Opinion ID: 109287
Heading Depth: 1
Heading Rank: 1

Heading: The Background of This Litigation

Text: In applying the antitrust laws to banking, careful account must be taken of the pervasive federal and state regulation characteristic of the industry, particularly the legal restraints on entry unique to this line of commerce. United States v. Marine Bancorporation, 418 U. S. 602, 606. This admonition has special force in the present case, for the de facto branch arrangements and the proposed acquisitions involved here were a direct response to Georgia's historic restrictions on branch banking. Before 1927 Georgia permitted statewide branching, and C&S National, then as now headquartered in Savannah, established three branches in the city of Atlanta. In 1927, state law was changed to prohibit all branching. [3] C&S therefore decided to expand through the formation of a bank holding company. C&S Holding was founded in 1928, and between 1946 and 1954 this company purchased two banks, and founded a third, in the Atlanta area. But in 1956 Georgia again altered its statutes to prohibit a bank holding company from acquiring more than 15 percent of a bank's stock. Georgia Bank Holding Company Act, 1 Ga. Laws 1956, pp. 309-312. A 1960 amendment, still in force, reduced the maximum ownership level to 5 percent. Ga. Code Ann. 13-207 (a) (2) (1967 ed. and Supp. 1974). By the 1950's, C&S National was interested primarily in suburban expansion. The Atlanta city limits had been frozen since 1952, and the area's economic and population growth consequently occurred primarily outside the city's boundaries. Between 1959 and 1969, C&S Holding accordingly established in the Atlanta suburbs (in DeKalb and Fulton Counties) the six 5-percent banks at issue in this case. Five of these banks were founded under the sponsorship of C&S; the sixth, the Tucker Bank, had long been an independent suburban bank when, in 1965, C&S converted it into a 5-percent bank. [4] Each of these six banks was made a correspondent associate bank within the C&S system. This status involved many different relationships between the 5-percent bank and C&S: In addition to the 5-percent stock held by C&S Holding, substantial shares were also held by officers, shareholders, and friendly customers of other C&S banks, and by their family members. It was understood from the outset that the 5-percent banks would be acquired outright by C&S as soon as the law permitted. From at least 1965 on, the 5-percent banks used the C&S logogram on their buildings, papers, and correspondence. C&S filed the charter applications of the 5-percent banks and openly assured the banks of full financial support, assurances which were often instrumental in securing regulatory approval of their creation. C&S chose the principal executive officer for each 5-percent bank. The employees of these banks were accorded the same pension and promotion rights in the C&S system as possessed by their colleagues at C&S National and its de jure affiliates. C&S selected the location of, and oversaw the selection of directors for, the suburban banks. A C&S executive served as an advisory director to each suburban bank. C&S conducted surprise audits and credit checks at the suburban banks. Each of the suburban banks provided the full panoply of C&S banking services, and customers of any 5-percent bank could avail themselves of these services at any of the other 5-percent banks, or at C&S National and its de jure branches. C&S supplied to each 5-percent bank, through manuals and memoranda, a large quantity of information concerning every conceivable banking procedure and problem. Included were datastamped for information onlyconcerning interest rates and service charges employed by C&S National and its de jure branches, but each 5-percent bank was cautioned to use its own judgment in setting interest rates and service charges. In sum, it is fair to sayand the parties agreethat in almost every respect save corporate form, each of the 5-percent banks was a de facto branch of C&S National. Between 1966 and 1968, the Federal Reserve Board investigated C&S's network of correspondent associate banks. The purpose of the investigation was to determine whether C&S was exerting such control over the 5-percent banks as to require special approval of the Federal Reserve Board pursuant to § 3 of the Bank Holding Company Act of 1956, as amended. 12 U. S. C. § 1842. The investigation ended in an understanding between the Board's staff and C&S that the correspondent associate program, as the staff understood it, did not require formal approval. [5] The Justice Department participated in this investigation, and took no action of any kind inconsistent with this understanding. In 1970 Georgia amended its banking statutes to permit de jure branching within any county in which a bank already had an office. Ga. Code Ann. 13-203.1 (a) (Supp. 1974). This allowed C&S National to branch into those Atlanta suburbs whichlike the city of Atlantaare within the confines of DeKalb and Fulton Counties. C&S decided to convert the six 5-percent banks at issue here into de jure branches. C&S applied to the FDIC for permission to acquire all of the assets, and to assume all of the liabilities, of the 5-percent banks. [6] On October 4, 1971, after reviewing reports on the proposed acquisitions from the Federal Reserve Board, the Comptroller of the Currency, and the Justice Department, the FDIC approved C&S's acquisition of the five suburban banks which C&S had helped to found, but disapproved acquisition of the Tucker Bank. Because the Tucker Bank had enjoyed an independent existence before being converted into a 5-percent bank, the FDIC concluded that the correspondent associate affiliation there had been anticompetitive in its origins and should not be ratified by approval of outright acquisition. [7] As for the five banks which C&S had helped to found, however, the FDIC stated: [T]he opening of these . . . de novo banks served the convenience and needs of their respective communities and enhanced competition . . . . The FDIC noted that the C&S system was the largest commercial banking institution in Fulton County and in DeKalb County. [8] For this reason, it observed, new acquisitions of nonaffiliated banks in the same market [by C&S] would raise the most serious competitive problems under the Bank Merger Act as amended and under Section 7 of the Clayton Act. But the FDIC reasoned that the acquisitions proposed by C&S did not raise such problems because the banks involved in the proposed mergers do not compete today and never have competed: further, there existed no reasonable probability that any of the 5-percent banks would break their ties with the C&S system even if the proposed acquisitions were disapproved. Thus, [s]uch mergers would not alter the existing competitive structure . . . in any way or add to the concentration of banking resources now held by the C&S system.