Court's opinion
ante, p.
374 U. S.
332-333.
[
Footnote 2/21]
These factors are:
"the financial history and condition of each of the banks
involved, the adequacy of its capital structure, its future
earnings prospects, the general character of its management, the
convenience and needs of the community to be served, and whether or
not its corporate powers are consistent with the purposes of this
chapter."
12 U.S.C. (Supp. IV, 1963) § 1828(c).
Compare § 6 of
the Federal Deposit Insurance Act, 12 U.S.C. § 1816.
[
Footnote 2/22]
See also 106 Cong.Rec. 7259 (1960):
"The language of S. 1062 as amended by the House Banking and
Currency Committee and as it appears in the bill we are now about
to pass in the House makes it clear that the competitive and
monopolistic factors are to be considered along with the banking
factors and that after considering all of the factors involved, if
the resulting institution will be in the public interest, then the
application should be approved and otherwise disapproved."
[
Footnote 2/23]
106 Cong.Rec. 7257 (1960):
"This puts the responsibility for acting on a proposed merger
where it belongs -- in the agency charged with supervising and
examining the bank which will result from the merger. Out of their
years of experience in supervising banks, our Federal banking
agencies have developed specialized knowledge of banking and the
people who engage in it. They are experts at judging the condition
of the banks involved, their prospects, their management, and the
needs of the community for banking services. They should have
primary responsibility in deciding whether a proposed
merger would be in the public interest."
(Emphasis added.)
[
Footnote 2/24]
H.R.Rep. No. 1416, 86th Cong., 2d Sess. 11-12 (1960):
"We are convinced, also, that approval of a merger should depend
on a positive showing of some benefit to be derived from it. As
previously indicated, your committee is not prepared to say that
the cases enumerated in the hearings are the only instances in
which a merger is in the public interest, nor are we prepared to
devise a specific and exclusive list of situations in which a
merger should be approved."
[
Footnote 2/25]
Compare State Board of Ins. v. Todd Shipyards Corp.,
370 U. S. 451,
370 U. S. 457,
in which this Court refused to reconsider certain prior decisions
because Congress had "posited a regime of state regulation" of the
insurance business on their continuing validity.
Cf. Toolson v.
New York Yankees, Inc., 346 U. S. 356.
[
Footnote 2/26]
If a bank merger such as this falls within the category of a
"stock" acquisition, a § 7 suit to enjoin it may be brought not
only by the Attorney General, but by the Federal Reserve Board as
well.
See § 11 of the Clayton Act, 15 U.S.C. § 21 (vesting
authority in the Board to enforce § 7 "where applicable to banks").
In an attempt to retain some semblance of the structure erected by
Congress in the Bank Merger Act, the Court states that it
"supplanted . . . whatever authority the FRB may have acquired
under § 11, by virtue of the amendment of § 7, to enforce § 7
against bank mergers."
Ante, p.
374 U. S. 344,
note 22. Since both the Attorney General and the Federal Reserve
Board have purely advisory roles where a bank merger will result in
a national bank, the Court's reasoning with respect to the effect
of the Bank Merger Act upon enforcement authority should apply with
equal force to both.
[
Footnote 2/27]
Indeed the Court has erected a simple yardstick in order to
alleviate the agony of analyzing economic data -- control of 30% of
a commercial banking market is prohibited.
Ante, pp.
374 U. S.
363-364.
[
Footnote 2/28]
Although § 7 of the Clayton Act is applicable to an outright
purchase of bank stock, this form of amalgamation is infrequently
used in the banking field, and does not involve divestiture
problems of the same magnitude as does an asset acquisition.
[
Footnote 2/29]
It is true, as the Court points out (ante, p.
374 U. S.
354), that Congress, in enacting the Bank Merger Act,
agreed that the applicability of the Sherman Act to banking should
not be disturbed.
See, e.g., 105 Cong.Rec. 8076 (1959).
But surely this alone provides no conceivable justification for
applying the Clayton Act as well. Apart from the fact that the
Sherman Act covers many kinds of restraints besides mergers, one of
the sponsors of the Bank Merger Act (Senator Fulbright) expressed
his expectation that, in a Sherman Act case, a bank merger would
not be subjected to strict antitrust standards to the exclusion of
all other considerations:
"And even if the Sherman Act is held to apply to banking and to
bank mergers, it seems clear that under the rule of reason spelled
out in the
Standard Oil case, different considerations
will be found applicable, in a regulated field like banking, in
determining whether activities would 'unduly diminish competition,'
in the words of the Supreme Court in that case."
106 Cong.Rec. 9711 (1960). Moreover, this Court has recognized
in other areas that it may be necessary to accommodate the Sherman
Act to regulatory policy.
McLean Trucking Co. v. United
States, 321 U. S. 67,
321 U. S. 83;
Federal Communications Comm'n v. RCA Communications, Inc.,
346 U. S. 86,
346 U. S. 91-92.
See also United States v. Columbia Steel Co., 334 U.
S. 495,
334 U. S. 527.
And, of course, the Sherman Act is concerned more with existing
anticompetitive effects than with future probabilities, and thus
would not reach incipient restraints to the same extent as would §
7 of the Clayton Act.
See Brown Shoe Co. v. United States,
370 U. S. 294,
370 U. S.
317-318 and notes 32, 33.
[
Footnote 2/30]
In these respects a merger is precisely the contrary of what § 7
was originally designed to proscribe -- the secret acquisition of
corporate control.
See the Court's opinion,
ante,
p.
374 U. S.
338.
[
Footnote 2/31]
That the stock acquisition provision was not intended to cover
mergers is strongly suggested by the second paragraph of § 7:
"No corporation shall acquire . . . any part of the stock . . .
of one or more corporations . . . where . . . the effect . . . of
the use of such stock by the voting or granting of proxies
. . . may be substantially to lessen competition, or to tend to
create a monopoly."
15 U.S.C. § 18. (Emphasis added.) After a merger has been
consummated, the resulting corporation holds no stock in any party
to the merger; thus, there can be in this situation no such thing
as a restraint of trade by "the use" of the voting power of
acquired stock.
[
Footnote 2/32]
On this point, the dissenters agreed: "It is true that the
Clayton Act does not forbid corporate mergers. . . ." 291 U.S. at
291 U. S. 600.
See also United States v. Celanese Corp. of
America, 91 F. Supp.
14.
[
Footnote 2/33]
See also Hearings on H.R. 988, H.R. 1240, H.R. 2006,
H.R. 2734 before Subcommittee No. 3 of the House Committee on the
Judiciary, 81st Cong., 1st Sess. 38-39 (1949); Hearings on H.R.
2734 before a Subcommittee of the Senate Committee on the
Judiciary, 81st Cong., 1st & 2d Sess. 109-110 (1950):
"The loophole sought to be filled resulted from a series of
Supreme Court decisions. (
Swift & Co. v. FTC and
Thatcher Mfg. Co. v. FTC, 272 U. S.
554;
Arrow-Hart & Hegeman Co. v. FTC,
291 U. S.
587.) In these decisions, the Supreme Court held that
section 7 of the Clayton Act, while prohibiting the acquisition of
stock of a competitor, gave the Federal Trade Commission no
authority under section 11 to order divestiture of assets which had
been acquired before a cease-and-desist order was issued, even
though the acquisition resulted from the voting of illegally held
stock."
[
Footnote 2/34]
The Federal Trade Commission had assumed primary enforcement
responsibility before the 1950 amendment.
See Martin,
Mergers and the Clayton Act (1959), p. 197.
[
Footnote 2/35]
Compare 374
U.S. 321fn2/26|>note 26,
supra.
[
Footnote 2/36]
See 374
U.S. 321fn2/33|>note 33
supra; Hearings on H.R.
2734 before a Subcommittee of the Senate Committee on the
Judiciary, 81st Cong., 1st & 2d Sess. 97 (1950). And this Court
has, after the 1950 amendment, described
Arrow as a case
involving an asset acquisition.
Brown Shoe Co. v. United
States, 370 U. S. 294,
370 U. S. 313
and note 20.
[
Footnote 2/37]
The single excerpt quoted by the Court (
ante, p.
374 U. S. 345)
casts no doubt on this proposition, for Senator Kilgore's remark
occurred in the course of a discussion in which he was trying to
make the point that there is no difference in practical effect, as
opposed to the legal distinction, between a merger and a stock
acquisition. Thus, at the end of the paragraph quoted by the Court,
the Senator stated:
". . . I cannot see how on earth you can get the idea that the
purchase of the stock of the corporation, all of it, does not carry
with it the transfer of all of the physical assets in that
corporation."
Hearings on H.R. 2734 before a Subcommittee of the Senate
Committee on the Judiciary, 81st Cong., 1st & 2d Sess. 176
(1950).
[
Footnote 2/38]
H.R.Rep. No. 1191, 81st Cong., 1st Sess. 2 (1949).
[
Footnote 2/39]
Federal Trade Commission, The Merger Movement: A Summary Report
(1948),
passim.
[
Footnote 2/40]
E.g., Hearings on H.R. 988, H.R. 1240, H.R. 2006, H.R.
2734 before Subcommittee No. 3 of the House Committee on the
Judiciary, 81st Cong., 1st Sess. 39-40 (1949); 95 Cong.Rec. 11503
(1949); 96 Cong.Rec. 16505 (1950).
[
Footnote 2/41]
Hearings on H.R. 2734 before a Subcommittee of the Senate
Committee on the Judiciary, 81st Cong., 1st & 2d Sess. 5-6, 17,
57-59 (1950); Hearings on H.R. 988, H.R. 1240, H.R. 2006, H.R. 2734
before Subcommittee No. 3 of the House Committee on the Judiciary,
81st Cong., 1st Sess. 40, 113 (1949).
[
Footnote 2/42]
S.Rep. No. 1775, 81st Cong., 2d Sess. 3 (1950); H.R.Rep. No.
1191, 81st Cong., 1st Sess. 2-3 (1949).
[
Footnote 2/43]
It is interesting to note that, in the same year in which § 7
was amended, Congress passed an act facilitating certain kinds of
bank mergers which had theretofore been prohibited.
See
374
U.S. 321fn2/11|>note 11,
supra, and accompanying
text.
[
Footnote 2/44]
Since the Court does not reach the Sherman Act aspect of this
case, it would serve no useful purpose for me to do so.
Memorandum of MR. JUSTICE GOLDBERG.
I agree fully with my Brother HARLAN that § 7 of the Clayton Act
has no application to bank mergers of the type involved here, and I
therefore join in the conclusions expressed in his opinion on that
point. However, while I
Page 374 U. S. 397
thus dissent from the Court's holding with respect to the
applicability of the Clayton Act to this merger, I wish to make
clear that I do not necessarily dissent from its judgment
invalidating the merger. To do so would require me to conclude in
addition that, on the record as it stands, the Government has
failed to prove a violation of the Sherman Act, which is fully
applicable to the commercial banking business. In my opinion, there
is a substantial Sherman Act issue in this case, but, since the
Court does not reach it, and since my views relative thereto would
be superfluous in light of today's disposition of the case, I
express no ultimate conclusion concerning it.
Compare Rescue
Army v. Municipal Court of Los Angeles, 331 U.
S. 549,
331 U. S. 585
(Murphy, J., dissenting);
Poe v. Ullman, 367 U.
S. 497,
367 U. S. 555
(Stewart, J., dissenting).