Amicus Curiae Brief — Northeast Bancorp, Inc. v. Board of Governors, FRS

IN THE

Supreme Court of the Unite

Ocroper TreRM, 1984

MAR 23 1985

TEVAS.

Norrueast Bancorp, Inc., et al., | ABBXANOER _

Pet®y S aoe

V.

Tse Boarp or GOVERNORS OF THE

FeperaAL Reserve System, et al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

BRIEF OF THE CONFERENCE OF STATE BANK

SUPERVISORS AS AMICUS CURIAE IN SUPPORT

OF THE RESPONDENTS

Erwin N. Griswoup*

JaMEs F’, BELL

ArtHur EF. Wrimarta, JR.

Jones, Day, Reavis & Pocus

Metropolitan Square

655 Fifteenth Street, N.W. ‘

Washington, D.C. 20005

(202) 879-3939

*Counsel of Record

PRESS OF BYRON 5. ADAMS, WASHINGTON, D.C. (202) 347-8203

4

i

QUESTIONS PRESENTED

1. Whether Section 3(d) of the Bank Holding Company

Act (the ‘‘Douglas Amendment’’), which prohibits any

bank holding company from acquiring a bank located in

another state unless such acquisition is ‘‘specifically au-

thorized’’ by the statutory law of the bank’s home state,

grants to each state broad authority to determine the

degree to which out-of-state bank holding companies may

- acquire banks located within its borders.

2. Whether the Court below correctly determined that

Connecticut and Massachusetts acted within the scope of

authority granted by the Douglas Amendment, and there-

fore did not violate the Commerce Clause, when they each

adopted statutes permitting an out-of-state bank holding

company to acquire an in-state bank if such holding com-

pany is located in another New England state which affords

reciprocal privileges to bank holding companies headquar-

tered in the enacting state.

3. Whether the Court below correctly decided that the

Connecticut and Massachusetts statutes are valid exercises

of the authority granted to the states by Congress under

the Douglas Amendment and therefore do not encroach

upon the supremacy or structure of the federal govern-

ment in violation of the Compact Clause.

Page

QuESTIONS PRESENTED ...-.---++eeesrereesressseeee i

Tapue OF AUTHORITIES ....----+--++seseeerereeseee® iv

Inrerest oF Amicus Curiae .....----seeeeerrrrrrtee 1

Iwrropuction anp SuMMaRY OF ARGUMENT ...------- 2

ARGUMENT 2... 2c cccccsccccccccccccnsccncsesscseres 6

L Tae FeperaL GovERNMENT Has ConsisTentLy De-

FERRED TO StTaTE ConTROL OF BANKING STRUCTURE,

ParTicuLaRLy UnpER THE DovuGLas AMENDMENT... 6

A. Federal Deference to State Control of Banking

Structure from the Second Bank of the United

States through the McFadden Act, as Amended

te 1OBB . cc cccccccccccccccccrcccccssccccss 7

1. President Jackson’s Veto of the Recharter-

ing of the Second Bank of the United States 7

9 The National Bank Act of 1864 ......---- 8

3. The McFadden Act and the Banking Act

OF 1GBB ...ccccccccccccccccccccccccccess 8

B. Congressional Establi:ament of State Control

over Interstate Bank Acquisitions under the

Douglas Amendment ......-.-++++s+sereret" 9

1. The House and Senate Committee Proposals

for Bank Holding Company Legislation .. 9

2. Congressional Adoption of the Douglas

Amendment ........--+eeeeerteeererrtte 11

C. Subsequent Congressional Reaffirmations of

State Authority under the Douglas Amendment 14

D. The States Have Enacted Numerous Statutes

pursuant to the Douglas Amendment, and These

Statutes Have Been Upheld by the Federal Re-

serve Board .........-eeccceeceecersseseee® 16

ili

TasLe or Contents continued

Page

Il. State Reciona, Banxruve Laws Are AvTHORIZED

BY THE Dovatas AMENDMENT AND THEREFORE Do

Nor VioutaTe THE CommeERcE CLAUSE ............ 18

A. Petitioners’ Argument that the States Must

Show ‘‘Specific’’ Congressional Authorization

for Regional Banking Laws Is Contrary to the

Decisions of this Court ..................4.. 19

B. Congress Has Granted to the States an Un-

qualified Power to Regulate Interstate Bank

Acquisitions under the Douglas Amendment .. 21

C. Petitioners’ Interpretation Is Contrary to the

Intent of the Douglas Amendment ........... 25

IU. Strate Recronaz Banxine Laws Do Not Vi0.ate

on. cc cre eeeenseceuseese 27

Ie Fee oe ee as duceacteecudades 30

iv

TABLE OF AUTHORITIES

CasEs: Page

Andrus v. Glover Construction Co., 446 U.S. 608 ..... 26

Bank of Boston Corp., 70 Fed. Res. Bull. 524 (1984) .. 18

Bank of New England Corp., 70 Fed. Res. Bull. 374

UD. :. ciiunnussvabisiniakavedseueianee 18, 29

Bank of New York Co., 70 Fed. Res. Bull. 527 (1984) .18, 26

BankAmerica Corp., 69 Fed. Res. Bull. 568 (1983) ... 18

Board of Governors of Federal Reserve System v. In-

vestment Co. Institute, 450 U.S. 46 ............. 18

Board of Governors of Federal Reserve System v.

First Lincolnwood Corp., 439 U.S. 234 .......... 18

Bode v. Barrett, 344 U.S. 583 ............ cee ceeeees 28

Chrysler Corp. v. Brown, 441 U.S. 281 ............. 23

Citicorp, 67 Fed. Res. Bull. 181 (1981) .............. 18

Citicorp, 71 Fed. Res. Bull. 101 (1985) .............. 18

Conference of State Bank Supervisors v. Conover, 715

F.2d 604 (D.C. Cir. 1983), cert. denied, 104 S.Ct.

BED GEES advctuvccccceubees ccccvctssensvoee 24

FEA v. Algonquin SNG, Inc., 426 U.S. 548 ........... 23

First National Bank in St. Louis v. Missouri, 263 U.S.

GP dncancacccecnckeekes cnsadeneseses eeaseuses 8

First National Bank of Logan v. Walker Bank & Trust ,

Ga, THD Tle TD wesc vcccccesccsccoptsesoces 6, 9, 24

First Union Bank & Trust Co. v. Heimann, 600 F.2d

Be CU BOE Wises cccnndcccccdiccdscdenss: 24

Great Atlantic d Pacific Tea Co. v. Cottrell, 424 U.S.

BE cnbinnccccsmecovecenestbshnt csucnenseuwnes 25

H. P. Hood & Sons, Inc. v. DuMond, 336 U.S. 525 ... 26

$

Vv

TasLe oF AvTHOoRITIES continued

Page

Hartford National Corp., 70 Fed. Res. Bull. 353 (1984) 18

Hartford National Corp., 71 Fed. Res. Bull. 43 (1985). 18

Hilton v. Sullivan, 334 U.S. 323 ..............2..5. 23, 25

Independent Bankers Ass’n of America v. Smith, 534

F.2d 921 (D.C. Cir. 1976), cert. denied, 429 U.S.

UE Shayne 6hSs0b cdo scans shee ceseuncacncece 5

Iowa Independent Bankers v. Board of Governors of

Federal Reserve System, 511 F.2d 1288 (D.C. Cir.

1975), cert. denied, 423 U.S. 875 .......... 5, 18, 24, 26

Lewis v. BT Investment Managers, Inc., 447 U.S. 27.. 18,

22, 25

Moragne v. States Marine Lines, Inc., 398 U.S. 375... 4

NCNB Corp., 68 Fed. Res. Bull. 54 (1982) .......... 18

National Bank of Detroit v. Wayne Oakland Bank, 252

F.2d 537 (6th Cir. 1957), cert. denied, 358 U.S.

DET <ivnededusasseneeascucd@esenesescus 24

National Railroad Passenger Corp. v. National Ass’n

of Railroad Passengers, 414 U.S. 453 ........... 25

National State Bank v. Long, 630 F.2d 981 (3d Cir.

PE: dinehnnkinennnsces 6OnGcbuueseNeeaeuadees 5

New England Power Co. v. New Hampshire, 455 U.S.

DL KAdA SARE Nien ehs RAN deeheneseeee tees 22, 23

New Hampshire v. Maine, 426 U.S. 363 ............. 27

New York v. O’Neill, 359 U.S. 1 ........cccccccccess 28

North Haven Board of Education v. Bell, 456 U.S.512. 23

Northeast Bancorp, Inc. v. Board of Governors of Fed-

eral Reserve System, 740 F.2d 203 (2d Cir. 1984),

cert. granted, 105 S.Ct. 776 (1985) ..............

Northwest Bancorporation, 38 Fed. Reg. 21530 (1973). 18

vi

Tasitg or AvuTHorities continued

Page

Prudential Insurance Co. v. Benjamin, 328 U.S. 408 . 20, 21,

26

South-Central Timber Development, Inc. v. Wunnicke,

SE SE Ev 06.4 4c vuddudensecunssaceeuns 19, 22

SunTrust Banks, Inc., 71 Fed. Res. Bull. 176 (1985) .. 18

United States Steel Corp. v. Multistate Tax Commis-

Se EE WE EE bh dkboa cesucdacseccescouns 27, 28, 29

Virginia v. Tennessee, 148 U.S. 503 ................ 27

Western & Southern Life Ins. Co. v. State Board of

Equalization, 451 U.S. 648 ................ 20, 21, 29

ConstTIruTionaL Provisions:

U.S. Const. art. I, § 8, cl. 3 (Commerce Clause) . 3, 6, 18-21,

25, 26, 29

U.S. Const. art. I, § 10, cl. 3 (Compact Clause) .. 3, 6, 27-29

- ‘U.S. Const. art. IV, §2 (Privileges and Immunities

ED: cbihlin wha éedhdestlilen ch ethaevcetiesdes 29

StaTures anp ReGuLaTIons:

Act of July 1, 1966, Pub. L. No. 89-485, § 7(d), 80 Stat.

GED wasiwetededsns 64660n0kibucesessenee besser: 14

Banking Act of 1933, c. 89, § 23, 48 Stat. 189, codified

at 12 U.S.C. $36(c) and (d) ................... 9

Bank Holding Company Act of 1956, as amended, 12

ey ee OR nc bide s clits bcc cdteens passim

Section 3(d), 12 U.S.C. § 1842(d) ............ passim

SE Ve Eee We OED 0 ce cccccccccccescess 11, 22

Vil

TasLe oF AUTHORITIES continued

Page

Garn-St Germain Depository Institutions Act of 1982,

Pub. L. No. 97-320, § 116, 96 Stat. 1476, codified at

By EE ccc sencccccctccsccececsses 15, 26

International Banking Act of 1978, Pub. L. No. 95-369,

EE Coins inenganqnedendenssceseda 14, 15

McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seg. . 20, 21, 22

McFadden Act of 1927, c. 191, § 7, 44 Stat. 1228, codt-

AO Be We SUP none con cencnecéccvntecs passim

1983 Conn. Pub. Acts 411 (Reg. Sess.), § 2, as amended

by 1984 Conn. Pub. Acts 329 (Reg. Sess.), § 1... 3,17

BE Ss SE meee cccccccocncccncscceusces 17

Be Se Bs ON A ov ccccccccccscccccccccess 16

Fla. Stat. Ann. § 658.29(3)(d) ............ cee ee eeees 16

Fla. Stat. Ann. § 658.295 (West. Supp. 1984) ........ 17

Ga. Code § 7-1-620, et seq. (Supp. 1984) ............. 17

Ill. Rev. Stat. ch. 17, § 2508 (Supp. 1984-85) ......... 16

es BI A, Be ED Kee cvesccccccccscscccns 16

Iowa Code Ann. § 524.1805 ......... EEE Se 16

Ky. Rev. Stat. § 287-900 et seg. (Cum. Supp. 1984)... 17

Mass. Gen. Laws Ann. ch. 167A, §2 (West 1971 and

DUTP 6 cic cccccccsvcccccccctesccccccsccs 3, 17

Md. Fin. Inst. Gode Ann. $§ 5-901 to 5-908 ........... 16

Me. Rev. Stat. Ann. tit. 9B, § 1013 (Supp. 1984) ...... 17

N.C. Gen. Stat. §§ 53-209 to 53-218 (Interim Supp.

DE cubighoatae dens sebeeab tus ccvescccccesses 17

eee

TasLe or AvTHORITIEs continued

Page

Neb. Rev. Stat. § 8-1512 (Supp. 1983 and 1984) ...... 16

Nev. Rev. Stat. ch. 666.132 (Cum. Supp. 1984) ....... 16

N.Y. Banking Law § 142-b (McKinney Supp. 1983) ... 17

1985 Ore. Laws ch. 12 ............ see ee eee eeeeees 16, 17

R.I. Gen. Laws §§ 19-30-1 and 19-30-2 (Supp. 1983) ... 17

S.C. Code tit. 34, ch. 24 (Supp. 1985) ............... 17

S.D. Codified Laws Ann. §§ 51-16-40 through 51-16-47

PPE noctcdvuccbhuddecadeléscsevnedsce. 16

Utah Code Ann. §$§ 7-1-102 and 7-1-702 (Supp. 1984) .. 17

Utah Code Ann. § 7-19-1 (Supp. 1984) ............... 16

Utah Code Ann. § 7-3-2(4) (Supp. 1984) ............. 16

Va. Code §§ 6.1-390 through 6.1-397 ................. 16

Wash. Rev. Code Ann. § 30.04.230 (Supp. 1985) ...... 16

LEGISLATIVE MATERIALS:

Control and’ Regulation of Bank Holding Companies:

Hearings on 8. 2674 before the House Comm. on

Banking and Currency, 84th Cong., 1st Sess.

CR Rk cdRkKoccdodncndactenenseteacdétees 10, 11

Control of Bank Holding Companies: Hearings on S.

880, S. 2350 and H.R. 6227 before a Subcomm. of

the Senate Comm. on Banking and Currency, 84th

CU BUS HI, GHD cc cccccsccccccsscccees 10, 11

TO Come, Bee. SEAR (IBGS) «nc ccccccccccccscccccccces 9

102 Cong. Rec. 6751-53 (1956) ...........cecescccees 11

102 Cong. Rec. 6760 (1956) ............ cee eee eees 11, 23

103 Come. Ree. GB55 (1966) .....cccccccccccccccccccs 11

103 Come. Ree. GEST (1956) ......ccccccscccccccces 11,12

102 Cong. Rec. 6858 (1956) ............-.008- 4, 13, 23, 24

ix

Taste or AUTHORITIES continued

Page

102 Cong. Rec. 6860 (1956) ..........-.2005- 11, 13, 23, 24

102 Cong. Rec. 6861-62 (1956) ........... 11, 12, 13, 23, 24

102 Cong. Rec. 6863 (1956) .......... ccc cece eee eens 13

102 Cong. Rec. 7165 (1956) ............ cece cece eeees 13

130 Cong. Rec. S 11153, 11162, S 11178 (daily ed. Sept.

BD, TERE) cc cwvceccccccccccccccccccccsccsccecese

130 Cong. Rec. H 10005 (daily ed. Sept. 24, 1984) .... 28

H.R. 6227, 84th Cong., Ist Sess. (1955) .............. 10

S. 2577, 84th Cong., Ist Sess. (1955) ............ 10, 11, 12

S. 2851, 98th Cong., 2d Sess. (1984) ................. 28

ELR. Rep. No. 609, 84th Cong., Ist Sess. (1955) ....... 10

S. Rep. No. 473, 69th Cong., Ist Sess. (1926) ......... 8

S. Rep. No. 584, 72d Cong., Ist Sess. (1932) .......... 9

S. Rep. No. 1095, 84th Cong., 1st Sess. (1955) ........ 10

S. Rep. No. 1179, 89th Cong., 2d Sess. (1966) ......... 14

S. Rep. No. 1073, 95th Cong., 2d Sess. (1978) ......... 14

S. Rep. No. 536, 97th Cong., 2d Sess. (1982) .......... 15

S. Rep. No. 641, 97th Cong., 2d Sess. (1982) .......... 16

MISCELLANEOUS:

Federal Deposit Ins. Corp., Changes among Operating

Banks and Branches, 1983, at 4 (1984) .......... 12

Geographic Restrictions on Commercial Banking in the

Umited States: The Report of the President

(Treas. Dept. 1981) ..........eseeeeeeeeeeeeees 15

Ginsburg, ‘‘Interstate Benking,’’ 9 Hofstra L. Rev.

Be CED Kb ceeded ccccccnccccccccecececesces 5, 8

x

Taste or AvTHorRITIEs continued

Page

Golembe, ‘‘Our Remarkable Banking System,’’ 53 U.

Var, Ea Be. SIGE CORED cc cccccccccccccscseceses 7

R. Hofstadter, The American Political Tradition (Vint-

age 06. 1974) .....ccccccccccccccccescecccceces 7

A. Schlesinger, Jr., The Age of Jackson (1945) ..... 7

Sudo, ‘‘Interstate Bills Dominate State Slates in ’85,”’

Am. Banker, Dec. 28, 1984, at 1, col. 2 .......... 17

2A Sutherland, Statutes and Statutory Construction

(N. Singer rev. 4th ed. 1984) ...........----0ee 4, 26

‘“‘The Top 300 Banks in the United States,’’ Am.

Banker, Mar. 15, 1985, at 44 ..........---seeeee 12

IN THE

Supreme Court of the United States

Ocroser Term, 1984

No. 84-363

NortHeast Bancorp, Ine., e# al.,

Petitioners,

v.

Tue Boarp oF GOVERNORS OF THE

FeperaL Reserve System, et al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

BRIEF OF THE CONFERENCE OF STATE BANK

SUPERVISORS AS AMICUS CURIAE IN SUPPORT

OF THE RESPONDENTS

INTEREST OF AMICUS CURIAE

This brief is filed by the Conference of State Bank Super-

visors (the ‘‘Conference’’), with the consent of all parties,"

in support of the Respondents. The Conference is the pro-

fessional association of state government officials respon-

sible for regulating more than 10,000 state-chartered bank-

ing institutions, with total assets of approximately $1 tril-

lion, in the 50 states and in Guam, Puerto Rico and the

Virgin Islands.? As the organizational representative of

1 Letters indicating the consent of all parties to the filing of this brief

have been filed with the Clerk.

2 In 1958, the Conference invited state-chartered banks to become “asso-

ciate members,” and there are currently about 5,000 such associate mem-

2

state banking commissioners, the Conference has a vital

interest in the outcome of this case, because Petitioners’

challenge, if upheld, would seriously undermine the author-

ity of the states to regulate acquisitions of banks within

their respective borders by out-of-state bank holding com-

panies, pursuant to Section 3(d) of the Bank Holding Com-

pany Act, 12 U.S.C. §1842(d) (the ‘‘ Douglas Amendment’’).

Ten states (including Connecticut and Massachusetts,

whose statutes are challenged by Petitioners) have enacted

regional interstate banking laws. Numerous other states are

considering the adoption of similar statutes. In addition,

twelve states have adopted laws which permit acquisitions

of in-state banks by out-of-state bank holding companies

subject to functional or other non-geographic limitations,

and the validity of these laws would also be placed in doubt

if Petitioners succeed in their challenge to the constitu-

tionality of the Connecticut and Massachusetts statutes.’

Because Petitioners’ challenge would deprive the states of

the broad authority which Congress intended to confer upon

them under the Douglas Amendment,‘ the Conference is

participating in this case to defend the regulatory juris-

diction of its member commissioners.

INTRODUCTION AND SUMMARY OF ARGUMENT

Petitioners Citicorp, Northeast Bancorp, Inc. (‘‘North-

east’’) and Union Trust Company (‘‘Union Trust’’) are

challenging the decision below,’ which upheld the constitu-

tionality of regional interstate banking laws enacted by

Connecticut and Massachusetts. Each of the challenged

bers. Associate members, however, may not vote at meetings of the Confer-

ence and therefore do not vote on decisions or policies of the Conference.

3 See notes 83-86, infra, and accompanying text.

* See Argument, Part II(B) and (C), infra.

5 Northeast Bancorp, Inc. v. Board of Governors of Federal Reserve

System, 740 F.2d 203 (2d Cir. 1984) (Pet. App. A21-A33), cert. granted,

105 S.Ct. 776 (1985).

3

statutes provides that an out-of-state bank holding com-

pany may acquire an in-state bank if (i) the out-of-state

holding company is located in another state within the New

England region, and (ii) such other state provides recipro-

eal privileges to bank holding companies located in the

enacting state.®

Petitioners argue that the New England regional restric-

tion contained in the challenged statutes discriminates

against states outside the region (especially with reference

to New York) in violation of the Commerce Clause (U.S.

Const. art. I, $8, cl. 3). In addition, Petitioners maintain

that the Connecticut and Massachusetts statutes constitute

an interstate ‘‘compact’’ which encroaches upon the su-

premacy and structure of the federal government in viola-

tion of the Compact Clause (U.S. Const. art. I, § 10, el. 3).

Petitioners’ arguments are unsound and should not pre-

vail. The challenged statutes (and state regional banking

laws in general) are valid exercises of the authority granted

by Congress to the states under Section 3(d) of the Bank

Holding Company Act (‘‘BHC Act’’), popularly known as

the Douglas Amendment.’ The Douglas Amendment, which

was enacted as part of the original BHC Act in 1956, pro-

hibits every bank holding company from acquiring a bank

located in a state other than the state in which the holding

company’s principal banking subsidiaries are situated,

unless such acquisition

... is specifically authorized by the statute laws of

the State in which such bank is located, by language to

that effect and not merely by implication. [Emphasis

added. ]

61983 Conn. Pub. Acts 411 (Reg. Sess.), § 2, as amended by 1984 Conn.

Pub. Acts 329 (Reg. Sess.), §1; Mass Gen. Laws Ann. ch. 167A, § 2

(West 1971 and Supp. 1984).

™ The parties do not appear to dispute that regional banking laws are

constitutional if they operate within the scope of authority granted to the

4

The express terms of the Douglas Amendment do not

contain any limitation that would bar the states from au-

thorizing out-of-state bank holding companies to acquire

in-state banks subject to a regional restriction. Nor is any

such limitation suggested by the legislative history of the

Douglas Amendment. On the contrary, Senator Douglas

stated that his Amendment would ‘‘permit out-of-State

holding companies to acquire banks in other States only to

278

the degree that State laws expressly permit them’.

Thus, Petitioners are attempting to graft a limitation

onto the authority given to the states under the Douglas

Amendment when no such limitation appears in either the

language or legislative history of the statute. They commit

further error by ignoring the basic rule of statutory con-

struction that a law must be construed in accordance with

its historical context and policy.’ Instead, they begin from

a hypothetical premise of their own making—viz., that there

should be free and unrestrained ‘‘interstate banking’’ in

the United States, and, therefore, that the Connecticut and

Massachusetts statutes are ‘‘protectionist statutes .. . that

intentionally discriminat[e] against commerce from ex-

cluded states.’’ *°

Such a premise is contrary to the manner in which Con-

gress has actually regulated banking in the United States,

both historically and currently. Congess has consistently

deferred to state law in numerous provisions of the federal

states under the Douglas Amendment. See, e.g., Brief for Petitioner Citi-

corp at 15; Brief for Petitioners Northeast and Union Trust at 12; Brief

for the Federal Respondent in Opposition to the Petition for Certiorari,

at 14.

8 102 Cong. Ree. 6858 (1956) (emphasis added).

® See, e.g., Moragne v. States Marine Lines, Inc., 398 U.S. 375, 388-93

(1970); 2A Sutherland, Statutes and Statutory Construction, § 45.10 (N.

Singer rev. 4th ed. 1984).

1° Brief for Citicorp at 11. See also Brief for Northeast and Union

Trust at 2-3.

5

statutes governing national banks and bank holding com-

panies." Congressional deference to the states has been

most complete in matters involving banking structure, viz.,

the branching of national banks under the McFadden Act

and the interstate expansion of bank holding companies

under the Douglas Amendment.

In short, ‘‘interstate banking’’—in the sense of interstate

acquisitions of banks by bank holding companies—does not

exist in this country except as permitted by the states under

the Douglas Amendment.” Indeed, the business of banking

is ‘‘unique among major American businesses’’ in that

hanks may not operate or be acquired across state lines

without state authorization.”

Tn view of the terms and historical context of the Douglas

Amendment, it is clear that the Connecticut and Massachu-

setts laws operate within the scope of authority granted by

Congress to the states. Accordingly, these state laws do not

1 See, e.g., Independent Bankers Ass’n of America v. Smith, 534 F.2d

921, 932 (D.C. Cir.), cert. denied, 429 U.S. 962 (1976); Iowa Inde-

pendent Bankers v. Board of Governors of Federal Reserve System, 511

F.2d 1288 (D.C. Cir.), cert. denied. 423 U.S. 875 (1975) (“Towa Inde-

pendent Bankers’’) at 1291-92, 1296-97.

As the Third Cireuit Court of Appeals has said:

Whatever may be the history of federal-state relations in other

fields, regulation of banking has been one of dual control since the

passage of the first National Bank Act in 1863.

National State Bank v. Long, 630 F.2d 981, 985 (3d Cir. 1980) (emphasis

added).

12As described below (see notes 50-58, infra, and accompanying

text), twenty-two states (including Connecticut and Massachusetts) have

adopted laws which permit out-of-state bank holding companies, under

varying circumstances, to acquire in-state commercial banks. Under the

Douglas Amendment, interstate bank acquisitions could not occur without

these state laws. Thus, as the Court below said, 740 F.2d at 208 (Pet. App.

A29), “the Massachusetts and Connecticut statutes would appear to pro-

mote interstate commerce rather than restrict it.”

18 Ginsburg, “Interstate Banking,” 9 Hofstra L. Rev. 1133, 1137, 1167-

68 (1981).

6

violate the Commerce Clause. Moreover, because Congress

itself has authorized the states to regulate interstate ac-

quisitions of banks by bank holding companies, the chal-

lenged statutes do not intrude upon any area of federal

supremacy in violation of the Compact Clause.

ARGUMENT

I. THE FEDERAL GOVERNMENT HAS CONSISTENTLY

DEFERRED TO STATE CONTROL OF BANKING STRUC-

TURE, PARTICULARLY UNDER THE DOUGLAS AMEND-

MENT

In its seminal decision concerning the authority of the

states to regulate branching by national banks under the

McFadden Act, 12 U.S.C. § 36, this Court carefully exam-

ined the history of banking in the United States leading up

to the passage of that Act.’* After reviewing this history,

this Court concluded that, under the McFadden Act, na-

tional banks may establish branches ‘‘ ‘only to the extent

that State laws permit branch banking.’ ’’ * The Conference

believes that a similar inquiry is appropriate here in evalu-

ating the authority given to the states, under the Douglas

Amendment, to regulate a related area of banking struc-

ture, viz., the acquisition of banks by out-of-state bank

holding companies. As shown below, such an inquiry re-

veals that, in line with Congress’ long-standing determina-

tion that state regulation of banking structure would

ensure a decentralized banking system, Congress has de-

liberately empowered the states under the Douglas Amend-

ment, to determine the extent to which out-of-state bank

holding companies may acquire banks within their respec-

tive horders.

14 First National Bank of Logan v. Walker Bank & Trust Co., 385 U.S.

252 (1966) (“Walker Bank’), at 256-60.

18 Td. at 261.

7

A. Federal Deference to State Control of Banking Structure

from the Second Bank of the United States through the

McFadden Act, as amended in 1933

1. President Jackson’s Veto of the Rechartering of the

Second Bank of the United States

Prominent among those who supported President Andrew

Jackson’s veto of the rechartering of the Second Bank of

the United States in 1832 were the owners of state banks—

both in the East and in the West—who resented the

Second Bank’s exclusive control over the nation’s currency

and, thereby, the effective allocation of credit resources.

Moreover, state banks were the direct beneficiaries of Jack-

son’s decision in 1833 to remove the federal government’s

deposits from the Second Bank and place them in selected

state banks.**

Jackson and his supporters—including Roger B. Taney—

viewed the Second Bank as a dangerous center of concen-

trated financial power which threatened political and social

democracy.” Accordingly, the fight against the Second

Bank led naturally to the state ‘‘free banking’’ movement

which began in the late 1830’s. As typified by New York’s

banking law of 1838, ‘‘free banking’’ statutes permitted

state banks to be chartered under general rules of incor-

poration rather than requiring special acts of the legisla-

ture. The intent of these state laws was ‘‘to encourage the

growth of banking, but at the same time .. . to prevent the

concentration of banking power.’’™

16 R. Hofstadter, The American Political Tradition 72-81 (Vintage ed.

1974); A. Schlesinger, Jr., The Age of Jackson 74-80, 90-93, 97-102

(1945).

17 Hofstadter, supra note 16, at 74-79; Schlesinger, supra note 16, at

89-94, 97-102, 105-10.

18 Golembe, “Our Remarkable Banking System,” 53 U.Va.L.Rev. 1091,

1096 (1967). See also Hofstadter, supra note 16, at 81-82.

8

2. The National Bank Act of 1864

Following the expiration of the Second Bank’s charter

in 1836, the federal government did not again enter the

bank chartering field until the Civil War. During the interim

period, the states were the exclusive chartering and regu-

latory authorities for banks. In 1863, responding to prob-

lems encountered in financing the war effort, Congress en-

acted the National Currency Act—replaced by the National

Bank Act of 1864—to authorize a system of federally-

chartered but privately-owned national banks which would

issue a new national paper currency.”

The National Bank Act did not give the new national

banks any express branching authority, a situation which

by the 1920’s placed them at a serious competitive dis-

advantage with state banks in states which permitted

branching.” Moreover, in 1924 this Court held that national

banks were subject to state laws restricting or prohibiting

branching by state banks." That decision confirmed that,

under existing legislation, state law effectively governed

the nation’s banking structure.

3. The McFadden Act and the Banking Act of 1933

In response to the competitive inequality faced by na-

tional banks with respect to branching, Congress adopted

the McFadden Act of 1927,% which authorized national:

banks to establish branches within the municipality where

their main banking facilities were located. However, the

McFadden Act provided that national banks could establish

such branches only if permitted by state law.”

19 Ginsburg, supra note 13, at 1139-41; Golembe, supra note 18, at

1094-97.

20 Ginsburg, supra note 13, at 1152-53.

21 First National Bank in St. Louis v. Missouri, 263 U.S. 640 (1924).

22 Act of Feb. 25, 1927, ¢. 191, §7, 44 Stat. 1228, codified at 12

U.S.C. § 36.

23 Id. See also S. Rep. No. 473, 69th Cong., Ist Sess. 14 (1926), quoted

in Walker Bank, 385 U.S. at 258.

9

During the Depression, the Comptroller of the Currency

(the regulator of national banks) and others argued that

the McFadden Act should be amended to authorize na-

tional banks to branch regardless of state law. They con-

tended that smaller rural banks were undercapitalized and

should be replaced by branches of larger banks.™ In accord-

ance with this view, Senator Carter Glass of Virginia intro-

duced a bill in 1932 which would have authorized national

banks to establish branches outside their home city (i) at

any point within their home state, ‘‘irrespective of State

laws,’’ and (ii) at any point in contiguous states within 50

miles of their main office.”

Senator Glass’ bill was strongly opposed on the ground

that it would deprive the states of their control over bank-

ing structure and result in a greater concentration of

banking resources.” Because of this opposition, the bill

was defeated in the House. When Senator Glass introduced

a new bill in 1933, it contained a branching provision

(adopted as Section 23 of the Banking Act of 1933)*" which

allowed national banks to establish branches only within

their home state and, even there, ‘‘only to the extent that

the State laws permit branch banking.’’* Thus, the Mc-

Fadden Act, as amended in 1933, firmly established state

control over branching by national banks.

B. Congressional Establishment of State Control over Inter-

state Bank Acquisitions under the Douglas Amendment

1. The House and Senate Committee Proposals for Bank

Holding Company Legislation

In the early 1950’s, supporters of the decentralized dual

banking system became concerned with the growth of multi-

24 See Walker Bank, 385 U.S. at 259.

28 §. Rep. No. 584, 72d Cong., Ist Sess. 11, 16 (1932).

* E.g., S. Rep. No. 584, 72d Cong., 1st Sess. Part II (1933) (Minority

Views) at 3-5.

27 Act of June 16, 1933, ¢. 89, § 23, 48 Stat. 189, codified at 12 U.S.C.

§ 36(c) and (d). .

2876 Cong. Ree. 2511 (1933), quoted in Walker Bank, 385 U.S. at 259.

10

bank holding companies. In particular, the owners of ‘‘in-

dependent’? unit banks complained that holding companies

were evading state branching laws by creating numerous

subsidiary banks, both within and across state lines, and

then operating such banks in a unitary fashion similar to

branches.”

In response to these complaints, the House Banking and

Currency Committee proposed a bill to control bank hold-

ing companies (H.R. 6227), which was passed by the full

House in 1955. Section 5(c) of H.R. 6227 would have pro-

hibited bank holding companies from acquiring any addi-

tional banks outside their home state, or from making fur-

ther home state acquisitions except in areas where bank

branching was permitted or where holding company ac-

quisitions were authorized by state law.”

The Senate Committee on Banking and Currency agreed

with the House that a federal law regulating bank holding

companies was needed,” but took a different approach with

respect to bank acquisitions. Instead of adopting an abso-

lute federal prohibition against holding company acquisi-

tions across state lines or within states where branching

was not permitted, the Senate Committee’s bill (S. 2577)

2° See, e.g., Control and Regulation of Bank Holding Companies: Hear-

ings on S. 2674 before the House Comm. on Banking and Currency, 84th

Cong., Ist Sess. (1955) (“1955 House Hearings”) at 153-63 (testimony

of W. J. Bryan, president, Independent Bankers Ass’n of America) and

163-73 (testimony of H. J. Harding, president, Independent Bankers

Ass’n, 12th Federal Reserve District); Control of Bank Holding Com-

panies: Hearings on S. 880, S. 2350 and H.R. 6227 before a Subcomm.

of the Senate Comm. on Banking and Currency, 84th Cong., Ist Sess.

(1955) (“1955 Senate Hearings”) at 104-131 (testimony of Messrs. Bryan

and Harding).

30 HR. 6227, 84th Cong., 1st Sess., §5(¢) (1955), reprinted in 1955

Senate Hearings, supra note 29, at 25. See also H.R. Rep. No. 609, 84th

Cong., Ist Sess. 15, 24 (1955).

31 See S. Rep. No. 1095, 84th Cong., Ist Sess. (1955), reprinted in 1956

U.S. Code Cong. & Ad. News 2482 at 2483.

11

provided that such acquisitions would be allowed, subject

to prior Federal Reserve Board approval.”

2. Congressional Adoption of the Douglas Amendment

With respect to interstate acquisitions of banks by bank

holding companies, the American Bankers Association

(‘*‘ABA’’) did not favor either the House bill or the Sen-

ate Committee bill. Instead, the ABA proposed a compro-

mise which would establish a general federal prohibition

against such acquisitions but would also allow each State

to lift such prohibition and allow one or more out-of-state

bank holding companies to acquire in-state banks.*

The ABA compromise position was similar to a floor

amendment proposed by Senator Paul Douglas of Illinois

during the Senate debates on S. 2577.% Senator Douglas’

amendment, which was enacted as Section 3(d) of the orig-

inal BHC Act of 1956, provided that no bank holding com-

pany could acquire a bank located in a state other than the

state in which the holding company’s principal place of

business was situated or its ‘‘principal operations’’ were

conducted, unless such acquisition was ‘‘specifically au-

thorized’’ by the statutory law of such other state.”

32 Id. at 2489-93. The Senate Committee also contemplated that states

could affirmatively prohibit acquisitions of banks by bank holding com-

panies, either within or across state lines. under Section 7 of S. 2577,

which was adopted as Section 7 of the BHC Act. See 102 Cong. Ree.

6751-53 (remarks of Senator Robertson, chief sponsor and floor manager

of S. 2577); id. at 6855 (remarks of Senators Robertson and Capehart).

33 1955 House Hearings, supra, note 29, at 406 (testimony of G. R.

Boyles on behalf of the ABA); 1955 Senate Hearings, supra note 29,

at 289 (supplemental statement of Mr. Boyles on behalf of the ABA).

%4 See 102 Cong. Rec. 6860 (1956). The Senate debates on the Douglas

Amendment are set forth id. at 6760-61, 6856-63. Senator Douglas had

previously offered his amendment before the Senate Committee, but it was

defeated by a vote of 6-4. Id. at 6760, 6862.

35 Td. at 6857. The Douglas Amendment was supported by both the ABA

and the independent bankers. Jd. at 6760 (remarks of Senator Robertson) ;

6860 (remarks of Senator Douglas).

12

Senator Douglas declared that his amendment would

carry out the long-established federal policy against the

undue concentration of financial resources, in order to en-

sure both political liberty and economic competition:

(S. 2577], and [our] amendment ..., are in the true

American tradition, for what the sponsors of the

amendment are seeking to do is to prevent an undue

concentration of banking and financial power, and in-

stead to keep the private control of credit diffused as

much as possible.

Andrew Jackson realized all this when he faced

Nicholas Biddle and the Second Bank of the United

States. .. . [Jackson] wanted credit and banking to

_ decentralized and diffused so that men might be

ree.”

Senator Douglas pointed out that where banking resources

had become concentrated in a few giant banks—as in

Canada, Great Britain and Germany—competition had

diminished and industry had become concentrated. There-

fore, he argued, S. 2577 and his amendment were needed

to ‘‘check and, if possible, to roll back the concentration

of banking and credit’’ in the United States.”

Senator Douglas also emphasized that his amendment

would prevent bank holding companies from evading state

limitations on bank expansion:

%¢ 102 Cong. Rec. 6857 (1956).

31 Id. See also id. at 6861-62 (statement by Senator Payne and remarks

by Senator Morse). In part because of the Douglas Amendment, the

American banking industry is highly decentralized, with a large number

of banks of varying sizes, designed to serve the needs of both urban and

rural communities and small as well as large businesses. As of December

31, 1983, there were 14,890 commercial banks in the United States, includ-

ing 4,751 national banks and 10,139 state banks. Federal Deposit Ins.

Corp., Changes among Operating Banks and Branches, 1983, at 4 (1984).

Even among the largest 300 U.S. commercial banks, the total deposits held

by each bank, as of December 31, 1984, ranged from $757 million ( Sum-

mit Bank, Fort Wayne, Ind.) to over $79 billion (Citibank) and over $88

billion (Bank of America). “The Top 300 Banks in the United States,”

Am. Banker, Mar. 15, 1985, at 44.

13

[O]ur amendment aims... to carry over into the field

of holding companies the same provisions which al-

ready apply for branch banking under the McFadden

Act—namely, our amendment will permit out-of-State

holding compames to — ba in other States

only to the degree that State laws expressly permit

them; and that is the provision of the McFadden Act.

[Our amendment] is a logical continuation of the prin-

ciples of the McFadden Act, which tried to prevent

the Federal power from being used to permit national

banks to expand across State lines in a way contrary

to State policy... .*

Certain Senators opposed the Douglas Amendment be-

cause it would result in discrimination against interstate

commerce. For example, Senator Bennett of Utah argued

that the Amendment would

. .. require every State that does not now have legis-

lation prohibiting bank holding companies to discrim-

nate in favor of such corporations that may be resident

in their State and against bank holding companies

resident in any other State and requires affirmative

legislation to remove the discrimination.”

Senator Bennett further contended that ‘‘(fJor Congress

to require discrimination in interstate commerce, and then

leave it to the several States to correct it, is a strange ap-

proach’’. Nevertheless, his arguments were rejected and

the Douglas Amendment was adopted by an overwhelming

58-18 vote of the Senate,“ and received House approval.”

%8 Id. at 6858 (emphasis added), 6860.

39 Td. at 6860 (emphasis added). See also id. at 6862 (remarks of Sena-

tor Bricker).

40 1d. at 6860 (emphasis added).

41 Jd. at 6863. In addition, of the nine absent and nonvoting Senators

who indicated their views on the Douglas Amendment, seven supported

the Amendment. Id.

42 Jd. at 7165.

14

' C. Subsequent Congressional Reaffirmations of State Authority

under the Douglas Amendment

On several occasions since 1956, Congress has reconsid-

ered the policy on interstate bank acquisitions set forth

in the Douglas Amendment. In each instance, Congress has

confirmed the states’ authority to control the extent to

which bank holding companies may acquire banks across

state lines, and Congress has also rejected proposals to

rescind or substantially modify the Douglas Amendment.

In 1966, Congress modified the Douglas Amendment by

providing that the ‘‘home state’’ of each bank holding com-

pany would be the state in which its operations are ‘‘prin-

cipally conducted’’ (defined as the state in which the total

deposits of the holding company’s banking subsidiaries

are the largest). The 1966 amendment removed the pre-

vious alternative reference to the ‘‘principal office and

place of business’’ of a bank holding company.“ It thereby

precluded the possibility that a holding company might

establish its principal office in one state and its principal

operations in another, and then claim that it had two

‘‘home states’? in which it could acquire banks without

state approval.“ Thus, the 1966 amendment reiterated Con-

gress’ intent to prohibit bank holding companies from

acquiring banks in more than one state without state

permission.

Congress again considered the regulation of bank expan-

sion under the McFadden Act and the Douglas Amendment

when it adopted the International Banking Act of 1978

(**TBA’’).** Under Section 14 of the IBA, Congress directed

President Carter to submit recommendations to Congress

43 Act of July 1, 1966, Pub. L. No. 89-485, § 7(d), 80 Stat. 237.

44 See S. Rep. No. 1179, 89th Cong., 2d Sess. (1966), reprinted in 1966

U.S. Code Cong. & Ad. News 2385 at 2393.

5 Act of Sept. 17, 1978, Pub. L. No. 95-369, 92 Stat. 607. See S. Rep.

No. 1073, 95th Cong., 2d Sess. 6-12 (1978).

15

‘“‘with regard to the applicability of the McFadden Act to

the current banking structure.’’ “

President Carter’s report to Congress recommended

sweeping changes in the Douglas Amendment (as well

as proposed amendments to the McFadden Act) which

would have removed most state authority to regulate inter-

state acquisitions of banks by bank holding companies.“

However, Congress has adopted only the most limited pro-

posal of the report—viz., the authorization of interstate

acquisitions of large failed banks without state approval—

and only for a period of three years ending October 15,

1985. Moreover, this limited authorization contains several

conditions designed to preserve a substantial degree of

state determination over acquisitions of failed banks. In

* Td. at 19.

*' Geographic Restrictions on Commercial Banking in the United States:

The Report of the President (Treas. Dept. 1981). The Report recom-

mended three substantial modifications of the Douglas Amendment and

the McFadden Act; (i) that interstate acquisitions of banks by bank

holding companies be permitted regardless of state law (although at first

only on a regional basis); (ii) that, over time, national banks should be

permitted, without state approval, to deploy EFT (electronic funds trans-

fer) terminals nationwide and to establish interstate brick-and-mortar

branches within “natural market areas” (¢.g., metropolitan areas); and

(iii) that interstate acquisitions of “failing banks” by bank holding com-

panies should be allowed without state permission. Jd. at 17-20.

*® Section 116 of the Garn-St Germain Depository Institutions Act of

1982, Pub. L. No. 97-320, § 116, 96 Stat. 1476, codified at 12 U.S.C. § 1823

(f), authorizes the Federal Deposit Insurance Corporation (“FDIC”) to

approve, without state permission, the acquisition of a failed bank having

total assets of $500 million or more by an out-of-state bank holding

company.

*° In evaluating bids by bank holding companies for a failed bank, the

FDIC must give priority to bidders located within the same state as the

bank, or (if an out-of-state bidder is to be chosen) to bidders located in

adjacent states. In addition, if the responsible state bank supervisor ob-

jects to such an acquisition, the FDIC may approve the acquisition only

by a unanimous vote of its Board of Directors. See S. Rep. No. 536, 97th

Cong., 2d Sess. 5-6, 47 (1982), reprinted in 1982 U.S. Code Cong. & Ad.

16

short, Congress has refused to deprive the states of the

broad authority conferred upon them under the Douglas

Amendment.

D. The States Have Enacted Numerous Statutes pursuant to

the Douglas Amendment, and These Statutes Have Been

Upheld by the Federal Reserve Board

Beginning in 1972, 22 states have adopted statutes pur-

suant to the Douglas Amendment which permit varying

degrees of entry by out-of-state bank holding companies.

Four states (beginning with Iowa in 1972) have enacted

‘‘erandfather’’ statutes, which permit bank acquisitions

only by out-of-state bank holding companies which had a

specified type of presence in the state on a stipulated date.”

In addition, beginning in 1980, six states have adopted

‘limited purpose’’ interstate banking laws. These laws

generally permit an out-of-state bank holding company to

acquire a single in-state bank to carry on a limited type

of business (usually the issuance of credit cards). Such

statutes also may require the limited-purpose bank to em-

ploy a minimum number of state residents and to operate

at a single location in a manner which does not attract

customers of local banks.” In addition, four states have

authorized out-of-state bank holding companies to acquire

failed commercial banks subject to specified conditions.”

News 3054 at 3059-60, 3101; S. Rep. No. 641, 97th Cong., 2d Sess. 85-86

(1982) (Conf. Rep.), reprinted in 1982 U.S. Code Cong. & Ad. News

3128 at 3128-29.

5° Fla. Stat. Ann. § 658.29(3)(d); Ill. Rev. Stat. ch. 17, § 2510; Iowa

Code Ann. § 524.1805; Neb. Rev. Stat. § 8-903 (Supp. 1983); Utah Code

Ann. § 7-3-2(4) (Supp. 1984).

51 Del. Code Ann. tit. 5, § 803; Md. Fin. Inst. Code Ann. §§ 5-901 to

5-908; Neb. Rev. Stat. § 8-1512 (Supp. 1983 and 1984); Nev. Rev. Stat.

ch. 666.132 (Cum. Supp. 1984); S.D. Codified Laws Ann. §§ 51-16-40

through 51-16-47 (Supp. 1984); Va. Code §§ 6.1-390 through 6.1-397.

52 Tll. Rev. Stat. ch. 17, § 2508 (Supp. 1984-85) ; 1985 Ore. Laws ch. 12;

Utah Code Ann. § 7-19-1 (Supp. 1984); Wash. Rev. Code Ann. §30.04.230

(Supp. 1985).

17

Two states—Alaska and Maine—permit acquisitions of

in-state banks by any out-of-state bank holding company,

but impose certain conditions on such acquisitions." Simi-

larly, New York does not allow an out-of-state bank holding

company to acquire a New York bank wnless that holding

company’s home state provides reciprocal privileges to

New York bank holding companies.™

On December 30, 1982, Massachusetts adopted the first

regional interstate banking law.* In 1983, Connecticut and

Rhode Island enacted laws similar to the Massachusetts

statute, although the regional limitation in the Rhode Island

statute expires on July 1, 1986.% Four Southeastern states

have subsequently adopted laws authorizing interstate ac-

quisitions within the Southeastern region.*’ Kentucky, Ore-

gon and Utah have also enacted interstate laws with re-

gional limitations.* Approximately twenty other states and

the District of Columbia are likely to consider regional

banking legislation in 1985.”

53 Maine imposes minimum capitalization requirements on banks which

are acquired by out-of state holding companies and requires such an ac-

quisition to bring “net new funds” into Maine. Alaska permits out-of-state

holding companies to acquire only banks which were established prior to

July 1, 1982. Me. Rev. Stat. Ann. tit. 9B, § 1013 (Supp. 1984); Alaska

Stat. § 06.05.235.

%# N.Y. Banking Law § 142-b (McKinney Supp. 1983).

55 Mass. Gen. Laws Ann. ch. 167A, § 2 (West 1971 and Supp. 1984).

%* 1983 Conn. Pub. Acts 411 (Reg. Sess.), § 2, as amended by 1984

Conn Pub. Acts 329 (Reg. Sess.), §1; R.I. Gen. Laws §§ 19-30-1 and

19-30-2 (Supp. 1983).

5? Fla. Stat. Ann. § 658.295 (West Supp. 1984), Ga. Code § 7-1-620,

et seq. (Supp. 1984), N.C. Gen. Stat. §§ 53-209 to 53-218 (Interim Supp.

(1984); S.C. Code tit. 34, ch. 24 (Supp. 1985). These statutes are not

identical. For example, the Georgia law does not include Arkansas, Mary-

land, West Virginia and the District of Columbia within the defined region

for reciprocal acquisitions.

58 Ky. Rev. Stat. § 287-900, et seq. (Cum. Supp. 1984) ; 1985 Ore Laws

ch. 12; Utah Code Ann. §§ 7-1-102 and 7-1-702 (Supp. 1984).

5° See Sudo, “Interstate Bills Dominate State Slates in ’85,” Am.

Banker, Dee. 28, 1984, at 1, col. 2.

18

The Federal Reserve Board has consistently given effect

to state-adopted interstate banking laws with ‘‘grand-

father,’’ ® ‘‘limited purpose,’’® and ‘‘failed bank’’ limita-

tions. Moreover, in a series of three decisions upheld by

the Court below, the Board approved acquisitions pur-

suant to the Connecticut and Massachusetts statutes.” The

Board’s assessment of the validity under the Douglas

Amendment of state-adopted interstate banking laws, in-

cluding regional banking laws, is entitled to the ‘‘greatest

deference’”’ in view of the Board’s primary responsibility

for interpreting and applying the BHC Act.”

ll. STATE REGIONAL BANKING LAWS ARE AUTHORIZED

BY THE DOUGLAS AMENDMENT AND THEREFORE DO

NOT VIOLATE THE COMMERCE CLAUSE

This Court held in Lewis v. BT Investment Managers,

Inc., 447 U.S. 27 (1980), that the Commerce Clause applies

6° F.g., Northwest Bancorporation, 38 Fed. Reg. 21530 (1973), aff'd

sub nom. Iowa Independent Bankers, supra note 11 (Iowa law); NCNB

Corp., 68 Fed. Res. Bull. 54 (1982) (Florida law).

61 F.9., Citicorp, 67 Fed. Res. Bull. 181 (1981) (South Dakota law) ;

Citicorp, 71 Fed. Res. Bull. 101 (1985) (Nevada law).

*2 F.g., BankAmerica Corp., 69 Fed. Res. Bull. 568 (1983) (Washing-

ton law).

83 Bank of New England Corp., 70 Fed. Res. Bull. 374 (1984); Hart-

ford National Corp., 70 Fed. Res. Bull. 353 (1984); Bank of Boston

Corp., 70 Fed. Res. Bull. 524 (1984). See Pet. App. A34-A86. Since the

decision below, the Board has approved further acquisitions under the

Rhode Island, #lorida and Georgia statutes. E.g., Hartford National Corp.,

71 Fed. Res. Bull. 43 (1985); SunTrust Banks, Inc., 71 Fed. Res. Bull.

176 (1985).

The Board also denied an application by Bank of New York Company,

Inc., a New York bank holding company, to acquire Petitioner Northeast,

a Connecticut bank holding company, in violation of the regional limita-

tion contained in the Connecticut statute. Bank of New York Co., 70 Fed.

Res. Bull. 527 (1984).

* F.9., Board of Governors of Federal Reserve System v. Investment

Co. Institute, 450 U.S. 46, 56-57 (1981); Board of Governors of Federal

Reserve System v. First Lincolnwood Corp., 439 U.S. 234, 251 (1978).

19

to state regulation of nonbanking financially-related serv-

ices provided by bank holding companies. However, the

Court also pointed out that Congress may ‘‘confe[r]

upon the States an ability to restrict the flow of interstate

commerce that they would not otherwise enjoy.’’ Id. at 44.

In this case, it is clear from both the terms and legisla-

tive history of the Douglas Amendment that Congress has

authorized the states to adopt regional banking laws.

Accordingly, such laws do not violate the Commerce Clause.

A. Petitioners’ Argument that the States Must Show “Specific”

Congressional Authorization for Regional Banking Laws Is

Contrary to the Decisions of this Court

Petitioners claim that the Douglas Amendment does not

represent ‘‘specific Congressional authorization for . . .

concerted, discriminatory state statutes.’’ They argue that

Congress must have ‘‘deliberately and specifically author-

ized the particular deviation from the constitutional man-

date’’ which is at issue, and that ‘‘the Douglas Amend-

ment says nothing about groups of states joining together

to discriminate against commerce deriving from disfavored

sister states.’’ *

Petitioners’ analysis is directly contrary to the ap-

proach taken by this Court in determining whether Con-

gress has authorized the states to regulate an area of

interstate commerce. This Court has said that Congress

must ‘‘affirmatively contemplate’’ state regulation of inter-

state commerce in order to immunize it from scrutiny under

the Commerce Clause.” However, rather than requiring

‘*specific’’ authorization for each ‘‘ particular [state] devia-

tion’’ from the Commerce Clause—as Petitioners argue—

*§ Brief for Citi¢orp at 18, 22-23 (emphasis added). See also Brief for

Northeast and Union Trust at 22-23, 26.

% South-Central Timber Development, Inc. v. Wunnicke, 104 S. Ct.

2237, 2242 (1984).

20

this Court has held that if Congress generally authorizes

the states to regulate a defined field of commerce, all state

regulation pursuant to such authority is valid under the

Commerce Clause:

If Congress ordains that the States may freely regu-

late an aspect of interstate commerce, any action taken

by a state within the scope of the congressional au-

thorization is rendered invulnerable to Commerce

Clause challenge.”

In Western & Southern Life, as well as its earlier deci-

sion in Prudential Insurance Co. v. Benjamin,* this Court

determined that ‘‘Congress removed all Commerce Clause

limitations on the authority of the states to regulate and

tax the business of insurance when it passed the McCarran-

Ferguson Act.’’® This Court particularly relied upon Sec-

tion 2(a) of the McCarran-Ferguson Act, which declares:

‘‘The business of insurance shall . . . be subject to the

laws of the several states which relate to the regulation

or taxation of such business.’’ The Court noted that the

‘‘unequivocal language of the Act suggests no excep-

tions,’ and pointed out that Congress had adopted the

statute against the background of extensive state regula-

tion of insurance:

[I]n taking this action Congress must have had full

knowledge of the nation-wide existence of state sys-

tems of regulation and taxation [of insurance]... .

[I]ts purpose was evidently to throw the whole weight

of its power behind the state systems... .”

*7 Western & Southern Life Ins. Co. v. State Board of Equalization,

451 U.S. 648 (1981) (“Western & Southern Life”) at 652-53 (emphasis

added).

68 398 U.S. 408 (1946) (“Prudential”).

6° Western & Southern Life, 451 U.S. at 653. See also Prudential, 328

U.S. at 430, 436.

7° Western & Southern Life, 451 U.S. at 653.

71 Prudential, 328 U.S. at 430. See also Western & Southern Life, 451

U.S. at 654.

21

In view of the broad authority granted to the states

under the McCarran-Ferguson Act, this Court rejected

the contention that the Commerce Clause prevented states

from imposing ‘‘anti-competitive state taxation that dis-

criminates against out-of-state insurers.’’ The Court found

‘no such limitation in the language or history of the

Act.’’ 72

Significantly, the decisions in Western & Southern Life

and Prudential were not based upon a finding that the

McCarran-Ferguson Act specifically authorized the states

to impose discriminatory taxes upon out-of-state insurance

companies. This Court instead found that Congress had

generally authorized the states to regulate and tax the

business of insurance. Accordingly, those decisions con-

tradict Petitioners’ claim that state regional banking laws

must have been ‘‘specifically’’ contemplated by the Douglas

Amendment.

B. Congress Has Granted to the States an Unqualified Power

to Regulate Interstate Bank Acquisitions under the Douglas

Amendment

Western & Southern Life and Prudential are directly

applicable here. In a manner similar to the McCarran-

Ferguson Act, the Douglas Amendment grants to the states

an unqualified power to regulate interstate acquisitions

of banks by bank holding companies, since any such acqui-

sition is prohibited by federal law unless it is ‘‘specifically

authorized by the statute laws of the State in which such

bank is located.’’ It would be difficult to conceive of a more

"2 Td. at 653. Prudential upheld a South Carolina tax which applied

only to out-of-state insurance companies, and Western ¢ Southern Life

sustained a California “retaliatory tax” which was assessed against insur-

ance companies from other states which imposed taxes higher than those

of California.

22

explicit and unconditional grant of authority by Congress

to the states.”

Moreover, as in the case of the McCarran-Ferguson Act,

there is no indication that Congress has limited the au-

thority granted to the states under the Douglas Amend-

ment. In BT Investment, this Court said that the Douglas

Amendment grants to the states ‘‘authority to create ex-

ceptions ... [which] permit expansion of banking across

state lines where it otherwise would be federally pro-

hibited.’? * This Court did not indicate any limitation on

the authority of states to create such ‘‘exceptions.’’ In fact,

while the Court held that Section 7 of the BHC Act an-

thorizes the states to enact statutes only ‘‘within the

boundaries marked by the Commerce Clause’’ (447 U.S.

at 49), it stated no such view with respect to the Douglas

Amendment, which is contained in Section 3(d) of the Act.

As shown above in Part I(B)(2), the legislative history

of the Douglas Amendment confirms that Congress in-

tended to provide the states with broad authority to

determine the extent to which interstate bank acquisitions

may occur. Senator Douglas stated that his Amendment

would permit out-of-state holding companies to acquire

banks in other states “‘only to the degree that State laws

*8In contrast, the cases relied upon by Petitioners involved federal

statutes which did not contain any similar delegation of power to the

states. In Wunnicke, 104 S. Ct. at 2240-43, the federal statutes in ques-

tion dealt only with timber cut from federal lands and did not apply to

state lands. In New England Power Co. v. New Hampshire, 455 U.S. 331

(1982) (“New England Power’), at 340-43, the federal statute contained

only “a standard ‘nonpre-emption’ clause” which granted no additional

authority to the states. Finally, each of the federal statutes involved in

Sporhase v. Nebraska, 458 U.S. 941, 958-60 (1982), contained only a

similar nonpreemption clause and a provision stating that water rights

arising in connection with federal projects would be governed by state

law. The latter provision was not relevant to the state reciprocity restric-

tion on exportation of water which was at issue in Sporhase.

"4 447 U.S. at 47 (emphasis in original).

23

expressly permit them.’’" Similarly, Senator Robertson,

the chief sponsor of the BHC Act, acknowledged (while

opposing the provision) that, under the Douglas Amend-

ment, ‘‘no bank holding company in the future may cross

a State line unless the laws of the State involved permit

it to so.’’™

78 102 Cong. Rec. 6858 (1956) (emphasis added). Petitioners argue that

Senator Douglas’ remarks are unreliable “isolated fragments” of legisla-

tive history. Brief for Petitioner Citicorp at 27, and Brief for Petitioners

Northeast and Union Trust at 26, quoting New England Power, 455 U.S.

at 342.

New England Power, however, involved only the brief floor remarks of

a single Congressman. In contrast, the Senate’s discussion of the Douglas

Amendment covers more than eight pages of the Congressional Record

(102 Cong. Ree. 6760-61 and 6856-63), and every Senator who described

the legal effect of the Douglas Amendment concurred with Senator Douglas’

description. See 102 Cong. Rec. at 6760 (remarks of Senator Robertson),

6860 (remarks of Senator Bennett), 6861 (remarks of Senator Bricker),

and 6862 (statement of Senator Payne). These extended and consistent

statements cannot be dismissed as “isolated fragments” of legislative

history.

Petitioners also quote Chrysler Corp. v. Brown, 441 U.S. 281, 311

(1979), for the proposition that “[t]he remarks of a single legislator,

even the sponsor, are not controlling in analyzing legislative history.”

Brief for Petitioner Citicorp at 27; Brief for Petitioners Northeast and

Union Trust at 26 n.23. Chrysler Corp. explaii ed that “[{the sponsor’s]

statement must be considered with the Reports of both Houses and the

statements of other Congressmen” (441 U.S. at 311). However, unlike the

1958 amendment to 5 U.S.C. § 301, which was eonsidered in Brown, the

Douglas Amendment was not included in a House or Senate committee

bill (see Part I(B), supra), and there are no committee reports to con-

sider in this case. Therefore, Senator Douglas’ remarks are “an authori-

tative guide to the statute’s construction,” North Haven Board of Educa-

tion v. Bell, 456 U.S. 512, 526-27 (1982), and gain further significance

in view of their consistency with the statements of other Senators who

.both supported and opposed the Douglas Amendment. FEA v. Algonquin

SNG, Inc., 426 U.S. 548, 564-66 (1976); Hilton v. Sullivan, 334 U.S.

323, 338-39 (1948).

16 102 Cong. Ree. 6760 (1956) (emphasis added).

24

Senator Douglas pointed to the McFadden Act as the

model for his Amendment.” As described above in Part

I(A)(3), the McFadden Act authorizes national banks to

establish branches ‘‘ ‘only to the extent that the State laws

permit branch banking.’ ’’ Walker Bank, 385 U.S. at 261.

Under the McFadden Act, the states may regulate the

method by which national banks establish branches,” or

may place geographical limitations on branching.” Senator

Douglas noted that, in 1956, New York was divided by

state branching law into ten geographic zones, and that

state and national banks could not branch outside the zone

where their home offices were located. 102 Cong. Rec. 6858

(1956). Thus, Senator Douglas’ statement that his Amend-

ment would embody ‘‘the principles of the McFadden Act”’

(id. at 6860) plainly indicates that the states may place

geographical and other limitations on acquisitions of banks

by out-of-state bank holding companies.

Senator Douglas’ remarks strongly suggest that the

states would have authority to be ‘‘selective’’ in admitting

out-of-state bank holding companies.” In fact, certain Sen-

ators opposed the Douglas Amendment on the ground fhat

it would mandate ‘‘discrimination’’ in interstate com-

77 102 Cong. Ree. 6858, 6860 (1956).

78 F.g., Walker Bank, 385 U.S. at 261-62 (state law permitting branch-

ing only by merger with an existing bank).

79 E.g., First Union Bank & Trust Co. v. Heimann, 600 F.2d 91, 94

96-99 (7th Cir. 1979) (state law prohibiting branching except in a city

or town where no other bank is located); National Bank of Detroit v.

Wayne Oakland Bank, 252 F.2d 537, 539-41 (6th Cir.), cert. denied, 358

U.S. 830 (1958) (state law prohibiting branching in a city or village in

which another bank has its main office or a branch).

8° Towa Independent Bankers, 511 F.2d at 1296. See 102 Cong. Ree. at

6860, 6862 (remarks of Senators Douglas and Payne).

In Conference of State Bank Supervisors v. Conover, 715 F.2d 604,

613, 615 (D.C. Cir. 1983), cert. denied, 104 S.Ct. 1708 (1984), the Dis-

trict of Columbia Circuit reviewed its decision in Iowa Independent

Bankers and reaffirmed its holding that “the Douglas Amendment em-

powered states to discriminate among out-of-state bank holding companies

when deciding which could enter” (emphasis added).

25

merce.” Thus, Congress clearly understood that the Doug-

las Amendment would empower the states to regulate inter-

state bank acquisitions without regard to Commerce Clause

limitations.”

C. Petitioners’ Interpretation Is Contrary to the Intent of the

Douglas Amendment.

In contrast to the broad state authority indicated by

the terms and legislative history of the Douglas Amend-

ment, Petitioners would severely restrict the ability of

states to regulate interstate acquisitions of banks by bank

holding companies. Petitioners argue that the Douglas

Amendment does not make state laws enacted thereunder

‘‘immune from the Commerce Clause.’’™ If this position

were correct, it would create substantial doubt as to the

validity of all of the state-enacted interstate banking laws

discussed above in Part I(D), because none of those laws

permits out-of-state holding companies to acquire in-state

banks on the same basis as in-state holding companies.”

Petitioner Citicorp seeks to distinguish state regional bank-

ing laws from other state laws which place reciprocal or

functional restrictions on bank acquisitions by out-of-state

holding companies,** but these latter statutes are also of

doubtful validity if the Douglas Amendment does not pro-

tect them from scrutiny under the Commerce Clause.”

81 See notes 39-42, supra, and accompanying text.

83 See National Railroad Passenger Corp. v. National Ass’n of Railroad

Passengers, 414 U.S. 453, 458-61 (1974); Hilton v. Sullivan, 334 U.S.

at 339.

88 Brief for Citicorp at 21. See also Brief for Northeast and Union Trust

at 22.

% See BT Investment, 447 U.S. at 36-37.

86 Brief for Petitioner Citicorp at 37.

%¢ See Brief for the Federal Respondent, supra note 7, at 13-14 n.18.

See also, e.g., Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366

(1976) (state law placing reciprocity condition on importation of out-of-

26

Petitioners’ narrow interpretation of the Douglas Amend-

ment is contrary to the broad construction adopted in Jowa

Independent Bankers, where the District of Columbia Cir-

cuit said:

[T]he intent of the Douglas Amendment was to assure

that the states had sufficient power to control the ex-

pansion of bank holding companies across state lines

so that such expansion would not contravene state

policy.”

Moreover, Petitioners’ interpretation is contrary to the

general federal policy in favor of state determination of

banking structure.” As in the case of the insurance busi-

ness, Congress has acted with ‘‘full knowledge’’ of the

differing state systems for regulating banking structure,

and has ‘‘throw[n] the whole weight of its power behind

the state systems.’’ Prudential, 328 U.S. at 430. Accord-

ingly, state regional banking laws fall within the scope of

authority conferred by Congress and do not violate the

Commerce Clause.

state milk violated Commerce Clause); H. P. Hood & Sons, Inc. v.

DuMond, 336 U.S. 525 (1949) (state order prohibiting establishment of

in-state milk plant by out-of-state corporation, on ground that proposed

plant would divert customers from existing in-state plants, was contrary

to the Commerce Clauses).

87511 F.2d at 1297. Similarly, in Bank of New York, 70 Fed. Res. Bull.

at 528, the Federal Reserve Board pointed to “the Congressional intent

underlying the Douglas Amendment of allowing the states to apply their

own policies regarding interestate banking”.

*§ The only exception to this federal policy is 12 U.S.C. § 1823(f),

which authorizes, under carefully defined circumstances, acquisitions of

failed banks by out-of-state bank holding companies without state per-

mission. See notes 48-49, supra, and accompanying text. The fact that

Congress has created this express and carefully limited exception to state

authority under the Douglas Amendment seriously undermines the effort

of Petitioners to create an additional implied exception to state authority

thereunder. See Andrus v. Glover Construction Co., 446 U.S. 608, 616-17

(1980); Sutherland, Statutes and Statutory Construction, supra note 9,

at § 47.11.

27

Ml. STATE REGIONAL BANKING LAWS DO NOT VICLATE

THE COMPACT CLAUSE

Petitioners contend that the challenged statutes consti-

tute a ‘‘compact’’ which ‘‘inflicts substantial injury on all

excluded states’’ and ‘‘impermissibly disrupts the balance

of power between the states and the Federal Government’’

in the regulation of banking.” Because Congress has not

specifically consented to these state laws, Petitioners claim

that they violate the Compact Clause.

Petitioners’ analysis is erroneous for several reasons.

First, it does not appear that the challenged statutes rep-

resent a ‘‘compact.’’ Despite Petitioners’ arguments wit’

respect to consultations among Connecticut and Mass9-

chusetts legislators,” the fact remains that each of the

statutes was enacted independently. Unlike other cases in

which the Court has found a ‘‘compact,’’ the New England

statutes do not embody a formal agreement between

states," or create powers which (i) may be exercised

by an authority separate from each enacting state and

(ii) are conditioned upon the acceptance of other states.”

8° Brief for Citicorp at 14. See also Brief for Petitioners Northeast

and Union Trust at 33.

° Brief for Petitioner Citicorp at 5-6, 39-40; Brief for Petitioners

Northeast and Union Trust at 32. Although the Federal Reserve Board

said that the Connecticut and Massachusetts statutes “can be considered

as part of an implicit compact or agreement,” the Board did not rely

upon any finding of an actual compact. Bank of New England, 70 Fed.

Res. Bull. at 380, Pet. App. A52.

*. Compare, e.g., New Hampshire v. Maine, 426 U.S. 363 (1976) (con-

sent decree locating boundary line); Virginia v. Tennessee, 148 U.S. 503

(1893) (agreement fixing boundary line).

%2 Compare, e.g., United States Steel Corp. v. Multistate Tax Commis-

sion, 434 U.S. 452 (1978) (“Multistate Tax Commission”) at 491-93

(White, J., dissenting) (agreement creating multistate Commission which

had power, ¢.g., to conduct audits and issue subpoenas, and whose exist-

ence was conditioned upon the approval of at least seven states).

28

Second, even assuming arguendo that the challenged

statutes are based upon an implicit agreement, this Court

has held that reciprocal state laws do not create a ‘“‘com-

pact’’ requiring congressional consent unless they result

in an ‘‘enhancement of state power at the expense of the

federal supremacy’’.* As stated in Multistate Tax Com-

mission, ‘‘the test [under the Compact Clause] is whether

the Compact enhances state power quoad the National Gov-

ernment.’’ 434 U.S. at 473.

In this case, there is no such ‘‘enhancement’’ of state

power, because the challenged statutes do not authorize

the states to exercise any powers collectively which each

state could not exercise separately under the Douglas

Amendment. See id. at 474-75.* As shown above, under the

3 Multistate Taz Commission, 434 U.S. at 469-71. See also New York

v. O'Neill, 359 U.S. 1 (1959); Bode v. Barrett, 344 U.S. 583, 586 (1953).

* Petitioners argue that Congress’ failure in 1984 to approve bills

which would have specifically authorized state regional banking laws

shows that Congress has not “consented” to such laws (e.g., Brief for

Citicorp at 7, 47). However, Petitioners’ reliance on such legislative his-

tory is unavailing for two reasons. First, this Court’s decision in Multi-

state Tax Commission was not affected by the fact that Congress had

failed to pass any of twelve bills introduced to provide specifie authoriza-

tion for the challenged Commission. See 434 U.S. at 458 n.8, 486 ( White,

J., dissenting).

Second, in 1984 the Senate did pass a bill (S. 2851, 98th Cong., 2d

Sess., § 903), by a vote of 89-5, which would have specifieally authorized

state regional banking laws. 130 Cong. Ree. S 11162, S 11178 (daily ed.

Sept. 13, 1984). Significantly, Senator Garn, the chief sponsor and floor

manager of the bill, stated that the provision was “merely a clarifica-

tion of the powers that the states have always retained under the Douglas

amendment,” and was fully in accord with the interpretation of the

Douglas Amendment by the Court below. Jd. at S 11153; see also id.

(remarks of Senator Tsongas). Thus, the only chamber of Congress which

actually considered the issue in 1984 overwhelmingly affirmed the existing

authority of states to enact regional banking laws. Compare 130 Cong.

Rec. H 10005 (daily ed. Sept. 24, 1984) (remarks of Rep. St Germain

concerning absence of House hearings or debates on regional banking and

other provisions of Senate bill).

29

Douglas Amendment Congress has authorized each state

to adopt legislation which permits out-of-state bank hold-

ing companies to acquire in-state banks subject to geo-

graphical and other limitations. In view of this congres-

sional authorization, state regional banking laws do not

encroach upon ‘‘federal supremacy’’ in violation of the

Compact Clause.”

Finally, the challenged statutes do not injure non-New

England states in any manner which violates the Compact

Clause. This Court acknowledged in Multistate Tax Com-

mission that regulatory actions by particular states may

place ‘‘economic pressure’’ on other states, but neverthe-

less held:

Unless that pressure transgresses the bounds of the

Commerce Clause or the Privileges and Immunities

Clause of Art. IV, §2,... it is not clear how our

federal structure is implicated.”

As shown above in Part II, state regional banking laws

do not violate the Commerce Clause. In addition, corpora-

tions such as Petitioners are not protected by the Priv-

ileges and Immunities Clause.” Therefore, Petitioners have

not demonstrated that the challenged statutes have any

impact upon other states which is forbidden by the Com-

pact Clause.

% See Multistate Taz Commission, 434 U.S. at 471-72. Despite Peti-

tioners’ claim that there is a “vital federal interest” in interstate banking

(e.g., Brief for Citicorp at 45), this Court has held that\a “federal

interest” is not sufficient to implicate the Compact Clause. Only a collec-

tive state encroachment upon “federal supremacy” will violate the Com-

pact Clause. Id. at 479-80 n.33 (emphasis added). Moreover, both the Court

below and the Federal Reserve Board concluded that the Douglas Amend-

ment represents a “renunciation of federal interest in regulating the inter-

state acquisition of banks by bank holding companies.” 740 F.2d at 207

(Pet. App. A29), quoting Bank of New England, 70 Fed. Res. Bull. at

380 (Pet. App. A52) (emphasis added).

% Multistate Taz Commission, 434 U.S. at 478 (citation omitted).

97 Western & Southern Life, 451 U.S. at 656.

30

CONCLUSION

For the reasons set forth above, amicus curiae Confer-

ence of State Bank Supervisors respectfully requests that

this Court affirm the decision below.

March, 1985

Respectfully submitted,

Erwt N. Griswo.ip*

JaMeEs F’. BELL :

Artuor E. WrumMarta, Jr.

Jones, Day, Reavis & Poaus

Metropolitan Square

655 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 879-3939

*Counsel of Record