Document: 439 U.S. 234 99 S.Ct. 505 58 L.Ed.2d 484 BOARD OF GOVERNORS the FEDERAL RESERVE SYSTEM, Petitioner,v.FIRST LINCOLNWOOD CORPORATION. No. 77-832. Argued Oct. 11, 1978. Decided Dec. Syllabus Section 3(a) of Bank Holding Company Act 1956 (Act) prohibits any company from acquiring control a bank without prior approval by Board Governors Federal Reserve System (Board). Under § 3(c) Act, must disapprove transaction that would, inter alia, generate anticompetitive effects not clearly outweighed beneficial upon acquired bank's ability to serve community. also directs "[i]n every case" "take into consideration financial and managerial resources future prospects or companies banks concerned, convenience needs community be served." Individual stockholders who controlled an existing organized respondent corporation acquire their stock. Respondent submitted for Board's approval. Upon review, found would have no change services offered customers. However, it ultimately disapproved transaction, against recommendation Comptroller Currency, on ground formation holding bring position up standards. The Court Appeals set aside order, empowers withhold because deficiencies only if those "caused enhanced proposed transaction." Held: 1. has authority under solely grounds unsoundness. This conclusion is supported language statute legislative history in addition comports with own longstanding construction, which entitled great respect. Pp. 242-248. 2. limited instances unsoundness caused exacerbated transaction. Such limitation inconsistent construction its mandate, Congress acquiesced. Nor does suggest intended reserve questions safety Currency state agencies except where harm condition applicant bank. 249-252. 3. denial application substantial evidence sufficient source strength subsidiary 252-254. 560 F.2d 258, reversed. Stephen M. Shapiro, Chicago, Ill., petitioner. George B. Collins, respondent. Mr. Justice MARSHALL delivered opinion Court. 1 1956, 12 U.S.C. 1842(a), (Board).1 3 (c)(1) 1842(c)(1), may approve create monopoly further attempt monopolize business banking. In addition, 1842(c)(2). final sentence 2 case, shall take served."2 threshold question before us whether this authorizes absence impact. If so, we decide can exercise when cause exacerbate 4 * First National Lincolnwood, four individuals hold 86% stock voting trust. These respondent, Lincolnwood Corp., as company. They planned exchange shares and, assume $3.7 million debt they had incurred bank.3 use dividends receive retire over 12-year period. Further, order augment capital, issue $1.5 capital notes then proceeds purchase new issued purpose restructuring ownership interests fashion was enable file consolidated tax return thereby realize savings.4 5 Because become company, required proposal See n. 1, supra. filed specified regulations.5 Chicago concluded position—in essence, difference between assets liabilities—was inadequate respondent's proposal, unlikely improve enough attain minimum level determined necessary protect depositors.6 Nonetheless, favorable earnings strong management led recommend approved. however, independently reviewed should denied unless strengthened. 6 thereupon modified accommodate Comptroller's objections. Instead issuing using stock, itself sell $1 long-term $1.1 common reduction paid review adhered original recommendation, finding modification salutary insofar increased total though "slightly unfavorable" decreased equity million.7 considered revised plan superior proposal; therefore, he, too, recommended 7 staff evaluated projected fall below requirements.8 established raise additional individual shareholders' incurring more debt. Although acknowledging capable, 8 "it appear desirable Bank's overall materially improved financing arrangements injections [should] made definite." App. 54-55. 9 concurred. It each elements enumerated 3(c), determining first impact merely transferred "from owned same individuals." 62 Fed.Res.Bull. 153 (1976). Similarly, effect significant changes customers, so factors relating militated neither nor Id., at 154. Thus, considerations were dispositive application. 10 Addressing these considerations, ruled "should provide bank(s)." Fed.Res.Bull., 153. Here, found, even optimistic projections realized, lack flexibility both service maintain adequate This, well uncertainty regarding injections, raised serious doubts resolve unforeseen problems could arise therefore 11 public interest initial structure result weakening condition." A divided panel Seventh Circuit affirmed, majority support 546 718, 720-721 (1976).9 On rehearing en banc, court unanimously order. recognized empowered "to deny acquisition reasons other than tendency." 261 (1977). court's view, did permit F.2d, 262. observed, reshuffled Apart advantage, accelerate debt, consequence. held overstepped denying 262-263. 13 We granted certiorari fulfill regulatory responsibilities Act. 434 1061, 98 1231, 55 760 (1978). conclude improperly restricted authority, accordingly, reverse. II 14 contends misinterpreted sustaining applications holding-company status As reads history, Congress' concern passing potential concentration banking combination nonbanking enterprises. S.Rep.No.1095, 84th Cong., 1st Sess., (1955), U.S.Code Cong. & Admin.News p. 2482; S.Rep.No.1179, 89th 2d (1966), 1966, 2385. focus competitive reflected amendment 1966 conform standards enunciated Merger amendments year. 80 Stat. 8, 1828(c)(5). amended exception antitrust laws mergers benefits United States v. Third Nat. Bank, 390 171, 88 882, 19 1015 (1968). By incorporating infers, authorize consider counterweights transaction's do agree limited. 15 supports interpretation authorization applicants concerned case," just cases finds will effect. 16 Moreover, draws history. version Banking 1933, 48 186, authorized regulate soundness subsidiaries. obtain national directed consider, acting permit, general character management. 186. submit examination prescribed liquid assets. 187. voting-permit provisions applied member sought actually shares. limitation, proved little value ensuring responsibility H.R.Rep.No.609, 4-5 (1955). 17 To ameliorate deficiency, expanded enacting 1956. five whenever bank: 18 "(1) concerned; (2) prospects; (3) management; (4) convenience, needs, welfare communities area (5) such merger consolidation expand size extent system involved beyond limits consistent sound banking, interest, preservation competition field banking." 70 135. House Report noted similarity statutes basis admitting membership granting federal deposit-insurance coverage. supra, 15. instances, adequacy important factor reviewing agency. §§ 329, 1816.10 20 amending see 243, intend confine transactions sole reason given "the uniform standards" regulating acquisitions industry. 9. Regardless limit inquiry Act,11 there indication incorporate Indeed, repealed 1933 been left intact believed retained amended, ensure banks. Senate Committee stated: 21 "Since makes (whether nonmember) since, approval, procedure . serves purpose." 12, 2396. 22 1970, extend coverage one 84 1760, 1841(a). Previously, multibank companies. principal prevent one-bank entering businesses related S.Rep.No.91-1084, pp. 2-4 (1970), 5519. Nothing 1970 suggests extending depart understanding establish different rule companies.12 23 Our scope bolstered reference principle agency's long-standing statutory mandate respect, "especially refused alter administrative construction." Red Lion Broadcasting Co. FCC, 395 367, 381, 89 1794, 1802, 371 (1969); Zemel Rusk, 381 11-12, 85 1271, 1278-1279, 179 (1965); Udall Tallman, 380 16, 792, 801, 616 (1965). regularly treated subsidiaries Clayton Bancshares 50 1261, 1264-1265 (1964); Mid-Continent Bancorporation, 52 198, 200-201 (1966); Midwest Inc., 56 948, 950 (1970); Citizens Bancorp, 61 806 (1975); Bankshares Hawley, 610 (1976); CFR 265.2(f)(22)(vii) aware practice,13 yet times "revisited practice untouched." Saxbe Bustos, 419 65, 74, 95 272, 279, 42 231 (1974). 236; 1760; 91 Stat.1388; 92 3641.14 III 24 While treat consideration, transaction.15 rejected argument permission form "a reward until applicant's fulfills standard desirability." held, revealed nothing allow weaken condition. already extensive regulation integrity persuaded identical Board. 25 perceive imposed. Certainly, compelled statute. terms, requires "every case." Just observed earlier encompasses effect, Appeals' require corrupt simply virtue hesitate adopt yield anomalous result. 26 Furthermore, record actions. deliberations see, e. g., (1955); H.R.Rep.No.95-1383, (1978), subsequent inquiries regulation, Hearing Problem Banks, 6; Hearings Safe 1977, pts. 1-4, 13, evinced system. And long regarded measure safety. See, 329 (Federal Act), 1816 Deposit Insurance Act); S.Rep.No.133, 63d pt. 2, (1913); S.Rep.No.1623, 82d (1952). meet capital-adequacy requirements mandate. 27 accept nowhere delineate jurisdictional boundary. our decision Whitney New Orleans, 379 411, 551, 386 (1965), indicates jurisdiction paramount. license business—a normally within his competence, 26, 27—once approved entailed U.S., 419, 423, S.Ct., 557, 559, 386. follows actions here are invalid powers exercised duplicate regulators. 28 Again, influenced courts defer 1801; Commissioner Sternberger's Estate, 348 187, 199, 75 229, 235, L.Ed. 246 particularly accords well-established congressional goals. frequently reiterated institutions. Northern Financial 827, 828 (1972); Downs Bancshares, 673 (1975). used advantages induce subsidiaries' positions. P. Heller, Handbook Law 127, 195 Company—1973, 35, 83 (R. Johnson ed. 1973).16 fact, 1975, convinced 397 totaling $788 indirectly prompted infusion capital. Institutions Nation's Economy, supra 2403 (testimony Philip Coldwell, System). apprised practice, ibid.; Compendium Major Issues Regulation, 379, undertaken it. Banking, Housing, Urban Affairs 1977 echoed exact standard. S.Rep.No.95-323, ("Holding supposed institutions").17 29 unsoundness, regardless transaction.18 IV 30 arbitrary capricious. "source strength" requirement language, purpose, remaining fell short 1848.19 31 "no difficulty" sustain decision, 720, press petition banc. We, find amount reasonable mind might [the Board's] conclusion." Consolidated Edison NLRB, 305 197, 59 206, 217, 126 (1938); accord, Richardson Perales, 402 389, 401, 1420, 1427, 842 (1971); Consolo FMC, 383 607, 619-620, 86 1018, 1026-1027, 131 (1966). failed $2.1 manner proposed. infusion, enterprise. Having determined, application.20 32 conferred evidence. Consequently, judgment 33 Reversed. 34 STEVENS, whom REHNQUIST joins, dissenting. 35 case involves restructure relatively small reduce income taxes. From standpoint competitors, creditors, owners, large, worst completely harmless, best substantially beneficial. 36 nevertheless about adverse itself, but rather owners action generally. power sort lever bend independent managers. I share expressed Chief Judge Fairchild unanimous sitting banc kind leverage Congress.1 37 normal subjecting type advance possible consequences itself. think judicial precedent analog authorizing agency approvals all-purpose tool accomplish objects entirely unrelated Before concluding pass unprecedented statute, insist clear expression intent structure, 1842(c), belie intent, cannot interpretation. 38 Read entirety, confines evaluation transactions.2 Specifically, commands "which monopoly," "whose " lessen competition, "anticompetitiveeffects "by probable meeting community." last explicitly "effects" reorganization, read context "future prospects" surely reflects pre-existing conditions.3 39 lends credence instead day-to-day conditions here.4 employ inducing achieve satisfactory financing, management, prospects, service, directly another agency.5 40 sparse cited point, ante, 250, help position. true "financial soundness" "capital adequacy" But irrelevant adversely affect, enhance, adequacy. 41 claimed illogical. certain ratios essential operations, unable them, them applicable all Haphazard enforcement policy seek most unusual disorderly way administer policy. end, Court's rests defer" authority. Ante, 251. assumes asserted originated passage 244. Not eight years later, purport explaining Court, 248. belated casual assertion Board, matter how persisted, hardly qualifies stand place intent. SEC Sloan, 436 103, 1702, 148 (overturning followed years). Adamo Wrecking States, 275, 287-289, 5, 566, 574, 54 538. agency, respected motivated, construe vague conferring wide-ranging Like colleagues, "do breadth discretion statute." 262 (CA7 1977).6 43 respectfully dissent. More specifically, 3(a), 134, 237, provides pertinent part: "It unlawful, (1) taken causes company; direct indirect if, after acquisition, per centum bank; thereof, bank, merge consolidate company." 2(a)(1) 133, 1841(a)(1), defines "bank company" "any becomes Act." "control" "(A) through persons owns, controls, vote class securities "(B) controls election directors trustees "(C) determines, notice opportunity hearing, exercises controlling influence policies 2(a)(2) 1841(a)(2). provides: "The approve— section monopoly, furtherance conspiracy monop[o]lize part "(2) whose country tend restraint [sic] trade, served. "In 135, 1842(c). buy out former chairman president indicted fraud. 723-724, 1976) (Fairchild, C. J., dissenting opinion). entire secured previous transactions. relieve shareholders primary obligations loans, remain secondarily liable defaulted exceeded 24, 29-30, 42, 55-56. Internal Revenue Code 1954, 1501, permits affiliated group corporations return. least 80% 1504. Filing deduct gross taxable entity. 1.1502-11(a)(1) (1977); 163. savings deduction tax-free intercorporate dividend 1.1501-14(a)(1) presumably personal payments 163, saved approximately $142,000 taxes year alone. Brief 5-6, diminished outstanding declined. seeking district located. 225.3(a)-(b), 262.3(b) evaluates 262.3(c). At "appropriate" time, forwards undertake evaluation. Ibid. After forwarded, notify involved, supervisory authorities days recommendation. 1842(b). infra. recommends denied, conduct hearing. hand, declines timely several Courts need hearing making Kirsch Governors, 353 353, 356 (CA6 1965); Northwest Bancorporation 303 832, 842-844 (CA8 1962), choose one. 262.3(g)(2), bound agencies. 419-420, 557-558, For complete explication procedures, 317-363 uses measures One ratio liabilities less cash known invested-asset ratio. Another (debt equity) assets, capital-asset 131-132; Clark, Soundness Intermediaries, Yale L.J. 63 regards 9%, 52-53 (Board memorandum), 8%, Banks Housing Affairs, 94th 137 (1976), minimal levels soundness. specifically challenged validity considers subordinated depositors' demands cushion equity. 130-131, 209; 1264 200 5.3% 1975. estimated $2.5 9%. 6.8%, 1975 5.2% 7.4%. amortization dwindle 1987, 8% minimum. 52-54. pursuant 1848. admitted possesses surplus which, System, relation prospective deposit corporate responsibilities." 259, 329. enumerates determination grant insurance coverage: served purposes 64 876, 1816. Respondent's circumscribed role borrowing applying bear considerations. assumption unwarranted. somewhat ambiguous weight assigned factors, preclude bases disapproval merger: "Of course, agencies, charged responsibility, considering particular deem relevant. weighed effects, being throw light capacity institutions H.R.Rep.No.1221, 1860, 1863. speaks 1828(c)(5)(B) outweigh specific determination, relevant affect assessment benefits. says situation where, here, addressed Senator Robertson, Chairman responsible amendments: tendency suggestion proceed thinks points turn down undesirable objectionable respects view." 112 Cong.Rec. 2656 (1966) (prepared statement). id., 2457, 2460 ("[S]upervisory evaluate solvent viable institution, prerequisite met") (Rep. Todd). twice since disposition case. essentially technical refinements time divest course collecting securing empower dispense days' acts application, rapid failure acquired. 301, 302, 1388-1390, (b). H.R.Rep.No.95-774, 7-8 (1977), 3636. 1978, strengthened principally permitting civil penalties violations 106, 3647, 1847. 1978 nonbank avoid "serious risk safety, soundness, stability bank" principles. 105, 1844. amendments, particular, reflect vest subsidiaries, consonant 3(c). 411 (Comm. Print 1975); Economy Subcommittee Supervision, Regulation 3, Finance 95th 1321, 1439 fact Reply Petitioner otherwise, relying concession during oral operation "might financially sounder" advantage. 263 position, express dispute. Among company's banking-related activities 1843(c)(8), some state-law restrictions branch 413, 554, savings. 4, Given law, Ill.Const., Art. 8; Ill.Rev.Stat., ch. 161/2, 106 (1975), nature afforded accompanied Supervisory Amendments S. 71, Sess. passed brought House. next session, enacted Regulatory Interest Rate Control 12. dissent argues difficulties "pre-existing conditions." Post, 255. dissent's looking it, attempted Comptroller. disagree basic premise argument. unsound enterprise met cites. means "irrelevant," post, 257, 138, 1848, "[t]he findings facts, evidence, conclusive." involving previously connection well-being inability "impair bank's] continue organization." 673, 674 stance advantage desirability. (1977) (en banc). quoted 236-237 disputed explain duty analyze "probable "convenience community" weigh "result[s] endeavor, sense give broader analyzing aspects apart results. especially untenable two concerns commercial facilities single concerns, remotely implicated described testimony Martin behalf 1955. He thought legislation of: unrestricted add number units, enterprises, departure engage wholly lending money, whereas types enterprise, connected involve element trusteeship." S.Rep. 1095, carefully confined carry legislation, while leaving virtually unbounded effectuate statute's secondary goal assuring decides qualify extends insured Corporation. banks, subject daily Currency. 1813(b), (d), (h), 1818. example, corruption address problem cease-and-desist remedies. That resides exclusively nonetheless claims earn available ownership—even concludes enhance dangers situation. withheld power, illogical proof latter. text states intention "decide [its approval] bank." 237. Later purports "hold 252. What broad holding, significantly qualified added response footnote So limited, dispute unsound—a merits attention. Even narrow reasoning unpersuasive. greater parent; requiring remedial action. Everyone agrees

Category: 7