County Nat. Bancorporation v. Board of Governors of Federal Reserve System, 79-1783

• Decision Date: 31 July 1981
• Docket Number: No. 79-1783,79-1783
• Citation: 654 F.2d 1253
• Parties: , 1980-81 Trade Cases 63,726, 1981-2 Trade Cases 64,240 COUNTY NATIONAL BANCORPORATION and TGB Co., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1253

654 F.2d 1253

71 A.L.R.Fed. 421, 1980-81 Trade Cases 63,726,

1981-2 Trade Cases 64,240

COUNTY NATIONAL BANCORPORATION and TGB Co., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

No. 79-1783.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 9, 1980.

Decided July 31, 1981.

John P. Hawke, Jr., Arnold & Porter, Washington, D. C., for petitioners.

James V. Mattingly, Jr., Asst. Gen. Counsel, Board of Governors of the Federal Reserve System, Washington, D. C., for respondent.

Before LAY, Chief Judge, and HEANEY, BRIGHT, ROSS, STEPHENSON, HENLEY, McMILLIAN and ARNOLD, Circuit Judges, en banc.

HENLEY, Circuit Judge.

County National Bancorporation (County National) and its nonoperating subsidiary, TGB Co., seek review of an order of the Board of Governors of the Federal Reserve System (Board) denying their applications to acquire control of T. G. Bancshares Co. (TG) under the Bank Holding Company Act of 1956 (BHCA), as amended, 12 U.S.C. § 1841 et seq. ¹

In its opinion filed September 3, 1980, and later withdrawn, a panel of this court, Circuit Judges Henley and McMillian and The Honorable Roy W. Harper, United States Senior District Judge, Eastern District of Missouri, sitting by designation, concluded the Board's decision should be vacated. Similarly, on rehearing the court en banc concludes that the Board's decision should be vacated and the cause remanded.

On April 6, 1979 petitioner County National, a multibank holding company, applied to the Board for approval of applications to acquire one hundred per cent of the voting shares of TG, an unaffiliated bank holding company. County National proposed to accomplish the acquisition through the merger of TG into County National's subsidiary, TGB Co., a nonoperating company formed to carry out the merger. The applications were filed pursuant to section 3(a) of the BHCA, 12 U.S.C. § 1842(a).

County National, generally recognized as a "suburban bank" and headquartered in St. Louis County, Missouri, is the tenth largest banking organization in the State of Missouri and the sixth largest banking organization in the St. Louis market. ² County National controls five banks with aggregate deposits of approximately 333.7 million dollars, representing around 1.6 per cent of the total deposits in commercial banks in the state and 3.2 per cent of the commercial bank deposits in the St. Louis market. County National's largest subsidiary or "lead" bank is the St. Louis County Bank which is one of the seven largest banks in the St. Louis market.

TG, generally recognized as a "city" bank and headquartered in the City of St. Louis, is the thirteenth largest banking organization in the state and the tenth largest banking organization in the St. Louis market. TG controls three subsidiary banks with aggregate deposits of approximately 225.6 million dollars which represent around 1.1 per cent of the total commercial deposits in the state and 2.3 per cent of the total commercial deposits in the St. Louis market. TG's largest subsidiary or "lead" bank is the Tower Grove Bank & Trust Co. (Tower Grove Bank) which has deposits of over 150 million dollars and is among the seven largest banks in the St. Louis market.

County National and TG directly compete within the St. Louis market. County National's "lead" bank, St. Louis County Bank, is located only nine miles from TG's largest subsidiary bank, Tower Grove Bank. Moreover, County National's other subsidiary banks are located anywhere from 1.5 miles to 25 miles from TG's three subsidiary banks. Because of the proximity of the two banks, there is a significant overlap in service areas. In fact, Tower Grove Bank derives about eight per cent of its total deposits and thirty-five per cent of its total loans from the primary service areas of St. Louis County Bank. Furthermore, St. Louis County Bank derives approximately seventy-nine per cent of its deposits and fifty-nine per cent of its loans from the primary service area of Continental Bank & Trust Co. which is the TG subsidiary bank located closest to the St. Louis County Bank.

The proposed merger would result in County National becoming the seventh largest banking organization in the state with 2.7 per cent of the total state-wide commercial bank deposits and the fourth largest banking organization in the St. Louis banking market with 5.6 per cent of the total market deposits.

As indicated, this case arises under the provisions of the BHCA of 1956, 12 U.S.C. § 1841 et seq., as amended. Under the terms of the statute, it is unlawful for any company to acquire control of a bank without prior approval of the Board. 12 U.S.C. § 1842(a), as amended. ³ In determining whether to approve a proposed transaction, the Board is directed under section 3(c), 12 U.S.C. § 1842(c), as amended, to consider various matters including questions whether the proposal will violate certain antitrust standards. ⁴

It is the interpretation and application of section 3(c) that determines the case at bar.

Applying the statute to the present case, the Board by a divided vote denied the petitioners' applications. The Board found that the merger, if allowed, would result in the elimination of existing competition between two aggressive and effective competitors and a harmful concentration of banking resources in the state as well as in the St. Louis banking market. The Board further determined that these adverse effects would not be offset by compensating benefits. The Board, however, did not affirmatively find that the proposed merger would violate the antitrust standards set forth in section 3(c)(1) and (2).

Petitioners contend that the Board may not consider anticompetitive factors more stringent than those mandated in sections 3(c)(1) and 3(c)(2). The Board, on the other hand, has taken the position that it may deny an acquisition on competitive grounds absent a finding of specific antitrust violations.

As originally enacted, the BHCA provided no definition of "convenience and needs" of the community, and section 3(c) did not emphasize specific antitrust standards. Instead, section 3(c) provided standards requiring the Board to consider various factors including the preservation of competition within the banking field. ⁵

In 1966, however, the language was amended to its present form. The legislative history of the provision indicates that the language was changed to conform the standards governing Board review of cases involving bank holding companies to the standards governing review by the Federal Deposit Insurance Corporation in cases involving mergers of individual banks under section 5 of the Bank Merger Act (BMA), 12 U.S.C. § 1828(c)(5), as amended. See S.Rep.No.1179, 89th Cong., 2d Sess., reprinted in 1966 U.S.Code Cong. & Ad.News 2385, 2393. The language of section 3(c) of the BHCA is thus virtually identical to that of section 5 of the BMA. ⁶

The language of section 3(c) also closely parallels the language of certain antitrust standards. The antimonopoly language found in section 3(c)(1) is, of course, derived from section 2 of the Sherman Act. 15 U.S.C. § 2. Moreover, the language found in section 3(c)(2) incorporates, in part, other antitrust standards. The phrase "may be substantially to lessen competition, or to tend to create a monopoly" is identical to the standard imposed by section 7 of the Clayton Act, 15 U.S.C. § 18, while the "in restraint (of) trade" clause is lifted from section 1 of the Sherman Act, 15 U.S.C. § 1. Congress' substitution of specific competitive standards in the 1966 amendment for the general "preservation of competition" language used in the BHCA of 1956 arguably is strong indication that the antitrust standards were intended to be the sole measure of the competitive effects of a proposed transaction.

The thrust of the four-hour long debate of the 1966 amendment to the BMA on the House floor focused on whether the antitrust standards set out in section 1 of the Sherman Act and section 7 of the Clayton Act should be strictly applied to the banking industry or whether a "convenience and needs of the community" exception should be created. 112 Cong.Rec. 2440-67 (1966). Although the debate centered around the language of subsection B of section 5 of the BMA, there is no indication in the statute or its legislative history that the "convenience and needs of the community" language was intended to mean something different when used in subsection B than when it was used, only a few lines later, in the last sentence of section 5. Indeed, the Congressmen participating in the debate repeatedly spoke in terms of balancing the "competitive factor" against the "convenience and needs of the community." 112 Cong.Rec. 2440-67 (1966). Thus, while many Congressmen perceived competition, in this sense, to be a factor separate and distinct from the "convenience and needs of the community," only two, Congressmen Weltner and Todd, who opposed the statutory language of "convenience and needs of the community" and who voted in the minority, indicated in their statements that competition was part of the "convenience and needs of the community." See 112 Cong.Rec. 2457-59.

Two concerns developed after 1960 which Congress addressed with the 1966 amendment to the Bank Merger Act. The first was that bank regulatory agencies approved 90% of all merger applications filed between 1960 and 1966, 112 Cong.Rec. 2444 (remarks of Congressman Reuss), even though the 1960 BMA was passed to control the concentration of banking resources and the resulting decline in the number of commercial banks caused by unregulated mergers and consolidations. H.R.Rep.No.1416, 86th Cong., 2d Sess., reprinted in (1960) U.S.Code Cong. & Ad.News 1995, 1996-98. Congress perceived the cause of this problem to be that competition was only one of six equally weighted factors which the agencies were required to consider and was not given special emphasis by the BMA. Se...