Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-01243/USCOURTS-caDC-95-01243-0/pdf.json

Parties Involved:
Banc One Corporation
Intervenor
Board of Governors of the Federal Reserve System
Respondent
CoreStates Financial Corp
Intervenor
Electronic Payment Services, Inc.
Intervenor
KeyCorp
Intervenor
Money Station, Inc.
Petitioner
National City Corporation
Intervenor
PNC Bank Corp.
Intervenor

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 5, 1996 Decided April 23, 1996

No. 95-1182

MONEY STATION, INC.,

PETITIONER

v.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

RESPONDENT

BANC ONE CORPORATION, ET AL.,

INTERVENORS

Consolidated with No. 95-1243

-

On Petitions for Review of an Order of the

Federal Reserve System

Ernest Gelhorn argued the cause for petitioner. Stephen J. Landes and Paul Blankenstein were on

the briefs.

Douglas B. Jordan, Senior Counsel, argued the cause for respondent, with whom James V.

Mattingly, Jr., General Counsel, Richard M. Ashton, Associate General Counsel and Katherine H.

Wheatley, Assistant General Counsel, were on the brief.

Peter Buscemi argued the cause for intervenors, with whom Stephen P. Mahinka was on the brief.

Before: EDWARDS, Chief Judge, WALD and HENDERSON, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

Dissenting Opinion filed by Chief Judge EDWARDS.

WALD, Circuit Judge: Petitioner Money Station, Inc. seeks review of an order of the Federal

Reserve Board ("Board"), allowing a joint venture known as Electronic Payment Services ("EPS"),

which operatesthe nation'slargest Automatic Teller Machine ("ATM") network, to acquire the assets

of a smaller ATM network operated by National City Corporation. In its written submissions to the

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Board, Money Station expressed concern that the proposed transaction would allow EPS's network

of ATMs (known as the MAC network) to further increase its dominant market position in

Pennsylvania, Kentucky, and Ohio, weakening smaller ATM networks like Money Station, and

precluding smaller networks from themselves purchasing National City's assets or combining with

NationalCity in an effort to create a viable large competitor to MAC. Money Station also protested

that EPS had failed to showasrequired by the Bank Holding Company Act ("BHC Act" or "Act"),

12 U.S.C. § 1841, et seq.that there would be sufficient public benefits from this transaction to

outweigh the possible adverse effects. Finally, Money Station requested that the Board hold an

evidentiary hearing to addressthe disputed issuesit had raisedsuch asits claimthat thistransaction

would not in fact accelerate the development of new consumer banking products.

The Board, however, rejected Money Station's request for a hearing, and approved the

transaction, finding that the adverse effects from this transaction were not significant and were

outweighed by the potential benefitsto the public. We hold that the Board's finding of no significant

adverse effects, even ifsupportable, did not permit the Board to approve the transaction without an

adequate evaluation and explanation of the public benefits that would be likely to arise from this

transaction. We find not only that the Board failed to provide such an explanation, but that it was

required to hold an evidentiaryhearing to resolve disputesraised byMoneyStation about the putative

public benefits. Accordingly, we grant Money Station's petition for review and vacate the Board's

order.

I. BACKGROUND

The question here is whether the Federal Reserve Board properly approved a proposal by a

group of bank holding companies to acquire the ATM-related assets of another bank holding

company. The acquiring companiesBancOne Corp., CoreStates Financial Corp., PNC Bank Corp.,

and KeyCorpare large banking organizations based in Pennsylvania and Ohio, who are the four

joint venturersinElectronic Payment Services, a companywhich operates a network ofATMs known

as MAC. Under the applicants' proposal, EPS would acquire the ATM-related assets of National City

Corporation, which operates an ATM network under the name of MoneyCenter, and National City

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1EPS currently operates 31% of the ATMs in Ohio. If the proposed transaction were

approved, and National City's MoneyCenter ATMs were combined with MAC's, the resulting

venture would operate 45% of Ohio's ATM machines. See App. 267; 331-32. 

2A good overview of the ATM market is provided in The Treasurer, Inc. v. Philadelphia Nat'l

Bank, 682 F. Supp. 269, 271 (D. N.J.), aff'd mem., 853 F.2d 921 (3d Cir. 1988), which

explained:

The ATMs in a shared network are linked via interstate communication lines to a

central computer referred to as a "switch" which operates as a clearing facility for

all transactions initiated at the ATMs. This way, customers of one bank can access

an ATM of another bank provided both banks belong to the same network.... 

There are different transaction charges for different types of ATM services and for

different levels of interconnection between ATM systems. The network switch

would in turn become the fifth equity owner ofEPS. As part of the proposed transaction, EPS would

receive approximately $74 million in cash.

Before the proposed transaction, EPS's MAC network was the largest ATM network in the

nation by transaction volume, handling nearly 100 million transactions a month through more than

13,000 ATM machines.1 As part of its network business, MAC provided all of the services essential

to ATM operations, such as operating the computer links which connect the machines, processing

the transactions, and providing a clearinghouse service for reporting the transactions to financial

institutions. The company whose assets EPS proposed to acquireNational Cityran a smaller

ATM network known as MoneyCenter, which operated about 900 ATM machines, and provided a

less comprehensive range of services.

MAC serviced not only the banks of its corporate parents but many other banks throughout

the Mideast region. Although MAC's customers were free not to join a network, and could instead

operate their own ATM machines(as most banks did in the early days of ATMs), banks felt pressure

to join a network like MAC,

in order to give their depositors ubiquitous accessto their accounts. While a bank can

deploy its own ATMs, the advantage to a shared ATM network is that a bank's

depositors will be able to use ATMs at many more locations than one bank alone

could practicably support.... A bankparticularly a small bank, thrift or credit union

with one or only a few officeswould be at a competitive disadvantage if it could not

offer its depositors access to many conveniently located ATMs.

United States v. Electronic Payment Servs., Inc., Proposed FinalJudgment and Competitive Impact

Statement, 59 Fed. Reg. 24,711, 24,713 (1994) ("Proposed Final Judgment").2

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charges the card-issuing financial institution a "processing fee" for the provision of

transaction clearing services and ATM support. In the case of a transaction

entered at an ATM not owned by the card-issuing financial institution ... the

network switch charges an additional fee called an "interchange fee" to the

institution which owns the ATM at which the transaction was initiated. 

3According to the DOJ, "[u]ntil 1992, MAC generally did not permit its customers to

participate in rival ATM networks while also participating in MAC. While the rule against

multiple affiliations was formally dropped in 1992, MAC engages in practices that make it

impractical for many participating banksparticularly smaller banksto belong to a rival

network while belonging to MAC." Proposed Final Judgment, 59 Fed. Reg. at 24,713. 

Two months before EPS's application was filed, the Department of Justice ("DOJ"), in a

separate action, had filed a complaint against EPS, alleging that through its MAC network it

unlawfully "maintained a monopoly in access to regional networks in ... Pennsylvania and ...

substantial portions of Ohio," in violation ofthe ShermanAct. See Proposed FinalJudgment, 59 Fed.

Reg. at 24,712. The complaint alleged that EPS was maintaining an illegal tying arrangement by

requiring the members of its network to buy their ATM processing services from EPS instead of

third-party processors, and was in effect prohibiting its members from affiliating with competing

networks.3 Ultimately, the Justice Department and EPS entered into a consent decree, whereby EPS

agreed to end its practice of requiring the banks which participate in its MAC network to also

purchase ATM processing services from EPS, and also agreed to allow the members of its network

to become members of networks which compete with MAC. See United States v. Electronic

Payment Servs., Inc., 1994-2 Trade Cases (CCH) ¶ 70,796 (D. Del. 1994).

In the meantime, the Board published a notice of EPS's proposed acquisition of National

City's MoneyCenter network in the FederalRegister, 59 Fed. Reg. 44,149 (1994), and MoneyStation

and other protestantsfiled commentsin opposition. Money Station alleged that the transaction would

result insignificant anticompetitive effectsinthePennsylvania-Ohio-Kentucky region, and specifically

claimed that:

[i]f the current applications are approved, the already high barriers to entry for

effective competitionwillbe at prohibitive levels because no other networkwhether

MSI or any new networkwill be able to attain the critical mass of ATMs necessary

to support a network that could realistically exercise a competitive restraint on EPS'

pricing and related practices. The many hundreds of ATMs controlled by NCC and

Mellon will not be available to another network, and neither NCC nor Mellonboth

of which have experience running successful branded networks involving other

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4Originally, EPS had also proposed to acquire the network services division of Mellon Bank,

and Mellon would have become an equity owner of EPS, but the Mellon application was

withdrawn in January 1995. 

bankswill be available to establish (or assist in establishing) networks competitive

with MAC. This condition is not altered by the fact that the recently announced

consent decree in the EPS case opens up opportunities for third-party processors.

Once MAC locks up virtually all the ATMs in the Pennsylvania-Ohio-Kentucky area

as customers of its branded network through the transaction with Mellon and NCC,

there will be an insufficient number of banks to create a "critical mass" necessary for

a new network to be formed by a processor.4

Comment of Money Station, reprinted in App. 201-02. In making these allegations, Money Station

echoed manyofthe findings ofthe Department ofJustice, which in its action against EPS had alleged:

The MAC network is the dominant ATM network in the affected states [of

Pennsylvania, New Jersey, Delaware, West Virginia and New Hampshire].... Nearly

all banks in the affected states believe they have no choice but to participate in the

MAC network. Banks in the affected states affiliate with MAC because MAC is the

only ATM network that provides ubiquitous ATM network access throughout all or

most of the contiguous affected states.... Banks in the affected states often obtain

ATM network accessfrom MAC even through defendant'sswitching and processing

fees, and other costs of doing business with MAC, are higher than those charged by

other networks and by independent processors.

Proposed Final Judgment, 59 Fed. Reg. at 24,713.

In addition to raising concerns about the adverse effectsfrom the transaction, Money Station

claimed that the transaction was not likely to result in benefits to the public which would outweigh

the possible adverse effects, and requested that theBoard hold an evidentiaryhearing on the proposal.

In particular, Money Station questioned whether the products identified by the applicantsthe

development of at-home banking services and stored value cardswould really yield net public

benefits,since these products were alreadyunder development byNationalCityand other companies,

and there was no evidence that this transaction would accelerate their development. As Money

Station put it: "The public benefits that the applicants claim will flow from the transaction do not

meet the standards of objectivity and specificity established in prior Board decisions and could be

achieved in less anti-competitive ways." Comment of Money Station, reprinted in App. 203. The

Board accepted a number of written submissions from Money Station, and members of the Board's

staff met once with Money Station and the applicants, but the Board refused to hold an evidentiary

hearing.

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On March 1, 1995, the Board issued an order approving the transaction, and five days later

issued an explanatory statement, finding that "this proposal would not result in significant adverse

effects on the competitive considerationsrequired to be reviewed under the section 4(c)(8)standard."

Board Statement at 16, reprinted in App. 648. In addition, the Board found that the "balance of the

public interest factors that ... [we must] consider under section 4(c)(8) of the BHC Act is favorable,

and consistent with the approval of this proposal." Id. at 21, reprinted in App. 653. Finally, the

Board rejected Money Station's request for a hearing, finding that "Protestant's request disputes the

weight accorded to, and the conclusionsthat may be drawn from, all the facts of record, and does not

identify disputed issues of fact that are material to the Board's decision." Id. at 23-24, reprinted in

App. 655-56. Board Vice Chairman Blinder dissented, finding that

it seems undeniable that allowing NationalCity's ATM network to be merged into the

MAC network would result in some adverse effect on competition. Therefore, to

approve this transaction, the Board must find that there are sufficient public benefits

to outweigh the loss of competition. The application, per se, demonstrates no such

benefits to the public in my view.

Dissenting Statement at 1, reprinted in App. 662 (emphasis in original).

II. DISCUSSION

The Bank Holding Company Act of 1956 reflects a policy judgment by Congress that bank

holding companiesshould generallynot acquire nonbanking enterprises. SeeBank HoldingCompany

Act, 12 U.S.C. § 1841 et seq.; S. REP. NO. 1095, 84th Cong., 1st Sess. 1 (1956) ("bank holding

companies ought not to manage or control nonbanking assets having no close relationship to

banking"); Connecticut Bankers Ass'n v. Board of Governors, 627 F.2d 245, 249 (D.C. Cir. 1980)

("Congress heeded the frequently voiced fear that banks could wield their economic power in such

a way as to dominate other elements of the private sector."). In the Act, however, Congress made

an exception to this general rule in those cases where

performance by an affiliate of a holding company can reasonably be expected to

produce benefits to the public, such as greater convenience, increased competition,

or gains in efficiency, that outweigh possible adverse effects, such as undue

concentration of resources, decreased or unfair competition, conflicts of interests, or

unsound banking practices.

BHC Act § 4(c)(8), 12 U.S.C. § 1843(c)(8). The Federal Reserve Board is the agency entrusted by

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5The Board must also determine whether the type of activity the bank holding company wishes

to engage in is "closely related" to bankingan issue not in dispute here. 

6As the Board noted, National City had attempted just such a venture a few years before. 

Though that venture ultimately fell through, the Board never explained why a future venture

could not be successful. 

Congress with the initialresponsibility for conducting this balancing test and determining whetherthe

reasonably expected public benefits from a proposed transaction outweigh the possible adverse

effects.5 On review, "[t]he findings of the Board as to the facts, if supported by substantial evidence,

shall be conclusive." 12 U.S.C. § 1848.

Importantly, under this statutory framework, it is not enough for a bank holding company to

show an absence of potential adverse effects from a proposed transaction. Rather, the burden is on

the holding company to affirmatively show that public benefitsfrom the transaction could reasonably

be expected, and would outweigh the possible adverse effects. See Citicorp v. Board of Governors,

589 F.2d 1182, 1190 (2d Cir.) ("legislative history indicates the burden is on the applicant

affirmatively to establish the net public benefit of its proposal"), cert. denied, 442 U.S. 929 (1979).

Put another way, it is not enough that a proposed transaction would do no harm; rather, it must be

likely to do some public good.

A. Adverse Effects

Although we grant Money Station's petition for review principally on the grounds that the

Board's public benefits investigation and explanation were inadequate, we do note concern with the

Board's treatment of the adverse effects that might arise from this transaction, such as the fact that

National City's MoneyCenter network would no longer compete with MAC, andperhaps more

importantlythat theMoneyCenter assets could no longer be combined with another smaller network

in order to create a viable competitor to MAC.6

In addressing the issue of MAC's size and dominant market position, the Board basically

assumed away the issue by focusing narrowly on the marginal effects of this transaction rather than

on the entire competitive situation in the ATM market. Thus, instead of meeting head-on the Act's

proscription on an "undue concentration of resources," the Board merely said:

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7To the contrary, all the evidence suggests that in ATM networks, size is critical to the success

of potential market competitors. As the court described it in The Treasurer:

Whereas price may be a factor a financial institution will look at when deciding

which network to join, the principal competitive advantage of any ATM network is

the number of ATMs utilized by the system. Financial institutions prefer a large

system because it increases the potential for interbank transactions and therefore,

more profit from interchange fees. Consumers generally prefer a system with a

large number of ATMs because of the greater convenience offered by such a

system. In addition, because ATM systems entail substantial capital and operating

costs, a high volume of transactions is necessary to make the machine cost

effective.

682 F.Supp. at 272. 

It has been recognized that MAC has a significant position in the ATM network

access services in certain states in the Mideast region. However, the significant

position of a regional ATM network is not, standing alone, contrary to the public

interest. Network externalities, such as the economies of ubiquity, tend to promote

the consolidation of regional ATM networks. As a result, in various geographic

areas, like the Mideast region, dominant ATM networks have been emerging

throughout the EFT industry. One recent study indicates that the ten largest regional

networks now account for 80 percent of all regional ATM transactions in the United

States. In this light, the Board believes that, as a result of economic and market

structure conditions, regions are likely to have one dominant ATM network.

In other words, the Board said: "It doesn't matter if MAC is big, or if it gets even bigger, because

the economics of the situation naturally favor bigness." While this approach conveniently allowed

the Board to dismiss any concerns about monopoly concentration, it certainly cannot be deemed a

conclusion that no adverse effects would arise from this transaction.7

We are troubled, however, by the Board's implication that through a slow process of

accretion, a network like MAC can establish a large and potentially harmful monopoly position,

provided that none of the company's individual acquisitions standing by itself is too large. To treat

a company's size and market position before a proposed transaction as irrelevant in determining

whether there are potential adverse effects from a transaction is scarcely consistent with the Act's

goals of "increas[ing] competition" and preventing an "undue concentration of resources," nor does

it appear consistent with the Board's own precedents of looking at the degree of monopolization of

markets in analyzing transactions. See, e.g., Citicorp, 69 Fed. Res. Bull. 648, 649 (1983) (finding

that "the elimination of probable future competition is not generally significant where the market is

unconcentrated") (emphasis added); Deutsche Bank AG, 67 Fed. Res. Bull. 449, 451 n.7 (1981)

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8According to our dissenting colleague, the Board found the potential adverse effects

amounted to "virtually nothing" or at best a "negligible" amount. See Dissenting Opinion ("Diss.

op.") at 15. But, as the Board's own language quoted in the text above shows, this is not an

altogether accurate reading of the Board's findings. 

(discussing possible adverse effect that "the firm resulting from such a joint venture might be unduly

strengthened relative to its competitors").

The Board's analysis here of the possible adverse consequences, however, is barely salvaged

by the fact that despite its disclaimers, the Board did acknowledge and reflect some concern about

MAC's near-monopoly position (although that concern wasreflected in carefully couched language).

Thus, though it found that the adverse effects arising fromthistransaction would not be "significant,"

the Board took pains not to rule out the possibility there would be some adverse effects. See, e.g.,

Board Statement at 12, reprinted in App. 644 ("[t]he facts of the record do not support the view that

NationalCitywould be particularly likely to enter any relevant product market in the Mideast region

independently, or through another joint venture in competition with MAC ....") (emphasis supplied);

Board Statement at 19, reprinted in App. 651 ("proposal is not likely to result in any significant

unfair competition") (emphasis supplied); see also Dissenting Statement of Vice Chairman Blinder,

reprinted in App. 662 (there would be a "modest reduction in competition ... it seems undeniable that

allowing National City's ATM network to be merged into the MAC network would result in some

adverse effect on competition").

As discussed above, under the BHC Act, even had the Board found no adverse effects, it

would still have been required to find some reasonable expectation of public benefits. But given that

the Board did find some adverse effects, it was required to find more than a speculative or scant

public benefit.

8

B. Public Benefits

We find, however, that the Board's public benefits findings were in fact too speculative, and

were not based on substantial evidence in the record. Those findings, in their entirety, were:

Both National City and KeyCorp propose to make significant cash investments to

purchase or increase their respective equity positions in the operations of EPS,

including the MAC network. The capital infusions resulting from these investments

should enable EPS to continue and to expand its research and development efforts,

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and thereby improve its ability to develop and offer to the public innovative electronic

banking and fund transfer products, such as stored value cards and home banking

services.

Protestants also dispute generally EPS's claimsthat public benefits would result from

this proposal and, in particular, the claim that this proposal would result in innovative

electronic banking products and services. While the Board recognizes that some of

these products are already offered in some form, the Board believes that the

availability of these products throughout a broad-based ATM network such as MAC

represents some public benefit. Similarly, while the Board believes that EPS already

has made substantial progressin developing these products without the contemplated

capital infusions, the enhanced research and development capabilities generated by

these investments should improve EPS's ability to introduce these products sooner,

to ensure the quality of the products being offered, and to present the products to a

broad customer base. The Board also believes that the broader ownership base of

EPS should improve the probability of success for new products by increasing the

number of financial institutions and consumers that are likely to use these productsin

earlier stages of development.

Board Statement at 20-21, reprinted in App. 652-53. Essentially, the Board identified two public

benefitsstored value cards and home banking servicesand two waysthistransaction would help

develop these products more quickly: (1) the capital infusion from National City and KeyCorp into

EPS would potentially enhance development; and (2) the broader ownership base would potentially

expand the market (and thus the likelihood of success) for the new products.

We have previously recognized that the Board's "reasoned judgments" with respect to

potential public benefits are entitled to "some deference." Connecticut Bankers Ass'n, 627 F.2d at

254 (D.C. Cir. 1980). But it is equally true that the Board, like other agencies, must "articulate a

satisfactory explanation for its action including a rational connection between the factsfound and the

choice made." Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

Here, we do not find such a "satisfactory explanation."

Although the Board suggested that the new cash input would be used to increase Research

& Development activities, in realityKeyCorp had represented that "Cash received fromKeyCorp and

National City as part of the Proposed Transaction will be used to reduce [ ] debts and for general

working capital purposes." App. 65 (emphasis added). Neither the Board nor our dissenting

colleague cites to any firm statement by EPS, National City, or KeyCorp suggesting that any of the

approximately $74 million in cash EPS would receive as part of this transaction would be used to

increase Research & Development activities. Moreover, although the Board acknowledged that

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9This transaction stands in contrast to cases like Connecticut Bankers, where it was the

operation of the business after the transaction which would produce the public benefit. In

Connecticut Bankers, a bank wished to establish a subsidiary to sell insurance to its banking

customers, providing them with extra convenience because they could get their loans and

insurance in one location. See 627 F.2d at 247. Such a public benefit, unlike the putative benefit

here, could not be obtained merely by an infusion of capital, but instead would result only from

the operation of the new business. 

substantial progress had already been made in developing these products, it speculated that the

capital infusion would improve EPS's ability to introduce the products soonerthough it never

identified how much sooner, nor explained how increased capital would in any way speed up the

development process.

Nor was it clear why EPS could not get the capital to develop these products in the absence

of this transaction. If these products were really commercially viable and would benefit the public,

there is no reason to suspect that EPS (or other companies) would have any difficulty in bringing

them to market as quickly as possible. The record is devoid of any evidence that EPS faced obstacles

in obtaining capital in the market, and thus that it was unlikely that these products would fail to be

developed in the absence of this transaction.9

In the past, however, the Board haslooked to whether the claimed public benefits were likely

to be obtained absent the transaction. For example, in Chase Manhattan Corp., 60 Fed. Res. Bull.

142 (1974), Chase Manhattan Bank had applied to acquire all the shares of Dial Financial

Corporation, and cited as a public benefit its plans to open 150 new offices in the three years

following the transaction, as well as plans to expand the financial services offered by Dial, such as

small business loans, farm loans, and mortgages. Rejecting these claimed public benefits as

inadequate, the Board said:

The record does not show to what extent such services are presently competitively

unavailable in the markets served by Dial.... Dial, which has demonstrated its ability

to respond to competitive challenges, would appear likely to so diversify irrespective

of its affiliation with Applicant.... [I]rrespective of the proposed affiliation, it appears

that Dial would plan to open a substantial number of new offices each year....

Applicant's proposal is not considered substantially different in effect from the policy

implicit in action taken already by Dial. While the proposed acquisition would clearly

lead to some public benefits, there is little indication that the above or other claimed

benefits are not likely to be obtained in the absence of the acquisition.

Id. at 145. Here, however, rather than following this approach, the Board failed to analyze in any

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10One commentator has noted:

The Board's overall analysis of efficiencies in these cases seems lighthanded and

superficial. The approach taken by the FTC and division and the courts require the

parties to demonstrate that ... there are no less anticompetitive means for achieving

the efficiencies and these benefits will be passed on to consumers ... the

argumentaccepted by the Boardthat [National City] would make cash

infusions that would enable EPS to continue and expand its research and

development efforts would not pass this test because there are a number of

alternative sources of revenue to fund such research.

David A. Balto, Payment Systems and Antitrust: Can the Opportunities for Network Competition

be Recognized?, FEDERAL RESERVE BANK OF ST. LOUIS REVIEW, Nov./Dec. 1995, at 22.

Our dissenting colleague's suggestion that Chase Manhattan Corp. is somehow not

"apposite" on the issue of whether the Board should consider the net public benefits of proposed

transactions (i.e., comparing the public benefits that are likely to occur after the transaction with

those that would occur without the transaction), Diss. op. at 16, does not convince us. In the

case cited by the dissent, Bank of New York Co., 80 Fed. Res. Bull. 1107 (1994), the Board found

that the transaction would reduce costs, increase transaction volume, and increase

convenienceall findings which implicitly compared the post-transaction situation with the status

quo ante. Id. at 1109. Thus, contrary to the dissent, we find nothing in Bank of New York to

suggest that the Board has abandoned its practice of comparing what would obtain after the

transaction with the situation before the transaction in determiningas the Act requireswhether

the transaction can reasonably be expected to produce benefits to the public such as "greater

convenience, increased competition, or gains in efficiency." 12 U.S.C. § 1843(c)(8) (emphasis

supplied). Moreover, there is no suggestion in Bank of New York that a hearing was ever

requested. 

meaningful way the extent to which at-home banking or stored value cards are already available in

the marketplace or the chancesthat EPS would have brought these productsto market in the absence

ofthe transaction. If the Board had a good reason for departing here from its past practice of looking

at what would occur absent the transaction, it never chose to reveal it.10

C. Failure to Hold Evidentiary Hearing

The weakness of the Board's public benefit findings points up what we see as the fatal flaw

in this processthe Board's failure to hold an evidentiary hearing on the disputed issue of the public

benefits arising from this proposed transaction. Under section 4(c)(8), and the Board's own

regulations, the Board is required to hold a hearing where "there are disputed issues of material fact

that cannot be resolved in some other manner." 12 C.F.R. § 225.23(f)(2).

We have held that if the Board wishes to deny a hearing, it "carries a heavy burden of

justification ... the agency must show that the parties could gain nothing thereby, because they

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11See also id. at 1220 n.57 ("[D]enial of a statutorily mandated hearing is justified only in

exceptional circumstances. A petitioner need not make detailed factual allegations in order to

meet the requirement ... [h]e need only show that an "inquiry in depth' is appropriate."). 

12Our colleague's suggestion that an evidentiary hearing constitutes an "extraordinary" remedy,

Diss. op. at 1, 17, strikes us as curious in light of this court's previous statement that it is the

denial of a hearing which is "justified only in exceptional circumstances." Independent Bankers

Ass'n of Georgia, 516 F.2d at 1220 n.57. At any rate, it is Congress, not the courts, which has

provided that decisions under Section 4(c)(8) shall be made "after due notice and opportunity for

hearing," 12 U.S.C. § 1843(c)(8).

While the dissent cites Board counsel's statement at oral argument that "only two or three"

disputed none of the materialfacts on which the agency's decision could rest." Independent Bankers

Ass'n of Georgia v. Board of Governors, 516 F.2d 1206, 1220 (D.C. Cir. 1975).11 As we said in

Connecticut Bankers Ass'n:

TheBoard cannot lightly dismiss a protestant'srequest for a hearing. Where a contest

exists with respect to a material fact, the Board must conduct a full evidentiary

hearing on that issue. Moreover, the burden of making the requisite showing to

trigger the hearing requirement is not great.... The protestant must make a minimal

showing that material facts are in dispute, thereby demonstrating that "an "inquiry in

depth' is appropriate."

627 F.2d at 251 (quoting Independent Bankers Ass'n of Georgia, 516 F.2d at 1220 n.57). Here, the

record reflectsthat Money Station went well beyond the "minimalshowing" it wasrequired to make.

In its submissions to the Board, Money Station pointed out that this transaction would not

necessarily increase Research & Development activities because "NCC Mellon and EPS can readily

engage in ad hoc research projects" without the proposed transaction. App. 368. Money Station

further noted that EPS had never responded to the Board's questions as to the "amount of the

efficiencies that would arise from the transaction." App. 427. In addition, Money Station pointed

out that the new products that would allegedly be brought into the market were not "new or

distinctive, and, with respect to which, there is no basis for concluding that any contribution by

EPSas opposed to many other entitieswould be distinctive." App. 429. To the contrary, MSI

listed many instances in which the products to be developed by EPS had already been developed by

other companies, App. 429-30, a statement never rebutted by EPS. Although our dissenting

colleague implies that these many statements were "bald or conclusory," see Diss. op. at 16, he does

not, in our opinion, explain why.12

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hearings have been conducted since 1980 (a statement, incidentally, for which there is no support

in the record), Diss. op. at 17, this statement, even if true, tells us little about the Board's own

practice given that we do not know how many contested applications under 4(c)(8) the Board has

considered in that period and in how many of those proceedings a hearing was requested. In any

case, we find our colleague's suggestion that the Board's past decisions not to hold hearings

(whether justified or not) somehow entitled the Board to deny a hearing herewhen the extent of

the public benefits was in serious disputeitself extraordinary. 

13The Court in American Bancorporation explained that:

Adjudicative facts are the facts about the parties and their activities, businesses,

and properties. Adjudicative facts usually answer the questions of who did what,

when, how, why, with what motive or intent; adjudicative facts are roughly the

kind of facts that go to a jury in a jury case.

509 F.2d at 36-37 (quoting 1 K. DAVIS, ADMINISTRATIVE LAW TREATISE § 7.02 at 413 (1958))

(emphasis added). 

An evidentiary hearing was precisely what was required to address this dispute as to the

existence and extent of the potential public benefits. At a hearing, officials from EPS would have

been required to testify as to what use they planned to put the increased capital. They would have

had to specify how much they planned to increaseResearch&Development, how much more quickly

product development would be accelerated, and to explain just how a broader ownership base for

EPS would enhance developmentall questions which went unanswered in this truncated process.

Since the use to which the capital would be putand its consequenceswas both material

and in dispute, a hearing was required. This court has held that "the question of the intent of the

applicant under section 4(c)(8) is essentially an adjudicative issue." Independent Bankers Ass'n of

Georgia, 516 F.2d at 1224.13 And in similar circumstances, other courts have held that the Board

was required to hold a hearing. See American Bancorp., Inc. v. Board of Governors, 509 F.2d 29,

37 (8th Cir. 1974) (finding Board improperly denied a hearing where protestants had, inter alia,

raised question about "to what uses any capital infusion by [acquiring company] into [acquired

company] would be put"). Given the skeletal nature of EPS's public benefit claims, and this court's

clear statement that the Board has a heavy burden in justifying the denial of a hearing, the Board's

summary rejection of Money Station's hearing request was contrary to law.

III. CONCLUSION

Given the uncertainty surrounding the public benefitsthat would be likely to emerge fromthis

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transaction, the Board was required, at a minimum, to hold an evidentiary hearing. Accordingly,

Money Station's petition for review is granted, and the order of the Board is

Vacated.

EDWARDS, Chief Judge, dissenting: In March 1995, the Board of Governors of the Federal

Reserve System("Board") approved applicationsfiled by several bank holding companiesrequesting

that National City Corporation ("NCC") be permitted to transfer the services associated with its

automated teller machine ("ATM") network, MoneyCenter, to Electronic Payment Services, Inc.

("EPS"), which owns and operates the "MAC" ATM network. In exchange for the MoneyCenter

network and a payment of roughly $42,000,000, NCC was to acquire an equity interest in EPS.

Money Station, Inc. ("MSI"), the owner and operator of a rivalATM network, challengesthe Board's

action, asserting that the Board failed to consider relevant facts, improperly construed the

requirements ofsection 4 ofthe Bank Holding CompanyAct ("BHC Act"), 12 U.S.C. § 1843 (1994),

misapplied binding precedent, and unfairly denied MSI a hearing. Contrary to MSI's assertions and

the majority's holding, I find that the Board's order is amply justified and supported by substantial

evidence, and that there is also no ground upon which to disturb the Board's determination that

further hearings are not warranted. Therefore, I respectfully dissent.

The result here is a wonderful windfall for Money Station (and its attorneys), who now get

to continue thislitigation over nothing. Money Station's main complaint seems to be that it has fared

poorly in the openmarket, not because of anyillegal actions by its competitors but because those who

purchase the services at issue apparently prefer Money Station's competitors. Neither the Board nor

the Antitrust Division of the Department ofJustice found merit in Money Station's claims. Yet, this

courtbased on nothingnow offers an extraordinary remedy: an evidentiary hearing to allow

Money Station to whine over its disfavored position in the market. This is not a result that is intended

under the BHC Act, and the remedy given today is one that is almost never afforded complainants

under the Act. I trust that the Board will say even more on this next go-around to be done with this

litigation. Nonetheless, I dissent because I feel strongly that this case sets a bad precedent in an area

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1The original investors in EPS were Banc One Corporation ("Banc One"), CoreStates

Financial Corporation ("CoreStates"), PNC Bank Corp., previously known as PNC Financial

Corp. ("PNC"), and KeyCorp, formerly Society Corporation. 

in which this court haslittle to offer as against the expert judgments ofthe Board (to which we should

have deferred).

I. BACKGROUND

A. The ATM Industry

ATM networks use computersto link ATMsto each other and to provide a centralrepository

for customer account information. The earliest ATM networks were "proprietary" networks linked

only to the ATMs of a single financial institution. As the use of ATMs grew, shared networks

evolved, through which various financial institutions could join together to handle transactions

moving between two or more proprietary networks.

The operation ofshared networksrequiresthree major types ofservices: (1) ATM processing

services, so that each financial institution can keep its terminals running and route transactions

throughitssystem; (2) network switching services, allowing one financial institution's ATM to access

an account held at another financial institution; and (3) other network access services, including the

implementation of network operating rules and the development of network business. A financial

institution can provide some or all ofthese servicesfor itself, or it can obtain these servicesseparately

or in combination by purchasing them from an existing network, another financial institution, or a

third-party vendor.

B. The History of EPS

EPS was formed in 1992 when four bank holding companies received approval from the

Federal Reserve Banks of Philadelphia and Cleveland to contribute their respective ATM-related

businessesto a combined venture in exchange for capitalstock of the new enterprise.1 The resulting

ATM network is known as MAC, and its operations are conducted through two subsidiaries of EPS.

The MAC network was designed to operate as a profit-making venture that would offer a package

of network services to financial institution customers, including processing, switching, and access

services. EPS marketing efforts on behalf of the MAC network have included promotion of the MAC

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2EPS had a major presence in Delaware, Indiana, Kentucky, Maryland, Michigan, New

Hampshire, New Jersey, New York, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia.

See Application to the Board of Governors by KeyCorp at Exhibit K (June 17, 1994) ("KeyCorp

Application"), reprinted in Joint Appendix ("J.A.") 15, 82. 

name, active recruitment of financial institution customers, and research and development to expand

the variety of transactions that can be conducted through the network. After the creation of EPS,

the MAC network contained approximately 13,000 ATMs, making it the largest ATM network in the

country by transaction volume. As of June 1994, when the applications at issue in this case were filed

with the Board, the MAC network operated in 25 states and had a major presence in 13 states.2

In 1994, the Department of Justice ("DOJ") reviewed the MAC network's operating rules in

response to allegations that EPS unlawfully "maintained a monopoly in access to regional [ATM]

networks" in the Mideast, including Pennsylvania, New Jersey, Delaware, West Virginia, New

Hampshire, and "substantial portions of " Ohio, in violation of section 2 of the Sherman Act, 15

U.S.C. § 2 (1994). See United States v. Electronic Payment Servs., Inc., Proposed Final Judgment

and Competitive Impact Statement, 59 Fed. Reg. 24,711, 24,712 (1994). This investigation

culminated in the entry of a consent decree between EPS and DOJ, which is to be effective until the

year 2004. See United States v. Electronic Payment Servs., Inc., 1994-2 Trade Cases (CCH) ¶

70,796 (D. Del. 1994) ("Consent Decree"), reprinted in J.A. 307-13.

Under the Consent Decree, EPS may not directly or indirectly condition access to the MAC

ATM network on the purchase of ATM processing services from EPS. Thus, EPS is generally

required to permit any third-party processor that meetsreasonable and non-discriminatory technical,

financial, and operating criteria to process ATM transactions for financial institutions participating

in the MAC network. EPS also may not discriminate against ATM networks that choose third-party

processors. In addition, the Consent Decree mandates that EPS take no action to prevent

MAC-customer financial institutionsfromplacing more than one logo on their ATMs; similarly, EPS

agreed that it would not restrict the placement of more than one logo on ATM cards issued by

financial institutions in a five-state area (Delaware, Indiana, New Jersey, Ohio, and Pennsylvania).

In the Competitive Impact Statement issued with the Consent Decree, DOJ stated that the

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3The BHC Act prohibits bank holding companies from owning or controlling a non-bank

company or engaging in activities other than banking or bank management. See 12 U.S.C. §

1843(a) (1994). Section 4(c)(8) provides an exception for activities that the Board finds are

closely related to banking or bank management and that will be expected to produce benefits to

the public sufficient to outweigh any adverse effects. See id. § 1843(c)(8). 

Consent Decreewould increase competitionforregionalnetwork access and reduce barriersfor ATM

processing. Proposed Final Judgment, 59 Fed. Reg. at 24,720. DOJ published the Consent Decree

and related commentsit had received, asrequired by15 U.S.C. § 16(b)-(h) (1994). See United States

v. Electronic Payment Serv., Inc., Public Comments on Proposed Final Judgment and Response of

United States, 59 Fed. Reg. 44,757-80 (1994),reprinted in J.A. 156-79. MSI filed comments stating

that proper implementation of the Consent Decree would "open up competition" for network access

and ATM processing, but sought to extend the Consent Decree to other parts of EPS's business. Id.

at 44,765, reprinted in J.A. 164. DOJ rejected this proposal and stated that its investigation was

limited to the ATM industry. After reviewing the comments it received, DOJ moved to have the

Consent Decree entered without modification.

C. The Proposed Transaction Between EPS and NCC

In late 1993, EPS and NCC proposed a reorganization of their business structures. NCC

sought to transfer its MoneyCenter ATM network and approximately $42,000,000 to EPS in

exchange for an ownership interest in EPS. Under this plan, NCC's MoneyCenter network services

would be consolidated with EPS's existing MAC network.

NCC, and the other bank holding companies involved in EPS, filed applications with the

Board in June 1994 pursuant to section 4(c)(8) of the BHC Act, 12 U.S.C. § 1843(c)(8) (1994),

seeking its approval of the proposed transactions.3In response to the applications, the Board invited

public comment. MSI submitted comments arguing that the proposed transaction would increase

concentration in the ATM industry; enhance EPS's dominant position to the point of creating a

monopoly; eliminate NCC as a competitor; increase barriers to entry; and not provide any public

benefits. See Comment of MSI in Opposition to Section 4(c)(8) Applications of Banc One, et al.

("MSI Comment"), (Sept. 16, 1994), reprinted in J.A. 187-243.

The applicants responded to these and other comments. See Response of Applicants (Sept.

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4The Statement was adopted by five of the Board's six participating members. One member

dissented, stating that he believed that the transaction should be approved, but would have

conditioned approval on certain changes in MAC's operating rules. 

30, 1994), reprinted in J.A. 273-97. MSI replied by reiterating many of its initial points, and raising

what it considered to be questions of fact sufficient to warrant an evidentiary hearing before the

Board. See Reply Comment of MSI (Oct. 21, 1994), reprinted in J.A. 316-74. A number of

exchanges of comments, replies, and responses followed. The Antitrust Division of DOJ also

investigated the proposed transaction to determine its competitive effect, but ultimately decided not

to submit any comments to the Board and took no further action with respect to the proposed

transaction.

On December 12, 1994, the Board's staff conducted a meeting to air objections to the

proposed EPS/NCC transaction. Parties objecting to the transaction submitted a detailed proposed

agenda identifying the concerns expressed by MSI, such as the alleged anticompetitive effect of the

contemplated transaction on existing ATM service providers and the claimed likelihood that it would

bar new providersfrom entering the ATM network market. See Proposed Agenda,reprinted in J.A.

501. Several people attended the meeting, including representatives of EPS, NCC, and MSI. At the

end of the meeting, the Board's staff invited additional submissions, and MSI submitted further

information to the Board reiterating its arguments against the transaction.

D. The Board's Order

On March 1, 1995, the Board issued an order approving the transactions. See Order

Approving Notices to Acquire Certain Data Processing Assets, Federal Reserve System (Mar. 1,

1995) ("Order"), reprinted in J.A. 627-29. The Board's statement of reasons followed on March 6,

1995. See Statement by the Board of Governors of the Federal Reserve System Regarding Notices

to Acquire Certain Data Processing Assets, Federal Reserve System (Mar. 6, 1995) ("Statement"),

reprinted in J.A. 633-62.4

The Board approved the applications because it concluded that the proposed transaction

"would not result in significant adverse effects on the competitive considerations required to be

reviewed under the section 4(c)(8) standard," Statement at 16, reprinted in J.A. 648, and found the

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proposal "not likely to result in any significant unfair competition, conflicts of interests, unsound

banking practices, or other adverse effects," id. at 19, reprinted in J.A. 651. In making this

determination, the Board relied on the record and comments before it, and also took into

consideration the effect of the Consent Decree and the fact that DOJ had decided not to oppose the

EPS/NCC transaction.

In the Statement, the Board explained that it had focused its analysis on MAC's Mideast

region (western Pennsylvania, Ohio, Indiana, Kentucky, and West Virginia)in light of allegationsthat

the proposed transaction "would result in significant anticompetitive effects in the market for ATM

services in the Ohio-Kentucky-Pennsylvania region, and particularly in certain areasin Ohio." Id. at

4, reprinted in J.A. 636. In this regard, the Board noted that, "recently, ... local ATM networks have

consolidated in an effort to enhance the value of their services to customers through the economies

of ubiquity." Id. at 8,reprinted in J.A. 640. Accordingly, the Board concluded "that the appropriate

geographic market area for MAC's product lines is a region composed of several states.... In light

of National City's banking presence in Ohio, Indiana, and Kentucky, the appropriate geographic

market in which to analyze the competitive effects of this proposal is MAC's Mideast region." Id. at

9, reprinted in J.A. 641.

The Board rejected the notion that the transaction would have anticompetitive effects in

MAC's Mideast region. The Board concluded that, in light of the regional divisions within the ATM

industry and evidence presented regarding NCC's operations, NCC's ATM network, MoneyCenter,

was not in direct competition with EPS's MAC network, nor was it a potential future competitor.

Further, according to the Board, the consolidation of the MoneyCenter's network services with the

MAC network would not significantly increase barriersto the entry of other ATM service providers,

nor would it create an undue concentration of resources.

The Board bolstered its determination that the proposed transaction would not harm

competition by referring to the restrictions set forth in the Consent Decree, noting that the rules

developed under the decree "promote competition and access to the MAC network." Id. at 13,

reprinted in J.A. 645. The Board also noted that DOJ's Antitrust Division had not protested the

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transaction, although it had the opportunity to do so.

As to the public benefits that could be expected from the transaction, the Board determined

that the capital infusion EPS would receive from NCC would improve EPS's research and

development capabilities, allow it to offer innovative products and servicessooner, ensure the quality

of the products being offered, and allow it to provide these products to a broad customer base.

The Board rejected MSI's request for an evidentiary hearing, noting that there were no

disputed material facts to warrant such a hearing. The Board subsequently denied MSI's request for

reconsideration of its Order, prompting this petition for review.

II. DISCUSSION

A. The Bank Holding Company Act

The BHC Act prohibits bank holding companies from "acquir[ing] direct or indirect ownership

or control of any voting shares of any company which is not a bank" or "engag[ing] in any activities

other than ... banking or of managing or controlling banks" or other services expressly permitted by

the Board under section 4(c)(8) of the BHC Act. 12 U.S.C. § 1843(a) (1994). Section 4(c)(8)

provides that a bank holding company shall not be prohibited from owning "shares of any company

the activities of which the Board after due notice and opportunity for hearing has determined (by

order or regulation) to be so closely related to banking or managing or controlling banks as to be a

proper incident thereto." Id. § 1843(c)(8). According to the statute,

[i]n determining whether a particular activity is a proper incident to banking or

managing or controlling banks the Board shall consider whether its performance by

an affiliate of a holding company can reasonably be expected to produce benefits to

the public, such as greater convenience, increased competition, or gainsin efficiency,

that outweigh possible adverse effects, such as undue concentration of resources,

decreased or unfair competition, conflicts of interests, or unsound banking practices.

Id. (emphasis added).

Under 12 U.S.C. § 1848 (1994), when the Board is reviewing an application filed under the

BHC Act, "[t]he findings of the Board as to the facts, if supported by substantial evidence, shall be

conclusive." This standard has been described as a "specific application" of the "arbitrary and

capricious" standard of review. Association of Data Processing Serv. Orgs. v. Board of Governors,

745 F.2d 677, 683 (D.C. Cir. 1984).

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5The Board's definition of the relevant product markets as network access, network switching,

and ATM processing services has not been contested. 

B. The Board's Approval of the EPS/NCC Applications

MSI petitions for review of the Board's Order on the grounds that the Board erred in its

approval of the applications by improperly analyzing both the adverse effects and possible benefits

of the transaction. MSI also asserts that, because substantial disputed issues of fact were presented

to the Board, the Board was required to grant a hearing on the applications. I review each of these

claims in turn.

1. The Board's Review of Adverse Effects

According to MSI, the Board improperly defined the geographic region affected by the

transaction, failed to conduct a meaningful analysis of the transaction's effect on competition in the

ATM industry, improperly assessed NCC's role as an existing competitor, and did not consider the

impact the transaction would have on prospects for the entry of new competitors into the ATM

network market. MSI also complains that the Board erroneously relied on findings made by DOJ

instead of undertaking its own inquiry.

a. The Geographic Region

As the Board indicated in its Statement, the Supreme Court has noted that the area in which

the competitive effect of a merger between banks is to be assessed "is not where the parties to the

merger do business or even where they compete, but where, within the area of competitive overlap,

the effect of the merger on competition will be direct and immediate." United States v. Philadelphia

Nat'l Bank, 374 U.S. 321, 357 (1963). In defining the region in which to analyze the effect of the

EPS/NCC transaction as MAC's Mideast region, the Board considered not only the record evidence

about MAC's and NCC's operations, but also the documented industry trend toward regional ATM

networks. See Statement at 7-9,reprinted in J.A. 639-41. I can find no basis upon which to overturn

this judgment.5

b. Analysis of the Effect of the Transaction on Competitive Conditions 

Likewise, I find that substantial evidence supports the Board's finding that the proposed

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6As of October 1994, while the EPS and NCC applications were pending, NCC was providing

branded network access and services "only to its affiliated banks." Letter from Barbara R.

Lowrey, Associate Secretary of the Board, to A. Edward Gough, President, Money Station, Inc.

2 (Mar. 31, 1995) ("Denial of Reconsideration"), reprinted in J.A. 677, 678. Before that time,

the Board found that NCC "engaged in some activities in the network services and ATM

processing product markets," such as the provision of services to 50 Indiana credit unions. Id.

However, the Board found the provision of such services "limited" and too insignificant to

constitute competition with EPS's regional network. Id. at 3, reprinted in J.A. 679. 

7For example, in 1984, NCC acquired a bank holding company that provided ATM processing

services for third parties; by 1989, NCC had sold off the processing business. Later, in 1992,

NCC acquired an Indiana bank that operated an ATM network and provided ATM servicing to

third parties. NCC could have chosen to pursue third-party ATM processing business by

developing the acquired bank's customer base. Instead, NCC did not solicit new processing

business after 1993, did not advertise the network, and allowed customers to leave. Although

NCC and other Midwest financial institutions participated in an aborted attempt to form a new

regional ATM network in the early 1990s, that effort ended in 1993, and NCC made no effort to

expand its own ATM services thereafter. Thus, NCC's behavior is unlike that which would be

expected of a potential competitor in the ATM services market. Cf. FTC v. Procter & Gamble

Co., 386 U.S. 568, 580 (1967) (Evidence supported the agency's finding that Procter & Gamble

was a potential competitor in the liquid bleach market because Procter & Gamble had recently

issued a similar product, was vigorously diversifying its product lines, and had significant

experience and resources devoted to the marketing of similar products.). 

transaction is not likely to have an adverse effect on the ATM network market in MAC's Mideast

region. The relevant question is whether the proposed transaction will result in a significant decrease

in competition in that market. At the time of the Board's decision, NCC's MoneyCenter network,

unlike MAC, generally provided ATM-related services only to banks that were NCC subsidiaries.6

Further, NCC had taken no steps toward competing with EPS and other ATM service providers in

the general marketplace. In fact, NCC had shunned the possibility of entry into that market, as

evidenced by its divestiture of such business on the few occasions when it could have made its

entrance.7 Thus, given that NCC was not, and gave no indication that it would ever be, a direct

competitor ofEPS, the Board did not err in finding that the proposed transactionwould not adversely

affect the relevant ATM market. (There are no other complaining entities claiming to be potential

competitors of EPS in the relevant market.)

MSI also claimsthat the elimination of the MoneyCenter network raises barriersto entry into

the ATM market. The Board's Statement acknowledges the industry's movement toward larger

networks; however, this trend is neither surprising nor of any great moment. The Board properly

determined that the ATM industry is moving toward regional and national networks, and that the

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existence of a primary network in each region is not a significant danger to nascent competition. See

Citicorp v. Board of Governors, 589 F.2d 1182, 1191 (2d Cir.) (In enacting the BHC Act, Congress

did not "condemn[ ] bigness as bad per se, ... [but] did commit to the expertise of the Board the task

of determining when size alone makes the combination of banking and nonbanking corporations

against the public interest."), cert. denied, 442 U.S. 929 (1979); Alabama Ass'n of Ins. Agents v.

Board of Governors, 533 F.2d 224, 251 (5th Cir. 1976) ("[T]he determination of what is "undue'

concentration of resources was primarily committed to the Board byCongress."), modified on other

grounds, 558 F.2d 729 (5th Cir. 1977), cert. denied, 435 U.S. 904 (1978).

MSI fretsthat the expansion ofthe MAC network after the EPS/NCCcombination could lead

to a variety of unfair business practices not unlike those that sparked DOJ's earlier investigation of

EPS. However, as the Board observed, the Consent Decree will remain in effect until 2004 to check

the application of the MAC system's operating rules. The Board also undertook its own review of

the MAC system's rules based on comments requested from EPS and MSI regarding potential

modifications that might be appropriate in light of the proposed EPS/NCC transaction. See Letter

from Stephen A. Rhoades, Board Assistant Director, Division of Research and Statistics, to Allen

Raiken, Esq., et al. (Feb. 15, 1995), reprinted in J.A. 579-81. After considering the comments of

both EPS and MSI, theBoard ultimatelyfound it unnecessaryto condition approvalofthe transaction

upon changes in MAC's operating rules.

The Board also found that the relationship between MSI and the MAC network made it

improbable that the transaction would unfairly jeopardize MSI's market position, because an existing

contract permitting MSI's cardholdersto use the MACnetwork suggeststhat MSI is not immediately

harmed if MoneyCenter ATMs are affiliated with the MAC network. In fact, MoneyCenter ATMs

already were part of the MAC network before EPS's acquisition of MoneyCenter, making it unlikely

that MSI will be adversely affected by the change. Finally, the fact that NCC is an equity owner of

MSI (and MSI's ATM network, Money Station) rendersit unlikely that NCC would choose to harm

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8

It also appears that two other owners of EPS are MSI owners. See MSI Comment at 21,

reprinted in J.A. 208 (As of September 1994, MSI's owners included NCC, KeyCorp, and a

corporation owned and controlled by PNC Financial Corp.). 

its own interests byengaging in predatory behavior directed against MSI.8 Thus, I would concur with

the Board's rejection of MSI's various arguments suggesting that the transaction could result in an

unfair allegiance, or some sort of proscribed anticompetitive vertical integration, between NCC and

the MAC network.

MSI presented evidence to the Board that a Kentucky ATM network, Quest, had folded in

the wake of EPS's acquisition of the MoneyCenter ATM network, and tried to convince the Board

that statisticsregarding MAC's ownership of a significantshare ofATM machinesin Kentucky, Ohio,

and Pennsylvania proved that the transaction would have an anticompetitive effect. But, contrary to

MSI's assertion that the Board ignored this evidence, it appears that the Board considered the

evidence and determined that quantitative analysis of ATM machines was not the appropriate course.

See Statement at 11 n.29, reprinted in J.A. 643. There is no basis to disturb the Board's

determination on this point. It is apparent that the ATM industry has been moving toward larger

networks and that there have been some business casualties along the way. However, MSI cannot

invoke judicial review as a means of protecting itself from the effects of a market where customers

have freely opted to use the MAC network instead of Money Station. Similarly, to the extent that

EPS may have the ability to charge monopoly rents for use of the MAC network, such power is not

likely to be the result of the combination of EPS and NCC; instead, such power appears to have

developed over time in the ATM network market. In my opinion, it is not a matter that can find

redress in this proceeding.

c. The Board's Reference to DOJ's Review

MSI's charge that the Board relied on DOJ's decision not to challenge the applications ofEPS

and NCC in lieu of making its own reasoned judgment about the transaction also should be rejected.

The Board'sreference to DOJ'sreview ofthe proposed transaction as an additional argument in favor

of its approval cannot be read to form the only, or even a significant, basis for its decision. See

Statement at 15-16,reprinted in J.A. 647-48. While the Board's action might have been questionable

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had it chosen to rely primarily on DOJ's determinations without its own independent review, there

is no indication in this case that the Board shirked its responsibility. Furthermore, it is hardly

irrelevant that DOJ found no reason to submit objections to the proposed transaction. Had the

opposite occurred, I have no doubt that MSI would have brought it to the court's attention.

2. The Board's Review of Public Benefits

Under the BHC Act, the Board is responsible for assessing the anticipated public benefits of

a proposed transaction, and for balancing their potential effect against the evilsthat might result from

the transaction. See 12 U.S.C. § 1843(c)(8) (1994). This court has previously noted that "the

Board'sreasoned judgments" in thisregard "are entitled to some deference in view ofits considerable

expertise and experience in administering the [BHC] Act." Connecticut Bankers Ass'n v. Board of

Governors, 627 F.2d 245, 254 (D.C. Cir. 1980); see also Alabama Ass'n of Ins. Agents, 533 F.2d

at 246 (Because ofthe reasonable-expectation standard set forth in 12 U.S.C. § 1843(c)(8), "reasons

for deference to the Board'sreasoned judgment ... are magnified in the context ofthe "public benefits'

determination.").

MSI alleges that the Board erred in determining that public benefits resulting from EPS's

increased ability to continue and expand its development of new electronic banking products

outweighed the possible adverse effects of elimination of NCC as a competitor. According to MSI,

instead of making the required reasoned evaluation of the asserted public benefit, the Board engaged

in conjecture when it found that "enhanced research and development capabilities generated by [the

NCC] investments should improve EPS's ability to introduce these products sooner, to ensure the

quality of the products being offered, and to present the products to a broad customer base."

Statement at 21, reprinted in J.A. 653. MSI argues that the "novel" products are already available,

and thus, there is no benefit to be had from the alleged enhancement of EPS's development and

marketing capabilities. MSI also asserts that there was no substantial evidence showing that the

capital EPS received from the transaction would actually be allocated to product development.

Even, assuming, arguendo, that MSI is correct in suggesting that the "public benefits" from

the proposed transaction are onlyminimal, this would not carry the day. Rather, the significant point

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in this case is the Board's finding that the proposed transaction presented little or no likelihood of

adverse effects. In such a circumstance, it does not matter that the perceived public benefit is small.

As the court noted in American Land Title Ass'n v. Board of Governors, 892 F.2d 1059 (D.C. Cir.

1989), in applying 12 U.S.C. § 1843(c)(8),

[t]he Board [may] consider[ ] the possible adverse effects of the acquisition ... but

then decide[ ] to give those possible adverse effects relatively little weight in the

benefits-adverse effects balance concluding that the possible adverse effects were

unlikely to actually occur.

Id. at 1066. And it does not matter that the Board's order "approach[es] the outer boundary of

tolerably terse," so long as it reflects a "reasoned judgment[ ]." Id. at 1065. In any event, one need

not agonize over such concerns in this case, for the Board's consideration of the benefits of the

EPS/NCC transaction was sufficient, and its findings were supported by substantial evidence.

In their applications, the owners of EPS noted that the transaction would result in more

efficient service to customers and would enable EPS to direct more resources to research and

development. See e.g., KeyCorp Application at 36, reprinted in J.A. 51. This claim was further

supported by additional information, submitted at the Board's request, that discussed the enhanced

services EPS hoped to develop and offer to an expanded market after the transaction. See Letter

from Allen L. Raiken, Counsel to EPS, to James V. DiSalvo, Senior Banking Structure Analyst,

FederalReserve Bank of Philadelphia (Oct. 31, 1994) 14-20, reprinted in J.A. 383, 396-402. As this

material and the Board's Statement make clear, several public benefits were seen to flow from the

transaction: the infusion of capital would help EPS fund research and development; and the

transaction would also lead to economies in MAC's operations, the effect of which (in combination

with the expanded MAC network) would lead to improved development and marketing ofinnovative

banking products. Thus, even though EPS planned to use at least part of the cash received from NCC

to reduce debts and "for general working capital purposes," KeyCorp Application at 50, reprinted

in J.A. 65, and even though, as the Board acknowledged, some of the products EPS hoped to

improve after the transaction were already available to some extent, the Board did not err in finding

that the enhancement of EPS's ability to develop and promote new products was a public benefit that

outweighed the negligible adverse effects from the EPS/NCC transaction. In short, when the Board

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weighed something (the cited public benefits) against virtuallynothing (the negligible adverse effects),

it was clear that there was no good reason to reject the proposed transaction.

The majority relies on Chase Manhattan Corp., 60 Fed. Res. Bull. 142 (1974), to suggest

that, because EPS might have pursued research and development of innovative banking products

without approval of the NCC transaction, the Board erred in finding that some public benefit would

be derived fromthe transaction. But the Board's 20-year-old order in Chase Manhattan hardlyseems

apposite in light of the Board's recent decision involving current ATM technology in Bank of New

York Co., 80 Fed. Res. Bull. 1107 (1994), in which the Board approved the application of several

large commercial banking organizations to form a joint venture providing ATM services despite the

resulting loss of an independent ATM network. The Board noted that the public benefits from the

transaction would include just what EPS hopes to achieve here: reduction of costs due to increased

transaction volume and economies of scale, improved service and convenience for customers, and

more efficient introduction of additional products. See id. at 1110.

3. The Board's Denial of MSI's Hearing Request

Under the Board's regulations, an evidentiary hearing is required only "if there are disputed

issues of materialfact that cannot be resolved in some other manner." 12 C.F.R. § 225.23(g) (1994);

see also Connecticut Bankers Ass'n, 627 F.2d at 251 (While a " "petitioner need not make detailed

factual allegations' .... a protest[er] does not become entitled to an evidentiary hearing merely on

request, or on a bald or conclusory allegation that [a dispute of material fact] exists." (quoting

Independent Bankers Ass'n of Georgia v. Board of Governors, 516 F.2d 1206, 1220 n.57 (D.C. Cir.

1975))). In this case, there is no basis to disturb the Board's determination that the record was amply

developed and no dispute of material fact remained.

As this court has noted, the Board cannot be required to "investigate every potential adverse

contingency which a contestant hypothesizes." Id. at 254; see also Independent Bankers, 516 F.2d

at 1220 (The court found that the Board "carries a heavy burden of justification" when denying a

hearing, but noted that a hearing is not necessary when no material facts are disputed.). Although

MSI couches its complaints as a dispute about the facts, I agree with the Board that MSI actually

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"disputesthe weight accorded to, and the conclusionsthat may be drawn from, all the facts ofrecord,

and does not identify disputed issues of fact that are material to the Board's decision." Statement at

23-24,reprinted in J.A. 655-56. It is indisputably within the Board's discretion to deny an evidentiary

hearing in a case such as this.

The extraordinary nature of the remedy the court has granted to MSI is highlighted by Board

counsel's statement that, according to his recollection, since 1980, only two or three hearings

regarding section 4(c)(8) issues have been conducted. Tr. of Oral Argument at 23. Even the decision

upon which the majority relies, American Bancorporation, Inc. v. Board of Governors, 509 F.2d 29

(8th Cir. 1974), does not call for the resolution which the majority affords here, because that case

involved a transaction that "would move bank holding companies into an uncharted field" fraught

with possibilities for conflict of interest. Id. at 38-39. As the court noted,

[w]e do not suggest by this opinion that any list of unanswered factual issues will unlock the

door to a trial-type hearing. Congress ... intended to reduce the volume of formal hearings

in a burgeoning field in an effort not to overtax the supervisory capabilities of the Board.

Informal supervision has characterized regulation in the banking industry, and should be

encouraged.

Id. at 39 (citation omitted). There is no case upon which the majority can rely that would

compel the Board to grant MSI a hearing where both the Board and DOJ have considered and

rejected the potential adverse effects of the transaction. The decision to grant a hearing under such

circumstances is wholly within the Board's discretion, and, in my judgment, the majority's decision

to overrule the Board willresult in nothing more than a waste of the time and resources of the Board

and the parties. Accordingly, I dissent.

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