13

competitive market area. This is precisely what was held in the Standard Oil case.

The situation was respect to corporate stock acquisitions, the subject matter of section 7, is wholly different, however. For the acquisition of the stock of two or more corporations engaged in interstate commerce is not per se a violation of the section." On the contrary such acquisition is a violation only if its effect may be in fact to substantially lessen competition between such corporations, to restrain commerce or to tend to create a monopoly. Otherwise the acquisition is entirely lawful, so far as section 7 is concerned. It necessarily follows that under section 7, contrary to the rule under section 3, the lessening of competition and the tendency to monopoly must appear from the circumstances of the particular case and be found as facts before the sanctions of the statute may be invoked. Evidence of mere size and participation in a substantial share of the line of business involved, the "quantitative substantiality" theory relied on by the Board, is not enough.

The same considerations serve to distinguish this case from International Salt Co. v. U. S. (1947, 332 U. S. 392), upon which the Board also relies. For that case involved contracts tying sales of an unpatented product, salt, to a patented one, a machine for its use. These contracts, the court pointed out, closed against competition the market for salt by those persons who bought the machines. The contracts therefore per se violated the antitrust laws as to the salt to be purchased under the contracts regardless of its amount. The Supreme Court so interpreted the case in United States v. Columbia Steel Co. (1948, 334 U. S. 495, 522).

We conclude that since the Board failed to find the facts as to lessening competition and tendency to monopoly in the areas of effective competition actually involved, its order is unsupported by the necessary findings and cannot stand.

Since we hold that the Board's order must be set aside we need not discuss Transamerica's contentions that it was denied a fair hearing by the manner in which the proceedings were conducted by the Board's hearing officer and by the inability of the Board to provide it with subpoenas to compel the attendance of witnesses and the production of documents. Nor need we consider Transamerica's application for leave to introduce additional evidence to prove that it has now disposed of the remainder of its Bank of America stock and that following the death of L. M. Giannini the two corporations have no longer a common director. For if the Board should decide, in the light of this opinion, to proceed further against Transamerica that corporation will, of course, have full opportunity to introduce this and all other relevant evidence to which its application for leave was directed.

The order of the Board of Governors of the Federal Reserve System will be set aside.

A true copy:

Teste:

Clerk of the United States Court of Appeals for the Third Circuit. The CHAIRMAN. The next witness was to be Mr. Tyler, the vice president of Shawmut Association of Boston.

How long will it take you, Mr. Tyler?

Mr. TYLER. About 7 minutes, Senator.
The CHAIRMAN. I can stay until 12.

Then we will try to finish with Mr. Tyler, but we certainly do not want to hurry you. We are not trying to do that.

Mr. TYLER. I have only a few remarks.

The CHAIRMAN. After we finish with Mr. Tyler, we will recess until 10 o'clock tomorrow morning, and then our first witness will be Mr. Burtelow, the General Contract Corp., St. Louis, followed by Mr. Maull, and then followed by Trans-America Corp., and the First Bank Corp. of Minneapolis and others.

13 In the Standard Oil case Justice Frankfurter said: "Since it is the preservation of competition which is at stake, the significant proportion of coverage is that within the area of effective competition." 337 U. S. 293, 299-300, note 5.

14 International Shoe Co. v. Federal Trade Commission, 1930, 280 U. S. 291, 298.

It looks now as though we will have to go into Friday. As you gentlemen know, it is cool and comfortable here in Washington. You are in a very fine place to remain over an extra day. We regret very much, but it looks as if it is going to have to be that way. You may proceed.

STATEMENT OF ARTHUR B. TYLER, VICE PRESIDENT AND COUNSEL, THE NATIONAL SHAWMUT BANK OF BOSTON

Mr. TYLER. Mr. Chairman and gentlemen of the committee, my name is Arthur B. Tyler, of Boston, Mass. I am vice president and counsel for the National Shawmut Bank of Boston, and am here representing the bank and our holding-company affiliate, Shawmut Association.

As stated by Mr. Thomson, Shawmut Association has subscribed to the joint statement which has been filed with this committee.

In addition, Shawmut Association has filed with this committee a written statement setting forth in considerable detail its organization and operating history, outlining its services to the banking industry and to the public in the area within a 20-mile radius of Boston in which it now functions, and stating its attitude toward proposed bank holding-company legislation. We request that this statement be made a part of the record, and that I be permitted to comment briefly on its principal points.

The CHAIRMAN. Without objection, you wish this part, too.

Mr. TYLER. I think so. If it will not inconvenience the committee. The CHAIRMAN. Without objection, then, your prepared statement will be printed in the record, and the printed document known as the Shawmut Association Report for the year ending December 31, 1952, will be placed in the committee files.

Mr. TYLER. Thank you, sir.

(The information referred to follows:)

STATEMENT OF SHAWMUT ASSOCIATION, W. E. RICH, SECRETARY TO THE TRUSTEES

Shawmut Association was organized as a Massachusetts Voluntary Association under declaration of trust dated May 21, 1928, and began business on June 11, 1928, with a paid-in capital of $8,150,000, consisting of 400,000 no-par-value shares, the trust having received an average price of $20.375 for each share issued at that time.

In 1933 the association issued 37,450 additional shares and later the same year retired 33,828 shares which it had purchased in the open market. The association has purchased subsequently 13,622 other shares in the open market and charged the cost of these shares to its capital surplus account. Upon the completion of the above, the average paid-in value of the 390,000 no-par-value shares of Shawmut Association outstanding in the hands of the public was $19.82 per share.

The net-asset value on December 31, 1952, for the 390,000 shares outstanding was $12,062,672, equivalent to $30.93 per share, an increase of approximately 56 percent over the average paid-in capital. In computing the foregoing asset value, all general-market securities are taken at market value and the bank stocks, representing a majority of the outstanding shares of each of 12 suburban banks, are taken at the amount of their net assets per statements of condition of the respective banks December 31, 1952, applicable to shares owned by Shawmut Association.

Dividends have been paid without interruption since 1928 and have averaged for the 24-year period $0.732 per share per annum. Dividends paid in the years 1950, 1951, and 1952 amounted to $1, $1.02, and $1, respectively.

There are 3,908 shareholders. The shares are widely distributed throughout the United States, with some concentration in the New England States, New

York State, and California. No shareholder owns 5 percent or more of the outstanding shares of Shawmut Association.

The association is managed by five trustees, all of whom are directors or officers of the National Shawmut Bank of Boston. The declaration of trust gives the trustees broad powers. The trustees may fill vacancies and may elect new trustees subject to the approval of the executive committee of the National Shawmut Bank of Boston.

The funds of the association are invested in a diversified list of high-grade general-market securities and bank stocks. Of this latter class, the shares of stock owned in each of 12 suburban banks are a majority of each bank's outstanding shares. All of the banks are located within a radius of 20 miles of Boston. The bank stocks, taken at the amount of their net assets, per statements of condition of the respective banks at December 31, 1952, applicable to shares owned by Shawmut Association, comprise approximately 42 percent of the total assets of the association. Cash and United States Government obligations amount to approximately 18 percent, and the balance is invested in high-grade marketable common stocks of public utilities-18 percent-and industrials, 22 percent. These industrials include common stocks in the following classes of investments: motors, chemicals, building materials, finance, food products, oils, rayons, and rubbers. A list of holdings is shown in the report to shareholders for the year ended December 31, 1952, accompanying this statement. Included in the list are common stocks of the following companies:

Each of the general-portfolio holdings represents less than 3 percent of the total assets of the association and less than 1 percent of the outstanding stock of any issuer.

The 12 banks affiliated with Shawmut Association, all located in Massachusetts cities or towns within 20 miles of Boston, are listed below, together with the percentage of each bank's outstanding shares owned by the association.

The combined total assets of the above banks exceed $107 million at December 31, 1952.

Shawmut Association is registered under the Securities Exchange Act of 1934 and its shares are listed on a national securities exchange, namely the Boston Stock Exchange. The association files complete reports with the Securities and Exchange Commission in accordance with the provisions of the act and regulations pertaining thereto.

Pursuant to the provisions of section 5144 of the Revised Statutes of the United States relating to voting permits issued by the Board of Governors of the Federal Reserve System, the National Shawmut Bank of Boston (a holding company affiliate, as defined in the Banking Act of 1933), and Shawmut Association (a holding company affiliate, Banking Act of 1933), as well as all affiliated organizations, come under the supervision of the Board of Governors of the Federal Reserve System and report to that authority in accordance with existing laws, regulations, and agreements.

All of the affiliated banks are members of the Federal Deposit Insurance Corporation and are subject to supervision and examination by that agency.

The National Shawmut Bank of Boston and the Shawmut Association's 7 subsidiary national banks are under the jurisdiction of the Comptroller of the Currency and the Shawmut Association's 5 subsidiary State banks, one of which is a member bank of the Federal Reserve System, are supervised by the commissioner of banks, Commonwealth of Massachusetts. The Shawmut Association, because of its affiliation with the above-described 12 subsidiary banks, is subject also to supervision and examination by the various Federal authorities, and by the commissioner of banks, Commonwealth of Massachusetts.

Shawmut Association's acquisition of the various bank stocks occurred during the period from 1928 to 1947. Four banks were acquired in 1928, one in 1929, one in 1933, one in 1937, two in 1945, two in 1946, and one in 1947.

Virtually all the directors of each of the affiliated banks reside in the community which the respective bank serves. Each of the banks is operated by local management.

The banks were acquired by the Shawmut Association for the purpose of continuing or establishing sound banking facilities in the respective suburban communities. In many cases, the managements of the banks approached officers and trustees of Shawmut Association and offered to sell controlling interests (that is, over 50 percent of the outstanding shares) to the association in order that the public could be better served by banks having the benefit of the additional facilities available to them through Shawmut Association and the additional strength afforded them by affiliation with the Shawmut Association, having assets well in excess of the combined capital funds of the banks in the group.

In another acquisition, the association advanced the only plan acceptable to the commissioner of banks, Commonwealth of Massachusetts, for taking over the assets of a closed bank and establishing a sound new bank. This was done under a modified Spokane plan but only after the reorganization committee of the closed bank had failed in several attempts to formulate an acceptable plan of reorganization.

In 2 cases, 1 comparatively recent, groups of citizens of medium-sized municipalities approached Shawmut Association requesting it to cooperate with them in establishing new banks in their communities. They stated that the existing banks did not adequately meet the local banking needs, and upon thorough investigation of the local banking needs and general conditions in the community, and subsequent approval of the Comptroller of the Currency, Shawmut Association caused new banks to be created.

From time to time over the period, particularly in times of general economic stress, it became necessary to strengthen some of the banks by increasing the capital funds and in all such cases Shawmut Association agreed to underwrite the additional capital with the result that capital funds were made available at times when the possibility of raising it from the local communities was extremely remote and in some cases impossible. Several of the banks during the period but prior to their acquisition by Shawmut Association, and one bank subsequent to such acquisition, had preferred stock outstanding owned by the Reconstruction Finance Corporation. Under the supervision of Shawmut Association, all of the preferred stocks have been retired so that at the present time none of the banks has more than one class (common capital stock) of shares outstanding. All of the banks are in sound financial condition and are producing good earnings under competitive conditions. They are all on conservative dividend bases.

The facilities of the National Shawmut Bank are made available to Shawmut Association in its supervision in an advisory capacity of the operations of the subsidiary banks. Recommendations are submitted concerning investments, credit information, and policy matters and assistance and advice given in connection with modern operation methods, insurance programs, tax problems, pension plans, new business development, advertising, and other matters. Shawmut Association makes no charge to its subsidiary banks for any service rendered them, the benefit to the association being in the form of dividends received from the shares of stock owned. Under an agreement, the Shawmut Association pays each year to the National Shawmut Bank an amount equal to three-eighths of 1 percent of the value of the assets of the association, which payment the bank takes for the time devoted by its officers when loaned to the association, and for certain office facilities. All of the services performed by officers of the National Shawmut Bank and by Shawmut Association for the subsidiary banks enable those banks to operate efficiently and economically without the expense they would otherwise incur for similar services.

Shawmut Association in making sound investments in financial institutions (in addition to its general market securities) has at the same time contributed substantially in this area to the stabilization of the banking industry and to the protection and service to the public.

Shawmut Association is of the opinion that there is no present need of additional regulatory legislation affecting bank-holding companies, but is not opposed to such legislation if reasonable and appropriate. However, it is greatly disturbed by the broad scope of the provisions in all of the legislative proposals now before this committee requiring divestment of nonbank holdings, which would force Shawmut Association to dispose of its entire portfolio of high-grade general market securities. As hereinabove stated, such securities constitute approximately 40 percent of the total assets of the association, but no one security represents as much as 3 percent of such total assets or as much as 1 percent of the outstanding stock of any company, so that no question is involved of control of any companies engaged in nonbanking activities. Shawmut Association therefore strongly urges upon this committee the inclusion in any regulatory legislation of a provision permitting bank-holding companies to own shares of any company subject to reasonable percentage limitations.

Specifically, Shawmut Association recommends a provision similar to that which was contained in paragraph (e) of section 4 of S. 2318, sponsored by the Board of Governors of the Federal Reserve System in 1949 permitting a bankholding company to own “shares or other securities or obligations of any company which do not include more than 5 per centum of the outstanding voting securities of such company, and do not have a value greater than 5 per centum of the value of the total assets of the bank-holding company, as determined under regulations prescribed by the Board." The Federal Reserve Board clearly recognized the fairness of such a provision when they included in their memorandum submitted to Senator Robertson in April 1950, in connection with S. 3547, which was offered as a substitute for S. 2318, the following comment:

"Comment: The substitute bill contains no exception to this provision which would permit the ownership of 5 percent or less of the securities of any one company. Such an exception, the Board believes, is a justifiable one because it permits a bank-holding company to continue to have diversified investments where the amount of each such investment is so small that it does not contravene the basic objective of the bill. In this connection, it should be noted that under provisions of existing law which would still be applicable to any holding company which held a voting permit, a holding company is required to build up certain reserves of readily marketable assets; these assets now may consist of readily marketable stocks, as well as bonds, and there appears to be no good reason why this should not continue to be permitted."

It is respectfully submitted that the foregoing comment by the Federal Reserve Board is inherently sound, and that under no conceivable circumstances could it prove detrimental to the public interest for Shawmut Association to be allowed to continue in its lifelong policy of building up and maintaining substantial reserves of diversified investments. Certainly, a bank-holding company operating in this manner is in an unusually strong position to assist and protect its banks at all times.

Mr. TYLER. Now I wish to comment briefly on the one point which principally concerns us.

I wish to emphasize, as pointed out in the concluding paragraphs of our statement, that Shawmut Association is particularly concerned