264, introduced by Congressman Keating, and H. R. 2143, by Chairman Celler.

As I understand the statements which the sponsors have just completed, both of these proposals have at least two major goals, the first one being to plug a loophole in the Clayton Act, section 7, by specifying coverage of bank assets as well as stock acquisitions; and second, to require notification to the Department of Justice or to the Federal Trade Commission or to the appropriate regulatory agency, by certain corporations before they actually enter into a merger or acquisition.

The substance of both proposals, I emphasize, was embodied in H. R. 9424, passed by the House almost unanimously last session. Enactment of both proposals, moreover, was urged by President Eisenhower in his January 1957 Economic Report to the Congress. Therefore I come before you this morning to urge most strongly that this subcommittee and the Congress act favorably on the substance of the Celler-Keating bills.

I would like to skip, and I know you would be glad to have me skip, material that has already been considered at length by this committee, and just roughly sketch an outline of the need for the proposals that are before you, and also make some comments on arguments that have been advanced against the bills.

First, the pending bill closes a loophole which is left by the present section 7, because it fails to cover asset acquisitions by banks, so that it is, as a matter of practice, useless to cope with a situation that the Comptroller of the Currency for example has described as "this recent trend of bank mergers, consolidations, and sales."

The Chairman of the Board of Governors of the Federal Reserve System has pointed out that bank mergers "have gone up steadily." As a result, he has stated that

the current trend of bank mergers and consolidations is a matter which deserves careful consideration and one to which the Board of Governors has given a great deal of thought.

Some mention was made of the fact that perhaps the Sherman Act is sufficient to curb this rising tide of bank mergers, but I think it has been demonstrated quite clearly in the prior hearings which you have had that the standards of the Sherman Act are less stringent and would not do the job.

The CHAIRMAN. May I ask this, Mr. Attorney General? You had an investigation of the Chase-Manhattan merger. Would it be possible for you to tell us something about that?

Mr. BROWNELL. We found we were practically helpless to do anything in that situation. That is just the nub of it.

The CHAIRMAN. Because the law as it was written was imperfect and that is why you need these changes?

Mr. BROWNELL. That is right; and the standards of the Sherman
Act were not stringent enough to cover a situation of that kind.
Mr. KEATING. You mean that that merger was consummated by the
acquisition of

Mr. BROWNELL. Of assets.

Mr. KEATING. Of assets?

Mr. BROWNELL. That is right.

Mr. KEATING. Rather than by stock?

Mr. BROWNELL. That is right.

Mr. KEATING. Is that the common way now that banks use to merge?

Mr. BROWNELL. Almost all of them now are done that way.

The CHAIRMAN. I think Judge Barnes testified before this committee that that investigation was under the Sherman Act. I would like to know, if you can tell us, what happened to that investigation. Mr. BROWNELL. It was technically under the Sherman Act; but, as I recollect, the results of the investigation by the Antitrust Division in that particular case indicated that there was not enough of a tendency to monopoly under the Sherman Act standards for us to successfully take action.

However, we think that if the proposal which is before the subcommittee this morning had been in effect, it would have given us a chance to review it with some chance of taking action.

The CHAIRMAN. If I remember correctly, under the Sherman Act all you need to prove is an unreasonable restraint of trade or restraint of trade. Isn't that all that is necessary for you to prove?

Mr. BROWNELL. I would be inclined to say that that is somewhat of an oversimplification. I think that under the Sherman Act standards, you would have to show something more than stopping monopoly in its incipiency, which is more or less the standard under the Clayton Act, and the Court decisions have been pretty clear on the fact that that was not enough for us to take action under the Sherman Act.

The CHAIRMAN. May I have read into the record that portion of the Sherman Act which I think is applicable?

Mr. MALETZ. Section 1 of the Sherman Act reads in part as follows:

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 hereby declared to be illegal.

Section 2, Mr. Chairman, reads in part as follows:

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor

and so forth.

The CHAIRMAN. Under the first section, would it not have been sufficient for you to prove the restraint mentioned there—

conspiracy in restraint of trade or commerce among the several States.

Mr. BROWNELL. Our staff people and head of the Antitrust Division and I felt that on the facts in that particular case there was not enough on which we could proceed under either section 1 or section 2 of the Sherman Act.

So perhaps to repeat, the very objective that we have in mind this morning in asking for the amendment to section 7 of the Clayton Act is to strike at mergers which are beyond the reach of the Sherman Act.

To apply such stricter competitive standard to bank asset acquisitions, as it now does to bank stock mergers, is the first clear aim of these bills. This broad general aim I am glad to say, apart from

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perhaps some disagreement over means, is endorsed in principle by the President, the Department of Justice, the Federal Trade Commission, and the appropriate banking agencies.

To meet this agreed-upon need for effective, but reasonable, restraints on bank mergers, I would urge this committee to proceed with enactment of this, reporting favorably on this particular legislation, without, as some people have suggested should be done, without waiting any final action on the so-called omnibus banking bill which was reported out last Monday by the Senate Banking and Currency Committee.

There is some interrelation here between these two proposals that I would like to discuss before the subcommittee this morning. The CHAIRMAN. You are referring, I think, in connection with the Omnibus Banking Bill to section 23, chapter 6, title III. Mr. BROWNELL. That is right.

The CHAIRMAN. We might put that right in the record at this point.

Mr. BROWNELL. I think it would be helpful because I want to refer to it a number of times.

(The document referred to is as follows:)

§ 23. Mergers and consolidations.

Without prior written consent by the Corporation, no insured bank shall (1) merge or consolidate with any noninsured bank or institution or convert into a noninsured bank or institution or (2) assume liability to pay any deposits made in, or similar liabilities of, any noninsured bank or institution or (3) transfer assets to any noninsured bank or institution in consideration of the assumption of liabilities for any portion of the deposits made in such insured bank. No insured bank shall convert into an insured State bank if its capital stock or its surplus will be less than the capital stock or surplus, respectively, of the converting bank at the time of the shareholders' meeting approving such conversion, without prior written consent by the Comptroller of the Currency if the resulting bank is to be a District bank, or by the Board of Governors of the Federal Reserve System if the resulting bank is to be a State member bank (except a District bank), or by the Corporation if the resulting bank is to be a State nonmember insured bank (except a District bank). No insured 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 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 Corporation if the acquiring, assuming, or resulting bank is to be a nonmember insured bank (except a District bank). In granting or withholding consent under this section, the Comptroller, the Board of Governors of the Federal Reserve System, or the Corporation, as the case may be, shall consider the factors enumerated in section 15 of this Act. In the case of a merger, consolidation, acquisition of assets, or assumption of liabilities, the appropriate agency shall also take into consideration whether the effect thereof may be to lessen competition unduly or to tend unduly to create a monopoly, and, in the interests of uniform standards, it shall not take action as to any such transaction without first seeking the views of each of the other two banking agencies referred to herein with respect to such question; and in such a case the appropriate agency may also request the opinion of the Attorney General with respect to such question. No insured State nonmember bank (except a District bank) shall, without the prior consent of the Corporation, reduce the amount or retire any part of its common or preferred capital stock, or retire any part of its capital notes or debentures. The CHAIRMAN. I do not think we need read it.

We will just put it in the record at this point.

Mr. KEATING. You mean existing law?

The CHAIRMAN. Proposed.

Mr. BROWNELL. First, I would suggest that considerations of effective enforcement and equity in themselves require that bank acquisitions, like most other business mergers, should be treated not by way of special legislation such as incorporation in the Banking Act, but under the Clayton Act, section 7.

Second, I would say that even if Congress does agree with the Senate Banking Committee's report that bank mergers should be treated, initially at least, by appropriate banking agencies, that such banking legislation should include, just the way it does in respect to bank holding companies, some antitrust savings clause so that there will not be any seeming conflict between the two.

And to make that savings clause effective, in any event, section 7 should be amended to cover the bank-asset acquisitions, as it now does the bank-stock acquisitions.

Why do I urge that section 23 of this Senate-reported omnibus banking bill falls short of the needs for reasonable curbs on bank mergers?

First, it sets up competitive tests for bank mergers which are different from those which apply to other segments and sectors of American business, as I will point out in some detail in a moment. Second, by setting up this special standard, we believe it would dissipate enforcement efforts by decentralizing responsibility for decisions affecting the Clayton Act, section 7, so that some of the decisions would be made by the banking agencies and some by the Department of Justice.

It was my view that both of these objections to section 23 are rooted in firm principles of equitable enforcement and uniform administration of justice.

Let me take them up more in detail now.

First, we believe that the proposed banking legislation prescribed for bank mergers would weaken the standards of section 7 of the Clayton Act because under that bank bill the factor of competition would be only one of numerous considerations to be taken into account by the banking agency that is examining a proposed merger, and also the standard that is set up there in that section 23 of the omnibus banking bill is whether the acquisition may "lessen competition unduly or tend unduly to create a monopoly."

The members of this subcommittee will recognize immediately that this is a novel and a less stringent standard than the one that is specified in section 7 of the Clayton Act.

The CHAIRMAN. It would weaken decidedly present section 7 standards.

Mr. BROWNELL. Very much so.

The CHAIRMAN. How can you speak of a monopoly that is an undue monopoly? If it is a monopoly it is a monopoly, isn't it?

Mr. BROWNELL. The very least you could say is that there would be a period of great uncertainty while the courts were struggling with this new word and trying to figure out what the new standard was

that was set up.

The CHAIRMAN. I mean in commonsense how could it be an undue monopoly?

If it is a monopoly it is a monopoly. It can't be qualified, can it? Mr. BROWNELL. I certainly would have a hard time with a decision as to what that means, but it must mean something, and therefore it must be a weaker standard from the standpoint of effective antitrust enforcement than the one which is in section 7 of the Clayton Act. The CHAIRMAN. Do you know who originated that idea? Mr. BROWNELL. No; I do not.

The first place it has appeared I think is in this omnibus banking bill.

Mr. KEATING. Does the word "substantially" appear there?
Mr. BROWNELL No; it does not. It is "unduly.'

Mr. KEATING. Is that "unduly" a new word in the law?

Mr. BROWNELL. Yes, it is, and as I say, I think at the very least it would mean a period of great uncertainty here while the courts were trying to figure out what it meant and how it does differ from the Clayton Act standard, and it would be very troublesome to us who believe in the enforcement of section 7 in the nonbanking areas, because this weaker standard that is set up here would undoubtedly be cited by corporations as a standard that should be accepted under section 7.

The CHAIRMAN. It strikes me that when you say "tend unduly to create a monopoly" that would be very much like saying a man is not unduly dishonest. I cannot understand how they ever could dream. of putting those words in juxtaposition.

Mr. BROWNELL. I think that the banking authorities themselves are disturbed about this. I put in my statement here a quotation from Chairman Martin, who says:

We recognize that you have a legal groundwork for substantially lessening competition already in the framework of the law and that it may not be feasible to use unduly lessening competition

So that in support of this novel and what I would call a weaker standard, the Comptroller of the Currency has attempted to show the harshness of section 7 standards in certain bank failure situations.

I would like to come to that point too. In other words, the point has been made that you could not handle the situation of a failing bank if you adopted the standard of section 7 of the Clayton Act. We believe that is not so.

Mr. KEATING. May I interpose a question just so I get this picture? The Comptroller of the Currency favors handling this bank merger business under this omnibus banking bill?

Mr. BROWNELL. Yes, and establishing a new standard which he would interpret, and he could or he might not he is not required— to consult the Department of Justice to get our views as to what the proper interpretation would be, so that you are going to have the possibility at least of conflicting interpretations right within the Government as to what the merger standards should be, and that is one thing I think this committee would be very, very slow to accept. I think we have all seen in our experience the importance of certainty and clarity in these antitrust standards, and if you have not only two conflicting standards but two conflicting agencies of Government interpreting those standards, you really are not fair to the business community because it would introduce an element of uncertainty which I think would be most unfortunate.