The principal responsibilities and functions of the System lie in the fields of monetary and credit regulation and bank supervision. The prosecuting and adjudicatory functions incident to the enforcement of the antitrust laws are only indirectly related to the Board's principal responsibilities. Such functions are of a character quite different from the administrative functions normally exercised by the Board in passing in advance upon particular transactions in the bank supervisory field. In other words, the enforcement of the antitrust laws and the function of bank supervision represent, we believe, different spheres of governmental operation.

In the circumstances, the Board recommends that the enforcement of the provisions of section 7 of the Clayton Act relating to the acquisition either of the stocks or assets of banks should not be vested in the Board. At present the Attorney General, under section 15 of the Clayton Act, has a concurrent jurisdiction with the Board in the enforcement of the provisions of that act insofar as they relate to banks. He is vested with authority to direct the various United States district attorneys to institute proceedings in the courts to prevent and restrain any violations of that act. It would be the Board's proposal to vest in the Attorney General exclusive authority for the enforcement of all aspects of section 7 of the Clayton Act relating to banks.

ADVANCE CONSIDERATION OF MERGERS AND CONSOLIDATIONS

At the same time, the Board believes that the possible competitive and monopolistic effects of bank mergers and consolidations should not be left solely for after-the-fact consideration, but that there should be an opportunity to consider this matter in advance in each particular case.

As previously indicated, the three Federal bank supervisory agencies under section 18 (c) of the Federal Deposit Insurance Act are now required to pass in advance upon mergers and consolidations of banks where the capital or surplus of the resulting bank will be less than the aggregate capital or surplus of the merging banks. It is the Board's opinion that the objectives of legislation on this subject would be more effectively accomplished if this requirement were extended to apply to all bank mergers and consolidations, whether or not they result in a diminution of capital or surplus. This might be done either by amending the provisions of the Federal Deposit Insurance Act or by an appropriate amendment to the Clayton Act, which would require the prior approval of any bank merger or consolidation by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation, depending upon whether the resulting bank will be a national bank, a State member bank, or a nonmember insured bank.

In addition, however, the Board would recommend a further provision in order to require due consideration of the possible monopolistic effects of bank mergers and consolidations. Each of the bank supervisory agencies should be authorized in its discretion to request the views of the Attorney General in any particular case coming before it, if the banking agency feels that there is a substantial question as to whether the proposed merger or consolidation would bring about an undue lessening of competition or tendency to monopoly. If the Attorney General should then indicate his view that the proposed transaction would have such a monopolistic effect, the bank supervisory agency would be precluded from giving its consent to the merger or consolidation in question. However, it should be clearly provided that, if the Attorney General has not been previously consulted by the appropriate bank supervisory agency and has not indicated an absence of objection on his part, he would continue to have full authority to institute proceedings under the Clayton Act, if he should deem it desirable, with respect to any situation resulting from the particular merger or consolidation.

There is one other point we would like to mention. Existing law as well as some of the proposals under consideration use the phrase "substantially to lessen competition or to tend to create a monopoly." The Board would suggest that in any bill relating to bank mergers or consolidations the test should be whether the transaction would unduly lessen competition or unduly tend to create a monopoly. If there were a town in which there were only 3 or 4 banks and there were a merger between 2 of them, it seems possible or likely that there would be a substantial lessening of bank competition, but it might well be that the merger was desirable or necessary in the public interest because of other reasons. The use of the word "unduly" instead of "substantially" would permit such a desirable merger to take place.

It is the Board's belief that legislation along the lines here suggested-transfer to the Attorney General of exclusive jurisdiction for enforcement of section 7 of the Clayton Act with respect to banks and provision for prior approval by the banking agencies of all bank mergers and consolidations as outlined abovewould provide effective safeguards against the development of undue monopolistic tendencies in the banking field and, at the same time, continue in the bank supervisory agencies, in accordance with the pattern of present law, responsibility for consideration of all the ordinary banking aspects of mergers and consolidations. The CHAIRMAN. I just want to compliment you, Governor Robertson and Chairman Martin, for your very forthright statement, and it shows you have given considerable care to this subject, and it has been very helpful.

Mr. SCOTT. I think the suggestion that the enforcement provision of section 7 of the Clayton Act be left to the Attorney General seems to be a very reasonable and proper suggestion.

The CHAIRMAN. Thank you very much. Our last witness for the morning is Mr. H. E. Cook, who is chairman of the Federal Deposit Insurance Corporation.

Mr. Cook.

STATEMENT OF H. EARL COOK, CHAIRMAN OF THE BOARD OF DIRECTORS, FEDERAL DEPOSIT INSURANCE CORPORATION; ACCOMPANIED BY ROYAL L. COBURN, GENERAL COUNSEL, AND VANCE L. SAILOR, CHIEF, DIVISION OF EXAMINATIONS, FDIC Mr. Cooк. May I present my associate, Mr. Coburn, the general counsel of the Federal Deposit Insurance Company, and Mr. Vance Sailor, the chief of the Division of Examinations.

The CHAIRMAN. We welcome all of you.

Do you want to read your statement, or epitomize it, or how do you wish to proceed?

Mr. Cook. I would prefer to read it, if you will permit, Mr. Chairman. It is not of great length.

My name is H. Earl Cook. I am chairman of the Federal Deposit Insurance Corporation.

Mr. Chairman and members of the committee, following the request to testify before this subcommittee, we of the Corporation have accumulated information concerning changes among operating banks during the last several years, and I am submitting herewith copies of studies made by the Corporation on this general subje t.

I assume that it would be of interest to the subcommittee at this time to summarize some of the recent developments occurring in the banking industry. As of December 31, 1954, there were 14,409 banks operating in the United States (continental and other areas). Of this number, 13,541 were insured by the Corporation. The insured banks consisted of 13,323 commercial banks, holding 99 percent of all the deposits of commercial banks; and 218 mutual savings banks, holding 75 percent of all the mutual savings banks' deposits. Outside the protection of Federal deposit insurance were 497 commercial banks, 310 mutual savings banks, and 61 trust companies not regularly engaged in deposit banking.

During 1954 there was a net decrease of 143 in the total number of banks; the establishment of 73 new banks having been offset by the elimination of 216 banks. Nearly all the banks which ceased opera

tion were absorbed or merged with other banks, and 181 were converted into branches.

In addition, 380 other branches or facilities were opened, while only 37 were discontinued. Thus, there was a substantial increase in the number of banking offices operating as of the close of 1954 as compared with the first of that year. The figures for 1954 are substantially similar to those of the preceding year, as will be noted from the details shown in the data which have been submitted.

As previously stated, at the end of 1954 there were 13,323 insured commercial banks. These banks had total liabilities, excluding capital accounts, in excess of $186 billion; there were 4,789 national banks with total liabilities, excluding capital accounts, in excess of $107 billion; 1,867 State banks, members of the Federal Reserve, with such liabilities in excess of $52 billion; and 6,667 State insured nonmember banks with such liabilities in excess of $26 billion.

These statistics give an idea of the distribution of responsibility among the three Federal banking agencies in respect to the number of banks that they supervise and the respective sizes thereof.

The substantial number of merger, consolidation, and asset-acquisition transactions which occurred during the last several years has constantly kept the Corporation on the alert to make certain that the Corporation would not contribute to practices that would be in violation of the letter or the spirit of the Clayton Act, as amended by the Celler Antimerger Act.

Since the banks over which the Corporation has primary supervisory and examination responsibilities are the State banks which are not members of the Federal Reserve System, and are, by comparison, banks with smaller deposit liabilities, the Corporation has not had the occasion to pass judgment officially on many of the mergers that have been discussed by your committee.

However, from our studies of these transactions we have concluded that perhaps all merger, consolidation, and acquisition transactions should be more carefully screened by the appropriate Federal banking agency having jurisdiction over the acquiring or resulting bank.

The CHAIRMAN. Why do you say "more carefully"?

Mr. Cook. Just that in the course of the discussions that have been held here it would appear that closer scrutiny should be given, depending upon the trend of economy.

The CHAIRMAN. Closer scrutiny than heretofore?

Mr. Cook. Possibly; yes, sir.

The CHAIRMAN. And I take it from that that you are vitally and considerably concerned about this merger trend?

Mr. COOK. We have some concern, of course, Mr. Chairman. The CHAIRMAN. Have you any recommendations as to what you mean by "closer scrutiny," or recommendations as to new statutes or amendments?

Mr. Cook, I would say, Mr. Chairman, that each case would have to stand upon its own merits, depending upon the economy of the community, upon the competitive situation, and management, and all of the other factors in connection with our law, which I will mention later in the statement.

With the authority thus vested in the three supervisory agencies, and with the continued splendid cooperation of the State bank supervisors, it is our opinion that the Congress and the public can be assured

of a continuation of the healthy development and maintenance of the competitive status that now exists.

For your better understanding of my position, I would first like to discuss the present authority of the Corporation over such transactions and state the matters which are considered by our Board of Directors in granting or withholding consents thereto within the provisions of the present law.

Presently, in the case of any merger, consolidation, or assumption transactions between insured banks, the consent of the Federal Deposit Insurance Corporation is required only where the assuming or resulting bank is an insured State bank, which is not a member of the Federal Reserve System, and where either the aggregate capital stock or aggregate surplus of all the banks participating in such transactions is decreased by reason of the transactions.

The authority of the Comptroller of the Currency and of the Board of Governors of the Federal Reserve System over such transactions by banks under their respective jurisdictions has been previously explained in testimony heard by this subcommittee. The consent of the Corporation must also be obtained for any merger, consolidation, or assumption transactions between an insured bank and a noninsured bank or other institution.

The authority to screen merger and acquisition transactions where there is a decrease in capital or surplus was first granted to the Corporation under the provisions of the act of 1950. It was occasioned by the fact that there had been in the prior years many instances of individuals acquiring a controlling stock interest in one more banks, merging or consolidating such banks with a reduction of capital, and distributing the aggregate amount of such reduction.

This authority to screen such transactions, together with the authority to approve all reductions in the capital structure of insured banks, has been effective in accomplishing the purposes of the legislation.

However, it may be that the current trend in merger and acquisition transactions has so broadened in scope that authority to screen such transactions should not be limited to instances in which there has been a decrease in either combined capital or surplus, but that all of such transactions should be submitted to the appropriate Federal agency for approval.

The CHAIRMAN. As to that latter conclusion, have you any specific recommendations? You say, "All of such transactions should be submitted to the appropriate Federal agency for approval." Do you have any specific recommendations for legislation, or do you cover that later?

Mr. Cook. I think that is covered later in the statement, Mr. Chairman.

In granting insurance to a newly formed State nonmember bank, and in granting permission to establish branches or to change location of the main office or a branch, the Board of Directors is guided by the standards fixed in the statute. Consent to such actions is based on a favorable finding of fact on each of the following factors (sec. 6 of the Federal Deposit Insurance Act):

(1) The financial history and condition of the bank.
(2) The adequacy of its capital structure.
(3) Its future earnings prospects.

(4) The general character of its management.

(5) The convenience and needs of the community to be served by

the bank.

(6) Whether or not its corporate powers are consistent with the purposes of this act.

Although section 7 of the Clayton Act is not specifically applicable to transactions that are processed through the Corporation, nevertheless the policy of Congress in opposition to transactions which tend to lessen competition and to create a monopoly has been considered and applied as a matter of Corporation policy under the standards that are enumerated in the foregoing section of the statute.

The factor of "convenience and needs of the community to be serve 1 by the bank" necessarily implies a consideration of whether or not the transaction will lessen competition or create a monopoly. Thus, on each application for a new bank, an on-the-ground investigation is made to determine, among other things, whether the community has adequate banking facilities at present, whether the present facilities are responding to the needs of the community, the effect of the addition of new banking facilities or the elimination of present facilities, and whether the community can profitably support an additional banking facility.

Great weight is given to the considerations involving competition and monopoly.

However, the consideration of these matters is not an exclusive test which has been applied by our Directors, but rather they are elements that must be, and have been, considered along with the other statutory factors and the underlying purpose of the Corporation to protect the funds of depositors in the Nation's banks and to maintain a strong financial economy.

Thus, when an area needs another bank, a newly organized bank, upon proper application, will be insured if the other mentioned factors are met, particularly if its future earning prospects indicate it has an opportunity to operate successfully.

However, if the area can support the operation of only 1 bank successfully, depositors' funds would be endangered by the authorization of 2 or more banks to operate in the same area.

The Corporation has been confronted with situations in which continued unsafe and unsound management practices, coupled with inadequate capital, have necessitated the Corporation rendering its financial aid to the elimination, by merger or assumption transactions, of a weak unit, and thus leaving a community with only 1 sound bank, where 2 existed before.

Such instances are rare, but the function of the Corporation requires the exercise of its several legal powers to render financial aid in case of such emergency, and the necessities of the situation have on several occasions required the exercise of powers in a way that reduced the number of banking units.

Likewise, in granting approvals under existing authorities, the Corporation has approved mergers with dimunition in capital and surplus in transactions which involve the absorptions of a weak or unsound unit, with the resulting unit offering physical and financial facilities and personnel to provide adequate banking services for the depositors of both banks and both communities in which they operated as separate units.