United States v. Citizens & Southern Nat’l Bank, 422 U.S. 86 (1975)

1. Relationships labeled "correspondent banking" may call for careful scrutiny as the sale of specialized services by the corresponding bank shades into "consultation" by the correspondent on every business decision of significance. Correspondent banking, like other intra-industry interaction among firms or their top management, provides an opportunity both for the kind of education and sharing of expertise that ultimately enhances consumer welfare and for "understandings" that inhibit, if not foreclose, the rivalry that antitrust laws seek to promote. As one commentator on commercial banking practices has observed:

[C]ommunication, especially when it comes from those at the top of a power hierarchy, tends to facilitate conflict resolution. Perhaps a great deal should not be made of this, but competition is a form of conflict and, in the present context, conflict resolution is a form of restraint on competition.

Phillips, Competition, Confusion, and Commercial Banking, 19 J. of Finance 32, 42 (1964).

Since the relationship of C&S to the 5-percent banks goes well beyond ordinary "correspondent banking," this case does not present an occasion for further examination of the lawfulness of these more limited interconnections among firms.

2. The Consumer Credit Operating Bulletin, 7 App. 1024 (DX-311), is illustrative. It explains what bank records should be established, the methods for arranging a repayment plan, and the procedures to be followed in perfecting a security interest. In addition, the manual sets forth C&S practice with respect to charges for late payments, extensions of repayment deadlines, and the notification of a borrower’s employer about repayment delinquency.

3. As initially enacted by the House, the amendments contained no antitrust provisions. See generally H.R.Rep. No. 534, 89th Cong., 1st Sess. (1965). These were added later by the Senate Banking and Currency Committee and subsequently adopted by both Houses. See S.Rep. No. 1179, 89th Cong., 2d Sess., 10 (1966).

4. See letter from Deputy Attorney General Clark to Sen. Robertson, reprinted at 112 Cong.Rec. 12385 (1966), and accompanying remarks by Sen. Robertson, ibid.

5. See S.Rep. No. 299, 89th Cong., 1st Sess., 1-7 (1965); H.R.Rep. No. 1221, 89th Cong., 2d Sess., 4 (1966); 111 Cong.Rec. l3304-13305 (1965) (remarks of Sen. Robertson); 112 Cong.Rec. 2454 (1966) (remarks of Rep. Celler).

6. See United States v. Crocker-Anglo National Bank, 223 F.Supp. 849 (ND Cal.1963); United States v. Manufacturers Hanover Trust Co., 240 F.Supp. 867 (SDNY 1965), cited in Hearings on S. 1698 before a Subcommittee of the Senate Committee on Banking and Currency, 89th Cong., 1st Sess., 446, 463 (1965).

7. Section 3(a) had been in force since enactment of the Bank Holding Company Act in 1956. The 1966 amendment added clause (2) to its provisions.

8. See H.R.Rep. No. 609, 84th Cong., 1st Sess., 12-13 (1955); 101 Cong.Rec. 8028 (1955) (remarks of Rep. Patman). In the form initially adopted by the House, the Act would have defined as a subsidiary a bank over which another company was found by the Federal Reserve Board to "exercise a controlling influence." The Senate amendment substituted the provision ultimately enacted, the requirement of control of the election of directors. See S.Rep. No. 1095, 84th Cong., 1st Sess., 5 (1955).

9. The reference to indirect ownership, though contained in § 2(a) of the 1956 Act (defining holding company), was inadvertently omitted from § 2(d). See 70 Stat. 134. The 1966 amendments corrected the omission. See S.Rep. No. 1179, 89th Cong., 2d Sess., 8 (1966).

10. Section 2(g) of the Act defined indirect control or ownership:

For the purposes of this Act --

(1) shares owned or controlled by any subsidiary of a bank holding company shall be deemed to be indirectly owned or controlled by such bank holding company;

(2) shares held or controlled directly or indirectly by trustees for the benefit of (A) a company, (b) the shareholders or members of a company, or (C) the employees (whether exclusively or not) of a company, shall be deemed to be controlled by such company; and

(3) shares transferred after January 1, 1966, by any bank holding company (or by any company which, but for such transfer, would be a bank holding company) directly or indirectly to any transferee that is indebted to the transferor, or has one or more officers, directors, trustees, or beneficiaries in common with or subject to control by the transferor, shall be deemed to be indirectly owned or controlled by the transferor unless the Board, after opportunity for hearing, determines that the transferor is not, in fact, capable of controlling the transferee.

This provision was added by the 1966 amendments to adopt interpretations previously made by the Board. S.Rep. No. 1179, supra, at 8.

11. Congress specifically noted the expansion. See S.Rep. No. 91-1084, p. 6 (1970); H.R.Rep. No. 91-1747, p. 12 (1970). See also Note, The Bank Holding Company Act Amendments of 1970, 39 Geo.Wash.L.Rev. 1200, 1213-1214 (1971).

12. My conclusion that the affiliative relationships are not within the terms of § 3(a), at least prior to the 1970 amendment, is further supported by the scope and outcome of the 1968 investigation of C&S undertaken by the Federal Reserve Board staff. The investigation was convened specifically to inquire into a possible violation of § 3. The staff was principally concerned with the pattern of ownership of the stock of the 5-percent banks, especially by C&S officers and employees. Ultimately the staff found this acceptable, so long as C&S did not finance the purchases. There is no indication, however, that the staff concerned itself with communications between C&S and the 5-percent banks with respect to such matters as interest rates, loan repayment policies, or other terms of business.

13. There is little doubt that pent-up consumer demand for additional banks would sooner or later induce efforts to organize new ones. More questionable, however, is whether regulatory authorities would respond promptly to permit new entry. In general, regulatory policy has been thought to retard formation of new banking institutions. See Peltzman, Entry in Commercial Banking, .8 J.Law & Econ. 11 (1965).

14. The record demonstrates that such a chain of events is possible. Citizens & Southern Bank of Stone Mountain, organized in 1957 with C&S assistance, functioned as a correspondent associate from 1959 until 1970. At that time, it declined an offer of acquisition by C&S and became independent of the C&S system. Appellees have argued that Stone Mountain represents a unique case because a majority of voting stock remained in the hands of a single family not intimately tied to the C&S system. This contention is not wholly supported by the record, since, in his trial testimony, Mr. Mills Lane, President of C&S from 1946 to 1970, referred to three other banks having a similar structure of ownership. (2 App. 378-379, referring to Pelham, Fayetteville, Hogansville). The example of Stone Mountain does, in any event, demonstrate that sponsorship can occur under conditions ultimately leading to independence of the sponsored institution.

15. The District Court made no finding as to the relevant geographic market, accepting the Government’s contentions arguendo in deciding the case. The Court apparently does the same. A report prepared by the Government’s expert witness concluded that, while the Atlanta Standard Metropolitan Statistical Area was too large to be considered an integral geographic market, the constituent counties of DeKalb and Fulton were "reasonable geographic areas within which it is appropriate to analyze the competitive effects of the proposed mergers." 4 App. 83. This is an approximation, of course, since the same report revealed that a number of DeKalb residents use Fulton County banks, thus suggesting that, in certain respects, DeKalb and Fulton County banks compete for the same business. Accordingly, it appears that defining the geographic market to include both DeKalb and Fulton Counties would be justified under our cases. See United States v. Phillipsburg National Bank & Trust Co., 399 U.S. 350 (1970); United States v. Philadelphia National Bank, 374 U.S. 321 (1963).

16. Three of the 5-percent banks -- Sandy Springs, Chamblee, and Tucker -- had deposits exceeding $15 million as of January 1, 1970. North Fulton, Park National, and South DeKalb were smaller and more recently organized, but all have experienced vigorous growth. The average annual rate of deposit growth for the two years preceding January 1, 1970, was 102% for North Fulton and 50% for Park National, in contrast to a national average rate for all commercial bank deposits during the same period of slightly more than 10%. South DeKalb, organized in late 1969, had more than doubled its deposits from $1.5 to $3 million during the first half of 1970. 5 App. 422, 546.

17. Seen. 16, supra.

18. Officers of both C&S and the 5-percent banks testified that they had not contemplated a severance of relations, but this testimony does not establish what would happen if the acquisitions were enjoined. Had the managements testified that they would not consider severance under any circumstances, such declarations of an intention to eschew a course dictated by economic self-interest would have to be viewed with skepticism. See United States v. Falstaff Brewing Corp., 410 U.S. 526, 568-570 (1973) (MARSHALL, J., concurring in result).

Whether the 5-percent banks would have been formed at all had their principals expected the Clayton Act to bar ultimate acquisition by C&S is a different question. I am not troubled by it for essentially the same reasons that have led me to conclude above that enjoining continuation of correspondent associate relationships would not deter sponsorship of de facto branches under state law restrictions on de jure branching. See supra at 143-144.

19. The record indicates that, at the time C&S applied for regulatory approval of the acquisitions, its two largest competitors, First National Bank of Atlanta and Trust Company of Georgia, had sought, and in some cases had obtained, approval for similar acquisitions of affiliated banks. 1 App. E-39.