374 U.S. 321 (1963), 83, United States v. Philadelphia National Bank

Docket Nº:No. 83
Citation:374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915
Party Name:United States v. Philadelphia National Bank
Case Date:June 17, 1963
Court:United States Supreme Court

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374 U.S. 321 (1963)

83 S.Ct. 1715, 10 L.Ed.2d 915

United States


Philadelphia National Bank

No. 83

United States Supreme Court

June 17, 1963

Argued February 20-21, 1963




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. 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. 350-355.

3. The proposed consolidation of appellee banks would violate § 7 of the Clayton Act, and it must be enjoined. Pp. 355-372.

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(a) The "line of commerce" here involved is commercial banking. Pp. 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. 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. 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. 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. 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. 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. 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. 371-372.

201 F.Supp. 348, reversed.

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BRENNAN, J., lead opinion

[83 S.Ct. 1720] 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. § 18.1 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

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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.


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.2

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[83 S.Ct. 1721] 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.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

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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.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.5 But among them the creation of additional

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money and credit, the management [83 S.Ct. 1722] 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.

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§§ 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...

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