Senator BENNETT. Is it not a case that the three agencies will get together only in laying out the basic ground rules? Once they have been laid out under this law, if this agency falls within the jurisdiction of the FDIC, that agency will move to handle the merger?

Mr. WOLCOTT. That is right, sir, but each of the other two agencies will independently express its views on the competitor factor. Mr. COBURN. That is right.

Senator BENNETT. It will not require joint action of the three agencies to handle the merger. But the three agencies will meet to agree on the basic ground rules which will be applied?

Mr. WOLCOTT. I might say we are doing that constantly agreeing on ground rules-and on actions in individual cases.

Senator MUSKIE. How thoroughly would you guess the other two agencies would participate in a decision under this S. 1062 which was the primary responsibility of one of the three? Would the other two tend to rubberstamp the decision of the given agency?

Mr. WOLCOTT. They never have yet. They work very, very closely together. And, as a matter of fact, we have interagency meetings, and we are in constant touch with the Federal Reserve, and the Comptroller sits on our Board. We are very closely associated with both the Federal and the Comptroller's office.

They likewise seek our advice and consent and counsel on many of their problems. We work together as three brothers. We are very close.

Senator MUSKIE. Three brothers do not necessarily work together well.

Mr. WOLCOTT. We may disagree, but we finally get the facts

Senator FREAR. I am sure the Senator from Maine is also acquainted with the fact that the Comptroller is also a Director of FDIC.

Senator MUSKIE. Yes.

The CHAIRMAN. If there are no further questions, we thank you, Mr. Wolcott.

Mr. WOLCOTT. We are very grateful to you.

(The following was received subsequent to the close of the hearings:)

Mr. MATTHEW HALE,

FEDERAL DEPOSIT INSURANCE CORPORATION,
OFFICE OF THE GENERAL COUNSEL,
Washington, D.C., March 20, 1959.

Chief Counsel, Banking and Currency Committee,
U.S. Senate, Washington, D.C.

DEAR MR. HALE: In our discussions concerning the issues and testimony submitted in reference to S. 1062, you have suggested that it would be helpful to the committee to get a more positive statement of the views of the Corporation as to the discretionary authority to submit the issue in reference to monopoly and competition to the Attorney General; in other words, whether in line 20 of page 2 of the bill the word "may" should be "shall."

May I tell you at the outset that the Corporation deems that the word "may" is a vital part of the entire bill, and it would be unalterably opposed to any qualification thereof, and certainly to the use of the word "shall.”

First, may I call your attention to the fact that when this legislative proposal was drafted by the three Federal bank supervisory agencies, there were numerous conferences with Judge Barnes and Mr. Bicks of the Department of Justice in an

effort to arrive at an understanding that could be incorporated in a single legislative proposal. During these discussions, there was consideration given to a permissible or voluntary submission of the propriety of all merger transactions to the Department of Justice, and also a consideration of the issues that would thus be presented to them. This would include the use of "shall"-with escape clause for "emergency" cases and cases involving less than a stated dollar amount of assets. We believe that all avenues of compromise were explored, and it was the unanimous opinion of the representatives of the bank supervisory agencies that this proposal, as worded, represented the best proposal that could be submitted to Congress for enactment.

Let's consider the specific provisions of S. 1062 on this matter. The bill contemplates that the "appropriate agency" shall make the decision in reference to the banking factors, without the aid or assistance of the other agencies. However, in reference to the factors of monopoly and competition, the "appropriate agency" shall obtain the views of the other two agencies on this factor alone, and likewise may ask the views of the Department of Justice on this factor alone. I think the committee has sufficient evidence, and even citations of particular cases, to show that it is in the public interest in many instances that a merger transaction be approved, notwithstanding that it may have some adverse effect on competition. To cite a new example, our Board had before it, not too long ago, a merger transaction involving two banks, which merger we believed would lessen competition if effected. However, one of the units in the merger was weak capitalwise, and the management and stockholders of the bank stated that they could not supply the capital that was urgently needed in the bank. Further, the bank had outgrown its management. The officers of the bank were not capable of effectively operating a bank of the size to which this institution had grown. While we did not have, at the time that this merger transaction was before us, the standards that are presented by this bill, and had to rely solely on the six banking factors, which included needs and convenience of the community, we concluded in this case that the other banking factors outweighed the evil of lessening of competition, and, therefore, the Corporation approved the merger.

Now, in a case such as this, where the appropriate agency recognizes the lessening of competition, we do not deem that it would be necessary to refer that matter to the Department of Justice. The agency recognized the existence of the factor, and there would be no need for further affirmation from the Justice Department. It is not contemplated by the legislation that the Department of Justice would endeavor to evaluate the banking factors against the competitive factors, but that the Department of Justice would be limited to determining whether or not, in its opinion, there was an undue lessening of competition.

However, there are cases—and I recall one that recently was presented which involved the merger of two banks of substantial size where the issue of competition could well have been a decisive factor. The banking factors involved were negligible, and by that I mean that there was no banking need to justify the merger such as capital, management, or other similar considerations. However, there was presented a real issue as to whether or not there would be a lessening of competition, and we believe that this is the kind of a case that should and would be submitted to the Department of Justice, if the case had come up after the enactment of this proposal.

At the hearing we pointed out a recent case in Maine (and the same thing is true in a recent case in Ohio), where the Corporation rendered financial assistance to enable an assumption transaction to be effected. In order that there would be no stoppage of banking services in the community, the Corporation had to act promptly. This action enabled a competing bank to assume the deposits of another institution. There was no time to submit the competitive factors to the Department of Justice. Time was of the essence, if the Corporation was to discharge its corporate responsibility, as well as attend to the banking and financial needs of the community. Similar conditions prevail in all emergency

cases.

There are other merger cases that are presented where there is no competitive factor at all involved. Because of size, location, character of business, asset condition, capital, management (one or all), the merging units are not in actual competition, and there would be no need to engage the services of an additional screening agency to determine this fact.

What we are trying to outline here is that there are only a relatively few merger transactions in which the competitive or monopolistic factor would be a decisive consideration in the agency action. It is impossible to spell out in

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legislative language the proper cases to submit to the Department of Justice for advice. We believe that the Congress can well depend on the supervisory agencies to submit to the Department of Justice all cases where the competitive factor can be or should be a decisive factor. It is pertinent to point out that in all cases the competitive factor must be screened by three of the agencies, and in the unusual case it is permissible to engage the services of the fourth. We believe that this plan provides full and complete safeguards to protect banking from the evils of monopoly.

It is for these reasons, among others, that the Corporation deems that this present language should be adopted, and that no change in this particular should be made in the present wording of the bill.

Sincerely yours,

ROYAL L. COBURN, General Counsel.

FEDERAL DEPOSIT INSURANCE CORPORATION,

OFFICE OF THE CHAIRMAN, Washington, D.C., March 25, 1959.

Hon. A. WILLIS ROBERTSON,

Chairman, Comittee on Banking and Currency,
U.S. Senate, Washington, D.C.

MY DEAR SENATOR: I wish to acknowledge receipt of your letter of March 21, in which you request our views in reference to the suggestion that the present wording of S. 1062 be amended to require the banking agencies to obtain the opinion of the Attorney General in every case.

It is our view that the bill, as presently proposed, should be enacted without any change. We do not believe that a requirement that the approval of all merger transactions be referred to the Attorney General for the views of his Department would be in public interest. On the other hand, we believe that in all cases where the views of the Attorney General could and would be helpful to the appropriate agency making the decision, reference of the transaction will be made to the Department of Justice for their views regarding competition and monopoly.

May I call your attention to the fact that our General Counsel has written to Mr. Hale, as chief counsel of your committee, under date of March 20, outlining in more detail the pertinent considerations which led to the conclusions that are here expressed.

With kind personal regards,

Sincerely yours,

JESSE P. WOLCOTT, Chairman.

The CHAIRMAN. The next and last witness is Gov. James L. Robertson of the Federal Reserve Board.

Governor, we are pleased to hear from you.

STATEMENT OF JAMES L. ROBERTSON, MEMBER, BOARD OF GOVERNORS, FEDERAL RESERVE SYSTEM

Mr. ROBERTSON. Thank you, Mr. Chairman.

I am very glad to have the opportunity to appear here in behalf of the Board with respect to S. 1062.

This statement which we have prepared I think is fairly selfexplanatory. In view of the lateness of the time, you may wish for me to refrain from reading that and merely give you a summary of what I think those views are.

I will proceed in any way you wish.

The CHAIRMAN. Governor, you are a quick thinker and fast talker, and I believe the summary would be very acceptable with the understanding that your entire statement will appear in the record at the close of your presentation.

Mr. ROBERTSON. Then I will subject myself to any questions that you would like to ask.

First, let me say that we believe there is a real need for legislation to curb bank mergers which lessen competition to a degree incompatible with the public interest. Hence, we are in complete accord with the objective of all nine bills pending before Congress on this subject.

Second, we believe that every proposed merger of insured banks should be scrutinized by the appropriate Federal supervisory agency before it is consummated and should be prohibited until approval of that agency is received.

Third, we believe that every such Federal supervisory agency should be explicitly required to consider the competitive effects of such a merger along with all the other aspects thereof.

We think approval should not be given unless the adverse effects of a lessening of competition are outweighed by the favorable factors. And, fourth, we believe that in order to achieve as much uniformity as possible in weighing the competitive factor, without disrupting the existing jurisdictional pattern, the agency having jurisdiction should be required to seek the views of the other two agencies with respect to this factor and be authorized to request the opinion of the Attorney General with respect to that question.

As we see it, S. 1062 does exactly this, and, hence, we favor its enactment. In fact, we favor it over other approaches such as those which would amend the Clayton Act, because, first, it provides for advance approval rather than an enforcement proceeding designed either to enjoin the consummation of the merger or to unscramble an accomplished merger. Secondly, it requires that the competitive factor be scrutinized carefully without making the decision hinge on that factor alone, and it buttresses the scrutinization by requiring that the agency seek the views of the other agencies on this factor. That I think is a summary of what our views are.

I will be very glad to attempt to deal with any questions you have. The CHAIRMAN. You have said, Governor, that you think all of these mergers should be closely scrutinized and that the agency handling it should consult with the other two agencies and reconcile it with the Office of the Attorney General.

In your opinion, if these applications are closely scrutinized in line with everything that is to be considered when a new bank is to be insured by FDIC, plus the additional equation of unduly limiting competition, do you think that future mergers would be made easier, or more difficult?

Mr. ROBERTSON. I would certainly hope and I do believe that they would be made more difficult. I disagree with some of the statements that have been made because I think there is a real need for legislation in this field. Whenever you get a banking system where, as in this country, less than 3 percent of the banks have more than 63 percent of the deposits of commercial banks, I think you are getting into a dangerous area.

Consequently, I would hope that this sort of a scrutinization of mergers would result in a curtailment of the trend toward mergers for the sake of size alone and power alone.

The CHAIRMAN. You have expressed the viewpoint of the chairman when he introduced this bill. He felt that legislation on mergers was needed, that if the Banking and Currency Committee, which had primary jurisdiction, failed to act, somebody else would act. And he felt that a bill had been introduced which if administered in keeping with the intent of the language would make it more difficult for mergers in the future than has been the case in the past.

Any further questions?

Senator BENNETT. Mr. Chairman, when I was questioning the previous witness I indicated my own lack of understanding of the basis on which these three agencies would seek each other's counsel, and I would like to correct my own statement. I understand now that after the application for merger is received they must seek each other's counsel, that it is not simply on the basis of arriving at a joint agreement as to the standards on which mergers might be prohibited. Mr. ROBERTSON. That is correct.

Senator BENNETT. I appreciate the chance to correct my own misunderstanding.

I have no questions of the witness.

The CHAIRMAN. Any questions, Senator Muskie?
Senator MUSKIE. No, sir.

The CHAIRMAN. Governor, we thank you.

(Mr. Robertson's prepared statement follows:)

STATEMENT OF J. L. ROBERTSON, MEMBER, BOARD OF GOVERNORS, FEDERAL RESERVE

SYSTEM

Mr. Chairman and members of the committee, the views of the Board of Governors regarding bank merger legislation have been expressed on a number of occasions before committees of Congress over the past several years. They were summarized as recently as February 27, 1959, in a letter to this committee, reporting on the bill S. 1062. However, the Board welcomes this opportunity to restate and clarify its position on this important subject.

THE PROBLEM

At the outset, it is desirable to have clearly in mind the problem which all pending merger bills are designed to meet. Essentially the problem stems from the large number of bank mergers in recent years and the belief in many quarters that this trend is inconsistent with the preservation of a proper degree of competition in the banking field. From a total of 100 bank mergers in 1952 the number grew to a peak of 231 in 1955. Since that year the number has gradually decreased, with 189 in 1956, 162 in 1957, and 154 in 1958. However, the number is still sufficiently great to give cause for concern.

Under present law, practically all mergers in which the resulting bank is a national bank are subject to the prior approval of the Comptroller of the Currency. However, a great many bank mergers do not now require the approval of any Federal supervisory agency, even though the banks involved are otherwise subject to Federal regulation.

Section 18 (c) of the Federal Deposit Insurance Act presently provides that a bank merger must have the prior approval of the Comptroller, the Board of Governors, or the Federal Deposit Insurance Corporation, depending upon whether the resulting bank would be a national bank, a State member bank, or a nonmember insured bank, but only if the capital stock or surplus of the resulting bank will be less than the aggregate capital stock or the aggregate surplus, respectively, of the merging institutions. Since bank mergers frequently do not involve any diminution of such capital funds, there have been numerous instances in which this statute has not been applicable.

Of the 231 bank mergers in 1955, 68 were cases in which the resulting bank was a State member bank; yet only 38 were subject to the Board's approval under section 18 (c). A similar situation has prevailed in subsequent years.