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

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Office -Supreme oral ;

3 FILE

No. 84-363 WAR 23 1985

Pre — STEVAR,

CLERK “oe

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

NORTHEAST BANCORP, INC., UNION TRUST COMPANY

AND CITICORP,

Petitioners,

against

THE BOARD OF GOVERNORS

OF THE FEDERAL RESERVE SYSTEM, et ai.,

Respondents.

ON A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF FLEET FINANCIAL GROUP, INC.

AS AMICUS CURIAE IN SUPPORT

OF RESPONDENTS’ POSITION

a — —_

——

Of Counsel: WILLIAM G. DELANA

EDWARD W. DENCE, JR. ALLAN B. TAYLOR

WILLIAM C, MUTTERPERL J. BRUCE BOISTURE*

ROBERT M. TAYLOR, III

Day, Berry & Howard

CityPlace

Hartford, CT 06103-3499

Counsel for Amicus Curiae

* Counsel of Record Fleet Financial Group, Inc.

TABLE OF CONTENTS

PAGE

Table of Authorities. ......0000.00000 000 coco ccceccc ce ceee ii

Interest of Amicus Curiae...........0.0..6.60.0 000000 c cece. I

Summary of Argument..............0.000.0000000 00 c0cccce ee 2

1. The Douglas Amendment......................... 2

2. The Compact Clause................0....0.0000000, 4

PR ciraamnascerusecetnensesedveddineddeessenssvccronscoes 4

I. The Douglas Amendment Authorizes the

Connecticut and Massachusetts Acts............ 4

A. The Douglas Amendment Evidences

Continued Congressional Deference to

the Legitimate Localism That Has Shaped

The Structure of the Banking Industry In

OO WO BOROOS............cccrcccscccsecsvess 5

B. The Douglas Amendment Authorizes the

States to Permit Interstate Bank Holding

Company Expansion on a Regional,

POCHPTOCR BAGS...............cccccscccccceess 8

C. Prior Administrative and Judicial Deci-

sions Have Concluded That the Douglas

Amendment Authorizes the States to

Differentiate Among Out-of-State Bank

Holding Companies in Creating Excep-

tions to the Douglas Amendment’s

General Prohibition on Interstate

net AE 14

D. Because the Douglas Amendment Autho-

rizes the Connecticut and Massachusetts

Acts, They Are Not Subject to the

Negative Implications of the Commerce

—ESENSRD ET es a aaa

Il. The Connecticut and Massachusetts Acts

Do Noi Contravene the Compact Clause

A. No Agreement or Compact Has Been

POCREDE. .....s00000esenccouseseeeeeeeee

B. The Connecticut and Massachusetts

Acts Are Permissible Under Settled

Compact Clause Doctrine..............

| Wr

TABLE OF AUTHORITIES

Cases

Conference of State Bank Supervisors v. Conover,

715 F.2d 604 (D.C. Cir. 1983), cert. denied, ——

U.S. ..., 5964S. Ce. TFG Cie +sccccccsneneneee

H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525

(ee

Hughes v. Oklahoma, 441 U.S. 322 (1979)............

lowa Independent Bankers v. Board of Governors,

511 F.2d 1288 (D.C. Cir.), cert. denied, 423 U.S.

STS (IDTS).......0+0000000se0000eencunesseeeeee

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

New Hampshire v. Maine, 426 U.S. 363 (1976).......

New York v. O'Neill, 359 U.S. 1 (1959)................

Philadelphia v. New Jersey, 437 U.S. 617 (1978).....

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)......

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

(1DOG). .........0000000000000s00e0ee0nnnnnnenenennnnnnnnan

St. Louis & San Francisco Railway v. James, 161

U.S. S45 (IGS). .... nv 0s0ese0s000cncccnnnumeeeee

Securities Industry Association v. Board of Gover-

nors, __ U.S. ——, 104 S. Ct. 2979 (1984).........

Sporhase v. Nebraska, 458 U.S. 941 (1982)...........

14,16

9,10,13,17

19,20

8,18,19

10,17,19

ili

United States Steel Corp. v. Multistate Tax

Commission, 434 U.S. 452 (1978).......00.00000....

Virginia v. Tennessee, 148 U.S. 503 (1893)............

Western & Southern Life Ins. Co. v. Board of Equal-

Gere, Gre Wee. OG CEDSE)........ 2... ccc cee cece cess

Constitutional and Statutory Provisions

U.S. Const., art. 1, § 8, cl. 3 (Commerce Clause).....

U.S. Const., art. 1, § 10, cl. 3 (Compact Clause)......

U.S. Const., art. VI, cl. 2 (Supremacy Clause)........

12 U.S.C. § 21 (National Bank Act of 1864)..........

Neen ee Tose cocecccsvsnecscssces:

I, oon ccc eccccccccccccccccccsee

12 U.S.C. § 1841 et seg. (Bank Holding Company Act

Nec lvdcnwsccevccescievccscsccccss

12 U.S.C. § 1842(d) (Douglas Amendment)...........

15 U.S.C. § 1011 et seg. (McCarran-Ferguson Act)

National Currency Act, ch. 58, 12 Stat. 665 (1863)

EEE

cc scccccccceevcsnsccccecs Rinidaceeuns

Conn. Gen. Stat. § 36-59 (1985)........................

Conn. Gen. Stat. § 36-552 et seq. (1985)...............

Ill. Rev. Stat. ch. 16 1/2, § 5 (1982)....................

Mass. Gen. Laws Ann. ch. 167A (West Supp. 1984)

Mass. Gen. Laws Ann. ch. 167C, § 3 (West Supp.

icc ccccccercewsacesscesccsccsss

Legislative Materials

421,25

8,17,20

passim

8,18

passim

102 Cong. Rec. 6857 (1956)... 2... ooo ooo.

102 Cong. Rec. 6858 (1956)..... 0.0.00. o coc cee.

102 Cong. Rec. 6860 (1956)....... 00.0.0

102 Cong. Rec. 6862 (1956).........0 0.00. c cece cece.

H.R. 6227, 84th Cong., Ist Sess. (1956)................

H.R. Rep. No. 143, 79th Cong. Ist Sess. (1945)......

H.R. Rep. No. 609, 84th Cong., Ist Sess. (1955).....

S. 2577, 84th Cong., 2d Sess. (1956)............0......

S. Rep. No. 1095, 84th Cong., Ist Sess. (1955)........

Other

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

GOR e~ 0s vinn5sdlitannnoudeameacentaemaiae ane ate

Bank of New York Company, Inc., 70 Fed. Res. Bull.

ae SI iss +itkaesndoisceasnartenedtausixmataenan

Citicorp, 70 Fed. Res. Bulli. 431 (1984)................

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

First Bank System, Inc., 70 Fed. Res. Bull. 771

Sida dies + cnadaves teakatasecdemeiaeeaaeee

Fleet Financial Group, Inc., 70 Fed. Res. Bull. 881

GOs onss0rscqene Serukeauen ete

NCNB Corporation, 68 Fed. Res. Bull. 54 (1982)....

Norstar Bancorp Inc., 69 Fed. Res. Bull. 306 (1983)

Northwest Bancorporation, 38 Fed. Reg. 21530

(1973), aff'd sub nom. Iowa Independent Bankers

v. Board of Governors, 511 F.2d 1288 (D.C. Cir.),

cert. denied, 423 U.S. 875 (1975)............0...2005.

G. Fischer, American Banking Structure (1968)......

F. Frankfurter & J. Landis, The Compact Clause of

the Constitution — A Study in Interstate

Adjustments, 34 Yale L.J. 685 (1925)...............

J. White, Banking Law, (1976).............0ccccccccces:

F. Zimmerman & M. Wendell, The Law and Use of

Interstate Compacts, (1976)............... 00 cece eens

12,13,14

15,16

No. 84-363

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

NORTHEAST BANCORP, INC., UNION TRUST COMPANY

AND CITICORP,

Petitioners,

against

THE BOARD OF GOVERNORS

OF THE FEDERAL RESERVE SYSTEM, et ai.,

Respondents.

ON A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF FLEET FINANCIAL GROUP, INC.

AS AMICUS CURIAE IN SUPPORT

OF RESPONDENTS’ POSITION

INTEREST OF

AMICUS CURIAE

Fleet Financial Group, Inc. (“Fleet”) is a bank holding

company registered under the Bank Holding Company Act

of 1956, as amended, 12 U.S.C. § 1841 et seq. (the “BHC Act”).

Its principal subsidiary is Fleet National Bank, a national

banking association with its principal place of business in

Providence, Rhode Island. On October 4, 1984, the Board of

Governors of the Federal Reserve System (the “Board”)

approved Fleet’s application, pursuant to the BHC Act, to

acquire two newly chartered national banking associations,

one located in Hartford, Connecticut, and the other in Boston,

Massachusetts. Fleet Financial Group, Inc., 70 Fed. Res. Bull.

881 (1984).

Fleet’s acquisition of these two banks was approved by the

Board based on the two state statutes challenged in this case,

“An Act Concerning Interstate Banking,” 1983 Conn. Acts

411 (the “Connecticut Act”) and Mass. Gen. Laws Ann. ch.

167A (West Supp. 1984) (the “Massachusetts Act”).! Citicorp,

a petitioner in this case, sought review of the Board’s approval

of Fleet’s application in the United States Court of Appeals

for the Second Circuit. The Court of Appeals, based on its

earlier decision in the present case, sustained the Board’s order

approving Fleet’s application.

Citicorp thereupon petitioned this Court for review of the

decision of the Court of Appeals. See Petition for Writ of

Certiorari in No. 84-754, to which the order of the Court of

Appeals is appended as Appendix B. This Court has not yet

acted on the Petition in No. 84-754.

Fleet’s interest as an amicus curiae in this case is obvious

and immediate. Only if the Connecticut and Massachusetts

Acts are sustained against the challenge mounted by

Petitioners in this case will Fleet be able to complete its

proposed acquisition of the two new banks in Hartford and

Boston.

All of the parties to this case have consented in writing to

the filing of this brief and their consents have been filed along

with the brief.

SUMMARY OF ARGUMENT

1. The Douglas Amendment. Congress, in enacting the

Douglas Amendment in 1956, prohibited bank holding

companies from acquiring banks located outside of their

respective home states. In doing so, Congress followed its

longstanding approach to the regulation of the geographic

structure of the banking industry in the United States,

favoring local markets and local regulation and control.

'The Connecticut Act was amended by 1984 Conn. Acts 329, and is codified

at Section 36-552 et seq. of the General Statutes of Connecticut.

Indeed, in furtherance of the policy of local regulation and

control, Congress granted to the states in the Douglas

Amendment the authority to permit interstate bank

acquisitions by bank holding companies that otherwise would

be prohibited by the Douglas Amendment. The Connecticut

and Massachusetts Acts are squarely within this authority

granted to the states by Congress and therefore do not violate

the Commerce Clause.

The language of the Douglas Amendment does not include

any exceptions to or restrictions on the authority it confers

upon the states, and the legislative history of the Douglas

Amendment supports the conclusion that Congress meant to

grant to the states its full regulatory authority under the

Commerce Clause. In particular, neither the language nor the

legislative history of the Douglas Amendment indicates that

the states lack the authority to adopt a limited approach to

bank holding company expansion such as that found in the

Connecticut and Massachusetts Acts. In view of the localism

and market segmentation reflected in the Douglas Amend-

ment’s general prohibition on interstate bank acquisitions by

bank holding companies, it is hardly surprising to find that

Congress granted to the states an unqualified authority that

could be used by the states only to create less confined and

more extensive banking markets.

The ability of the states to permit entry of out-of-state bank

holding companies on a limited basis pursuant to the Douglas

Amendment consistently has been recognized and approved

in past judicial and administrative decisions. These limited

entry statutes have taken the form of grandfather statutes

(discriminating against some out-of-state bank holding

companies), limited purpose entry statutes (discriminating

against the permissible activities of all out-of-state bank

holding companies), reciprocal statutes (discriminating

against some out-of-state bank holding companies), and

regional statutes (discriminating against some out-of-state

bank holding companies). All of these types of statutes

consistently have been upheld as valid exercises of state

authority under the Douglas Amendment.

Petitioners mistakenly rely on the cases of this Court that

have outlined and applied to state laws the negative

imp*ications of the Commerce Clause. As the decisions of this

Court make clear, once Congress acts to regulate or restrict

commerce, or to grant to the states the authority to regulate

or restrict commerce, the negative implications of the

Commerce Clause are inapplicable to actions taken by

Congress, or taken by the states within the scope of such

authority. Because the Connecticut and Massachusetts Acts

were adopted pursuant to the authority granted to the states

in the Douglas Amendment, they are immune from the

Commerce Clause challenge mounted against them by

Petitioners.

2. The Compact Clause. The Connecticut and Massa-

chusetts Acts are independently enacted state statutes

evidencing a legitimate exercise by each state of the authority

granted to it through the Douglas Amendment. Such

independent exercises of specifically granted congressionai

authority do not give rise to a compact between the states for

purposes of the Compact Clause.

Even if an agreement or compact were somehow deemed

to exist, the Connecticut and Massachusetts Acts are

nevertheless permissible under settled Compact Clause

doctrine. Not all agreements or compacts between or among

states are prohibited by the Compact Clause. Rather, only

those agreements or compacts that increase the political power

of the states or encroach upon or interfere with the just

supremacy of the United States are prohibited without

congressional consent. United States Steel Cerp. v. Multistate

Tax Commission, 434 U.S. 452, 471 (1978). Thus, leaving

aside the fact that Congress has consented to the Connecticut

and Massachusetts Acts through the authority it granted to

the states in the Douglas Amendment, those Acts do not

offend the Compact Clause because they neither increase the

political power or influence of the states nor encroach upon

the supremacy of the United States.

ARGUMENT

I. The Douglas Amendment Authorizes The Connecticut

And Massachusetts Acts

Petitioners’ entire argument, in a nutshell, is that it is

impossible to suppose that Congress would have granted to

the states the authority to permit interstate bank holding

company expansion on the regional, reciprocal basis found

in the Connecticut and Massachusetts Acts. In the midst of

their alarmist statements about compacts, confederacies, and

threats to the Union, however, Petitioners fail to take account

of the legitimate localism that has shaped congressional!

regulation of the structure of the banking industry for one

hundred and fifty years.

When the charter of the Second Bank of the United States

expired in 1836, attempts to construct a national banking

system structured by federal law ended with it. Since that time,

the banking industry has developed on a local basis, with

Congress recognizing and deferring to the authority of the

states to shape the geographic structure of the industry. The

enactment of the Douglas Amendment in 1956 merely

continued this pattern of regulation, in the then-novel context

of bank holding companies, by authorizing the states to

determine if and to what extent interstate expansion of bank

holding companies would be permissible. The Connecticut

and Massachusetts Acts are within the scope of this

authorization and therefore are protected from the unfounded

Commerce Clause attack mounted by Citicorp and the other

Petitioners.

A. The Douglas Amendment Evidences Continued

Congressional Deference To The Legitimate

Localism That Has Shaped The Structure of the

Banking Industry In the United States

The Douglas Amendment generally restricts each bank

holding company to the acquisition of banks in only one state.?

The bank holding company legislation originally proposed by

the Senate Banking Committee in 1956, S. 2577, contained

no such restriction. S. Rep. No. 1095, 84th Cong., Ist Sess.

10-11 (1955). But H.R. 6227, acomparable legislative proposal

2The Douglas Amendment, enacted as ch. 240, § 3 (d), 70 Stat. 134 (1956)

and codified at 12 U.S.C. § 1842(d), provides, in relevant part, that:

Notwithstanding any other provision of this section, no application . . .

shall be approved under this section which will permit any bank holding

company or any subsidiary thereof to acquire, directly or indirectly, any

for the regulation of bank holding companies, specifically

limited bank holding companies to the ownership of banks

in a single state. H.R. Rep. No. 609, 84th Cong., Ist Sess. 14-

15 (1955). The effect of Senator Douglas’ amendment to S.

2577 was to bring the Senate bill more into line with the House

bill on this point, establishing a basic pattern of state-by-state

organization of the bank holding company system. This

proposal was subsequently adopted as part of the BHC Act.

This was not a novel approach for Congress in shaping the

structure of the banking industry. Since 1836, when the charter

of the Second Bank of the United States expired, Congress

has consistently deferred to the states in the regulation of the

geographic structure of the banking industry. Subsequent to

the demise of the Second Bank of the United States, all

banking services were provided by banks chartered and

regulated under state law until 1863, when the National

Currency Act (later amended by the National Bank Act of

1864) authorized the chartering of national banking

associations.’ These new national banks, although chartered

under federal law, were not national in respect to their

geographic operations but were limited to a single banking

office. Even when branching was permitted to national banks

by the enactment of the McFadden Act in 1927,‘ each national

bank was limited to branching within its home state, and

continues to this day to be thus limited. “The Congress . . .

has steadfastly respected the rights of the states to specify the

extent to which branch banking shall be practiced within their

respective borders.” H.R. Rep. No. 609, supra, at 3.

voting shares of, interest in, or all or substantially all of the assets of

any additional bank located outside of the State in which the operations

of such bank holding company’s banking subsidiaries were principally

conducted . . . unless the acquisition of such shares or assets of a State

bank by an out-of-State bank holding company 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. For the purposes of this

section, the State in which the operations of a bank holding company’s

subsidiaries are principally conducted is that State in which total deposits

of all such banking subsidiaries are largest.

3J. White, Banking Law 16-19 (1976).

4Ch. 191, § 7, 44 Stat. 1228, codified at 12 U.S.C. § 36.

The Douglas Amendment expressly recognizes and

reiterates this longstanding policy of localism in the

organization and regulation of this country’s banking

industry. It generally forbids the approval by the Board of any

application by a bank holding company to acquire a bank

located outside of the holding company’s home state.’ Thus,

as a general matter, the Douglas Amendment separates the

nation into numerous local banking markets for purposes of

structuring the bank holding company system, just as the

McFadden Act separates, on a state-by-state basis, the

geographic structure of the branch banking system.

This basic regulatory pattern for the structure of the

banking industry, as established by Congress, is the antithesis

of the national market so often identified as the object of the

Commerce Clause. See, e.g., Hughes v. Oklahoma, 441 U.S.

322, 325-326 (1979). It is nonetheless the pattern long

established for the United States banking industry, reflecting

a clear congressional judgment that because of its critical role

in our economy, the banking industry should be localized, not

nationalized.

The United States early in its history, it should be

recalled, adopted a democratic ideal of banking. Other

countries . . . have preferred to rely on a few large banks

controlled by a banking elite. There has developed in this

country, on the other hand, a conception of the

independent unit bank as an institution having its

ownership and origin in the local community... .

H.R. Rep. No. 609, supra, at 2. As Senator Douglas

commented when introducing his amendment, “the pending

bill, and the amendment which has just been read, 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... .” 102 Cong.

Rec. 6857 (1956).

This localized approach to the regulation of the banking

industry’s structure, although unusual, is not unique. In

SThis general prohibition, of course, is subject to relaxation by the states,

as discussed infra.

enacting the McCarran-Ferguson Act, 15 U.S.C. § 1011 et

seq., Congress similarly recognized that local organization

and regulation should prevail with respect to another

important financial intermediary, the insurance industry.

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

451 U.S. 648, 654 (1981) (insurance business was judged by

Congress to be “ ‘a local matter, to be subject to and regulated

by the laws of the several States,’ ” quoting H.R. Rep. No.

143, 79th Cong., Ist Sess. 2 (1945) ); accord, Prudential Ins.

Co. v. Benjamin. 328 U.S. 408, 429-430 (1946). This

congressional recognition of the pattern of local organization

and regulation of the insurance business made unobjection-

able the retaliatory state tax at issue in Western & Southern

Life Ins. Co. v. Board of Equalization, supra, 451 U.S., at 655.

In even more dramatic fashion, Congress, in the National

Bank Act, the McFadden Act, and the Douglas Amendment,

has likewise “balkanized” the geographic structure of the

banking industry. The clarity of this action leaves no doubt

that, in the area of banking, Congress has directly addressed

the issue of the proper geographic structuring of the banking

industry in the United States. Because of a variety of political

and economic considerations summarized in the passages

quoted above, Congress has established and approved not a

national market in which state boundaries are irrelevant, but

rather a highly segmented and localized market. Congress,

acting under the plenary authority granted to it by the

Commerce Clause, may legitimately impose such restrictions

and limitations on interstate commerce. Prudential Ins. Co.

v. Benjamin, supra, 328 U.S., at 434. The emphatic

congressional judgment embodied in the Douglas Amend-

ment that the banking industry is to be locally, not nationally,

organized and regulated sets the context within which the

scope of state authority granted through the Douglas

Amendment must be evaluated.

B. The Douglas Amendment Authorizes the States to

Permit Interstate Bank Holding Company Expan-

sion on a Regional, Reciprocal Basis

The Douglas Amendment, while generally prohibiting bank

6H. P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 533-534 (1949).

holding company expansion across state boundaries, also

establishes a special rule permitting the states to make

exceptions to this genera! prohibition. In relevant part, the

Douglas Amendment states that the Board may not approve

an acquisition of a bank located in one state by a bank holding

company with its principal operations in any other state

unless:

the 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.

12 U.S.C. § 1842(d). As Petitioners acknowledge, the language

of this exception places no restrictions on the types of state

laws to which the Board is to defer (Br. of Pet. Citicorp, 21).

Rather, the language of this exception recognizes an

unrestricted authority in each state iv determine whether and

to what extent out-of-state bank holding companies may be

permitted to purchase banks located within their boundaries.

Nothing in this Court’s comments regarding the Douglas

Amendment in Lewis v. BT Investment Managers, Inc., 447

U.S. 27 (1980), contradicts this conclusion that the Douglas

Amendment grants to the states broad discretion to alter the

basic restriction established by Congress. In that case, the

Court considered a challenge to the validity of a Florida

statute that prohibited out-of-state bank holding companies

from establishing or acquiring an investment advisory

business in Florida. The State of Florida, in defense of its

Statute, argued, inter alia, that the Douglas Amendment

authorized it to impose such a restriction on the activities of

out-of-state bank holding companies in Florida. Observing

that the Douglas Amendment applies only to acquisitions of

banks regulated under Section 3 of the BHC Act, this Court

rejected the suggestion that Florida could rely on the Douglas

Amendment to justify restrictions on nonbanking activities

regulated under Section 4 of the Act. /d., at 47 & n. 13. In

any event, the Court observed, the Douglas Amendment

grants to the states the authority to relax the general restriction

imposed by Congress (although not the authority to further

restrict the market structure established by the BHC Act).

The only authority granted to the States is the authority

to create exceptions to this general prohibition, that is,

to permit expansion of banking across state lines where

it otherwise would be federally prohibited.

Id. at 47. This limited authority to permit interstate banking,

and no other, is precisely that asserted by Connecticut and

Massachusetts in enacting the Connecticut and Massachusetts

Acts.’

Despite the absence from the statutory language of any

qualification on the authority granted to the states, Petitioners

contend that the Douglas Amendment confronts the states

with an “all-or-nothing” choice if they desire to alter the

Douglas Amendment’s general restriction on a geographic

basis.* Petitioners assert that states may retain the state-by-

state system established by the Douglas Amendment’s general

rule, or may permit entry by bank holding companies from

throughout the country, but may not allow entry on a regional

Petitioners, referring to this Court’s discussion in Lewis of Section 7 of

the BHC Act, argue that because Section 7 was not meant to alter the

Commerce Clause restrictions normally applicable to state authority in the

absence of a delegation of regulatory authority by Congress, “it follows

a fortiori that the Douglas Amendment . . . has no such extraordinary

effect.” Br. of Pet. Citicorp, 22. This is an evident non sequitur. Nothing

in the language or legislative history of the BHC Act suggests any such

connection between Section 7 and Section 3(d), the Douglas Amendment.

Section 7, as the Court recognized in Lewis, was meant only to preserve

state regulatory authority over bank holding companies as it existed prior

to 1956. 447 U.S., at 48-49. But this Court did not suggest in Lewis that

the characterization of Section 7 as a savings provision for state law had

any implications whatsoever for the issue of the scope of the authority

granted to the states under the Douglas Amendment. When Congress

simply defers to otherwise valid state laws, as it did when it enacted Section

7, the “negative implications of the Commerce Clause . . . are ingredients

of the valid state law to which Congress has deferred.” Sporhase v.

Nebraska, 458 U.S. 941, 960 (1982). But when, as in Section 3(d), Congress

goes beyond mere deference to grant authority to the states under the

Commerce Clause, the negative implications of the Commerce Clause

become irrelevant. See Section I.D. infra.

’Petitioners’ attempt to save this argument from immediate rejection by

identifying permissible non-geographic bases on which states may

permissibly impose discriminatory restrictions under the Douglas

Amendment is discussed in Section I.D. infra.

basis. This argument, however, ignores the fact that in

adopting the Douglas Amendment, Congress created a highly

localized banking structure, rejecting a national approach to

this industry. Viewed against this background, the regulatory

authority granted to the states in the Douglas Amendment can

only reasonably be interpreted to permit the states a more

finely calibrated instrument for adjusting the banking

structure than the blunt all-or-nothing approach urged by

Petitioners. There is nothing at all implausible about the

proposition that Congress meant to permit the states to adopt

a regional approach to bank holding company expansion,

once it is recognized that the basic system established by

Congress has already separated the nation into numerous,

even more restrictive, local banking markets.

The legislative history of the Douglas Amendment supports

this conclusion that Congress did not intend to qualify or limit

the authority it granted to the states to permit interstate bank

holding company expansion. Senator Douglas, in explaining

his amendment, remarked directly that “our amendment will

permit out-of-State holding companies to acquire banks in

other States only to the degree that State laws expressly permit

them... .” 102 Cong. Rec. 6858 (1956) (emphasis added).

To describe the all-or-nothing law that Petitioners wish had

been enacted, Senator Douglas would have said, “only if State

laws expressly permit them.” Senator Douglas’ use of the

expression “to the degree that State laws expressly permit

them,” indicates the understanding that the states were to be

granted authority to permit various methods of interstate

banking best suited to address the local concerns and needs

of the individual states. Despite Petitioners’ unfounded

complaints about the brevity of the legislative history of this

floor amendment to the BHC Act, it is difficult to see what

repetition would have added to Senator Douglas’ basic

characterization of the Douglas Amendment’s grant of

authority to the states.

Senator Payne, in support of Senator Douglas’ proposed

amendment, likewise characterized it as granting to the states

the authority to permit interstate bank holding company

expansion on a basis judged to be sound and acceptable by

each state. Describing the proposed amendment, Senator

Payne observed that:

This amendment would require that State legislatures

pass specific legislation authorizing bank holding

companies from another State to acquire interests in

State banks located within its [sic] borders.

102 Cong. Rec. 6862 (1956). Again, had the amendment been

meant to allow states only the authority to permit full national

interstate banking, Senator Payne would have spoken not of

“another State” but of “other States.” He, like Senator

Douglas, however, understood that the grant of authority to

the states in the Douglas Amendment was not meant to give

to the states such a limited range of options. Rather “[t]he

purpose of this amendment,” he asserted, “is to return to the

States their traditional control over the activities of the State

banks now nominally under the State’s authority.” /d.

According to Senator Payne,

the control of expansion of bank holding companies

across State lines into State banks is a matter of primary

concern to the State governments and is an area best left

to their discretion rather than to have it solely under the

jurisdiction of the Federal Reserve Board [as initially

proposed in the Senate bill].

Id.

Senator Douglas’ comparison of his proposed amendment

to the McFadden Act further supports the conclusion that the

exception provided in the Douglas Amendment was meant to

give the states broad control and discretion in shaping the

interstate bank holding company structure. The McFadden

Act restricts each national bank to establishing branch offices

in the state in which its principal office is located, subject to

the branching restrictions of state law. 12 U.S.C. § 36." Acting

%Senator Douglas used the same expression when he spoke of individual

states permitting “a bank holding company from another State” to make

interstate acquisitions. 102 Cong. Rec. 6860 (1956) (emphasis added).

'0The McFadden Act permits limited branching for national banks, subject

to state law. See note 4 supra. This provision was amended in 1933 to permit

national banks to establish branch offices within their home states, subject

to the restrictions imposed by state bank branching laws. 48 Stat. 162, §

23 (1933). See G. Fischer, American Banking Structure 47-52 (1968).

under the authority of the McFadden Act, the various states

have subjected national banks to a variety of branch banking

rules.!' Comparing his proposed amendment to the

McFadden Act, Senator Douglas stated that:

[The amendment] is a logical continuation of the

principles 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 and, of course, under the McFadden Act,

even to expand within a State.

102 Cong. Rec. 6860 (1956).

Whatever the purpose for which the McFadden Act was

enacted,'? Senator Douglas accurately characterized its effect

of subjecting branching by national banks to the requirements

of state law. Likewise, in his view, his amendment was meant

to permit the states to effectuate their various policies for the

structure of the bank holding company system within their

borders. Just as the McFadden Act imposed no limitations

on state regulation of branch banking, Senator Douglas noted

no qualifications on the authority to be granted to the states

“to permit expansion of banking across state lines where it

otherwise would be federally prohibited.” Lewis v. BT

Investment Managers, Inc., supra, 447 U.S., at 47.

''These state branching rules have taken the form of, for example, unit

banking (see, e.g., Ill. Rev. Stat. ch. 16 1/2, § 5 (1982) ); county-wide

branching (see, e.g., Mass. Gen. Laws. Ann. ch. 167C, § 3 (1982) ); and

full statewide branching (see, e.g., Conn. Gen. Stat. § 36-59 (1985) ). Just

as the states are granted complete control over the structure of branch

banking within their borders through the McFadden Act, Senator Douglas

intended that his amendment would grant to the states complete control

over the structure of bank holding company expansion within their borders.

'2S$ome commentators view the McFadden Act as primarily a parity bill

meant to grant to national banks branching powers comparable to the state

banks with which they compete. See, e.g., 102 Cong. Rec. 6754 (1956)

(remarks of Senator Robertson); Br. of Pet. Citicorp, 28. Whatever the

merit of this view, the fact remains, as emphasized by other commentators,

that the McFadden Act is also restrictive in nature, subjecting national

banks to state branch banking laws. See, e.g., 102 Cong. Rec. 6860 (1956)

(remarks of Senator Douglas).

C. Prior Administrative and Judicial Decisions Have

Concluded that the Douglas Amendment Authorizes

the States to Differentiate Among Out-of-State Bank

Holding Companies in Creating Exceptions to the

Douglas Amendment’s General Prohibition on

Interstate Banking

When the Douglas Amendment was adopted in 1956, no

state had adopted laws permitting interstate bank holding

company expansion. 102 Cong. Rec. 6860 (1956) (remarks of

Senator Douglas). lowa adopted the first such law in 1972."

Under its terms, only one out-of-state bank holding company,

Northwest Bancorporation, qualified (on a grandfathered

basis) to make additional acquisitions in lowa. The Board, in

approving Northwest Bancorporation’s application for an

acquisition pursuant to the lowa statute, rejected the

argument that “in enacting the Bank Holding Company Act

and its Amendments, Congress did not intend to allow State

legislatures to choose selectively which out-of-state bank

holding company could enter the State... "4

Since its Northwest Bancorporation decision, the Board has

approved numerous interstate acquisitions based on state

statutes that differentiate among out-of-state bank holding

companies in permitting entry. In addition to acquisitions

involving other state grandfathering statutes similar to the

lowa law,'5 the Board has approved acquisitions involving

state laws permitting out-of-state bank holding companies to

enter a state for limited purposes,'® or subject to a reciprocity

requirement imposed on the laws of their home states.'’ The

Board observed in its decision in the present case that:

These [state] statutes obviously result in some burdens

on interstate commerce and appear to assume that the

\3The lowa statute is set out in Jowa Independent Bankers v. Board of

Governors, 511 F.2d 1288, 1292 (D.C. Cir.), cert. denied, 423 U.S. 875

(1975).

'4Northwest Bancorporation, 38 Fed. Reg. 21530, 21531-21532 (1973),

aff'd, lowa Independent Bankers v. Board of Governors, 511 F.2d 1288

(D.C. Cir.), cert. denied, 423 U.S. 875 (1975) (emphasis added).

'SE.g., NCNB Corporation, 68 Fed. Res. Bull. 54 (1982).

\6E.g., Citicorp, 70 Fed. Res. Bull. 431 (1984).

'7E.g., Norstar Bancorp, Inc., 69 Fed. Res. Bull. 306 (1983).

states have full discretion to set the terms of entry of out-

of-state bank holding companies.

Pet. App. A71. Summarizing its careful review of the Douglas

Amendment in the present case, the Board, while noting some

uncertainty about the legislative history of the Amendment,

continued to take the same view of the authority that it confers

on the states:

[I]t can be persuasively argued that Senator Douglas

construed his amendment as granting plenary power to

the states to set their own policies and permit entry of

out-of-state bank holding companies to the degree that

they choose.

Pet. App. A67.

In a recent decision, the Board reiterated its view that the

Douglas Amendment’s delegation of authority to the states

does not force the states to adopt an “ ‘all or nothing’ approach

to permitting entry by out-of-state bank holding compa-

nies.”'§ As the Board commented in this decision, “[{t]he states

and the Board have consistently construed the Douglas

'8 Bank of New York Company, Inc., 70 Fed. Res. Bull. 527, 528 (1984).

In that decision, the Board rejected the argument, advanced in this Court

by amicus curiae Bank of New York Company, that any state enacting

a limited entry authorization statute pursuant to the Douglas Amendment’s

special rule thereby effectively (albeit unintentionally) authorizes unlimited

entry by all out-of-state bank holding companies. This argument flies in

the face of the statute’s evident purpose. As the Board observed, this

argument,

if accepted, would cause full interstate banking in those states [with

limited entry statutes], a result contrary to the Congressional intent

underlying the Douglas Amendment of allowing the states to apply

their own policies regarding interstate banking to the acquisition by

out-of-state bank holding companies of banks located within the

borders of a state.

Id. Accord, First Bank System, Inc., 70 Fed. Res. Bull. 771, 773-774 (1984)

(forbidding an interstate acquisition not explicitly authorized under state

statutory law, taking into account “the purposes and legislative history of

the Douglas Amendment, which reflect an intent to preserve the authority

of the states over the structure of banking within their borders”); Bank of

New England Corp., 70 Fed. Res. Bull. 374, 386 (1984) (“{nJothing in the

history of the Douglas Amendment suggests that the states were to be

Amendment to authorize the states to limit or restrict entry

by out-of-state bank holding companies.”!’

The argument that states are required by the Douglas

Amendment to approach interstate bank holding company

expansion on an “all or nothing” basis also was rejected by

the United States Court of Appeals for the District of

Columbia Circuit in Jowa Independent Bankers v. Board of

Governors.*© In reviewing the Board’s approval of a bank

acquisition consistent with the lowa statute discussed supra,

the court noted that the language of the Douglas Amendment

did not require such an approach. The legislative history of

the Amendment, moreover, led the court to conclude “that

the intent of the Douglas Amendment was to assure that the

states had sufficient power to control the expansion of bank

holding companies across state lines so that such expansion

would not contravene state policy.”?!

In sum, the settled administrative interpretation of the

Douglas Amendment, supported by the judicial decisions

addressing the issue, is that the states may differentiate

among out-of-state bank holding companies in permitting

interstate bank acquisitions. Petitioners, apparently

admitting this general view of the authority granted to the

states by the Amendment, attempt to save their position by

asserting that only some bases of differentiation, such as

grandfather statutes, limited purpose entry statutes, or

reciprocal statutes, are permissible, while the regional

approach of the Connecticut and Massachusetts Acts is not.??

The Douglas Amendment and its legislative history, however,

contain not a hint of this distinction urged by Petitioners

permitted only to choose between not allowing out-of-state bank holding

companies to enter, and allowing completely free entry”).

'9Bank of New York Company, Inc., note 18 supra, 70 Fed. Res. Bull.,

at 528.

20Note 13 supra, 511 F.2d, at 1296-97.

2\Jd. at 1297. See Conference of State Bank Supervisors v. Conover, 715

F.2d 604, 613 (D.C. Cir. 1983), cert. denied, ___ US. , 104 S. Ct.

1708 (1984) (“the Douglas Amendment empowered states to discriminate

among out-of-state bank holding companies when deciding which could

enter”).

2Br. of Pet. Citicorp, 37-38.

between permissible and impermissible discrimination. Nor,

as pointed out in the following section, can Petitioners find

any basis for this distinction in the Commerce Clause.

D. Because the Douglas Amendment Authorizes the

Connecticut and Massachusetts Acts, They Are Not

Subject to the Negative Implications of the

Commerce Clause

This Court has held consistently that Congress, acting

under the Commerce Clause, may grant to the states

authority to regulate interstate commerce that they would not

otherwise enjoy. See, e.g., Lewis v. BT Investment Managers,

Inc., supra, 447 U.S., at 44. In Lewis, this Court observed

that in the Douglas Amendment, Congress has given to the

states the authority “to permit expansion of banking across

state lines where it otherwise would be federally prohibited.”

Id. at 47. Because Connecticut and Massachusetts have acted

within the scope of this general grant of authority to the states

in enacting the Connecticut and Massachusetts Acts, their

actions are “invulnerable to Commerce Clause challenge.”

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

Equalization, supra, 451 U.S., at 653.

The Petitioners appear to argue, however, that Congress

could not have granted authority to the states to adopt laws

such as the Connecticut and Massachusetts Acts without

violating the Commerce Clause. The regional approach

adopted in the Acts, Petitioners urge, is inconsistent with the

national market that is protected by the negative implications

of the Commerce Clause. By contrast, according to

Petitioners, state entry laws that discriminate on the basis of

grandfather rules, limited purpose entry rules, or reciprocity

requirements do not offend the negative implications of the

Commerce Clause. Br. of Pet. Citicorp, at 37. Citing

Sporhase v. Nebraska, supra, 458 U.S., at 960, for the

proposition that “[t]he negative implications of the

Commerce Clause .. . are the ingredients of the vaiid state

law to which Congress” defers, Petitioners urge that the

negative Commerce Clause limits the types of laws the states

may adopt to permit interstate bank holding company

expansion.”?

This Court rejected the Petitioners’ approach to the

Commerce Clause when it decided Prudential Ins. Co. v.

Benjamin, supra. In that case, a state tax imposed only on

out-of-state insurance companies was challenged as a

violation of the Commerce Clause. Although the McCarran-

Ferguson Act appeared to validate the tax, Prudential argued

that such a conclusion would be inconsistent with the

Commerce Clause. Prudential, the Court observed, “puts the

McCarran Act to one side, either as not intended to have

effect toward validating this sort of tax or, if construed

otherwise, as constitutionally ineffective to do so.” Jd. at 422.

The Court, disagreeing strongly with this suggestion,

concluded that congressional grants to the states of the

authority to regulate commerce are not limited by the

negative implications of the Commerce Clause.*4 Rather,

unless Congress by explicit exceptions limits such grants of

authority, the states are empowered to exercise the full

authority otherwise possessed by Congress to regulate the

particular type of interstate commerce in question. Congress,

as this Court observed, had “put the full weight of its power

behind existing and future state legislation to sustain it from

any attack under the commerce clause . . . subject only to

the exceptions expressly provided for.” /d., at 431.

23As in Prudential Ins. Co. v. Benjamin, supra, 328 U.S., at 422, Petitioners

also assert that because of the policies of national markets recognized in the

negative Commerce Clause, Congress did not intend to authorize such a

regional approach. As pointed out supra, however, Congress rejected the

notion of a national banking market when it adopted the Douglas

Amendment. With the Douglas Amendment, Congress left it to the states,

guided by their own local interests, to determine the extent to which the

nation’s segmented banking markets should be integrated.

24The Court summarized its view of Prudential’s argument as follows:

Fundamentally [Prudential] maintains that the commerce clause “of

its own force” and without reference to any action by Congress, whether

through its silence or otherwise, forbids discriminatory state taxation

of interstate commerce. This is to say, in effect, that neither Congress

acting affirmatively nor Congress and the states thus acting coordinately

The Douglas Amendment imposes no exceptions or

limitations on the authority it grants to the states to permit

interstate bank holding company expansion.” Petitioners’

effort to create such exceptions or limitations by finding in

the negative implications of the Commerce Clause

distinctions between “permissible” and “impermissible” state

laws authorizing bank holding company expansion is,

therefore, futile. Discriminations more or less offensive to the

Commerce Clause in the absence of the Douglas Amendment

are all equally protected by that Amendment’s unqualified

grant of authority.”®

Petitioners likewise mistakenly rely on negative Commerce

Clause cases such as Philadelphia v. New Jerse», 437 U.S.

617 (1978), and Pike v. Bruce Church, Inc., 397 U.S. 137

(1970). In those cases, no grant by Congress to the states of

authority to regulate interstate commerce was present.

can validly impose any regulation which the Court has found or would

find to be forbidden by the commerce clause, if laid only by state action

taken while Congress’ power lies dormant. In this view the limits of state

power to regulate commerce in the absence of affirmative action by

Congress are also the limits of Congress’ permissible action in this

respect, whether taken alone or in coordination with state legislation.

Merely to state the position in this way compels its rejection. So

conceived, Congress’ power over commerce would be nullified to a very

large extent. For in all the variations of commerce clause theory it has

never been the law that what the states may do in the regulation of

commerce, Congress being silent, is the fuli measure of its power.

Prudential Ins. Co. v. Benjamin, supra, 328 U.S., at 422 (footnotes omitted).

25In contrast, the federal statutes and the compacts examined in Sporhase

v. Nebraska, supra, did not even indicate congressional intent to delegate

federal regulatory authority to the states. 458 U.S., at 959-960. Instead,

Congress meant only to defer to, rather than preempt, otherwise valid state

law. Id., at 960. See n. 7 supra.

26While considerations arising from the negative Commerce Clause do not

limit the authority delegated under the Douglas Amendment, other

constitutional provisions do. Acting under the Commerce Clause,

Congress may not authorize the states to exceed the limits imposed by

other constitutional provisions. Prudential Ins. Co. v. Benjamin, supra,

328 U.S., at 430, 434-435. Petitioners, however, have claimed only that

the Connecticut and Massachusetts Acts violate the Commerce Clause and

the Compact Clause, under both of which Congress does have authority

to approve state activities not otherwise permissible.

Absent such an exercise of Congress’ plenary power to

regulate interstate commerce, this Court in these and other

similar cases condemned state laws that were explicitly

protectionist or imposed burdens on interstate commerce

that outweighed the local benefits sought to be obtained by

the enactment of the challenged state law. Philadelphia v.

New Jersey, supra, 437 U.S., at 624, 626-627; Pike v. Bruce

Church, Inc., supra, 397 U.S., at 142, 146. But where

Congress acts to restrict or burden interstate commerce, the

concerns voiced in these cases are simply inapplicable.

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

Equalization, supra, 451 U.S., at 653. Here, because Congress

has acted to grant regulatory authority to the states by

adopting the Douglas Amendment, it is inappropriate to

pursue issues such as protectionism or balancing. Rather, the

only question is whether Connecticut and Massachusetts

have acted within the scope of the authority granted to them

by Congress, a question which, as a matter of history,

statutory language, and legislative record, must be answered

in the affirmative.

Il. The Connecticut and Massachusetts Acts Do Not

Contravene The Compact Clause

The “Compact Clause” of the United States Constitution

provides, in relevant part, that:

No State shall, without the Consent of Congress, .. .

enter into any Agreement or Compact with another

state ....

U.S. Const. art. I, § 10, cl.3. Consistent with this language,

action may violate the Compact Clause only if it involves an

agreement or compact between or among states.

A. No Agreement or Compact Has Been Formed

The state action challenged here involves independently

enacted state statutes, rather than an agreement or compact

between or among states. To illustrate this point, assume that

only one New England state had passed an out-of-state bank

holding company entry statute which was limited to bank

holding companies located in New England. Such a statute

also would permit acquisitions across state lines subject to

regional constraints, but clearly could not involve an

agreement or compact. The added fact that an additional

state legislative body has chosen, independently, to enact

similar legislation should not transform such independent

activity into an impermissible agreement or compact between

or among the states.?’

The reciprocity requirements of the Connecticut and

Massachusetts Acts, in and of themselves, are of no

consequence for purposes of the Compact Clause. In United

States Steel Corp. v. Multistate Tax Commission, supra, 434

U.S., at 452, the Court noted that “several decisions of this

Court have upheld a variety of interstate agreements effected

through reciprocal legislation without congressional

consent.” /d. at 469. While “[a]greements effected through

reciprocal legislation may present opportunities for

enhancement of state power at the expense of the federal

supremacy”, the mere form of such legislation is not the

relevant inquiry. Rather, “(t]he relevant inquiry must be one

of impact on our federal structure.” Jd. at 470-471. As

discussed infra, the Connecticut and Massachusetts Acts lack

any impact on the federal structure.

Furthermore, Petitioner Citicorp’s argument that “recip-

rocal legislation such as that involved in this case is in and

of itself sufficient to constitute a compact” (Br. of Pet.

Citicorp, 40) is clearly inconsistent with recent activities of

Petitioner Citicorp. For example, in 1983 Citicorp sought

approval from the Board to acquire a bank in the State of

27The Compact Clause appears initially to have been directed at resolving

boundary disputes between the newly independent states. “[T]he Compact

Clause has its roots deep in colonial history. It is part and parcel of the

‘ong and familiar story of colonial boundary controversies.” F.

Frankfurter & J. Landis, The Compact Clause of the Constitution — A

Study in Interstate Adjustments, 34 Yale L.J. 685, 692 (1925). This article,

containing an in-depth study of the types of legislation which have elicited

application of the Compact Clause, does not mention a single challenge

under the Compact Clause to independent regional state legislation such

as that under challenge in the present controversy. Similarly, Petitioners

have failed to cite to any such decision.

Maine. This acquisition was premised on the constitution-

ality of both the Maine and New York interstate banking

laws, which at that time allowed interstate acquisitions of

banks by bank holding companies on a reciprocal basis. This

acquisition by Petitioner of a New England bank, Citibank

Maine, N.A., was approved by the Board in April 1984, as

noted in Citicorp, 71 Fed. Res. Bull. 101, 102 (1985).?8

Petitioners also place great weight on the fact that

concerned individuals from the New England states met prior

to the passage of the Connecticut and Massachusetts Acts

to discuss their concerns over interstate banking. Br. of Pet.

Citicorp, 40. It is difficult to perceive how the existence of

these meetings may evidence the establishment of a compact.

These meetings were not in any sense mandatory or binding

on any of the New England states. In fact, New Hampshire

and Vermont independently have chosen not to enact

interstate banking legislation, Maine has chosen, again

independently, to permit out-of-state bank holding company

entry on a full nationwide basis, and Rhode Island has

adopted a regional approach that will give way in 1986 to

unlimited nationwide entry.

Each of the New England:states has attempted to address

its own local banking concerns in the manner best suited to

that particular state. This authority was explicitly granted to

each state in the Douglas Amendment. The fact that

Connecticut and Massachusetts independently have

recognized similar concerns and acted accordingly is

insufficient to establish an impermissible compact between

the states.

In St. Louis & San Francisco Railway v. James, 161 U.S.

545 (1896), this Court noted that a state may permissibly

authorize a corporation organized under its laws to accept

authority from another state to extend its operations into

such other state, to receive a grant of powers to own and

control property therein, and to subject itself to such rules

and regulations as may be prescribed by the second state. The

28The reciprocity requirement was removed from the Maine statute in

February 1984. 1984 Me. Laws 597.

Court stated that “[sJuch legislation on the part of two or

more States is not, in the absence of inhibitory legislation by

Congress, regarded as within the constitutional prohibition

of agreements or compacts between States.” Jd. at 562

(emphasis added). The Connecticut and Massachusetts Acts

are precisely such legislation. They merely authorize the entry

of private corporations into their respective states on a

regional basis. Such independently enacted statutes do not,

in fact, create an agreement or compact.

B. The Connecticut and Massachusetts Acts are

Permissible Under Settled Compact Clause

Doctrine

Even assuming, arguendo, that the Connecticut and

Massachusetts Acts could be viewed as creating an agreement

or compact, such action nevertheless clearly is permissible

under this Court’s long-settled Compact Clause precedents.

In Virginia v. Tennessee, 148 U.S. 503 (1893), Mr. Justice

Field suggested that congressional consent is required only

for agreements or compacts that affect “the political power

or influence” of individual states and “encroach. . . upon the

full and free exercise of Federal authority.” /d. at 520.

This interpretation was reaffirmed in this Court’s decision

in New York v. O'Neill, 359 U.S. 1 (1959). Although no

Compact Clause question was presented directly in that case,

the Court stated that:

The Constitution did not purport to exhaust

imagination and resourcefulness in devising fruitful

interstate relationships. It is not to be construed to limit

the variety of arrangements which are possible through

the voluntary and cooperative actions of individual

States with a view to increasing harmony within the

federalism created by the Constitution. Far from being

divisive, this legislation is a catalyst of cohesion. It is

within the unrestricted area of action left to the States

by the Constitution.

Id. at 6. The Connecticut and Massachusetts Acts are such

voluntary and cooperative actions, taken by those states as

independent exercises of their authority granted pursuant to

the Douglas Amendment.

More recently, this Court noted in New Hampshire v.

Maine, 426 U.S. 363 (1976), that the application of the

Compact Clause is limited to agreements that are “directed

to the formation of any combination tending to the increase

of political power in the States, which may encroach upon

or interfere with the just supremacy of the United States... .

Accordingly, [actions fall without the Compact Clause when]

neither State can be viewed as enhancing its power in any

sense that threatens the supremacy of the Federal

Government.” /d. at 369-70 (citations omitted).?°

Even assuming an agreement or compact were deemed to

exist in the present situation, it is difficult to perceive how

such an arrangement could increase the “political power or

influence” of any state or states or could “encroach upon or

interfere with the just supremacy of the United States.”

Petitioners argue that the Connecticut and Massachusetts

Acts create a compact that tends to cause injury to the sister

states. Br. of Pet. Citicorp, 40. Petitioners have not

established any such injury to a sister state, however, nor

could such a finding be justified on the present record. To

the extent that any limited injury could arguably occur as a

result of the Connecticut and Massachusetts Acts, such injury

would be solely to private parties such as Petitioners, rather

than to a sister state or states as sovereign entities.

Further, Petitioners have not established any encroach-

ment upon federal authority*®® other than to state their mere

29In United States Steel Corp. v. Multistate Tax Commission, supra, 434

U.S., at 471, this Court noted that in New Hampshire v. Maine, supra:

We reaffirmed Mr. Justice Field’s view that the “application of

the Compact Clause is limited to agreements that are ‘directed to

the formation of any combination tending to the increase of political

power in the States, which may encroach upon or interfere with the

just supremacy of the United States.’ ” This rule states the proper

balance between federal and state power with respect to compacts

and agreements among States. [citations omitted]

See F. Zimmerman & M. Wendell, The Law and Use of Interstate

Compacts (1976), at 23 (“[c]onceivably, compacts which might be said to

conclusion that the Connecticut and Massachusetts Acts

“interfer[e] with and disrupt[ ] federal regulation of interstate

banking.” Br. of Pet. Citicorp, 42. This conclusion is clearly

erroneous. The Connecticut and Massachusetts Acts in no

way interfere with or disrupt federal regulation of interstate

banking. As noted by the court of appeals,?! Congress,

through the Douglas Amendment, long ago granted control

over this aspect of interstate banking to the individual

states.3?

Petitioners also attempt to establish that the Connecticut

and Massachusetts Acts violate the Compact Clause merely

because they may be distinguished from the “type of interstate

agreement upheld in Multistate Tax Commission.” Br. of Pet.

Citicorp, 44. Petitioners fail to mention, however, that the

interstate compact which was upheld by the Court in that

decision was far more likely to increase the political power

or influence of the states and to encroach upon the supremacy

of the United States than the challenged legislation.33 In view

of the Court’s determination that there was no Compact

have a discriminatory effect upon nonparty states could be described as

affecting the political balance of the federal system. In actuality, there have

been no compacts adopted or proposed in our history which have really

affected that political balance”). As the court of appeals noted below, “[{a]s

a practical matter, we do not think that a New England bank holding

company system would in any way increase the political power of the New

England states or encroach upon or interfere with the just supremacy of

the United States.” Pet. App. A32.

3!The Board, as the court of appeals observed, has interpreted the Douglas

Amendment as a renunciation of any federal interest in regulating the

interstate acquisitions of banks by bank holding companies. Pet. App.

A29. As this Court recently pointed out in Securities Industry Association

v. Board of Governors, ___ U.S. ___.,, 104 S. Ct. 2979 (1984), the Board’s

interpretations of federal banking statutes are entitled to substantial

deference.

32Petitioner’s argument that the challenged legislation is “a substantial

threat to federal policy articulated in 12 U.S.C. §1823(f)” (Br. of Pet.

Citicorp, 46) is not tenable. That statute, regarding interstate acquisitions

of failed banks, by its express terms controls such acquisitions

“[nlotwithstanding . . . any other provision of law, state or Federal.” 12

U.S.C. § 1823(f)(4)(i). Further, to the extent that the challenged state

legislation were to conflict with federal legislation, it would be preempted

pursuant to the Supremacy Clause, U.S. Const., art. VI, cl.2.

331n United States Steel Corp. v. Multistate Tax Commission, supra, the

facts established that a Multistate Tax Compact, which authorized the

Clause violation in the “multilateral agreement” presented in

that case, the independently enacted Connecticut and

Massachusetts Acts cannot possibly violate the Compact

Clause.

CONCLUSION

For the reasons set forth above, the decision and judgment

of the Court of Appeals should be affirmed.

Respectfully submitted,

Of Counsel: WILLIAM G. DELANA

ALLAN B. TAYLOR

EDWARD W. DENCE, JR. J. BRUCE BOISTURE*

WILLIAM C. MUTTERPERL ROBERT M. TAYLOR, III

Day, Berry & Howard

CityPlace

Hartford, CT 06103-3499

Counsel for Amicus Curiae

* Counsel of Record Fleet Financial Group, Inc.

establishment of the Multistate Tax Commission, had been adopted with

minor exceptions in twenty-one states. The Commission had authority,

inter alia, to adopt uniform regulations which member states could reject,

amend, or modify before adoption. Further, states were authorized to

request that the Commission perform audits on their behalf. In so doing,

the Commission could seek compulsory process in aid of its auditing

powers in state courts. 434 U.S., at 803-805. Nevertheless, this

“multilateral agreement creating an active administrative body with

extensive powers delegated to it by the States, but lacking congressional

consent” (id., at 471) was not found to violate the Compact Clause.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.