Court Opinion

ID: 9463369
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:04:27.311106+00
Date Added: 2024-06-11T17:38:03.453747
License: Public Domain

FAIRCHILD, Chief Judge
(dissenting in part).
The facts in this case fail to show any greater risk to the financial structure of the bank in question or to the community which it serves if a bank holding company is formed than if present private ownership continues. Accordingly, I respectfully dissent from the court’s resolution of the first issue in this case.
The Board’s denial of appellant’s application to form a holding company is based on its finding of an unfavorable ratio of debt to capital in the proposed holding company’s financial structure. But, as the parties agree, this debt/capital ratio would by no means result from the creation of the proposed holding company. It is a present fact of the bank’s existence that must be coped with whether the bank is privately or publicly owned.1 On oral argument, counsel for the Board twice admitted that there *724would be practically no realistic difference in the financial operation of the bank whether it was owned by private individuals or allowed to operate through a bank holding company. Indeed, counsel went on to concede that operation under a bank holding company might be financially sounder in the instant case as a result of approximately $130,000 in annual tax savings that would be possible because of the opportunity tó file a consolidated tax return.
Nevertheless, the Board’s position is that it is empowered to deny bank holding company status whenever it is unsatisfied with a bank’s financial structure, regardless of whether the risks of that structure exist to the same, or even to a greater, degree under private ownership. The Board cites as the source of authority for its exercise of this power the last sentence of 12 U.S.C. § 1842(c) which provides that “in every case [in which application as a holding company is being made] the Board shall take into consideration the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs of the community to be served.”
The critical issue as we see it, however, is whether this statute either empowers or requires the Board to deny the application unless persuaded that the bank’s capability will be strengthened and its future prospects and servicing of the convenience and needs of the community positively improved by formation of a bank holding company (and that the improvement will be to a degree satisfactory to the Board), or whether the Board must be able to point to some increase of financial risk, some threat of injury to the community, which will ensue if a holding company is formed.
We believe the Board to have the burden. We draw this conclusion from our understanding of the Bank Holding Company Act. Its main thrust is not to avoid all bank holding companies as financial structures risky in and of themselves, making an exception only when the applicant can promise some public benefit. Its thrust is to avoid those structures which will create anti-competitive risks so that the public interest demands their proscription.2 Thus, the form of two numbered provisions, which are the heart of 12 U.S.C. § 1842(c), indicates that it is not the applicant who is required to show that the proposed holding company will promote competition, in order to obtain approval, but rather the Board that must find evidence of anti-competitive effect in order to deny.3 From this, we *725conclude that in those cases arising under the more general language of the last sentence of 12 U.S.C. § 1842(c), it is likewise necessary for the Board to support a denial of holding company status by pointing to some risk, either to the financial structure of the bank itself, or to the community which it serves, that would attend formation of a bank holding company and that would not be present under the current ownership. The Board has not done this.
Though our inclination ordinarily would be to defer to the Board’s expertise in judging what risks attending the formation of a bank holding company warrant denial of that status,4 when the Board has not indicated its finding of any increase in risk either in its denial statement or in the brief filed with this court, and when it in fact has admitted on oral argument that no greater risk is posed by the formation of a holding company in this case than already exists under private ownership, there is, in my opinion, insufficient support for the denial.
I would reverse.

. The present debt was incurred by the owners of the bank in order to buy out the shares of the former Chairman of the Board. He was under indictment in a case involving stock ma*724nipulation, and this, together with other factors, had caused severe financial losses to the bank. Present management is trying to recoup these losses and restore the bank to a financially sound position. This is clear from the Federal Reserve Board of Chicago Report on the application of the First Lincolnwood Corporation and is undisputed.

. In its report the Senate Committee responsi- ■ ble for the Bank Holding Company Act stated that it was “ . . . not the committee’s contention that bank holding companies are evil of themselves. However, because of the importance of the banking system to the national economy, adequate safeguards should be provided against undue concentration of control of banking activities.” S.Rep. No. 1095, 84th Cong., 2d Sess. reprinted in [1956] U.S.Code Cong. & Ad.News, 2d Sess., p. 2482, see also S.Rep. No. 91-1084, 91st Cong., 2d Sess. reprinted in [1970] U.S.Code Cong. & Ad.News, pp. 5519, 5520 (indicating the same Congressional concerns in amending the Act to include one-bank holding companies).

. 12 U.S.C. § 1842(c) provides:
The Board shall not approve—
(1) any acquisition or merger or consolidation under this section which would result in a monopoly, or which would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or
(2) any other proposed acquisition or merger or consolidation under this section whose effect in any section of the country will be substantially to lessen competition, or to tend to create a monopoly, or which in any manner would be in restraint or trade, unless it finds that the anticompetitive effects of the proposed transactions are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. *725In every case, the Board shall take into consideration the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs of the community to be served.

. The majority cites two cases as evidence of the deference this court has generally shown decisions of the Federal Reserve Board on applications for holding company status. See First Wisconsin Bankshares Corp. v. Board of Governors of Federal Reserve System, 325 F.2d 946 (7th Cir. 1963); Marine Corp. v. Board of Governors of Federal Reserve System, 325 F.2d 960 (1963). But in both these cases, the Board reported on anti-competitive effects that would result from the acquisition of the banks in question by holding companies. In the instant case, the Board concedes that no anti-competitive effects, or indeed, any adverse effects will be directly attributable to the formation of the proposed holding company.