Opinion ID: 109098
Heading Depth: 2
Heading Rank: 1

Heading: Application of the Doctrine to Commercial Banks.

Text: Since United States v. Philadelphia National Bank, 374 U. S. 321 (1963), the Court has taken the view that, as a general rule, standard ง 7 principles applicable to unregulated industries apply as well to mergers between commercial banks. See also United States v. First National Bank, 376 U. S. 665 (1964). Congress reacted to Philadelphia National Bank by including in the Bank Merger Act of 1966 a convenience and needs defense uniquely applicable to commercial banks. 12 U. S. C. ง 1828 (c) (5) (B) and (c) (7) (B). Subsequent cases have revealed, however, that that defense comes into play only after a district court has made a de novo determination of the status of a bank merger under the Clayton Act. See United States v. Third National Bank, 390 U. S. 171 (1968); United States v. First City National Bank, 386 U. S. 361 (1967). As the Court noted in Phillipsburg National Bank, supra, the antitrust standards of . . . Philadelphia National Bank . . . were preserved in the Bank Merger Act of 1966. 399 U. S., at 358. [29] Although the Court's prior bank merger cases have involved combinations between actual competitors operating in the same geographic markets, an element that distinguishes them factually from this case, they nevertheless are strong precedents for the view that ง 7 doctrines are applicable to commercial banking. In accord with the general principles of those cases, we hold that geographic market extension mergers by commercial banks must pass muster under the potential-competition doctrine. We further hold, however, that the application of the doctrine to commercial banking must take into account the unique federal and state regulatory restraints on entry into that line of commerce. Failure to do so would produce misconceptions that go to the heart of the doctrine itself. The Government's present position has evolved over a series of eight District Court cases, all of them decided unfavorably to its views. [30] The conceptual difficulty with the Government's approach, and an important reason why it has been uniformly unsuccessful in the district courts, is that it fails to accord full weight to the extensive federal and state regulatory barriers to entry into commercial banking. [31] This omission is of great importance, because ease of entry on the part of the acquiring firm is a central premise of the potential-competition doctrine. [32] Unlike, for example, the beer industry, see Falstaff Brewing Corp., supra, entry of new competitors into the commercial banking field is wholly a matter of governmental grace . . . and far from easy. Philadelphia National Bank, supra, at 367, and n. 44. Beer manufacturers are free to base their decisions regarding entry and the scale of entry into a new geographic market on nonregulatory considerations, including their own financial capabilities, their long-range goals as to markets, the cost of creating new production and distribution facilities, and above all the profit prospects in the target market. They need give no thought to public needs and convenience. No comparable freedom exists for commercial banks. Ease of entry into a market presumes ease of exitโ i. e., the withdrawal or financial collapse of a certain number of participants in that market. Reflecting this country's bitter experience of four decades ago that [a] bank failure is a community disaster. . . , [33] entry into and exit from the commercial banking business have been extensively regulated by the Federal and State Governments. The regulatory barriers to entry include federal and state supervisory controls over the number of bank charters to be granted, designed to limit the number of banks operating in any particular market and thus to prevent bank failures. See id., at 328. In addition, no branch, no matter how small, may be opened without prior approval of the appropriate bank regulatory agency. Moreover, there are state-law restrictions, such as those in force in Washington, on de novo geographic expansion through branching and multibank holding companies. As noted earlier, Washington statutes forbid branching into cities and towns where the expanding bank does not maintain its headquarters and other banks operate, and they forbid branching from a branch in such areas. See supra, at 609-611. Similarly, Washington permits only one-bank holding companies. Supra, at 611-612. In Philadelphia National Bank, supra, the Court relied on regulatory barriers to entry to support its conclusion that mergers between banks in direct competition in the same market must be scrutinized with particular care under ง 7. 374 U. S., at 352, 367-370, 372. But the same restrictions on new entry render it difficult to hold that a geographic market extension merger by a commercial bank is unlawful under the potential-competition doctrine. Such limitations often significantly reduce, if they do not eliminate, the likelihood that the acquiring bank is either a perceived potential de novo entrant or a source of future competitive benefits through de novo or foothold entry. Similarly, the Court noted in Philadelphia National Bank that under applicable state law de novo branching in the relevant market was permissible and presented an alternative to the merger route . . . . Id., at 370. In this case, by contrast, there are serious questions whether an alternative to the merger route through branching or a functional equivalent is a legal or feasible method of entry by NBC into the Spokane market.