First Lincolnwood Corp. v. Board of Governors of Federal Reserve System, 76-1114

Decision Date14 July 1977
Docket NumberNo. 76-1114,76-1114
Citation560 F.2d 258
PartiesFIRST LINCOLNWOOD CORPORATION, an Illinois Corporation, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.
CourtU.S. Court of Appeals — Seventh Circuit

George B. Collins, Chicago, Ill., for petitioner.

Rex E. Lee, Asst. Atty. Gen., Michael H. Stein, Atty., Dept. of Justice, Washington, D. C., for respondent.

Before FAIRCHILD, Chief Judge, and SWYGERT, CUMMINGS, PELL, SPRECHER, BAUER and WOOD, * Circuit Judges.

FAIRCHILD, Chief Judge.

Petitioner (First Lincolnwood) is an Illinois corporation, formed to acquire and hold 80% of the stock of the First National Bank of Lincolnwood. Because such acquisition would cause First Lincolnwood to become a bank holding company, 12 U.S.C. § 1841(a), the proposed acquisition requires approval of the Board of Governors of the Federal Reserve System, 12 U.S.C. § 1842(a). The Board denied approval and the Bank petitioned this court for review. A panel of this court affirmed. First Lincolnwood Corporation v. Board of Governors of the Federal Reserve System, 546 F.2d 718 (7th Cir. 1976).

The court has reheard the case in banc. We will avoid unnecessary repetition of the facts set forth in the panel opinion.

The controlling statute is 12 U.S.C. § 1842(c):

The Board shall not approve

(1) any acquisition or merger or consolidation under this section which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or (2) any other proposed acquisition or merger or consolidation under this section whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any manner would be in restraint of trade, unless it finds that the anticompetitive effects of the proposed transactions are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served.

In every case, the Board shall take into consideration the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs of the community to be served.

The standards set forth in (1) and (2) relate to the question whether a proposed bank holding company structure will tend toward the lessening of competition, and it is clear from the legislative history that Congress' principal concern in regulating the acquisition of banks by bank holding companies is with the anticompetitive potential. Thus in the 1956 Senate Report on the Act it was noted:

. . . the principal problems in the bank holding company field arise from two circumstances: (1) The unrestricted ability of a bank holding company group to add to the number of its banking units, making possible the concentration of commercial bank facilities in a particular area under a single control and management; and

(2) The combination under single control of both banking and non-banking enterprises, permitting departure from the principle that banking institutions should not engage in business wholly unrelated to banking.

See S.Rep.No. 1095, 84th Cong., 2d Sess., reprinted in (1956) U.S.Code Cong. & Ad.News, pp. 2482, 2483. The Senate Report accompanying the 1966 amendments to the Bank Holding Company Act also noted that the purpose of the Act was "to apply in the field of banking and bank holding companies the general purposes of the antitrust laws to promote competition and to prevent monopoly, and the general purposes of the Glass-Steagall Act of 1933 to prevent unduly extensive connections between banking and other businesses." See S.Rep.No. 1179, 89th Cong., 2d Sess., reprinted in (1966) U.S.Code Cong. & Ad.News, pp. 2385, 2386. And the Senate Report accompanying the 1970 amendments continued to describe the Act as one regulating the "ability of . . . a (bank holding) company to obtain banking units, thereby concentrating the commercial bank facilities in a particular area under a single control" and "the combination, again under a single control, of banking and nonbanking enterprises." See S.Rep.No. 91-1084, 91st Cong., 2d Sess., reprinted in (1970) U.S.Code Cong. & Ad.News, pp. 5519, 5520.

We have no doubt that considerable deference must be accorded to a determination by the Board that a particular acquisition will have an anticompetitive tendency proscribed in (1) or (2). This court has upheld such decisions in cases where it was contended or even found that the considerations other than the anticompetitive factors militated in favor of the proposed acquisition. First Wisconsin Bankshares Corp. v. Board of Governors, 325 F.2d 946 (7th Cir. 1963); Marine Corporation v. Board of Governors of Fed. Res. Sys., 325 F.2d 960 (7th Cir. 1963).

The question in this case, however, goes to the standard which governs the Board where no anticompetitive tendency is present, and the court must look only to the unnumbered paragraph at the end of the subsection. How broad is the Board's discretion to deny approval under those circumstances?

The Board's order denying approval is set out in an Appendix to the panel decision, 546 F.2d at 722, 723. It is clear that "the proposed bank holding company formation is essentially a restructuring of the ownership interests of Bank," and "essentially a transfer of Bank's ownership from individuals to a corporation owned by the same individuals," and "would not eliminate any significant existing competition nor foreclose potential competition, increase the concentration of banking resources, or have any adverse effect upon competition within the relevant banking market."

Thus the express standards for disapproval in paragraphs (1) and (2) were not fulfilled. The Board, however, apparently concludes that the unnumbered final sentence of § 1842(c) implies a "public interest" standard with respect to the financial and managerial resources and future prospects of the company or companies and the banks concerned and the convenience and needs of the community to be served. Because of the Board's concern over the $3.7 million indebtedness to which First Lincolnwood will be subject after acquiring the Bank's stock, and limitations upon First Lincolnwood's ability to resolve "any unforeseen problems that may arise at Bank," the Board deemed the proposal not in the public interest.

Because Congress required "consideration" of financial and managerial resources, future prospects, and convenience and needs of the community, it may well have intended that the Board disapprove an acquisition which would adversely affect the public interest vis-a-vis those considerations, even where no anticompetitive tendency is apparent.

As originally enacted, the general language regarding the consideration of soundness and community welfare was clearly not a mere modifier of the language dealing with anticompetitive effect. In 1956, § 1842(c) read as follows:

In determining whether or not to approve any acquisition or merger or consolidation under this section, the Board shall take into consideration the following factors: (1) the financial history and condition of the company or companies and the banks concerned; (2) their prospects; (3) the character of their management; (4) the convenience, needs, and welfare of the communities and the area concerned; and (5) whether or not the effect of such acquisition or merger or consolidation would be to expand the size or extent of the bank holding company system involved beyond limits consistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking.

See The Bank Holding Company Act of 1956, Pub.L.No. 511, Sec. 3(c), reprinted in (1956) U.S.Code Cong. & Ad.News 169, 171. In 1966 the language was amended to its present form, see An Act to Amend the Bank Holding Company Act of 1956. Pub.L.No. 89-485, Sec. 7(c), reprinted in (1966) U.S.Code Cong. & Ad.News 265, 267 (codified at 12 U.S.C. § 1842(c)). Except for adding emphasis to the anticompetitive considerations and specifying the possibility that convenience and necessity may outweigh an anticompetitive tendency, the change to the present form of (c) does not appear to have significantly changed the substance. The reports indicate the change in language came in order to conform the standards of Board review in bank holding company cases to those used in bank merger cases. See S.Rep.No. 1179, 89th Cong., 2d Sess., reprinted in (1966) U.S.Code Cong. & Ad.News 2385, 2393. See also that portion of the Bank Merger Act, 12 U.S.C. § 1828(c)(5), which is identical to section 1842(c) of the Bank Holding Company Act. From the legislative history of the Bank Merger Act we learn that Congress wanted the Board to consider matters not strictly related to competitive effect, so that on those few occasions when a community would be greatly benefited by a bank holding company's...

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