The United States brought this civil antitrust action under § 7 of the Clayton Act, 38 Stat. 731, as amended, 15 U. S. C. § 18, to challenge a proposed merger between two commercial banks. The acquiring bank is a large, nationally chartered bank based in Seattle, Washington, and the acquired bank is a medium-size, state-chartered bank located at the opposite end of the State in Spokane. The banks are not direct competitors to any significant degree in Spokane or any other part of the State. They have no banking offices in each other's home cities. The merger agreement would substitute the acquiring bank for the acquired bank in Spokane and would permit the former for the first time to operate as a direct participant in the Spokane market.
The proposed merger would have no effect on the number of banks in Spokane. The United States bases its case exclusively on the potential-competition doctrine under § 7 of the Clayton Act. It contends that if the merger is prohibited, the acquiring bank would find an alternative and more competitive means for entering the Spokane area and that the acquired bank would ultimately develop by internal expansion or mergers with smaller banks into an actual competitor of the acquiring bank and other large banks in sections of the State outside Spokane. The Government further submits that the merger would terminate the alleged procompetitive influence that the acquiring bank presently exerts over Spokane banks due to the potential for its entry into that market.
After a full trial, the District Court held against the Government on all aspects of the case. We affirm that court's judgment. We hold that in applying the potential-competition
The acquiring bank, National Bank of Commerce (NBC), is a national banking association with its principal office in Seattle, Washington. Located in the northwest corner of the State, Seattle is the largest city in Washington. NBC is a wholly owned subsidiary of a registered bank holding company, Marine Bancorporation, Inc. (Marine), and in terms of assets, deposits, and loans is the second largest banking organization with headquarters in the State of Washington. At the end of 1971, NBC had total assets of $1.8 billion, total deposits of $1.6 billion, and total loans of $881.3 million.
The target bank, Washington Trust Bank (WTB), founded in 1902, is a state bank with headquarters in Spokane. Spokane is located in the extreme eastern part of the State, approximately 280 road miles from Seattle. It is the largest city in eastern Washington, with a population of 170,000 within the corporate limits and of approximately 200,000 in the overall metropolitan area. The city has a substantial commercial and industrial base. The surrounding region is sparsely populated and is devoted largely to agriculture, mining, and timber. Spokane serves as a trade center for this region. NBC, the acquiring bank, has had a longstanding interest in securing entry into Spokane.
WTB has seven branch offices, six in the city of Spokane and one in Opportunity, a Spokane suburb. WTB is the eighth largest banking organization with headquarters in Washington and the ninth largest banking organization in the State. At the end of 1971, it had assets of $112 million, total deposits of $95.6 million, and loans of $57.6 million. It controls 17.4% of the 46 commercial banking offices in the Spokane metropolitan area. It is one of 12 middle-size banks in Washington (i. e., banks with assets in the $30 million to $250 million range).
WTB is well managed and profitable. From December 31, 1966, to June 30, 1972, it increased its percentage of total deposits held by banking organizations in the Spokane metropolitan area from 16.6% to 18.6%. The amount of its total deposits grew by approximately 50% during that period, a somewhat higher rate of increase than exhibited by all banking organizations operating in Spokane at the same time.
As of June 30, 1972, there were 91 national and state banking organizations in Washington. The five largest in the State held 74.3% of the State's total commercial
The degree of concentration of the commercial banking business in Spokane may well reflect the severity of Washington's statutory restraints on de novo geographic expansion by banks. Although Washington permits branching, the restrictions placed on that method of internal
The ability to acquire existing banks is also limited by a provision of state law requiring that banks incorporating in Washington include in their articles of incorporation a clause forbidding a new bank from merging with or permitting its assets to be acquired by another bank for a period of at least 10 years, without the consent of the state supervisor of banking. Wash. Rev. Code Ann. § 30.08.020 (7) (1961 and Supp. 1973).
B. The Proceedings.
In February 1971, Marine, NBC, and WTB agreed to merge the latter into NBC. NBC, as the surviving bank, would operate all eight banking offices of WTB as branches of NBC. In March 1971, NBC and WTB applied to the Comptroller of the Currency pursuant to the
The Comptroller approved the merger in a report issued September 24, 1971. He concluded that state law precluded NBC from branching in Spokane and "effectively prevented" NBC from causing a new Spokane bank to be formed which could later be treated as a merger partner. He noted that state law prevented the only independent small bank with offices located within the city boundaries of Spokane from merging with NBC, since that bank was state chartered, had been founded in 1965, and was subject to the minimum 10-year restriction against sale of a new bank set out in Wash. Rev. Code
Acting within the 30-day limitation period set out in the Bank Merger Act of 1966, 12 U. S. C. § 1828 (c) (7), the United States then commenced this action in the United States District Court for the Western District of Washington, challenging the legality of the merger under § 7 of the Clayton Act.
Prior to trial the United States dropped all allegations concerning actual competition between the merger partners.
At the close of final oral argument following a week-long trial, the District Judge ruled for the defendants from the bench. Two weeks later he adopted without change the defendants' proposed findings of facts and conclusions of law, the latter consisting of seven sentences. 1973-1 Trade Cas. ¶ 74,496, p. 94,244 (1973).
According to the District Court, Washington law forbade NBC from establishing de novo branches in Spokane, and the Government had failed to establish that there was any existing bank in Spokane other than WTB "available for acquisition by NBC on any reasonably acceptable basis at any time in the foreseeable future, or at all." Ibid. Moreover, any attempt by NBC to enter de novo by assisting in the formation of and then acquiring a newly chartered bank in Spokane "even if it could be legally accomplished,"
The court found no perceptible procompetitive effect deriving from NBC's premerger presence on the fringe of the Spokane market. Id., at 94,246. It also held that the Government had failed to carry its burden of proving a reasonable probability that WTB, absent the merger, would expand beyond the Spokane market by de novo growth or through combination with another medium-size bank. Ibid. It found no probability that NBC would be "entrenched as a dominant bank in the
On the basis of its findings, the District Court dismissed the Government's complaint. The Government thereupon brought this direct appeal under the Expediting Act, 32 Stat. 823, as amended, 15 U. S. C. § 29. We noted probable jurisdiction. 414 U.S. 907 (1973).
THE RELEVANT MARKETS
Determination of the relevant product and geographic markets is "a necessary predicate" to deciding whether a merger contravenes the Clayton Act. United States v. Du Pont & Co., 353 U.S. 586, 593 (1957); Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962). The District Court found that the relevant product market "within which the competitive effect of the merger is to be judged" is the "business of commercial banking (and the cluster of products and services denoted thereby). . . ." 1973-1 Trade Cas. ¶ 74,496, p. 94,243. The parties do
The District Court found that the relevant geographic market is the Spokane metropolitan area, "consisting of the City of Spokane and the populated areas immediately adjacent thereto, including the area extending easterly through the suburb of Opportunity toward the Idaho border . . . ." Id., at 94,244. This area extends approximately five miles to the west and south and 10 miles to the north and east of the center of the city. It is wholly within and considerably smaller than Spokane County and is surrounded by a sparsely populated region, with no nearby major metropolitan centers. It contains all eight of the target bank's offices. On the basis of the record, we have no reason to doubt that it constitutes a reasonable approximation of the "localized" banking market in which Spokane banks offer the major part of their services and to which local consumers can practicably turn for alternatives. E. g., United States v. Phillipsburg National Bank, 399 U.S. 350, 362-365 (1970). It is also the area where "the effect of the merger on competition will be direct and immediate . . . ," which as this Court has held is the appropriate "section of the country" for purposes of § 7. United States v. Philadelphia National Bank, 374 U.S. 321, 357 (1963). Accordingly, we affirm the District Court's holding that the Spokane metropolitan area is the appropriate geographic market for determining the legality of the merger.
Prior to trial the Government stipulated that the Spokane area is a relevant geographic market in the instant
The Government's proposed reading of the "any section of the country" phrase of § 7 is at variance with this Court's § 7 cases, and we reject it. Without exception the Court has treated "section of the country" and "relevant geographic market" as identical,
Apart from the fact that the Government's statewide approach is not supported by the precedents, it is simply too speculative on this record. There has been no persuasive showing that the effect of the merger on a statewide basis "may be substantially to lessen competition" within the meaning of § 7. To be sure, § 7 was designed to arrest mergers "at a time when the trend to a lessening of competition in a line of commerce [is] still in its incipiency." Brown Shoe Co., 370 U. S., at 317. See, e. g., United States v. Von's Grocery Co., 384 U.S. 270, 277 (1966). Moreover, the proscription expressed in § 7 against mergers "when a `tendency' toward monopoly or [a] `reasonable likelihood' of a substantial lessening of competition in the relevant market is shown," United States v. Penn-Olin Chemical Co., 378 U.S. 158, 171 (1964), applies alike to actual-and potential-competition cases. Ibid. But it is to be remembered that § 7 deals
The term "potential competitor" appeared for the first time in a § 7 opinion of this Court in United States v. El Paso Natural Gas Co., 376 U.S. 651, 659 (1964). El Paso was in reality, however, an actual-competition rather than a potential-competition case.
Although the concept of perceived potential entry has been accepted in the Court's prior § 7 cases, the potential-competition theory upon which the Government places principal reliance in the instant case has not. The Court has not previously resolved whether the potential-competition doctrine proscribes a market extension merger solely on the ground that such a merger eliminates the prospect for long-term deconcentration of an oligopolistic market that in theory might result if the acquiring firm were forbidden to enter except through a de novo undertaking or through the acquisition of a small existing entrant (a so-called foothold or toehold acquisition). Falstaff expressly reserved this issue.
A. Application of the Doctrine to Commercial Banks.
Since United States v. Philadelphia National Bank, 374 U.S. 321 (1963), the Court has taken the view that, as a general rule, standard § 7 principles applicable to unregulated industries apply as well to mergers between commercial banks. See also United States v. First National Bank, 376 U.S. 665 (1964). Congress reacted to Philadelphia National Bank by including in the Bank Merger Act of 1966 a "convenience and needs" defense uniquely applicable to commercial banks. 12 U. S. C. § 1828 (c) (5) (B) and (c) (7) (B). Subsequent cases have revealed, however, that that defense comes into play only after a district court has made a de novo determination of the status of a bank merger under the Clayton Act. See United States v. Third National Bank, 390 U.S. 171 (1968); United States v. First City National Bank, 386 U.S. 361 (1967). As the Court noted in Phillipsburg National Bank, supra, "the antitrust standards of . . .
Although the Court's prior bank merger cases have involved combinations between actual competitors operating in the same geographic markets, an element that distinguishes them factually from this case, they nevertheless are strong precedents for the view that § 7 doctrines are applicable to commercial banking. In accord with the general principles of those cases, we hold that geographic market extension mergers by commercial banks must pass muster under the potential-competition doctrine. We further hold, however, that the application of the doctrine to commercial banking must take into account the unique federal and state regulatory restraints on entry into that line of commerce. Failure to do so would produce misconceptions that go to the heart of the doctrine itself.
The Government's present position has evolved over a series of eight District Court cases, all of them decided unfavorably to its views.
Unlike, for example, the beer industry, see Falstaff Brewing Corp., supra, entry of new competitors into the commercial banking field is "wholly a matter of governmental grace . . ." and "far from easy." Philadelphia National Bank, supra, at 367, and n. 44. Beer manufacturers are free to base their decisions regarding entry and the scale of entry into a new geographic market on nonregulatory considerations, including their own financial capabilities, their long-range goals as to markets,
In Philadelphia National Bank, supra, the Court relied on regulatory barriers to entry to support its conclusion that mergers between banks in direct competition in the same market must be scrutinized with particular care under § 7. 374 U. S., at 352, 367-370, 372. But the same
B. Structure of the Spokane Market.
Since the legality of the challenged merger must be judged by its effects on the relevant product and geographic markets, commercial banking in the Spokane metropolitan area, it is imperative to determine the competitive characteristics of commercial banking in that section of the country. The potential-competition doctrine has meaning only as applied to concentrated markets. That is, the doctrine comes into play only where there are dominant participants in the target market engaging in interdependent or parallel behavior and with the capacity effectively to determine price and total output of goods or services. If the target market performs as a competitive market in traditional antitrust terms, the participants in the market will have no occasion to fashion their behavior to take into account the presence of a potential entrant. The present procompetitive effects that a perceived potential entrant may produce in an
In an effort to establish that the Spokane commercial banking market is oligopolistic, the Government relied primarily on concentration ratios indicating that three banking organizations (including WTB) control approximately 92% of total deposits in Spokane. The District Court held against the Government on this point, finding that "a highly competitive market" existed which "does not suffer from parallel or other anticompetitive practices attributable to undue market power." 1973-1 Trade Cas. ¶ 74,496, p. 94,246. The court apparently gave great weight to the testimony of the banks' expert witnesses concerning the number of bank organizations and banking offices operating in the Spokane metropolitan area. The record indicates that neither the Government nor the appellees undertook any significant study of the performance, as compared to the structure, of the commercial banking market in Spokane.
We conclude that by introducing evidence of concentration ratios of the magnitude of those present here the Government established a prima facie case that the Spokane market was a candidate for the potential-competition doctrine. On this aspect of the case, the burden was then upon appellees to show that the concentration ratios, which can be unreliable indicators of actual market behavior, see United States v. General Dynamics Corp., 415 U.S. 486 (1974), did not accurately depict the economic characteristics of the Spokane market. In our view, appellees did not carry this burden, and the District Court erred in holding to the contrary. Appellees introduced no significant evidence of the absence of parallel
We note that it is hardly surprising that the Spokane commercial banking market is structurally concentrated. As the Government's expert witness conceded, all banking markets in the country are likely to be concentrated.
C. Potential De Novo or Foothold Entry.
The third step in the Government's argument, resolution of the question reserved in Falstaff, was the primary basis on which the case was presented to the District
Two essential preconditions must exist before it is possible to resolve whether the Government's theory, if proved, establishes a violation of § 7. It must be determined: (i) that in fact NBC has available feasible means for entering the Spokane market other than by acquiring WTB; and (ii) that those means offer a substantial likelihood of ultimately producing deconcentration of that market or other significant procompetitive effects. The parties are in sharp disagreement over the existence of each of these preconditions in this case. There is no dispute that NBC possesses the financial capability and incentive to enter. The controversy turns on what methods of entry are realistically possible and on the likely effect of various methods on the characteristics of the Spokane commercial banking market.
It is undisputed that under state law NBC cannot establish de novo branches in Spokane and that its parent holding company cannot hold more than 25% of the stock of any other bank. Entry for NBC into Spokane therefore must be by acquisition of an existing bank. The Government contends that NBC has two distinct alternatives for acquisition of banks smaller than WTB and that either alternative would be likely to benefit the Spokane commercial banking market.
First, the Government contends that NBC could arrange
The Government counters by pointing to instances in which sponsorship-acquisition of small banks by large banks has occurred in Washington, on occasion with the apparent knowledge and asserted approval of bank regulatory officials and within less than 10 years of the formation of the new bank.
In its findings and conclusions, the District Court did not resolve the question of the status of the Government's proposed sponsorship-acquisition approach under Washington's banking statutes.
State law would not allow NBC to branch from a sponsored bank after it was acquired. NBC's entry into Spokane therefore would be frozen at the level of its initial acquisition. Thus, if NBC were to enter Spokane by sponsoring and acquiring a small bank, it would be trapped into a position of operating a single branch office in a large metropolitan area with no reasonable likelihood of developing a significant share of that market.
As a second alternative method of entry, the Government proposed that NBC could enter by a foothold acquisition of one of two small, state-chartered commercial banks that operate in the Spokane metropolitan area.
Granting the Government the benefit of the doubt that these two small banks were available merger partners for NBC, or were available at some not too distant time, it again does not follow that an acquisition of either would produce the long-term market-structure benefits predicted by the Government. Once NBC acquired either of these banks, it could not branch from the acquired bank. This limitation strongly suggests that NBC would not develop into a significant participant in the Spokane market, a prospect that finds support in the record. In 1964, one of the largest bank holding companies in the country, through its Seattle-based subsidiary, acquired a foothold bank with two offices in Spokane. Eight years later this bank, Pacific National Bank, held a mere 2.2% of total bank deposits in the Spokane metropolitan area, an insignificant increase over its share of the market at the date of the acquisition. See n. 2, supra. An officer of this bank, called as a witness by the Government, attributed the poor showing to an inability under state law to establish further branches in Spokane.
In sum, with regard to either of its proposed alternative methods of entry, the Government has offered an unpersuasive case on the first precondition of the question reserved in Falstaff—that feasible alternative methods of entry in fact existed. Putting these difficulties aside, the Government simply did not establish the second precondition. It failed to demonstrate that the alternative means
D. Perceived Potential Entry.
The Government's failure to establish that NBC has alternative methods of entry that offer a reasonable likelihood of producing procompetitive effects is determinative of the fourth step of its argument. Rational commercial bankers in Spokane, it must be assumed, are aware of the regulatory barriers that render NBC an unlikely or an insignificant potential entrant except by merger with WTB. In light of those barriers, it is improbable that
Moreover, the District Court found as a fact that "the threat of entry by NBC into the Spokane market by any means other than the consummation of the merger, to the extent any such threat exists, does not have any significant effect on the competitive practices of commercial banks in that market nor any significant effect on the level of competition therein." 1973-1 Trade Cas. ¶ 74,496, p. 94,246. In making this finding, it appears that the District Court "appraised the economic facts" about NBC and the Spokane market "in order to determine whether in any realistic sense [NBC] could be said to be a potential competitor on the fringe of the market with likely influence on existing competition." Falstaff, 410 U. S., at 533-534 (footnote omitted). Our review of the record indicates that the court's finding was not in error. The Government's only hard evidence of any "wings effect" was a memorandum written in 1962 by an officer of NBC expressing the view that Spokane banks were likely to engage in price competition as NBC approached their market. Evidence of an expression of opinion by an officer of the acquiring bank, not an official of a bank operating in the target market, in a memorandum written a decade prior to the challenged merger does not establish a violation of § 7.
E. Elimination of WTB's Potential for Growth.
In the final step of its argument, the Government challenges the merger on the ground that it will eliminate the prospect that WTB may expand outside its base in Spokane and eventually develop into a direct competitor with large Washington banks in other areas of the State. The District Court found, however, that the Government had "failed to establish . . . that there is any reasonable probability that WTB will expand into
In applying the doctrine of potential competition to commercial banking, courts must, as we have noted, take into account the extensive federal and state regulation of banks. Our affirmance of the District Court's judgment in this case rests primarily on state statutory barriers to de novo entry and to expansion following entry into a new geographic market. In States where such stringent barriers exist and in the absence of a likelihood of entrenchment, the potential-competition doctrine— grounded as it is on relative freedom of entry on the part of the acquiring firm—will seldom bar a geographic market extension merger by a commercial bank. In States that permit free branching or multibank holding companies, courts hearing cases involving such mergers should take into account all relevant factors, including the barriers to entry created by state and federal control over the issuance of new bank charters. Testimony by responsible regulatory officials that they will not grant new charters in the target market is entitled to great weight, although it is not determinative. To avoid the
The judgment is
MR. JUSTICE DOUGLAS took no part in the decision of this case.
[For appendix to opinion of the Court, see post, p. 643.]
MR. JUSTICE WHITE, with whom MR. JUSTICE BRENNAN and MR. JUSTICE MARSHALL join, dissenting.
For the second time this Term, the Court's new antitrust majority has chipped away at the policies of § 7 of the Clayton Act. In United States v. General Dynamics Corp., 415 U.S. 486 (1974), the majority sustained the failing-company defense in a new guise. Here, it redefines the elements of potential competition and dramatically escalates the burden of proving that a merger "may be substantially to lessen competition" within the meaning of § 7.
That we are dealing with a severely concentrated commercial banking market in the Spokane metropolitan area is conceded. The Court also proceeds on the basis that it was open to the Government to make its case by
[Dissenting opinion of MR. JUSTICE WHITE continued on p. 644.]
The majority does not quibble about the fact of NBC's resources and its incentive to extend its banking activities into Spokane. NBC is the State's second largest banking organization with total assets of $1.8 billion as of 1971. It has branched widely in the State of Washington, having a total of 107 branches, 15 of them within 100 miles of Spokane. Two other Seattle banking organizations were already operating in Spokane; and NBC itself had seriously negotiated for an acquisition in that market. Given the opportunity, NBC would obviously enter Spokane. Under Washington law, it could not branch there; but it was free to acquire another bank, given consent of banking authorities. That consent was obtained for the acquisition involved in this case, and it may fairly be assumed that it could have been obtained for the acquisition, not of a major competitor contributing to the concentration in the Spokane market, but of one of the smaller banks—a so-called "toehold" position in the market.
Another mode of entry into Spokane was also available to NBC. It could have been instrumental in forming
Thus, although branching into Spokane was not legally feasible, there were other modes of entry no less
The Court apparently assumes this to be the case, but goes on to hold that the Government's proof failed because neither a small new bank nor one of the existing small banks, if acquired, had a realistic chance of deconcentrating the Spokane market to any substantial extent. Also, absent the capability of making substantial inroads on the market shares of the principal banks, it is said that those banks had nothing to fear from NBC as a potential competitor and that NBC therefore had no current influence on competitive practices in the Spokane market.
I part company with the majority at this point. The Spokane market was highly concentrated. NBC had the resources and the desire to enter the market. There were no impenetrable legal or economic barriers to its doing so; and it is sufficiently plain from the record that absent merger with WTB, NBC could and would either have made a toehold entry or been instrumental in establishing a sponsored bank in Spokane. But NBC chose to merge with a larger bank and to deprive the market of the competition it would have offered had it entered in either of two other ways. In my opinion, this made out a sufficient prima facie case under § 7, which, absent effective rebuttal, entitled the United States to judgment.
The Court's sole answer to the Government's proof is that even if NBC would have entered by acquisition or de novo through a sponsored bank, it would have "little realistic hope of ultimately producing deconcentration
I cannot accept the per se view that, without branching, an able and willing newcomer to the banking market cannot be considered a sufficiently substantial competitive influence, immediately or in the foreseeable future, so that its loss to the market would warrant application of § 7. This is particularly true if the putative entrant is a large and successful banking organization with wide experience in developing new markets.
Small banks can be profitable, and they can grow rapidly. The experience of the three small banks in Spokane proves this. Each of them is a profitable bank. The profits of American Commercial Bank, for example, with headquarters in downtown Spokane, rose from $27,740 in 1966 to $132,527 in 1971. The deposits of each of the three small banks have grown. From 1966 to 1972, total bank deposits in the Spokane metropolitan area rose from $379.2 million to $513.5 million, a growth of 35% in six years. Spokane would not appear to be a stagnant banking market, and it provides opportunities for smaller banking concerns. The deposits in the three small banks during the same six years grew from $14.9 million to $39.4 million, an increase of approximately 160%. Their market share, although remaining relatively small, increased from 3.9% to 7.8%. Of course, deposits in the three large banking organizations also grew. Two of them increased their market shares very
If Seattle-First National Bank, with 31.6% of the deposits in 1972, or Washington Bancshares, Inc., with 42.1%, had acquired either American Commercial Bank or Farmers & Merchants Bank, with 3.1% and 2.5% respectively of Spokane bank deposits, the merger would have been anticompetitive and forbidden by § 7, unless saved by the convenience-and-needs proviso of the Bank Merger Act. United States v. Philadelphia National Bank, 374 U.S. 321 (1963). Depriving the market of a new competitor that could achieve similar status in a relatively
The details on the relative size of individual bank branches in Spokane or elsewhere in metropolitan areas of the State are not in the record; but it is unbelievable that there are no branches that have started very small and grown very large. New branches must make their way, often in head-to-head competition with other banks. Some are more successful than others, and I cannot accept, as a per se legal rule, the notion that a new bank sponsored by NBC in downtown Spokane or elsewhere in the city must be forever deemed to be without substantial competitive impact on the banking community.
NBC has 15 branches within a 100-mile radius of Spokane. Those branches have $103 million in total
The availability of branching is, of course, an important competitive consideration, but it should not be forgotten that American Commercial Bank, headquartered in downtown Spokane, has four branches and if acquired by NBC would give that bank a substantial operating capacity in Spokane. The majority, nevertheless, even assuming the acquisition of this bank by NBC, insists on its own view of competitive reality and holds
It is also true that if NBC entered Spokane by sponsoring a new bank, the new bank itself could legally branch and create the necessary branch infrastructure for as long as it was not acquired by NBC or another outsider. The majority states that this is "probably unrealistic" and that it would "multiply the problems" of obtaining approval of sponsorship from bank regulatory agencies. But this is sheer speculation; the Court simply has no idea what the attitude of regulatory officials would be in this regard. Furthermore, NBC itself has had experience with sponsored-bank situations, and, as the majority recognizes, it asserts that it has not sponsored banks solely for the purpose of acquisition. Apparently, relationships with a sponsored institution are themselves of inherent value, and the benefits would only increase if the sponsored bank itself branched as it grew.
Viewed in this light, the Court's per se rule becomes threadbare indeed when applied to NBC entering by acquisition into the Spokane market. The three existing smaller banks in Spokane have been successful and profitable and have even increased their share of the market in six years. Furthermore, Seattle-First National cannot legally go beyond its present seven branches in the Spokane market, and its share of the market has declined. It is quite unreasonable to think that NBC, if it acquired American Commercial, with its four branches could not be an effective competitor at least against Seattle-First National in Spokane, with its seven branches, or against WTB with its eight.
In the last analysis, one's view of this case, and the rules one devises for assessing whether this merger should be barred, turns on the policy of § 7 of the Clayton Act to bar mergers which may contribute to further concentration in the structure of American business. United States v. Philadelphia National Bank, 374 U. S., at 362-363; United States v. Penn-Olin Chemical Co., 378 U.S. 158, 170-171 (1964); Brown Shoe Co. v. United States, 370 U.S. 294, 331-332 (1962). The dangers of concentration are particularly acute in the banking business, since "if the costs of banking services and credit are allowed to become excessive by the absence of competitive pressures, virtually all costs, in our credit economy, will be affected . . . ." Philadelphia Bank, supra, at 372; United States v. Phillipsburg National Bank, 399 U.S. 350, 358 (1970).
Unless an otherwise illegal merger is saved by a finding under the Bank Merger Act that it is necessary to serve the convenience and needs of the community, the law requires us in the first instance to judge bank mergers by normal § 7 standards. I simply cannot agree with the Court's narrow view of what bank mergers "may . . . substantially. . . lessen competition."
With respect to whether depriving the market of the competition offered by a new entrant violates § 7, it is not enough under the Court's view that the newcomer
This thesis erects formidable barriers to the application of the potential-competition doctrine not only in the banking business but in other lines of commerce.
DISTRIBUTION OF TOTAL DEPOSITS HELD BY BANKING ORGANIZATIONS IN THE SPOKANE METROPOLITAN AREA, 1966-1972
(dollars in thousands)
12-31-66 6-30-72 __________ _________ % of % of Banking Organization $ Total $ Total _____________________ ____ ______ ____ ______ Washington Bancshares, Inc.
*155,885 41.1 216,340 42.1 Seattle-First National Bank 145,251 38.3 162,220 31.6 Washington Trust Bank 63,102 16.6 95,464 18.6 Sub Total 364,238 96.1 474,024 92.3 American Commercial Bank 3,552 .9 15,739 3.1 Farmers and Merchants Bank 5,593 1.5 12,558 2.5 Pacific National Bank **5,801 1.5 11,152 2.2 Total 379,184 100.0 513,473 100.0 Note: Due to rounding, figures may not add to totals. *Washington Bancshares, Inc., a bank holding company, owns two subsidiaries operating in Spokane, Old National Bank of Washington and First National Bank of Spokane. The deposit totals of these two banks are consolidated under the Washington Bancshares, Inc., entry in the above table. **The bank at the bottom of the table is a branch (with two banking offices) of Pacific National Bank of Washington, which has its principal office in Seattle. This Seattle bank is in turn a subsidiary of Western Bancorporation, a multistate bank holding company with assets of approximately $14 billion.
The degree of concentration in commercial banking in Washington has not increased significantly in the last decade. For the 12-year period ending December 31, 1971, the 10 largest banking organizations increased their aggregate share of total deposits by a single percentage point. WTB's percentage of total deposits in the State was essentially stable for this period, decreasing from 1.5% to 1.4%. From 1960 to 1971 the number of commercial banks in Washington increased by five.
"(7) That for a stated number of years, which shall be not less than ten nor more than twenty years from the date of approval of the articles (a) no voting share of the corporation shall, without the prior written approval of the supervisor, be affirmatively voted for any proposal which would have the effect of sale, conversion, merger, or consolidation to or with, any other banking entity or affiliated financial interest, whether through transfer of stock ownership, sale of assets, or otherwise, (b) the corporation shall take no action to consummate any sale, conversion, merger, or consolidation in violation of this subdivision, (c) this provision of the articles shall not be revoked, altered, or amended by the shareholders without the prior written approval of the supervisor, and (d) all stock issued by the corporation shall be subject to this subdivision and a copy hereof shall be placed upon all certificates of stock issued by the corporation."
"A corporation or association organized under the laws of this state, or licensed to transact business in the state, shall not hereafter acquire any shares of stock of any bank, trust company, or national banking association which, in the aggregate, enable it to own, hold, or control more than twenty-five percent of the capital stock of more than one such bank, trust company, or national banking association: Provided, However, That the foregoing restriction shall not apply as to any legal commitments existing on February 27, 1933: And Provided, Further, That the foregoing restriction shall not apply to prevent any such corporation or association which has its principal place of business in this state from acquiring additional shares of stock in a bank, trust company, or national banking association in which such corporation or association owned twenty-five percent or more of the capital stock on January 1, 1961.
"A person who does, or conspires with another or others in doing, an act in violation of this section shall be guilty of a gross misdemeanor. A corporation that violates this section, or a corporation whose stock is acquired in violation hereof, shall forfeit its charter if it be a domestic corporation, or its license to transact business if it be a foreign corporation; and the forfeiture shall be enforced in an action by the state brought by the attorney general."
"whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless it finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served." 12 U. S. C. § 1828 (c) (5) (B).
"No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."
With regard to the skeletal conclusions of law entered by the District Court, we reiterate that direct appeals of such cases, "the trials of which usually result in long and complex factual records, come here without the benefit of any sifting by the Courts of Appeals." El Paso Natural Gas Co., supra, at 663 (separate opinion of Harlan, J.). Accordingly, if the District Court does not enter an opinion analyzing the relevant precedents in light of the record, we are deprived of this helpful guidance.
"We leave for another day the question of the applicability of § 7 to a merger that will leave competition in the marketplace exactly as it was, neither hurt nor helped, and that is challengeable under § 7 only on grounds that the company could, but did not, enter de novo or through `toe-hold' acquisition and that there is less competition than there would have been had entry been in such a manner."
The Government suggests that a sponsored bank could create a number of branches before being acquired. Brief for United States 50 n. 47. The Government offered no proof that this has ever occurred in Washington. Undertaking sponsorship on such a scale is probably unrealistic, and it would multiply the problems of obtaining approval of a sponsorship plan from bank regulatory agencies. In any event, nothing in § 7 of the Clayton Act requires a firm to go to such lengths in order to avoid a merger that has no effect on concentration in the relevant market in the first place.
"If the company would have remained outside the market but for the possibility of entry by acquisition, and if it is exerting no influence as a perceived potential entrant, then there will normally be no competitive loss when it enters by acquisition. Indeed, there may even be a competitive gain to the extent that it strengthens the market position of the acquired firm." (Footnote omitted.)