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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1985
- **Citation:** 472 U.S. 159

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0388%3A26. Public record. Not legal advice.