U. S. v. CITIZENS & SOUTHERN NATIONAL BANK

MR. JUSTICE STEWART delivered the opinion of the Court.

For many years the State of Georgia restricted banks located in cities from opening branches in suburban areas. To circumvent these restrictions in the Atlanta area, the Citizens & Southern National Bank (C&S National) formed the Citizens & Southern Holding Company (C&S Holding), and the latter company embarked on a program of forming de facto branch banks in the suburbs of Atlanta. This program involved, among other features, ownership by C&S Holding of 5 percent of the stock of each of the suburban banks (the maximum allowed by state law), ownership of much of the remaining stock by parties friendly to C&S,1 use by the suburban banks of the C&S logogram and of all of C&S's banking services, and close C&S oversight of the operation and governance of the suburban banks. The expectation on all sides—by C&S, by the suburban banks, and by state and federal bank regulators—was that C&S would acquire these "5-percent banks" outright, and convert them into de jure branches, as soon as state law, or the Atlanta city limits, were altered so as to permit the accomplishment of this end.

In 1970, Georgia amended its banking statutes to allow de jure branching on a countywide basis. Because the city of Atlanta is contained within two counties, DeKalb and Fulton, which encompass the Atlanta suburbs in which the 5-percent banks operated, this change in the law meant that C&S National could now absorb the 5-percent banks as true branches. C&S consequently applied to the Federal Deposit Insurance Corporation (FDIC), under the Bank Merger Act of 1966, 80 Stat. 7, 12 U. S. C. § 1828, for permission to acquire all of the stock of six of the 5-percent banks historically operated by C&S as de facto branches. The FDIC authorized all but one of the proposed acquisitions.

The Justice Department immediately commenced this litigation in a Federal District Court for injunctive relief, alleging that the five acquisitions authorized by the FDIC would lessen competition in relevant banking markets, and thus violate § 7 of the Clayton Act, 38 Stat. 731, as amended, 64 Stat. 1125, 15 U. S. C. § 18, and that the historic "de facto branch" relations between C&S and the six 5-percent banks constituted unreasonable restraints of trade in violation of § 1 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. § 1. After a trial, the court rendered judgment for C&S on all the issues. 372 F.Supp. 616. The Government appealed under § 2 of the Expediting Act, 32 Stat. 823, as amended, 15 U. S. C. § 29, and we noted probable jurisdiction.2

I. The Background of This Litigation

In applying the antitrust laws to banking, careful account must be taken of the pervasive federal and state regulation characteristic of the industry, "particularly the legal restraints on entry unique to this line of commerce." United States v. Marine Bancorporation, 418 U.S. 602, 606. This admonition has special force in the present case, for the de facto branch arrangements and the proposed acquisitions involved here were a direct response to Georgia's historic restrictions on branch banking.

Before 1927 Georgia permitted statewide branching, and C&S National, then as now headquartered in Savannah, established three branches in the city of Atlanta. In 1927, state law was changed to prohibit all branching.3 C&S therefore decided to expand through the formation of a bank holding company. C&S Holding was founded in 1928, and between 1946 and 1954 this company purchased two banks, and founded a third, in the Atlanta area. But in 1956 Georgia again altered its statutes to prohibit a bank holding company from acquiring more than 15 percent of a bank's stock. Georgia Bank Holding Company Act, 1 Ga. Laws 1956, pp. 309-312. A 1960 amendment, still in force, reduced the maximum ownership level to 5 percent. Ga. Code Ann. 13-207 (a) (2) (1967 ed. and Supp. 1974).

By the 1950's, C&S National was interested primarily in suburban expansion. The Atlanta city limits had been frozen since 1952, and the area's economic and population growth consequently occurred primarily outside the city's boundaries. Between 1959 and 1969, C&S Holding accordingly established in the Atlanta suburbs (in DeKalb and Fulton Counties) the six 5-percent banks at issue in this case. Five of these banks were founded under the sponsorship of C&S; the sixth, the Tucker Bank, had long been an independent suburban bank when, in 1965, C&S converted it into a 5-percent bank.4

Each of these six banks was made a "correspondent associate" bank within the C&S system. This status involved many different relationships between the 5-percent bank and C&S: In addition to the 5-percent stock held by C&S Holding, substantial shares were also held by officers, shareholders, and friendly customers of other C&S banks, and by their family members. It was understood from the outset that the 5-percent banks would be acquired outright by C&S as soon as the law permitted. From at least 1965 on, the 5-percent banks used the C&S logogram on their buildings, papers, and correspondence. C&S filed the charter applications of the 5-percent banks and openly assured the banks of full financial support, assurances which were often instrumental in securing regulatory approval of their creation. C&S chose the principal executive officer for each 5-percent bank. The employees of these banks were accorded the same pension and promotion rights in the C&S system as possessed by their colleagues at C&S National and its de jure affiliates. C&S selected the location of, and oversaw the selection of directors for, the suburban banks. A C&S executive served as an "advisory director" to each suburban bank. C&S conducted surprise audits and credit checks at the suburban banks. Each of the suburban banks provided the full panoply of C&S banking services, and customers of any 5-percent bank could avail themselves of these services at any of the other 5-percent banks, or at C&S National and its de jure branches. C&S supplied to each 5-percent bank, through manuals and memoranda, a large quantity of information concerning every conceivable banking procedure and problem. Included were data—stamped "for information only"—concerning interest rates and service charges employed by C&S National and its de jure branches, but each 5-percent bank was cautioned to use its own judgment in setting interest rates and service charges. In sum, it is fair to say—and the parties agree—that in almost every respect save corporate form, each of the 5-percent banks was a de facto branch of C&S National.

Between 1966 and 1968, the Federal Reserve Board investigated C&S's network of correspondent associate banks. The purpose of the investigation was to determine whether C&S was exerting such control over the 5-percent banks as to require special "approval" of the Federal Reserve Board pursuant to § 3 of the Bank Holding Company Act of 1956, as amended. 12 U. S. C. § 1842. The investigation ended in an "understanding" between the Board's staff and C&S that the "correspondent associate" program, as the staff understood it, did not require formal approval.5 The Justice Department participated in this investigation, and took no action of any kind inconsistent with this "understanding."

In 1970 Georgia amended its banking statutes to permit de jure branching within any county in which a bank already had an office. Ga. Code Ann. 13-203.1 (a) (Supp. 1974). This allowed C&S National to branch into those Atlanta suburbs which—like the city of Atlanta—are within the confines of DeKalb and Fulton Counties. C&S decided to convert the six 5-percent banks at issue here into de jure branches. C&S applied to the FDIC for permission to acquire all of the assets, and to assume all of the liabilities, of the 5-percent banks.6 On October 4, 1971, after reviewing reports on the proposed acquisitions from the Federal Reserve Board, the Comptroller of the Currency, and the Justice Department, the FDIC approved C&S's acquisition of the five suburban banks which C&S had helped to found, but disapproved acquisition of the Tucker Bank. Because the Tucker Bank had enjoyed an independent existence before being converted into a 5-percent bank, the FDIC concluded that the correspondent associate affiliation there had been "anticompetitive in its origins" and should not be "ratified" by approval of outright acquisition.7 As for the five banks which C&S had helped to found, however, the FDIC stated:

The FDIC noted that the C&S system was the largest commercial banking institution in Fulton County and in DeKalb County.8 For this reason, it observed, "new acquisitions of nonaffiliated banks in the same market [by C&S] would raise the most serious competitive problems under the Bank Merger Act as amended and under Section 7 of the Clayton Act." But the FDIC reasoned that the acquisitions proposed by C&S did not raise such problems because the banks involved in the proposed mergers "do not compete today and never have competed": further, there existed "no reasonable probability" that any of the 5-percent banks would break their ties with the C&S system even if the proposed acquisitions were disapproved. Thus, "[s]uch mergers would not alter the existing competitive structure . . . in any way or add to the concentration of banking resources now held by the C&S system."

II. The Suit in the District Court

On November 2, 1971, within the 30-day period prescribed for such suits, 12 U. S. C. §§ 1828 (c) (6) and (7), the United States filed a complaint in the District Court for the Northern District of Georgia, alleging that the five acquisitions approved by the FDIC would violate § 7 of the Clayton Act and that the ongoing correspondent associate relationships between C&S and the six 5-percent banks which it had originally sought to acquire constituted unreasonable restraints of trade, in violation of § 1 of the Sherman Act. The Government sought injunctive relief prohibiting the proposed acquisitions and terminating the alleged violations of the Sherman Act. On January 24, 1974, after an extensive trial, the District Court entered a judgment for the defendants. 372 F.Supp. 616, 643.

As to the Sherman Act allegations, the District Court based its judgment upon two separate and independent grounds. First, it held that the 1968 "understanding" between the staff of the Federal Reserve Board and C&S insulated the correspondent associate relationship between C&S and the 5-percent banks from attack under the antitrust laws. Id., at 627. The court based this conclusion on the following statement in Whitney Bank v. New Orleans Bank, 379 U.S. 411, 419:

Alternatively, assuming the Sherman Act applied, the District Court found that the United States had failed to prove that the correspondent associate relationships involved "collusive price fixing" or "any agreements not to compete or for market division."9 The court held "that the matters complained of are subject to the `rule of reason,' [and] . . . the Government has not sustained its burden of proof as to the unreasonableness of the practices involved or with respect to any adverse impact upon competition." 372 F. Supp., at 627-628.

The Government had conceded that it was no violation of the Sherman Act for a large city bank to arrange a traditional "correspondent" relationship with a smaller, outlying bank—a " `mutually beneficial arrangement whereby the smaller bank receives needed services and the larger bank obtains both the benefit of the correspondent bank balance kept with it and the income from the sale of its services to the smaller bank's customers.' " Id., at 628. Noting this concession, the District Court observed:

Turning to the claim under § 7 of the Clayton Act, the court found that the various defendant banks were each "engaged in commerce" and that the relevant "line of commerce" was "commercial banking." The court declined, however, to define the appropriate geographic markets, stating that its "disposition of the case is based upon factors which make a precise delineation of the market area unnecessary." 372 F. Supp., at 629. Simply assuming the correctness of the Government's position that the appropriate markets were DeKalb County, Fulton County, North Fulton County, or the Atlanta area generally, the court made detailed findings as to the effect of the proposed acquisitions on C&S's nominal market shares. Id., at 629-633.10 But, just as had the FDIC before it, the court saw these increases in nominal shares as of no competitive significance because the 5-percent banks had always been de facto branches within the C&S system. Id., at 633-638.11

III. The Issues Under the Sherman and Clayton Acts

It is common ground in this case that the 5-percent banks have been operated from the outset substantially as de facto branches of C&S, even though they are and have always been separate corporate entities. From these agreed-upon facts, the parties draw sharply divergent conclusions under the Sherman and Clayton Acts.

Section 1 of the Sherman Act, 15 U. S. C. § 1, provides:

The Government contends that the relationships between C&S and the six 5-percent banks constituted unreasonable restraints of trade on two alternative theories: (1) The relationships encompassed an agreement to fix interest rates and service charges among the 5-percent banks, and between these banks and C&S-owned banks, resulting in a "per se" violation of the Sherman Act (2) The programs unreasonably restrained interbank competition, as to prices and services, by extending interbank cooperation far beyond the conventional "correspondent" arrangements which large city banks traditionally make with small banks in outlying markets. C&S denies that its relationships with the 5-percent banks encompassed any agreements to fix prices and contends that the process of de facto branching was a procompetitive response to Georgia's anticompetitive ban on de jure branching, and thus legal under the Sherman Act's "rule of reason." In the alternative, C&S contends that its relationships with the 5-percent banks were subject to the "exclusive primary jurisdiction" of the Federal Reserve Board and thus immune from attack under § 1 of the Sherman Act.

Section 7 of the Clayton Act, 15 U. S. C. § 18, provides:

The Government argues that the acquisitions of the five suburban banks approved by the FDIC would "lessen" competition when compared to what the situation would be if the defendant banks ceased their alleged violations of the Sherman Act. The Government further contends that, even if the present relationships between C&S and the 5-percent banks do not offend the Sherman Act, since the relationships might nevertheless change and the whole situation become more competitive for business or state-law reasons, the proposed acquisitions violate § 7 by foreclosing this possibility. C&S argues that the acquisitions would merely convert de facto into de jure branches, with no perceptible effect on competition compared with the present situation, which is asserted by C&S to be lawful under the Sherman Act. C&S urges that there is no realistic possibility of future competition among the defendant banks. In the alternative, C&S contends that each of the 5-percent banks operates in a distinct and segregable market, so that the proposed acquisitions would not lessen competition in any relevant "section of the country"; and that any anticompetitive effects of the acquisitions are "outweighed in the public interest" because the acquisitions meet "the convenience and needs" of banking customers in the Atlanta area.13 The District Court did not reach these alternative contentions.

A. The Sherman Act Issues

1. The Question of Immunity

The District Court thought the correspondent associate programs immune from Sherman Act scrutiny because they were subject to the "exclusive primary jurisdiction" of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. We do not so understand the law. The court relied on Whitney Bank v. New Orleans Bank, 379 U.S. 411, but the question in that case was the wholly different one of whether it is the Comptroller of the Currency or the Federal Reserve Board that has jurisdiction to determine whether transactions by a bank holding company conform with applicable state banking law. For guidance as to antitrust immunities, recourse must be had directly to the provisions of the Bank Holding Company Act, 12 U. S. C. § 1841 et seq.

The statutory scheme requires the "prior approval" of the Federal Reserve Board for certain transactions by bank holding companies—including transactions tending to create or enlarge holding company control of independent banks. 12 U. S. C. § 1842 (a).14 The types of transactions requiring Board approval were expanded by amendments to the Act in 1966 and 1970.15 Prior to 1966, it appeared that Board approval of a transaction provided no immunity from antitrust action, for a note then set out under 12 U. S. C. § 1841 stated that nothing in the Act was to be construed as a "defense" to an antitrust suit. The 1966 amendments to the Act formalized this provision, but also blunted its force by establishing an intricate procedure for accommodating the jurisdictions of the Board and the Justice Department.16 Under the Act as amended, the Board "shall not approve" an otherwise forbidden transaction unless it meets certain antitrust standards derived from, but not everywhere identical to, the standards of the Sherman Act and of § 7 of the Clayton Act. 12 U. S. C. § 1842 (c). The Board's order granting or denying an application for prior approval is subject to review in the courts of appeals. 12 U. S. C. § 1848. Furthermore, an approved transaction is stayed automatically for 30 days, during which time an antitrust suit challenging the transaction may be brought in the district court. 12 U. S. C. § 1849 (b). Such a suit is governed by the modified antitrust standards set out in § 1842 (c). If the antitrust suit is not brought within 30 days, and the transaction is consummated,

C&S can draw no consolation from these provisions. It is true that the staff of the Federal Reserve Board, in 1968, came to an "understanding" with C&S that the correspondent associate programs then in effect did not offend § 3 of the Bank Holding Company Act, 12 U. S. C. § 1842 (a), and thus did not require formal Board "approval."17 But this did not give rise to any antitrust immunity. A consummated transaction acquires immunity under § 1849 (b) only when no antitrust action has been commenced within 30 days after the transaction has received the "approval" of the Board, in an order which is subject to judicial review and which reflects application by the Board of the special antitrust standards of § 1842 (c). The immunity applies only to "an acquisition, merger, or consolidation transaction approved under section 1842 of this title in compliance with this chapter." § 1849 (b). The obvious purpose of the complex machinery in § 1849 (b) is to accord finality to formal actions of the Board not subjected to timely challenge under the antitrust laws. There is no indication that Congress wished to accord a similar finality to the informal views of the Board's staff.

We note, however, that the 1966 amendments also added a "grandfather" provision to the Bank Holding Company Act, 12 U. S. C. § 1849 (d):

Unlike § 1849 (b), this provision does not state or imply that the covered transactions must have received the formal approval of the Federal Reserve Board. This grandfather provision is not, like § 1849 (b), an attempt to accommodate the competing jurisdictions of the Federal Reserve Board under § 1842 and the Justice Department under the antitrust laws. Rather, the grandfather provision is a simple conferral of legislative amnesty for theretofore unchallenged transactions completed before Congress had clarified the nature of that accommodation.

The transactions by which C&S created a correspondent associate relationship with three of the 5-percent banks—the Sandy Springs, Chamblee, and Tucker banks—were consummated prior to July 1966, and the Attorney General had taken no action against those transactions by that date. Those transactions thus fall within the terms of the grandfather provision, and the correspondent associate programs in force at those three banks are, therefore, immune from attack under § 1 of the Sherman Act.

While the formation by C&S of a de facto branch was a unique type of transaction, it may fairly be characterized as an "acquisition, merger, or consolidation of the kind described in § 1842 (a)." Forming a de facto branch was a multifaceted operation—involving a multiplicity of purchases of stock by a number of parties, the adoption of the C&S logogram by the de facto branch, the connection of the de facto branch with C&S personnel and information programs, the structuring of the bank to receive and administer all C&S banking services, and the establishment of formal C&S influence over the board of directors at the de facto branch. But even before its scope was expanded in 1970, § 1842 (a) was concerned with more than the literal "acquisition" of stock: It took broad account of the "indirect" control of stock, and the control of boards of directors "in any manner," by bank holding companies.18 The grandfather provision creates immunity under § 1 of the Sherman Act, not simply under § 7 of the Clayton Act, an indication that its protection extends not merely to literal acquisitions, mergers, and consolidations, but also to "restraints of trade" simultaneous with and functionally integral to such transactions. Though multifaceted, the formation by C&S of a de facto branch was a unitary and cohesive undertaking in the sense that all the facets were closely coordinated, simultaneously instituted, and designed to serve the single purpose of fitting the new bank into the "C&S system." There is virtually nothing about the present correspondent associate programs that was not fully evident and in place from the moment the programs were launched. There has been no increase in C&S control, nor any change in the way it has been exercised.

Whether these programs violated § 1842 (a)—as it applies today or as it applied when the programs began —is not relevant to our inquiry.19 By its terms, the grandfather provision applies to transactions of the kind described in § 1842 (a). We cannot believe that Congress wished to grant the benefits of the provision only to transactions that plainly transgressed § 1842 (a). Such a construction would make application of the grandfather provision not only cumbersome and time consuming,20 but also flagrantly inequitable. The formation of a de facto C&S branch involved the direct and indirect acquisition of bank stock, and the direct and indirect assertion of control over the governance and operations of a bank, by a bank holding company. Though unusual in form, such a transaction quite clearly falls within the class of dealings by bank holding companies which Congress intended, in § 1849 (d), to shield from retroactive challenge under the antitrust laws.

2. De Facto Branching Under the Sherman Act

Three of the 5-percent banks—the Park National, South DeKalb, and North Fulton banks—were formed after July 1, 1966, and their correspondent associate relationships with C&S are therefore beyond the reach of the grandfather provision of the Bank Holding Company Act and subject to scrutiny under the Sherman Act.

Each of these banks was founded ab initio through the sponsorship of C&S. Except for that sponsorship, they would very probably not exist. The record shows that other banking organizations had been unsuccessful in attempting to launch new banks in the area, and C&S affiliation and financial backing were instrumental in convincing state and federal banking authorities to charter these new banks. In short, these banks represented a policy by C&S of de facto branching through the formation of new banking units, rather than through the acquisition, and consequent elimination, of pre-existing, independent banks.21

Of necessity, the Government's attack on this process is highly technical. Had the new banks been de jure branches of C&S, the whole process would have been beyond reproach. Branching allows established banks to extend their services to new markets, thereby broadening the choices available to consumers in those markets.22 Having access to parent-bank financial support, expert advice, and proved banking services, branches of several city banks can often enter a market not yet large or developed enough to support a variety of independent, unit banks. Branching thus offers competitive choice to markets where monopoly or oligopoly might otherwise prevail. Furthermore, the branching process gives to outlying customers the benefit of sophisticated services which local unit banks might have little ability or incentive to deliver. The Government denies none of this, nor that C&S's program of de facto branching was, until 1970, the closest substitute to de jure branching allowed under Georgia law. Yet the Government insists that this de facto branching violated the Sherman Act because the parent bank and its de facto branches were legally distinct corporate entities and were obligated, therefore, to compete vigorously against each other.

It is, of course, conceded that C&S's de facto branches have not behaved as active competitors with respect either to each other or to C&S National and its majority-owned affiliates. But the Government goes further and contends that the correspondent associate programs have actually encompassed at least a tacit agreement to fix interest rates and service charges, see Interstate Circuit, Inc. v. United States, 306 U.S. 208, 227; United States v. Masonite Corp., 316 U.S. 265, 275-276; United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 723; United States v. General Motors Corp., 384 U.S. 127, 142-143, so as to make the interrelationships—to that extent at least—illegal "per se." See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224-226, n. 59; United States v. Parke, Davis & Co., 362 U.S. 29, 47. C&S vigorously denies the existence of any agreement to fix prices. The evidence in the record is mixed.

C&S did regularly notify the 5-percent banks—as it did its de jure branches—of the interest rates and service charges in force at C&S National and its affiliates. But the dissemination of price information is not itself a per se violation of the Sherman Act. See Maple Flooring Assn. v. United States, 268 U.S. 563; Cement Mfrs. Protective Assn. v. United States, 268 U.S. 588; United States v. Container Corp., 393 U.S. 333, 338 (concurring opinion). A few of the memoranda distributed by C&S could be construed as advocating price uniformity; on the other hand, the memoranda were almost without exception stamped "for information only," and the 5-percent banks were admonished by C&S, several times and very clearly, to use their own judgment in setting prices; indeed, the banks were warned that the antitrust laws required no less. The District Court observed that in fact prices did not often vary significantly among the 5-percent banks or between these banks and C&S National, but the court attributed this to the "natural deference of the recipient to information from one with greater expertise or better services." 372 F. Supp., at 628. And the court found as a fact that there was no "collusive price fixing." Id., at 626.

Were we dealing with independent competitors having no permissible reason for intimate and continuous cooperation and consultation as to almost every facet of doing business, the evidence adduced here might well preclude a finding that the parties were not engaged in a conspiracy to affect prices. But, as we indicate below, the correspondent associate programs, as such, were permissible under the Sherman Act. In this unusual light, we cannot hold clearly erroneous the District Court's finding that the lack of significant price competition did not flow from a tacit agreement but instead was an indirect, unintentional, and formally discouraged result of the sharing of expertise and information which was at the heart of the correspondent associate programs. Fed. Rule Civ. Proc. 52 (a); United States v. General Dynamics Corp., 415 U.S. 486, 508.

The Government argues, alternatively, that the correspondent associate programs have gone far beyond conventional "correspondent" relationships, and that consequently these programs have "unreasonably" restrained competition among the 5-percent banks and between these banks and C&S National. The District Court was not persuaded by this theory:

The court's dilemma is understandable, for in neither law nor banking custom has there developed a clear, fixed definition of the correspondent relationship:23

Among the services typically provided within a conventional correspondent arrangement are check clearing, help with bill collections, participation in large loans, legal advice, help in building securities portfolios, counselling as to personnel policies, staff training, help in site selection, auditing, and the provision of electronic data processing. Furthermore, like C&S's program, the correspondent arrangement is often established as a prelude to a formal merger between the two banks.24

Nevertheless, C&S's program does appear to have gone several steps beyond conventional correspondent arrangements. C&S has closely advised the boards of directors of the 5-percent banks, supplied their chief executive officers, allowed full "branchlike" use of the C&S logogram, provided all the C&S services available at a de jure branch, dealt with the 5-percent banks through the C&S branch administration department, and provided constant and detailed information on prices and on all banking procedures.25 It is conceivable that these relationships, separately or taken together, have restrained competition among the defendant banks more thoroughly or effectively than would have a conventional correspondence program. But even if the Government had proved this, which the District Court found not to be the case, that alone would not make out a Sherman Act violation. C&S has operated the 5-percent banks as de facto branches as a direct response to Georgia's historic restrictions on de jure branching, and the question therefore remains whether restraints of trade integral to this particular, unusual function are unreasonable. See Chicago Board of Trade v. United States, 246 U.S. 231, 238. We turn directly to that question.

The central message of the Sherman Act is that a business entity must find new customers and higher profits through internal expansion—that is, by competing successfully rather than by arranging treaties with its competitors. This Court has held that even commonly owned firms must compete against each other, if they hold themselves out as distinct entities. "The corporate interrelationships of the conspirators . . . are not determinative of the applicability of the Sherman Act." United States v. Yellow Cab Co., 332 U.S. 218, 227. See also Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 215; Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598; Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 141-142. A fortiori, independently owned firms cannot escape competing merely by pretending to common ownership or control, for the pretense would simply perfect the cartel. We may also assume, though the question is a new one, that a business entity generally cannot justify restraining trade between itself and an independently owned entity merely on the ground that it helped launch that entity, by providing expert advice or seed capital. Otherwise the technique of sponsorship followed by restraint might displace internal growth as the normal and legitimate technique of business expansion, with unknowable consequences.

But these general principles do not dispose of the present case. C&S was absolutely restrained by state law from reaching the suburban market through the preferred process of internal expansion. De facto branching was the closest available substitute.26 Just last Term, in a brief presented to this Court, the Justice Department told us that it was desirable and procompetitive for a bank to "[enter] de novo into areas foreclosed to branching by sponsoring the organization of an affiliate bank, and later acquiring the bank. This method of expansion is legal and a well-recognized practice used by large statewide banking organizations, and recognized by the federal banking authorities."27 The Government acknowledged that such a sponsored bank could "be affiliated with its sponsor for purposes of correspondent relationships and other inter-bank services, including financial support," and that it could be "formed" by the parent bank's "officers, directors, or their associates" and could be "assisted" by the parent firm "until acquired and converted into a branch."28 This is as good a curbstone description as any of precisely the relationships at issue in the present case.29

To characterize these relationships as an unreasonable restraint of trade is to forget that their whole purpose and effect were to defeat a restraint of trade. Georgia's antibranching law amounted to a compulsory market division. Accomplished through private agreement, market division is a per se offense under the Sherman Act:

The obvious purpose and effect of a rigid antibranching law are to make the potential bank customers of suburban, small town, and rural areas a captive market for small unit banks.30 C&S devised a strategy to circumvent this statutory barrier. By providing new banking options to suburban Atlanta customers, while eliminating no existing options, the de facto branching program of C&S has plainly been procompetitive.

The Government suggests that a "conventional" correspondent relationship between C&S and the 5-percent banks would have been equally procompetitive and would have had the added virtue of facilitating competition among the 5-percent banks and between them and C&S National. This is mere speculation on the present record. Moreover, it is far from clear that a conventional correspondent relationship would have allowed C&S to put its full range of services into the suburban market which, in light of the antibranching law, was the very point of its policy and program. Putting to one side the total lack of realism in suggesting that C&S might have founded new banks that would have competed vigorously with it and with each other, cf. United States v. Penn-Olin Chemical Co., 378 U.S. 158, 169, the Government's argument wholly disregards C&S's ultimate goal of acquiring the new banks outright as soon as legally possible, a goal which the Government last year thought wholly proper. We hold that, in the face of the stringent state restrictions on branching, C&S's program of founding new de facto branches, and maintaining them as such, did not infringe § 1 of the Sherman Act.

B. The Clayton Act Claim

In the light of the previous discussion, disposition of the Clayton Act claim becomes relatively straight-forward. The issue under § 7 of the Clayton Act is whether the effect of the proposed acquisitions, approved by the FDIC, "may be substantially to lessen competition . . . in any line of commerce in any section of the country."

The Government established that C&S is the predominant banking institution in DeKalb County, Fulton County, North Fulton County, and the Atlanta area generally; that in these markets the commercial banking industry is quite highly concentrated in terms of market share statistics; and, of course, that the proposed acquisitions would increase C&S's nominal market shares.31 The District Court did not decide whether the geographic markets proposed by the Government were the appropriate ones. But assuming, arguendo, that they were, the Government plainly made out a prima facie case of a violation of § 7 under several decisions of this Court. See United States v. Philadelphia National Bank, 374 U.S. 321, 362-366; United States v. Phillipsburg National Bank & Trust Co., 399 U.S. 350, 365-367; United States v. General Dynamics Corp., 415 U. S., at 497. It was thus incumbent upon C&S to show that the market-share statistics gave an inaccurate account of the acquisitions' probable effects on competition. United States v. General Dynamics Corp., supra, at 497-498; United States v. Marine Bancorporation, 418 U. S., at 631. The District Court, like the FDIC before it, concluded that C&S had made the necessary showing that these proposed acquisitions would not "lessen" competition for the simple reason that under the correspondent associate program that had been continuously in effect, no real competition had developed or was likely to develop among the 5-percent banks, or between these and C&S National.

As to present and past competition, the Government agrees there is and has been none. If this state of affairs were the result of violations of the Sherman Act, we agree with the Government that making the evil permanent through acquisition or merger would offend the Clayton Act. See Citizen Publishing Co. v. United States, 394 U.S. 131, 135. But we have already concluded that C&S's program of founding and maintaining new de facto branches in the face of Georgia's antibranching law did not violate the Sherman Act, and the de facto branches which C&S proposes to acquire were all founded ab initio with C&S sponsorship. It thus indisputably follows that the proposed acquisitions will extinguish no present competitive conduct or relationships. See United States v. Trans Texas Bancorporation, 412 U.S. 946, aff'g per curiam 1972 Trade Cas. ¶ 74,257 (WD Tex.).

As for future competition, neither the District Court nor the FDIC could find any realistic prospect that denial of these acquisitions would lead the defendant banks to compete against each other. The 5-percent banks theoretically could break their ties with C&S and its correspondent associate program, for these banks are each independently owned, but the record shows that none of the shareholders, directors, or officers of the 5-percent banks expressed any inclination to do so, and there was no evidence that the program has been other than beneficial and profitable for both C&S and the 5-percent banks.32 The Clayton Act is concerned with "probable" effects on competition, not with "ephemeral possibilities." Brown Shoe Co. v. United States, 370 U.S. 294, 323.

For the reasons set out in this opinion, the judgment of the District Court is affirmed.

It is so ordered.

APPENDIX TO OPINION OF THE COURT

The District Court summarized the structure of various banking markets in the Atlanta area, and the statistical effects of the proposed acquisitions, in the following way, 372 F. Supp., at 629-632:

DeKalb County

Treating C&S National, C&S Emory and C&S DeKalb as one banking organization, there are 19 commercial banking organizations operating offices in DeKalb County. In terms of total deposits and total individual, partnership and corporation ("IPC") demand deposits held by all banking offices located in DeKalb County, the top 4 banks, respectively, are C&S (offices of C&S National in DeKalb County, C&S Emory and C&S DeKalb), First National Bank of Atlanta, Trust Company of Georgia, and Fulton National Bank. In terms of outstanding loans, the top 4 banks are C&S (offices of C&S National in DeKalb County, C&S Emory and C&S DeKalb), Trust Company of Georgia, Tucker and Fulton National Bank. The shares of total deposits, total loans and total IPC demand deposits accounted for by the four largest banks are as follows:

                                                     IPC
                    Total           Total           Demand
                   Deposits         Loans           Deposits
Banks             (12/31/71)      (12/31/71)       (6/30/72)
_____             __________      __________       _________

Top 2.............  38.3%           42.7%             34.8%
Top 3.............  51.8%           52.4%             47.3%
Top 4.............  62.9%           61.8%             58.2%

C&S (offices of C&S National in DeKalb County, C&S Emory and C&S DeKalb) accounts for the following shares of total deposits, total loans and total IPC demand deposits held by all banking offices located in DeKalb County.

                                                     IPC
                    Total           Total           Demand
                   Deposits         Loans           Deposits
Bank              (12/31/71)      (12/31/71)       (6/30/72)
____              __________      __________       _________

C&S ...............  24.1%          28.5%            20.1%

Chamblee, Park National and South DeKalb, all of whose banking offices are located in DeKalb County, account for the following shares of total deposits, total loans and total IPC demand deposits held by all banking offices located in DeKalb County:

                                                     IPC
                    Total           Total           Demand
                    Deposits        Loans           Deposits
Banks              (12/31/71)     (12/31/71)       (6/30/72)
_____              __________     __________       _________

Chamblee ...........  5.7%          5.7%             5.9%
Park National.......  2.9%          1.5%             3.0%
South DeKalb........  1.8%          2.5%             1.9%
                      _____         ____             ____
                      10.4%         9.7%             10.8%

Depending on the unit of measurement, Chamblee is the third or fourth largest bank headquartered in DeKalb County.

If the proposed mergers were approved, the C&S system (which would include offices of C&S National and South DeKalb) would account for 34.5% of the total deposits of all the banking offices located in DeKalb County, 38.2% of the total loans and 30.9% of the total IPC demand deposits. C&S would also be acquiring the third (or fourth) largest bank headquartered in DeKalb County.

If the proposed mergers were approved, the four largest banks would account for the following shares of the DeKalb County market:

                                                      IPC
                                       Total         Demand
Banks                 Deposits         Loans         Deposits
_____                 ________         ______       _________

Top 2 after mergers..   48.7%           52.4%          45.6%
Top 3 after mergers..   62.2%           62.1%          58.1%
Top 4 after mergers..   73.3%           71.5%          69.0%

Thus, if the proposed mergers were approved, the C&S system's share of total deposits, for example, would increase from about 24% to 34%, or an increase of about 40%. The share of total deposits accounted for by the top 4 banks would increase from about 63% to 73%, while that of the top 2 and top 3 banks would increase from 38% to 49% and from 52% to 62%, respectively.

North Fulton County

There are nine commercial banks operating offices in North Fulton County. In terms of total deposits and total IPC demand deposits held by all banking offices located in North Fulton County, the top 4 banks, respectively, are Sandy Springs, Roswell Bank, Fulton Exchange Bank and North Fulton. On June 30, 1970, however, there were only five banks operating offices in North Fulton County: the four banks just mentioned and Trust Company of Georgia Bank of Sandy Springs, which is now a branch of Trust Company of Georgia. The shares of total deposits and IPC demand deposits accounted for by the four largest banks are as follows:

                   IPC            IPC
                 Demand          Demand         Total
                 Deposits        Deposits      Deposits
Banks           (6/30/72)       (6/30/70)     (6/30/70)
_____           __________      __________    _________

Top 2............  57.8%         66.4%            64.0%
Top 3............  70.1%         78.9%            80.2%
Top 4............  80.3%         90.7%            91.9%

As of June 30, 1972, the North Springs Office of C&S East Point accounted for 1.7% of total IPC demand deposits held by all banking offices located in North Fulton County.

As of June 30, 1972, Sandy Springs and North Fulton accounted for 36.4% and 10.2%, respectively, of total IPC demand deposits held by all banking offices located in North Fulton County. As of June 30, 1970, they accounted for 34.4% and 11.7%, respectively, of total deposits held by all commercial banking offices located in North Fulton County.

If the proposed mergers were approved, the C&S system (which would include C&S East Point's North Springs Office. North Fulton and Sandy Springs) would account for 48.3% of the total IPC demand deposits held by all commercial banking offices located in North Fulton County and the four largest banks would account for the following shares of IPC demand deposits in North Fulton County:

                                                   IPC
                                                  Demand
Banks                                             Deposits
_____                                             ________

Top 2 after mergers................................  69.7%
Top 3 after mergers................................  82.0%
Top 4 after mergers................................  92.0%

Thus, if the proposed mergers were approved, the C&S system's1 share of total IPC demand deposits held by all banking offices located in North Fulton County would increase from 1.7% to 48.3%, and the C&S system's share in this area would be twice that of the second largest banking organization, the Roswell Bank. Two of the four largest banks in the area would become part of the Atlanta area's largest banking organization. In addition, the share of total IPC demand deposits accounted for by the top 4 banks would increase from 80.3% to 92.0%, while the shares of the top 2 and top 3 banks would increase from 57.8% to 69.7% and from 70.1% to 82.0%, respectively.

Fulton County

Treating C&S National and C&S East Point as one banking organization, there are 18 commercial banking organizations operating offices in Fulton County. In terms of total loans, deposits and IPC demand deposits held by all banking offices located in Fulton County, the top 4 banks, respectively, are C&S (offices of C&S National in Fulton County and C&S East Point), First National Bank of Atlanta, Trust Company of Georgia and Fulton National Bank. The shares of total loans, deposits and IPC demand deposits accounted for by the four largest banks are as follows:2

                                                IPC
                     Total       Total         Demand
                     Loans      Deposits       Deposits
Banks             (12/31/71)   (12/31/71)     (6/30/72)
_____             __________   __________     _________

Top 2..............  63.0%       55.2%            61.3%
Top 3..............  78.8%       73.9%            78.1%
Top 4..............  89.4%       87.0%            88.8%

C&S (offices of C&S National in Fulton County and C&S East Point) accounts for the following shares of total loans, deposits and IPC demand deposits held by all banking offices located in Fulton County:

                                                IPC
                     Total        Total        Demand
                     Loans       Deposits     Deposits
Bank               (12/31/71)   (12/31/71)   (6/30/72)
____                _________  __________    _________

C&S  ...............  37.2%        30.8%       32.1%

Sandy Springs and North Fulton, both of whose banking offices are located in Fulton County, account for the following shares of total loans, deposits and IPC demand deposits held by all banking offices located in Fulton County:

                                                      IPC
                      Total           Total          Demand
                      Loans          Deposits        Deposits
Banks              (12/31/71)       (12/31/71)      (6/30/72)
_____              __________       __________      _________

Sandy Springs........  .7%              .8%              .9%
North Fulton.........  .3%              .3%              .3%
                      _____            _____            _____
                      1.0%             1.1%             1.2%

Depending on the unit of measurement, Sandy Springs is the eighth or ninth largest banking organization in Fulton County.

If the proposed mergers were approved, the C&S system (which would include offices of C&S National in Fulton County, C&S East Point, Sandy Springs and North Fulton) would account for 38.2% of the total loans held by all banking offices in Fulton County, 31.9% of the total deposits and 33.3% of the total IPC demand deposits.

If the proposed mergers were approved, the four largest banks would account for the following shares in Fulton County:

                                                        IPC
                       Total           Total           Demand
Banks                  Loans          Deposits         Deposits
_____                ________         _________        _________

Top 2 after mergers..  64.0%           56.3%            62.5%
Top 3 after mergers..  79.8%           75.0%            79.3%
Top 4 after mergers..  90.4%           88.1%            90.0%

Atlanta Area

Treating C&S National, C&S Emory, C&S DeKalb and C&S East Point as one banking organization, there are 31 commercial banking organizations operating offices in the Atlanta area, six of which operate offices in both Fulton and DeKalb Counties. In terms of total loans, deposits, and IPC demand deposits held by all banking offices located in the Atlanta area, the top 4 banks, respectively, are C&S (offices of C&S National, C&S East Point, C&S Emory and C&S DeKalb), First National Bank of Atlanta, Trust Company of Georgia and Fulton National Bank. The shares of total loans, deposits and IPC demand deposits accounted for by the four largest banks are as follows:

                                                        IPC
                     Total             Total           Demand
                     Loans            Deposits         Deposits
Banks             (12/31/71)         (12/31/71)      (6/30/72)
_____             __________         __________      __________

Top 2..............  60.5%             53.2%            58.0%
Top 3..............  76.2%             71.3%            74.3%
Top 4..............  86.7%             84.2%            85.0%

C&S (offices of C&S National, C&S Emory, C&S East Point and C&S DeKalb) accounts for the following shares of total loans, deposits and IPC demand deposits held by all banking offices located in the Atlanta area:

                                                          IPC
                     Total             Total           Demand
                     Loans            Deposits         Deposits
Bank               (12/31/71)        (12/31/71)       (6/30/72)
____               __________        ___________      __________

C&S  .................  36.4%             30.0%          30.6%

Chamblee, Park National, South DeKalb, Sandy Springs and North Fulton account for the following shares of total loans deposits and IPC demand deposits held by all banking offices located in the Atlanta area:

                                                          IPC
                     Total             Total             Demand
                     Loans            Deposits           Deposits
Banks              (12/31/71)        (12/31/71)         (6/30/72)
_____              __________        ___________        __________

Chamblee ............   .5%             .6%                .8%
Park National .......   .1%             .3%                .4%
South DeKalb ........   .2%             .2%                .3%
Sandy Springs .......   .6%             .7%                .8%
North Fulton ........   .3%             .2%                .2%
                       _____           _____              _____
                       1.7%            2.0%                2.5%

If their deposits (as of 12/31/71) were combined ($71,142,252), these five banks would be the equivalent of the sixth largest banking organization in the Atlanta area. Sandy Springs and Chamblee are, alone, the tenth and eleventh largest banking organizations in the Atlanta area, respectively.

If the proposed mergers were approved, the C&S system (which would include the offices of C&S National in the Atlanta area, C&S Emory, C&S DeKalb, C&S East Point, Chamblee, Park National, South DeKalb, Sandy Springs and North Fulton) would account for 38.2% of the total loans held by all banking offices located in the Atlanta area, 32.0% of the total deposits and 33.0% of the total IPC demand deposits. C&S would also be acquiring the tenth and eleventh largest banks in the Atlanta area.

If the proposed mergers were approved, the four largest banks would account for the following shares in the Atlanta area:

                                                      IPC
                     Total             Total         Demand
Banks                Loans            Deposits       Deposits
_____              _________         __________     _________

Top 2 after mergers.. 62.2%           55.2%           60.5%
Top 3 after mergers.. 77.9%           73.3%           76.8%
Top 4 after mergers.. 88.4%           86.2%           87.5%

MR. JUSTICE BRENNAN, with whom MR. JUSTICE DOUGLAS and MR. JUSTICE WHITE join, dissenting.

I agree that the District Court erred in holding that the correspondent associate programs are immune from Sherman Act scrutiny because they are subject to the "exclusive primary jurisdiction" of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The District Court also erred, however, in holding that the United States did not prove the violations of § 1 of the Sherman Act, and § 7 of the Clayton Act, alleged, and I therefore dissent from the affirmance of its judgment.

The issues under the Clayton and Sherman Acts, while logically independent, are related; both present the question whether a large commercial bank, already possessing a substantial share of the Atlanta market, may lawfully acquire other banks, rather than expand internally. Three banks now control more than 75% of the commercial banking business in Atlanta. Today's decision assures that their dominions will soon be extended as arrangements they have made with independent banks to operate as "de facto branches" are solidified through merger. I cannot agree with today's decision that the Government is powerless to prevent this result.

I. The Sherman Act

The "5-percent" banks in this litigation entered into a relationship with C&S far exceeding that of "correspondent banking," the provision of check clearance, investment advice, personnel training, or other specialized services in arm's-length transactions.1 From the very inception of these relationships, it was contemplated that the 5-percent banks would seek, and C&S would provide, advice and guidance with respect to virtually every business decision of significance. C&S provided advisory directors—treated by all parties as actual directors— made available operating manuals covering banking practices in minute detail,2 and maintained a constant flow of bulletins whose contents ranged from admonitions about the antitrust laws to exhortations to "get the rates [on loans] up." C&S, through its Branch Supervision Department, monitored the performance of the management of the 5-percent banks and was instrumental in having replaced those who did not measure up. These arrangements had the desired effect. The elaborate fabric of "consultations," of seeking "advice and guidance," eliminated the opportunity for rivalry among the defendant banks. The District Court found "no presently existing substantial competition between the five-percent banks and C&S National, or inter sese." 372 F.Supp. 616, 642 (1974).

A

The Court concludes that antitrust scrutiny of the affiliation of three 5-percent banks is foreclosed by the grandfather provision of § 11 (d) of the Bank Holding Company Act, 12 U. S. C. § 1849 (d). That holding is plainly a distorted expansion of § 11 (d) beyond its language and purpose.

The concept of an amnesty for unchallenged structural arrangements in commercial banking first appeared in the 1966 amendments to the Bank Merger Act, 80 Stat. 7. In those amendments, Congress, responding in part to this Court's decisions in United States v. Philadelphia National Bank, 374 U.S. 321 (1963), and United States v. First National Bank & Trust Co. of Lexington, 376 U.S. 665 (1964), attempted to mesh antitrust considerations with review of proposed bank mergers by the appropriate regulatory agency. The resulting provisions, which mandate Justice Department participation in the regulatory approval process as well as consideration by the regulatory agencies of "competitive factors," and permit an antitrust suit within 30 days of regulatory approval, appear today in the Federal Deposit Insurance Act, 12 U. S. C. § 1828. See United States v. First City National Bank of Houston, 386 U.S. 361 (1967); United States v. Third National Bank in Nashville, 390 U.S. 171 (1968). The 1966 amendments also included a grandfather provision, 80 Stat. 10, that conferred immunity from antitrust challenge (except under § 2 of the Sherman Act) upon any "merger, consolidation, acquisition of assets, or assumption of liabilities" consummated before June 17, 1963, the date of the decision in Philadelphia National Bank.

A few months after enactment of the Bank Merger Act amendments, the "antitrust" provisions were written almost verbatim into the Bank Holding Company Act. Unlike their Merger Act counterparts, the 1966 amendments to the Bank Holding Company Act were not principally addressed to integrating antitrust standards with the regulatory process, but rather to expanding the Federal Reserve Board's jurisdiction and regulatory powers. The antitrust provisions of the Holding Company Act amendments received little legislative attention; the brief reference to them in the legislative history indicates that their purpose was to "apply to bank holding company cases the same procedures as are now provided in bank merger cases . . . ."3 Among the provisions so borrowed from the earlier Bank Merger Act amendments was the grandfather provision, § 11 (d).

Because of congressional preoccupation with the regulatory features of the 1966 amendments to the Bank Holding Company Act, interpretation of the antitrust provisions may involve as much an attribution of congressional intent as a discernment of it. This is particularly the case with respect to § 11 (d), which was transplanted from one regulatory statute to another with seemingly scant attention to the differences in the regulatory environment. Objections that grandfathering holding company acquisitions posed policy questions different from the retroactive immunization of mergers were quickly brushed aside,4 and § 11 (d) was swept into law along with the other antitrust provisions. Thus, despite whatever dissimilarity of underlying policy considerations may have been exposed, Congress indicated that it considered the grandfather provisions in both statutes to advance substantially similar purposes. Accordingly, however difficult may be the discernment of the congressional intent expressed in § 11 (d), we must look for assistance to its counterpart in the Bank Merger Act, the only guidepost Congress has left us.

The grandfather provision of the Bank Merger Act amendments most assuredly did not provide sanctuary for then-unchallenged price-fixing, market-division, or other cartel activity by banks. Congressional concern was much more narrowly directed. Philadelphia National Bank rejected a literal interpretation of § 7 of the Clayton Act that would have limited its application to stock acquisitions by banks, an interpretation that nevertheless enjoyed some acceptance prior to the decision. Congress was concerned about the difficulty of unscrambling pre-Philadelphia National Bank mergers undertaken in reliance upon the literal interpretation of § 7, which the Court ultimately rejected, and accordingly immunized them from suit under that section.5 But a provision barring suit under § 1 of the Sherman Act was also necessary to safeguard the same mergers because of our decision in Lexington Bank, supra. Thus, although the resulting grandfather provision covered both the Clayton and Sherman Acts (except Sherman Act § 2), its purpose was to shield structural arrangements of the sort the Government challenged in Philadelphia National Bank and was continuing to challenge in the District Courts thereafter.6

Against the foregoing background, we confront the language of the counterpart in the Bank Holding Company Act. As enacted in 1966, § 11 (d) shielded an "acquisition, merger, or consolidation of the kind described in § 3 (a) of this Act." Section 3 (a) provided then, as today, that:

Section 3 (a) is thus the operative provision of the statute permitting the Federal Reserve Board to regulate the events therein described.

By "grandfathering" an "acquisition, merger, or consolidation of the kind described in § 3 (a)," Congress obviously exempted from antitrust challenge only the events for which Board approval would have been required. None of the transactions defined by § 3 (a), however, includes those features of the "correspondent associate" relationship that the Government is challenging under Sherman Act § 1 in this case. Clauses (4) and (5) of § 3 (a) refer, respectively, to an acquisition of assets and a merger of two holding companies. Clause (3) refers to ownership of voting stock by a holding company; the stock ownership by C&S is not, however, the salient feature of the affiliative relationship and indeed is not challenged in this case. Clauses (1) and (2) address the creation of a holding company-subsidiary relationship. The definitional provisions of § 2 (d) have undergone recent expansion, but in 1966 they designated a bank as a "subsidiary" if a holding company either (1) directly or indirectly owned or controlled 25% or more of its voting stock, or (2) controlled in any manner the election of a majority of its directors. These two conditions would often be satisfied simultaneously, and indeed shortly after enactment of the forerunner of this provision in 1956 it was suggested that the second condition was redundant. See Note, The Bank Holding Company Act of 1956, 9 Stan. L. Rev. 333, 337, and n. 59 (1957). Congress, however, was apparently concerned that stock interests could be so structured that a holding company could elect a majority of directors without satisfying the 25% ownership requirement.8 Whether or not this fear was well-founded, it is clear that satisfaction of either condition required an arrangement whereby the holding company had the power to vote stock.

In establishing its "correspondent associates" C&S did not engage in the transactions described by § 3 (a) in 1966 and therefore sheltered by § 11 (d). Indeed, because of state-law restrictions C&S could not resort to the methods described by § 3 (a) of the Holding Company Act and turned instead to more informal arrangements, including "understandings." While the functional equivalent of a holding company-subsidiary relationship could perhaps be created through informal affiliation, § 3 (a), at least until quite recently, has been triggered by the formality of control of voting stock. To be sure, § 2 (d) has always referred to a subsidiary as one whose stock is "directly or indirectly" owned or controlled or whose election of directors is controlled "in any manner" by the holding company.9 But there has been no suggestion by Congress, nor by the Board, that this language would embrace the less formal arrangements by which the C&S banks operated in complete harmony with C&S. Indeed, the statutory clues suggest the contrary, that Congress was concerned with powers attached to stock, and that "indirect" ownership or control merely referred to their exercise derivatively, through an intermediary.10

In the 1970 amendments to the Holding Company Act. 84 Stat. 1760, Congress expanded the reach of § 3. The Act now defines "control" to include a relationship whereby a company "directly or indirectly exercises a controlling influence over the management and policies of the bank . . . ." § 2 (a) (2) (C), 12 U. S. C. § 1841 (a) (2) (C). Congressional preoccupation with stock is still evident since there is a statutory presumption that "any company which directly or indirectly owns, controls, or has power to vote less than 5 per centum of any class of voting securities of a given bank or company does not have control over that bank or company." § 2 (a) (3). Nevertheless the Board has by regulation established a rebuttable presumption of control where a company

Arguably, the Board's interpretation would now bring within § 3 the affiliation of the 5-percent banks with C&S. But the Board's interpretation is based upon recent legislation expanding the reach of the Board's regulatory authority.11 Since I do not suppose Congress intended in 1966 to immunize transactions of the kind it had not yet brought within § 3, the 1970 amendment is relevant only because it demonstrates the limited character of the transactions previously embraced by § 3 and "grandfathered" under § 11 (d).

The conclusion that Congress had traditionally not brought informal arrangements within § 3 (a) was reinforced by the provisions of § 4 (a) (2) of the original Act, 70 Stat. 135, which forbade a bank holding company to

This provision was enacted in 1956, and as early as 1960 the Board by regulation interpreted "services" to include many of the functions C&S has performed for the 5-percent banks. Included in the Board's interpretation are: "(1) [e]stablishment and supervision of loaning policies; (2) direction of the purchase and sale of investment securities; (3) selection and training of officer personnel; (4) establishment and enforcement of operating policies; and (5) general supervision over all policies and practices." 12 CFR § 225.113 (1975). The differentiation of these activities from "control or management" and their inclusion in § 4 of the Act rather than in § 3 vividly exposes the fallacy of today's holding invoking § 11 (d) to foreclose scrutiny of the "correspondent associate" relationship of three of the 5-percent banks. Since § 11 (d) shielded only the events then described in § 3 (a), the conclusion is compelled that all the 5-percent banks are properly before us on the Sherman Act counts.12 Accordingly, I turn to the merits.

B

The District Court found that there were no express agreements among the defendant banks to fix prices or divide markets that would call for application of the per se rule, United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); United States v. Sealy, Inc., 388 U.S. 350 (1967), but it also found that the effect of the association was to eliminate all competition among the banks involved.

The Court finds the restraints embodied in the "correspondent associate" relationship reasonable because of state-law restrictions that blocked, for a time, the avenue of internal expansion by C&S. If the question before us were the lawfulness of these arrangements at their inception, this solution might be satisfactory. The question would be a close one, however, calling for a delicate balancing of the immediate benefits of expanded banking services against the more distant, but nevertheless real, danger of permitting the restraints necessary to circumvent de jure barriers to expansion to continue longer than the conditions that justified them. The inquiry would, of course, have to take into account the possibility that expansion would occur under less restrictive conditions. New entry by an unaffiliated bank13 or entry with a more limited form of sponsorship—a period of initial assistance, followed by a withdrawal of the sponsor's influence, at least to a conventional correspondent relationship14—might have sufficed to provide the expansion cited here as a justification for incidental restraints. The judicial resources consumed by such an inquiry in any particular case would not be insubstantial, and the very difficulty of making such judgments has in many cases led us to prefer per se rules. United States v. Socony-Vacuum Co., supra, at 220-221; Northern Pacific R. Co. v. United States, 356 U.S. 1, 5 (1958); United States v. Sealy, Inc., supra; United States v. Topco Associates, Inc., 405 U.S. 596 (1972). See also United States v. Philadelphia National Bank, 374 U. S., at 362.

The issue in this case, however, is not whether the affiliation of the 5-percent banks was lawful at its inception, but whether it could lawfully continue, for the Government sought only an injunction. By the time the Government brought suit, Georgia law permitted C&S to branch freely in the Atlanta suburbs. Because the rule of reason requires us to assess the lawfulness of a restraint in light of all the circumstances, Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918), the lawfulness of the practices at their inception, even if assumed, could not be controlling, for changes in market conditions can deprive once-reasonable arrangements of their justification. United States v. Jerrold Electronics, 187 F.Supp. 545, 560-561 (ED Pa. 1960), aff'd, 365 U.S. 567 (1961). See also United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 596-598 (1957). The claimed desirability of the challenged arrangements as a response to now-repealed restrictions of Georgia law is therefore relevant only insofar as it may also be claimed that continuation of such arrangements undisturbed by the Sherman Act would be vital to their creation were Georgia to reinstate its restrictions in the future. Put another way, we need concern ourselves with the lawfulness of "de facto branches" as a response to state-law restrictions only if appellees make a convincing showing that no bank would engage in "de facto branching" without a guarantee of perpetual noninterference from the antitrust laws.

Certainly it is open to C&S to argue that no rational banker would sponsor a de facto branch unless assured that the resulting relationships could continue in perpetuity. But this sort of argument has seldom carried the day in this Court, see United States v. Sealy, supra; United States v. Topco Associates, supra, and I do not find it persuasive in this case. A bank hemmed in by state antibranching restrictions will presumably find it profitable to take a small stock interest in an independent bank, to offer assistance and thereby attempt to win consumer loyalty through an expanded use of its own name. C&S presumably found these arrangements profitable at their inception. The record does not show whether C&S actually charged the 5-percent banks for such assistance as site selection, economic surveys, equipment procurement, and other promotional services; there is no suggestion, however, that C&S provided these services at an ultimate loss, and presumably gains ultimately accrued to the provider. True, C&S hoped to cement the relationships through merger, but it is not clear that these expectations were essential to the initial undertaking. Indeed, C&S continued to provide assistance to certain banks as to which there was little prospect of ultimate acquisition by C&S. 2 App. 378-379. Our concern, in any event, lies not with protecting the expectations of C&S but with avoiding disincentives to the provision of desirable services. Sponsorship will be profitable to a sponsor bank assuming that there is a demand for the services of the sponsored bank and that the sponsor can recoup in some fashion a return for its assistance. These conditions should be sufficient to induce a profit-seeking bank, chafing under antibranching restrictions, to sponsor a new entrant even if permanent arrangements are forbidden.

This case, therefore, does not present an occasion for consideration whether the restraints incident to "de facto branching" are lawful when undertaken in response to a prohibition of de jure branching, a position the Court says the Government took last Term in United States v. Marine Bancorporation, 418 U.S. 602 (1974). The restraints incident to the affiliation of the 5-percent banks with C&S must be examined in light of conditions prevailing at the time of suit, which include the ability of C&S to branch freely in the Atlanta suburbs.

The arrangements between C&S and the 5-percent banks resemble a "common brand" marketing agreement or a franchising arrangement in which the franchisor itself deals directly with consumers as well as providing entrepreneurial skill and other assistance to franchisees. Such combinations may, under certain circumstances, enhance competition. Common-brand marketing may permit a group of small firms to exploit promotional economies and thereby compete with larger enterprises whose business spans several geographic submarkets. Franchising may facilitate entry by allowing an entering firm to save on promotional expenses and to purchase needed entrepreneurial assistance. Restraints invariably accompany these combinations for the purpose of promoting product uniformity, for some standardization of product is indispensable to the success of the scheme. Because notwithstanding accompanying restraints such combinations may on balance enhance competition, it would be a mistake to regard them as per se or even presumptively unlawful, and lower courts have not done so. See, e. g., United States v. Topco Associates, Inc., 319 F.Supp. 1031, 1038 (ND Ill. 1970), rev'd on other grounds, 405 U.S. 596 (1972); Siegel v. Chicken Delight, Inc., 448 F.2d 43 (CA9 1971); Susser v. Carvel Corp., 332 F.2d 505 (CA2 1964). But the Sherman Act limits the scope of co-operation incident to such arrangements. The participants may not fix prices or divide markets. United States v. Topco Associates, Inc., supra; United States v. Sealy, Inc., supra; United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967). Such combinations, moreover, warrant careful scrutiny when their participants collectively possess a dominant share of a common market, as to which there are substantial barriers to entry, for these conditions enhance the profitability of price collusion among participants and thus may tempt them to standarize price as well as other product attributes.

Despite the acceptability generally of common-brand or franchising arrangements, they pose particular difficulty in the commercial banking context. Many features of a commercial bank's services are set by regulation, thus inhibiting competition by restricting the number of product features that individual firms are free to vary. With interest rates on loans fixed by law, for example, competition is confined to such "non-price" features as collateral requirements or repayment policies. With competition thus already delimited, few additional restraints incident to a cooperative scheme can be tolerated before competition is extinguished entirely. Moreover, the entry barriers posed by regulation enhance the danger that incidental cooperation will be extended to abolish all rivalry. These considerations suggest that co-operative arrangements in commercial banking should be permitted only where their competitive benefits are clear, and where the combined market shares of the participants dispel the fear that price collusion will accompany them.

The situation here fails to satisfy the test. The combined shares of C&S and the 5-percent banks are substantial under any of the alternative definitions of the geographic market cited by the Court. Ante, at 122-130.15 Furthermore, the cooperative arrangements involve not a group of small firms allied to challenge a larger rival, United States v. Topco Associates, supra, but instead the dominant firm which thereby extends its hegemony. In a market so concentrated as is commercial banking in Atlanta, the most must be made of opportunity for rivalry among existing firms. Cf. United States v. Philadelphia National Bank, 374 U. S., at 372. The 5-percent banks are now substantial, thriving enterprises,16 inhibited from competing with C&S only by the "correspondent associate" relationship. I would hold that the Government is entitled to an injunction, specifically against the continued use by the 5-percent banks of the C&S name, the continued use of advisory directors furnished by C&S, and continued "consultations" between the management of the 5-percent banks and C&S, including the flow of memoranda for "advice and guidance."

II. The Clayton Act

The Court concedes that under our prior decisions the Government has established a prima facie case under § 7. Ante, at 120. But the Court affirms the District Court's determination that the acquisitions add nothing of anticompetitive significance to the pre-existing "correspondent associate" relationship. Since I have concluded that the relationship itself violates the Sherman Act, I also disagree with the Court's affirmance of the District Court on the Clayton Act issue. Since, in my view, appellees can no longer rely upon the affiliation to rebut the Government's prima facie case, I would remand to the District Court for consideration of the "convenience and needs" defense of 12 U. S. C. § 1828 (c) (5) (B). But I also disagree with the Court's conclusion that the acquisitions add nothing of significance to the existing arrangements, and I would therefore reverse even if I accepted the Court's disposition of the Sherman Act counts. I state briefly my reasons for so concluding.

If not acquired, the 5-percent banks have the power to break their ties with C&S, and the likelihood that any would do so may be expected to increase as the demand for their services grows and as their managements acquire additional business experience. However risky these ventures may have been at their inception, the recent performance of the 5-percent banks attests to their present viability.17 Because of the continuing population growth of the Atlanta area, the banks may anticipate an expanding demand for their services. These circumstances might well induce the management of a 5-percent bank to assume a more independent posture, at least to shop around among other large Atlanta banks for more conventional "correspondent" services.18

Quite apart from what the managements of the 5-percent banks might do, it is most improbable that C&S would long be happy with existing arrangements if acquisition were enjoined. The record demonstrates the aggressive, expansionist performance of C&S, having increased its Atlanta offices from three in 1946 to more than 100 by the time of trial. It is quite inconceivable that such a firm would long be content to continue operations through de facto branches in which its interest was limited to 5%. The formation of de jure branches, ultimately in competition with former "correspondent associates," would be a plausible result.

The foregoing are not "ephemeral possibilities," Brown Shoe Co. v. United States, 370 U.S. 294, 323 (1962), that antitrust analysis should ignore. Section 7 was intended, as we have repeatedly said, to "arrest anticompetitive tendencies in their `incipiency.' " United States v. Philadelphia National Bank, 374 U. S., at 362. In applying the § 7 standards, we are obliged to hold acquisitions unlawful if a reasonable likelihood of a substantial lessening of competition under future conditions is discernible. E. g., United States v. Continental Can Co., 378 U.S. 441, 458 (1964); FTC v. Procter & Gamble Co., 386 U.S. 568, 577 (1967); United States v. Falstaff Brewing Corp., 410 U.S. 526, 539 (1973) (DOUGLAS, J., concurring in part). While inquiry as to future market conditions and performance inevitably involves speculation, fidelity to the congressional purpose requires us to resolve reasonable doubts in favor of the preservation of independent entities. This is perforce true where, as here, the market is highly concentrated and the acquiring firm is the dominant one.

My Brother WHITE reminded us in his dissent last Term in United States v. Marine Bancorporation, 418 U. S., at 653:

Today's decision permits C&S, the dominant commercial bank in Atlanta, further to entrench its position. Two other rivals, which together with C&S control more than 75% of the banking business in Atlanta, may now be expected to follow suit, acquiring their own "de facto branches."19 I believe these developments exemplify the "further concentration in the structure of American business" that § 7 was designed to prevent. Accordingly, I would reverse the judgment of the District Court.