petition in California. That fact, however, does not justify encouragement of further concentration. Under the impact of such concentration, the desire on the part of smaller competing banks to survive in some form could arouse the same, or even greater, necessity for merger or bank holding company affiliation that allegedly impelled the present application. Thus, the proposed plan portends a result similar to that foreseen by the Court in the case of United States v. Bethlehem Steel Corporation and The Youngstown Sheet and Tube Company (D.C. S.D.N.Y.), decided November 20, 1958, in which a proposed merger in the steel industry was disapproved under Section 7 of the Clayton Act: "The merger offers an incipient threat of setting into motion a chain reaction of further mergers by the other but less powerful companies in the * * * industry." The possibility of a substantial reduction in competing banking facilities available to users or potential users thereof, with a simultaneous concentration of economic power in the hands of a few large banks, is the precise condition envisioned by Congress as jeopardizing a sound banking system and being inimical to the public interest. Furthermore, in reference to the other 10 States in which Firstamerica controls banks, we must also be concerned with the effect of the expanded size or extent of this holding company on adequate and sound banking, the public interest, and the preservation of competition. In six of these States, Firstamerica's banks held, in June 1958, a large proportion of total bank deposits: Arizona, 38 percent; Nevada, 76 percent; New Mexico, 14 percent; Oregon, 41 percent; Utah, 20 percent; Wyoming, 17 percent. One cannot close his eyes to the fact that the present competitive potential of Firstamerica's subsidiaries in the States in which they now operate will be strengthened as a result of an increase of one billion dollars in the commercial bank deposits controlled by that holding company. My conclusions in this regard are not altered by the testimony of Applicant's principal officer to the effect that few advantages, if any, would be realized by Firstamerica's other 22 subsidiaries for the reason that the parent holding company exerts a minimum of control over its banks and renders little or no assistance in the way of procuring business, improving internal operations, or interfering with internal administration or management. To attach validity to this assertion one would have to assume that a holding company itself serves no purpose other than to hold bank stock as an investment, and that no functional relationship exists between or among its subsidiaries. The history and growth of Applicant's predecessor alone makes this assumption impossible and the assertion incredible. In view of my conclusion that this application should be denied in the light of the standards stated in the Bank Holding Company Act, it is unnecessary for me to inquire into whether the proposal would involve violation of Section 7 of the Clayton Act, which forbids any corporation to acquire the stock of another “where in any line of commerce in any section of the country, the effect of such acquisition *** may be substantially to lessen competition ** *” The following observations, however, raise substantial question as to the legality of the proposal under the Clayton Act. As stated in the Bethlehem Steel case, cited above, a major purpose of Section 7 is to ward off the anticompetitive effects of increases in the degree of economic concentration resulting from corporate mergers and acquisitions. The record in this matter evidences that consummation of Applicant's plan will produce a marked increase in banking concentration in the State of California. The ultimate result of this concentration will be to make more difficult the maintenance of effective competition on the part of smaller California banks. Furthermore, in the Los Angeles metropolitan area the proposed acquisition and merger will not only eliminate entirely the present and potential competition between First Western and California Bank, but will also eliminate from the general competitive picture a substantial independent alternative source of bank credit and banking facilities. Under the judicial interpretation of the Clayton Act in the Bethlehem Steel decision, one must reject the contention that the increased size of Applicant's California bank will contribute to the preservation of competition among banks in that State. Furthermore, like the Youngstown Company in the Bethlehem Steel case, both First Western Bank and California Bank are operating profitably and there is no basis for assuming they will not continue to do so; consequently there is on threat to present or future position of either that would re move the proposed merger from the scope of the antitrust laws. Finally, even if the merger offered significant benefits in such areas as strength of manage ment and convenience of the communities concerned, as I read the Bethlehem Steel decision such benefits are irrelevant and afford no defense if the merger will substantially lessen competition and thereby violate the Clayton Act. Returning to the Bank Holding Company Act, experience gained in more than a quarter century of supervision of banks and bank holding companies has taught me that it is preferable to anticipate a problem and act accordingly, rather than wait until it may be too late to deal with it effectively. This principle-prophylaxis now rather than surgery later—is the foundation of both the Clayton Act and the Bank Holding Company Act. Approval of the application in the face of the record in this case will make extremely difficulty the task of dealing hereafter with proposed absorptions of banks by holding companies where the adverse circumstances may be far less weighty than they are here. Specifically, the Applicant itself may be expected to push the resulting bank further along the path of expansion on which First Western has already embarked so successfully. In this regard, I again call attention to the fact that at the time this application was filed, Firstamerica's First Western had pending applications for 35 additional branches. This does not indicate a disinclination to expand quite the contrary. The majority statement, while it concedes that the proposed acquisition might further Firstamerica's ability to expand throughout the 11-State area through the absorption of other banks, points out hat the Board has recommended that mergers of additional banks into a holding company system via acquisition of assets rather than stock should be brought within the coverage of the Bank Holding Company Act. But that is not the law today, and there is no assurance that the Board's recommendation will be adopted by Congress. Admittedly, expansion can (and does) take place through such mergers into holding company system banks, over which the Board may have no jurisdiction. However, limitations on the Board's jurisdiction in these respects do not require the Board to close its eyes to reality in exercising its unquestioned jurisdiction to permit or prohibit acquisitions by bank holding companies through the purchase of bank stocks. As the majority Statement points out, the Holding Company Act requires the Board to consider, not the size of extent of a bank holding company in vacuo, but rather whether the proposed expansion would be inconsistent with adequate and sound banking, the public interest, and the preservation of competition in the field of banking. Board judgments reflecting adherence to this standard would result, in my opinion, in effectuating the intent and aim of Congress evidenced in its enactment of the Act-namely, that bank holding companies should not be absolutely precluded from expanding, but rather that expansion should be permitted only where the public interest will be served thereby. I read the Holding Company Act as empowering the Board of Governors to approve an application, in a case where the acquisition will be adverse to "the preservation of competition," only if this unfavorable factor is outweighed by benefits under one or more of the other four factors. In this case, a reading of the majority decision reveals that the Board has determined that the reasons for approval advanced by the Applicant are generally without merit, but nevertheless the Board proceeds to approve the application. More specifically, the decision seems to determine that the first four factors are "neutral" and then finds that under the fifth factor, although competition will be reduced, the diminution is not sufficiently great to warrant disapproval. That reasoning is not in accord with my view of how Congress intended the Board of Governors to exercise the authority and responsibility vested in it by the Holding Company Act. When Congress in 1956 vested in this Board responsibility "to control the future expansion" of bank holding companies, it certainly did not intend-did not for a moment anticipate-that within three years thereafter the largest holding company in the world (the offspring of Transamerica Corporation, whose hasty buying up of banks in several States while the bill was pending did much to bring about the passage of this restrictive Act) would be permitted to absorb an additional 65-office one-thousand-million-dollar bank in California. After carefully weighing all the evidence, I conclude that since, under Applicant's proposal, banking competition both present and potential will be substantially reduced without any significant offsetting contribution to the public need, convenience, or welfare, I must dissent from the Board's decision. COMPTROLLER OF THE CURRENCY, March 31, 1959. Hon. A. WILLIS ROBERTSON, Chairman, Banking and Currency Committee, MY DEAR MR. CHAIRMAN: For the use of your committee in its consideration Sincerely yours, RAY M. GIDNEY, Reasons for national banks being placed in voluntary liquidation 1941 to 1958, |