United States v. First Nat. Bancorporation, Inc.

PETITIONER:United States
RESPONDENT:First Nat. Bancorporation, Inc.
LOCATION:Paris Adult Theater

DOCKET NO.: 71-703
DECIDED BY: Burger Court (1972-1975)
LOWER COURT:

CITATION: 410 US 577 (1973)
ARGUED: Oct 16, 1972 / Oct 17, 1972
DECIDED: Feb 28, 1973

ADVOCATES:
Eugene J. Metzger – for appellees
Friedman –

Facts of the case

Question

  • Oral Argument – October 16, 1972
  • Audio Transcription for Oral Argument – October 16, 1972 in United States v. First Nat. Bancorporation, Inc.

    Audio Transcription for Oral Argument – October 17, 1972 in United States v. First Nat. Bancorporation, Inc.

    Warren E. Burger:

    Are you ready?

    You have a 12 minutes remaining.

    Friedman:

    Mr. Chief Justice, may it please the Court.

    I’d like to turn out one other important aspect of this case and that is the reason why we think that Bancorporation’s elimination was a potential, and it was particularly significant because Bancorporation, we believe, was one of the few firms in the State of Colorado that was likely to be an important and significant competitor.

    Our opponents tell us that Bancorporation was insignificant as a potential and I think they say, “Anybody can organize a bank.”

    They say, “It’s not very difficult, a few people get together, get together a little capital and organize a bank.”

    That’s quite true, of course, but it’s only, we think, a large bank, a bank with the resources, that Bancorporation has that does hold out a real potential for shaking up this market.

    Now, there are, at the present time, in the State of Colorado that work upon this acquisition, seven holding companies.

    Two of them are already operating in the Greeley market.

    The third one, a very large holding company called Western Bancorporation, a multibillion-dollar concern under federal law is precluded from having anymore banks in Colorado, so that takes care of three.

    One of these other holding companies is quite small.

    It’s no larger, basically, than the bank to be acquired, that’s four.

    Now the remaining three in the State of Colorado, Bancorporation is by far the largest.

    In fact, it’s about twice as large as the other two.

    So that it seems to us that viewing this whole situation in Colorado that Bancorporation is now the leading holding company, the biggest holding company that is not in the market and is a firm that has indicated its intention of going into the market.

    And, of course, as I’ve mentioned before, this is not an isolated phenomenon by Bancorporation.

    All of the holding companies in the State of Colorado are all attempting to spread out and to gain as many banks as possible.

    The vigor of the — this action by the holding companies is not surprising because banking, unlike most other businesses, has very strict geographical limits.

    Now, holding a bank, can’t just expand around the country.

    A bank, by definition under state law can only stay in the one State and under federal law, a holding company cannot acquire banks outside of the State where its principal activity takes place.

    So that Bancorporation, we think, is the most likely entrant.

    This is the firm whose elimination as a potential competitor is likely to have the greatest impact in the market.

    We think that this trend toward concentration is continuing in the State and that the — permitting Bancorporation to come into this market to eliminate its potential competition and to take over the existing share of the market, this large share, approximately one-third, that it is now held by the single non-holding company affiliated large bank is just the kind of anti-competitive probability that the Congress intended to bar in Section 7, when it prohibited acquisitions whose effect, maybe — I stress it may be once again we’re dealing with probabilities, not certainties, whose effect may be substantially to lessen the competition.

    And I would like to reserve the balance of my time for rebuttal, Mr. Chief Justice.

    Warren E. Burger:

    Mr. Metzger.

    Eugene J. Metzger:

    Mr. Chief Justice, and may it please the Court.

    In the statement of the case yesterday, Mr. Friedman made reference to certain matters outside the record in this case to the extent that those matters are conceived to be of any relevance by any members of this Court, appellees hastened to say that we do not accept the Government’s representations as to what those facts are.

    As an example of one instance in which we are in disagreement as to those facts, we respectfully direct the Court’s attention to footnote 57 on page 44 of our brief.

    In answer to a question from Mr. Justice Blackmun yesterday, it was suggested that the Government would not have brought this case, had we chosen the ultimate means of entry into the market in question.

    We had not understood it to be the law that a merger would be precluded simply because there were ultimate means of entering into a particular market available.

    Eugene J. Metzger:

    We hasten to say that we do not agree that there — that we would, in reasonable probability, had entered this market absent this particular affiliation.

    However, we believe that showing that we are — we have other methods of entering this market is a beginning and not an end for the Government’s burden of proof in these matters.

    What seems to appellees to have been the key passage from the opinion of the court below was a problem.

    We have sought to apply the standards laid down by the Supreme Court in naming Philadelphia Bank and Philipsburg Bank two of the banks, in an effort to arrive at an accurate and fair decision herein.

    The main difficulty here is the lack of cogent evidence which even suggest that there is likely to be a lessening of competition as a result of this present acquisition.

    Nothing has been presented which of itself or considered with the total circumstances serves to make any impact.

    This is from 329 F. Supp. at page 1016.

    Now, it would seem then to me that we are dealing here with a simple case of failure of proof, the law or a gross failure on the part of Judge Doyle, to have properly assessed the facts before him.

    That Judge Doyle is not unaware of the ramifications of nor unsympathetic to the goals of the amended Clayton Act, must be apparent from his recent Tenth Circuit opinion, upholding the Federal Trade Commission’s or the striking down of Kennecott Copper’s acquisition of Peabody Coal, an opinion that appellant was so anxious for this Court to read that it cited the case in their reply briefs in both this and in the associated Narragansett Beer case.

    I do not believe that appellant seriously taxes Judge Doyle with error.

    Rather, I believe that appellant seeks a new per se rule in Bank Merger litigation.

    A rule which would require us to discard the standards of testing Bank Merger cases set down by this Court in Brown Shoe just 10 years ago.

    There, in determining whether a merger would in reasonable probability, substantially lessen competition, this Court noted seven aspects, “Varying in importance with the merger under consideration which would properly be taken into consideration.”

    Those relevant to this kind of litigation, I believe, are six, whether the industry is fragmented or concentrated, whether there has been an elimination of an undue number of competitors, whether there has been a recent trend towards concentration in a few leaders, whether there was ready entry of new competitors, whether the size of the acquiring company had been increased to the point where it threatened to develop decisive advantages vis-à-vis competitors.

    And finally, whether a substantial factor on competition had been eliminated.

    Now, in the next year in Philadelphia Bank, this Court observed that in a merger between direct competitors where the merger occasioned a insignificant increase in concentration, the Government was entitled to a rebuttable presumption that the merger would substantially lessen competition.

    I believe that the case law since that date has followed the lead of these two early cases.

    Again, I reiterate that in my judgment, I think that appellant here is seeking to create a per se rule A) not insubstantial share of state deposits may not acquire a not insubstantial share of local deposits.

    These numbers had been as little as 12% of state share, as little as eight-tenths of a percent of state share in the acquired institution, and as little as 15% of the effective market in the arena of competition served by the acquired institution.

    We say it is a per se rule because appellant comes to this Court seeking authority to bar an acquisition without having sustained its burden of proof on any of the six areas of inquiry this Court found relevant in Brown Shoe.

    Rather it was the appellees, who brought on evidence on each of these six points, evidence which we believe fairly establishes a negative of each said proposition.

    In truth, appellant has no evidence, nor any serious claim if this merger will, in reasonable probability, substantially lessen competition in Greeley or anywhere else.

    It is projecting a theory and I believe that theory to be, put a lid on any significant acquisitions by holding companies or developing statewide banks and you will force them to seek out their avenues of growth.

    These ought to mean more inference in some markets and that is desirable.

    We, the appellees, deny the advocacy of this scheme.

    More particularly, do we deny that it’s judiciary, is the appropriate forum to seek the implementation for such a scheme.

    Social planning on this scale is a legislative function.

    As this Court noted in Brown Shoe, the Congress was interested in stopping mergers which had certain enumerated effects.

    If the Justice Department seeks to reach mergers which do not have those effects, that it seek appropriate authority.

    I should like to review the six points and their relevance to this case and since this Court has seen fit to set this case for argument with the Falstaff in Narragansett case, I will point out at each instance the relevance — the relevant statistical analysis for the beer industry as well.

    Eugene J. Metzger:

    The first criterion was whether the industry is fragmented or concentrated.

    In the United States, there were 13,759 banks at year-end 1971.

    The 10 largest banks in United States had 19% of industry capacity, the 100 largest 49%.

    Comparably in — in the beer industry, we had the four largest.

    There were 79 brewers at the end of 1970, the four largest having 43% of industry capacity.

    Looking at the market in Colorado, not a market but looking at the — the arena for inquiry, there were 228 banks at year-end 1970.

    In Weld County more — more close to the market in question, this is one of 2810 counties in the United States with less than 100,000 in population.

    There are only three counties in the United States of that size which have more banking organization serving it than Weld County has today.

    In Greeley, we now have seven banks and five banking organizations.

    Now, comparing Greeley to all cities in similar size pattern 30,000 to 50,000, we find that 99 plus percent are served by no more.

    Only one city in the United States has as many banking — has more banking organizations that serve really now.

    But in appellant’s arithmetic view of what concentration means, banking in Greeley with 38,000 people and five banking organizations is just as concentrated as any other city, no matter what its size with five banking organizations.

    To appellant, the competitive factors would appear to be the same.

    Thus last year, when the largest banking organization in Ohio, Bank Ohio Corporation, with one and a half billion dollars in deposits, acquired a $250 million Akron National Bank and sent for in bank shares of Cleveland with 1.1 billion acquired the American Bank of Commerce, a bank, with a $150 million.

    Appellant did not sue in either case.

    We do not claim that these instances violated the Clayton Act but we are — we do believe that they form a sound basis for comparison on the competitive values, we ought to describe the term concentration.

    In absolute size in — in Akron, the acquiring banking organizations were two to three times the size of Bancorporation and the acquired banks were four to six times besides of the First National Treeby.

    Even in relative state size, the Akron National had a greater share of state deposits than did FNB Group.

    The decisive factor in deciding not to sue appears to have been the relative share of state deposit totals held by the acquiring institutions probably between 5% and 7% in those two instances.

    Appellant permitted acquisitions in the market by two of the five largest banking organizations in Ohio because it apparently viewed the two 6% market shares are not limiting the universe of potential entrance too severe.

    But we think that this emphasis is distorted.

    Akron has 250,000 — 275,000 people.

    It ought to be able to support, many times the number of banks that a city of 38,000 can.

    A city of 275,000 people and five banks is, we believe, in a competitive sense, a more concentrated market tha a city of 38,000 people on the same number of banks.

    One would have expected a rational competitive policy to instruct at the Akron mergers first and the prospect that Greeley could support more banks given its size, is we believe, remote.

    Mr. Metzger isn’t this a little bit like the guy who’s picked up or going 45 miles an hour and saying that there was another guy going 50 miles an hour?

    Eugene J. Metzger:

    No sir, the problem is whether or not the market can responsibly carry as many — and anymore institutions.

    In this very case, Governor Mitchell, in approving the — this affiliation said, overall, the data suggests that an additional office of a major bank by de novo entry is not needed in wealth.

    Similar data for comparable population suggests that a fourth unit or holding company banking office in Greeley would likely dilute the quality of banking services by restricting opportunities for achieving economies of scale because of market fragmentation.

    It is our contention that, and this is from defendant’s Exhibit No. 48 in the record.

    Eugene J. Metzger:

    It is our contention that given a different size, the smaller cities simply cannot accommodate as a matter of logic and reason, any more institutions than a certain frame of reference if you have in cities of the size of Greeley anywhere between two and five has as a norm for the number of banking institutions.

    I would say that if you found two or three in a given city and the question came up, “Is an acquisition there desirable or undesirable?”

    I think it — it could be properly considered by the Court that other cities of similar size have been able to accommodate more banking institutions serving them.

    But given the fact that Greeley is on the upper fringes of the — the capability of absorbing banking institutions, given the whole — the whole United States as a sample from which to draw in examining the logical structure of banking markets, I think that the answer has to be that we have to recognize that there are business limitations upon the number of institutions we ought to force into these markets.

    And Greeley has certainly have the upper edge of those limitations.

    Let me give you some example.

    Akron’s peers support many more banks than it does.

    Charlotte, North Carolina, for example, with 240,000 people somewhat smaller than Akron and located in what appellant has characterized to be a highly concentrated state has 14 banks certainly.

    Similarly with Richmond, Virginia or Sacramento, California, all States that are characterized as highly concentrated, they have two and three times the number of banking organizations serving in Akron.

    I asked which is more concentrated in any meaningful sense, Akron or Greeley.

    And further, it is only in relation to these largest cities, Akron or perhaps even larger cities but the word substantial entry referred to, by my colleague this morning, takes on any real content.

    If we were to enter, say, if we were able to enter and willing to enter a city the size of Greeley today, business requirements would limit us to a — a shopping center kind of entry, a lending officer and a couple of girls behind the (Inaudible) but if we would to try and enter a city the size of Akron, perhaps appropriate entry would require three or four officers.

    And given that a pro tanto the — where its substantiality takes on some context similarly to the — to the beer industry where your entry can be a matter of choice.

    You can open a –a brewery of a size that is directed by your own decisions to what you can and cannot do.

    In banking, you can’t enter a market and say, “We’re going to open a $40 million bank.

    You must wait until you have deposits in that market against which to make loans and those loans, in — in turn, generate your income.”

    You enter a small market in a small way.

    It simply would be a bad business judgment to do anything else.

    The second criterion is whether there has been an elimination of an undue number of competitors.

    Now, the net number of banks in the United States increased from 13,431 in 1961 to 13,759 in 1971.

    That’s an increase of 328 banks.

    I — I mentioned that because of the opinion in Philadelphia which spoke of the loss of 700 banks in the previous decade as being significant to the extent that that is significant, the increment since 1961 is equally so.

    By way of comparison, the number of brewers in United States was 404 in 1947.

    That has dropped to 79 in 1970.

    In Colorado, again, we are speaking of an increase in the number of banking organizations.

    The number of banking organizations in the State in 1960 was 162.

    Today, it is 198.

    In Greeley, in 1960, we had three competitors.

    Today, we have five.

    The third — the third point that this Court conceived to be relevant in assessing whether or not a merger might tend to substantiate us in competition was whether there had been a recent trend towards concentration in a few leaders.

    Eugene J. Metzger:

    Now, in the United States in 1940, the 10 largest banks had 27% of the total deposit in 1940.

    That dropped to 19.9% in 1970.

    The 100 largest similarly dropped from 57% to 49.9%.

    Now, there had been some mergers as counsel pointed out, but banking is an industry which requires mergers.

    You cannot go out of business in banking simply by packing your bags and — and abandoning the — the premises as you can in any other business or start attempting to solve as important a dollar as you can get.

    The old, the halt, the infirm, the inefficient, in banking, must be disposed off by this route.

    The question is, however, whether or not there had been a trend towards concentration which there certainly has not.

    There has been in this industry and in a State, a trend away from concentration.

    Comparing a game to the beer industry, the four national brewers, Anheuser-Busch, Pabst, Schlitz and Millers had 23% of industry capacity in 1960, 29% in 1964, and 43% in 1970.

    The fourth criterion was whether there had been ready entry of new competitors.

    Now, between 1960 and 1970, there were 1,763 new banks organized in the United States.

    The technical and financial requirements for a new bank charter can be as little as a single qualified lending officer and $50,000 in capital.

    By contrast, there has been one new brewer in United States in the past 25 years, that a Canadian brewer entering the country through expansion.

    The brewery size required for the de novo entry is a $1 million barrel capacity, an expenditure of $20 million for a plant — a plant and equipment and another $10 or $15 million for distribution and advertising facilities.

    In Colorado, there had been 64 new banks organized between 1950, 1960 and 1970.

    Fifty-four of those new banks organized by entrepreneurs not associated with any of the holding companies in the State.

    Now, those banks have done just as well and some better than the holding company if it is in the markets in question.

    Frankly, a new bank, a small bank in a given market will improve its market position depending upon the energy and the capability of the executive running it.

    We do not have a monopoly on talent.

    In addition to the 54 new entrepreneurs other than the — the holding companies who have opened new banks in this area, the State alone denied 45 more charters basically on grounds of lack of need and the national, probably as many during that time spent.

    The fifth criterion was whether the size of the acquiring company had been increased to the point were threatened to develop the size of advantages over its competitors and this is one of the points in which we are supposed to — to create a danger because of our size.

    Now, as we pointed out, the — the Western Bank Corporation is 20 times our size and it does business in Colorado at three locations.

    It acquired three banks there in 1956 in a race to beat the deadline of the Bank Holding Company Act and it operates in three markets — has operated in those three markets for over 15 years.

    For over five years, the United Bank shares, which is again 20% larger than our size, has operated in four markets in that State.

    They — this gives us some predicate to — to assess whether or not we would likely inhibit the formation of new banks or whether our entry would be likely to increase inordinately the market share of the bank that we acquired.

    And what is the market experience of those seven — in those seven markets that this organization is larger than us?

    In three, the banks in question, lost market share of 3% or more.

    In one, it gained 1.3%.

    In three, its market share changed by less than 1%.

    In all of these markets, new banks were organized and had flourished, since these larger institutions ended those markets.

    Eugene J. Metzger:

    And the sixth and final criterion was whether a substantial factor in competition has been eliminated.

    There were five banking organizations serving Greeley, prior to this affiliation if it is accomplished.

    There will be five after this affiliation, so that the number of entrants will not have changed, but the quality will.

    The First National of Greeley has been an ineffective competitor in this market for over 20 years.

    It has had a steady attrition of its market share.

    It has had an — a — a weak management in many areas of technical competence.

    It has had a strong imbalance in the services that if offers.

    This was based upon unchallenged — unchallenged testimony below.

    There was unchallenged testimony further that Bancorporation is a tough competitor, in a tough banking market and that really was an ineffective competitor, in a not very competitive banking market.

    I believe under those circumstances that we can only improve the quality of competitive activity in that market.

    Appellant’s assault on the development of statewide banking organizations through affiliation with leading, both banks is buttoned on a premise that there is no qualitative difference between the order of competition obtaining in those local markets either before or after the affiliation.

    Their thesis, I believe, to be, that nothing would have changed in those markets, save that the statewide organizations ultimately would interface in more markets so that the effect of any agreement on their part not to compete would have the repercussions in more markets.

    I believe that the premise is invalid.

    As I pointed out not only in Greeley, but throughout the State, something does change when those statewide banks enter local markets.

    In most such markets, the quality of competition is improved markedly.

    In some, the very concept of competition is introduced where it has never existed before.

    There was unchallenged, again unchallenged testimony below, from responsible experts that the smaller cities in Colorado, including really are not very competitive but that Denver is a competitive market and that the First National of Denver, the principal subsidiary of Bancorporation is a competitive institution.

    Thus, against the possibilities that statewide organizations in Colorado might change from the vigorously competitive practices they now follow in Denver.

    To concert, we must weigh the fact that the banks that they are assimilating are not now very competitive while they are competitive.

    And this is the point of the amicus brief filed by the Commonwealth of Virginia.

    In 1962, Virginia adopted state laws designed to encourage the coalescence of leading local banks into statewide systems.

    It did so because it sought to improve the quality of competition in banks throughout the State and Virginia reports to us that it has succeeded.

    At the expense of doubling meaningless statewide concentration ratios, and having the number of banks, Virginia has improved the quality of its banking.

    Moving to what we believe to be the relevant context, local banking markets, where the both of us are constrained to seek our assistance, the same time span has seen a sharp increase in a number of banking alternatives for banking market while the local market shares of the leading banks, the true arenas of competition have declined markedly.

    North Carolina has followed an identical pattern over the same time span.

    Since this point is, I believe critical, I’d like you to bear with me for a moment while I cite some numbers.

    I believe they focus precisely the dispute before us today.

    Between 1960 and 1970, the number of banking alternatives in all Virginia cities of 5,000 persons or more rose from 2.8 alternatives to four.

    Between 1960 and 1972, the number of banking alternatives in all North Carolina cities, of 4,000 or more, rose from 2.2 to four.

    Now, this is not part of a general pattern in a country.

    Eugene J. Metzger:

    Virginia and North Carolina now stand far above national loans in terms of banking alternatives per city.

    In the United States as a whole, taking the various smaller-city-sized categories, we have cities of 5,000 to 10,000 have an average of 1.99 banking alternatives.

    Virginia is 21% higher.

    North Carolina at 34%, 10,000 to 15,000, 2.41 average, Virginia 38% higher, North Carolina 57, 15,000 to 30,000, Virgina 13% higher, North Carolina 60%.

    Cities of 30,000 to 50,000, Virginia 52% higher, North Carolina, the same.

    I think it is undisputable that the very result that justice fears might happen in time in Colorado and which it claims justifies this suit has in Virginia and North Carolina had important pro-competitive effects.

    Both States are much better competitive environments than they were.Banking markets in both States have far more competitive options than they did before and far more than other States now have.

    I believe that what justice is telling us this morning is that, yes, perhaps this is good but our way is better.

    Choices between social goods are, however, I believe, a legislative and not a judicial function.

    That their route is better, arguendo, which I deny, which I believe, will preserve local on plates of monopoly, far beyond their time, that their route could be better, cannot transform a competitive good into a probable substantial lessening of competition and that is the litmus against which this Court would test this affiliation.

    Now plainly, I have been speaking to date only as to uncontested facts below.

    This — on those uncontested facts, this is not the sort of merger that Section VII of the Clayton Act was designed to reach, by standards laid down by this Court.

    This has been demonstrated without regard to those disputed questions as to whether we are in fact a potential end or not or and if so, how important (Inaudible)

    I should like now briefly to touch upon those points.

    That this merger removes Bancorporation as a present or perspective competitive force is, of course, true of any merger.

    That the removal of Bancorporation as a perspective competitor would, in reasonable probability, substantially lessen competition in Greeley is a proposition, which I believe, appellant hopes to carry solely by repetition in the teeth of the evidence.

    Bancorporation is represented to be a present competitive force in that we significantly influence the conduct of present entrance.

    They have, we are told, modified their competitive conduct.

    That is, work harder, taking less profit, by reason of our presence on the edge of their market.

    The testimony in this case was absolutely undisputed, uncracked on cross-examination flatly that their conduct have not been effective in any way, by any concept that we might enter or not enter that market.

    This appellant’s ipsi dixit to triumph over this uncontested evidentiary base, appellant believes that six competitors in Greeley would be better than five.

    One more is better and the absence of the prospect of the six, do they substantially end a competitive event.

    Let us assume, arguendo, that six competitors would reduce pro tanto the prospect of anticompetitive conduct and would be therefore desirable.

    The same could be said of a set or 20.

    Where ought a line be drawn?

    We think without attempting to delineate precise contours, no substantial lessening of competition ought be associated with any market served by the largest number of banking organizations that serve cities of similar size.

    Even, however, if we assume that Greeley is in critical need of a six banking organization, we are not a potential de novo entrant into that market.

    Now, it has been suggested that we should in reasonable prospect have entered this market by other means, absent of this affiliation and that any reasonable person would have done so even though we have said that we would not.

    The objective evidence was said to go contrary to what we would propose.

    Now, let’s look at that objective contention from the frame of reference of a banking organization in Denver, like Bancorporation.

    Eugene J. Metzger:

    It looks out across the State at the available alternatives to it for de novo entry.

    It would exclude Pueblo, which is a city that has had considerable economic difficulties for a long period of time.

    And it looks out across the State and it sees Greeley as one of the possible alternatives.

    So it measures that and says “What has been the growth of deposits in that market in the last 10 years?”

    We find that the growth of deposits in Greeley is less than the average for the whole State.

    That is not necessarily dispositive.

    However, we look to the change in the number of banking organization serving Greeley and the rest of the State.

    And we find that the number of banking alternatives in Greeley, the number of banking offices in Greeley, has grown 133% over that time span and that the number of banking organization serving the rest of the State has grown only 30%.

    These two suggests, objectively, that Greeley is one of the less attractive markets in the State for de novo entry.

    We looked also to the question of, as — as we pointed out earlier, how many alternatives are available in the city, and we see there are five.

    And we say to ourselves, “Is this a desirable market to enter de novo when only one other city in the entire United States has that many alternatives and that, a special situation.

    That would suggest objectively that this is not a desirable thing.

    Greeley has the most population for commercial banking office of any city of 20,000 or more than in a State and we — and we had, at the time of this complaint, no office in 11 of the 13 largest.

    Parenthetically, on that point, the Justice Department suggests in its reply brief that we ought to disregard six of them because they are in the Denver standard Metropolitan Statistical Area.

    However, these are banking markets that are — that we are not presently in.

    They are attractive banking markets.

    We do not have any significant amount of business drawn from them and the fact that they are nearer to our headquarters ought to make them more desirable and not less.

    We believe that in sum, objectively or subjectively, Greeley is not an attractive vehicle for de novo entry up to this, but even assuming that Greeley is in critical need of another bank and that it would be attractive for us to entertain, must we preserve Bancorporation to fill that role.

    Mr. Justice Blackmun referred to a new bank organized there, the other day.

    It was organized by the Colorado National Bank, which is a $400 million organization.

    It is a shopping center bank.

    It is a shopping center bank because that is all as a practical business judgment, you could have opened in that market.

    A shopping center bank may be opened by anybody.

    It just takes a $100,000, $200,000 in capital and amending officer.

    This is not something wherein our alleged speciality would add anything significantly to the market.

    Look at the growth of the 54 banking organizations in the State who were not affiliated with holding companies.

    They have grown as efficiently and effectively, examine defendant’s Exhibit 2, if you will, on that question, as any of subsidiary of the — the holding company.

    There is no special magic to a –a shopping center or an –a neighborhood bank and that is all that the City of Greeley could afford to take on.

    Distinguish this from the (Inaudible) where effective entry into a given market requires $35 million.

    Warren E. Burger:

    Mr. Metzger, let me put this question to you.

    Warren E. Burger:

    If the district courts or if the whole situation indicates that the District Court would be — have been justified in the finding that no potential entrant was likely on the basis of these economic factors, do you think that’s the end of the case?

    Eugene J. Metzger:

    If the fifth point, that this Court raised in Brown Shoe were at issue, no.

    If this — if an acquisition of this type were — were so significant or — or the combination of acquisition to take place before, we have had none prior to this one.

    If the combination of these acquisitions had brought about a situation where we threatened to become dominant in this or any other market that we were serving, no.

    That would not be the end of the case.

    Certainly, the accretion to our power is a relevant area for us to inquire.

    To take a — an extreme example of a case where even if the possibility were that little, if New York City only had two banking organization serving it and they were both owned by the same man and someone came to, they point to regulatory agencies and said, “This has been owned by the same family for — for 200 years.

    We want to — we want to put them into a holding company and then make it one organization.”

    I would be inclined to say you ought to deny that, because that situation is so critical.

    That market is so — so badly out of luck with the — with the natural and normal structure of a market of that size but you won’t preserve any opportunity to possibly be concentrated at some point in time.

    Warren E. Burger:

    When you get — you — you have fantasized a pretty easy case there, didn’t you?

    Eugene J. Metzger:

    Well, I’m trying to take the (Inaudible)

    A market, the more heavily concentrated, vis-à-vis its — its ability to absorb banking institutions, the more carefully we ought to look and the more we stick to, we ought to be, I think, towards the entry of these — these new institutions.

    But we are not speaking of — of a market which is suffering from a considerable concentration.

    Indeed, we are not speaking of a market where our entry would — would simply leave alone an undesirable situation.

    We’re taking over a bank that’s been losing market shares steadily for 20 years and have not been an effective competitor, and we propose to make it one.

    In amending — I conclude on this point, in amending Section VII of the Clayton Act, Congress established certain benchmarks for assessing what merges would transgress the bonds of the statute.

    The standards were identified and amplified upon by this Court in Brown Shoe.

    Of course, it is possible to conceive of anticompetitive effects of this affiliation.

    Any merger of companies in the same or potentially in the same business open such prospects but it was in seeking to measure probable substantiality of effect that benchmarks were established and measured by those standards.

    Appellant has failed to prove his case.

    Thank you.

    Warren E. Burger:

    Thank you, Mr. Metzger.

    Mr. Friedman, you have about nine minutes left.

    Friedman:

    Yes.

    Mr. Chief Justice, may it please the Court.

    In its many merger decisions, this Court has always relied on percentage figures on shares of the market as showing concentration not on questions as to whether or not the market could or couldn’t absorb any more firms and not on comparisons with what might be the number of entrants affirms in similar markets.

    Now, I think the reason that the percentage figure is as significant and critical in determining concentration is because we know that the percentage figures, the share of the market that a firm has reflects the firm’s economic power in the market.

    If a firm has a third of the market, it’s a powerful firm in the market and therefore since the emphasis in Section VII is in on — acquisitions opposed anticompetitive threats and Congress was concerned with this rising trend in concentration.

    The way you decide whether or not a market is concentrated, it seems to us, is to look and see whether a small number of firms have an unduly large share of the market because we know that when you have a small number of firms in a concentrated market as this Court has recognized what happens is, instead of the usual competition with a small number of firms, you have an accommodation situation.

    Friedman:

    That, of course is what Greeley is, Greeley more 90% of the deposits in the whole area are concentrated in the hands of three banking organizations.

    Now —

    Warren E. Burger:

    Mr. Friedman, you haven’t addressed yourself at least in oral argument to the possible distinctions between banks and other types of business enterprises in the antitrust context.

    Friedman:

    Well, that the — the only distinction now that I think is a fair one, Mr. Chief Justice, is the fact that entry into the banking business is restricted.

    Anybody can open a shoe factory or a brewery.

    Not anybody can go into a banking market.

    And the reason, obviously, for that is that there’s some restriction on the free play of competition in banking.

    We can’t have a large group of banks going after each other competitively and result in the weakening of banking structures, but it seems to us there is a corollary which points the other way which is the nature of banking, the nature of banking because of this, tends to be concentrated.

    That is, in most of the smaller markets of the country, we do have only a small number of banks and the business tends to focus to flow in to a few of these banks, and it seems to us the fact that banking tends to be concentrated in most of these markets is all the more reason to preserve whatever there may be in the way of possibilities of deconcentration and of improving the competitive situation in these markets.

    Now, Mr. Metzger has told the Court today repeatedly that the Greeley market isn’t very competitive, he says, and he says that if Bancorporation comes in, they’re going to make it more competitive.

    Congress, it seems to us, has made the decision that if a market is not competitive, the way to improve it, the way to enhance competition is not to permit a potential competitor to come in and just take it over.

    That — that makes no change, no change at all in the basic structure of the market.

    What happens to the contrary is that another one of these large statewide organizations comes in.

    Instead of having what you previously had, which is two of the principal banking organizations controlled by the holding companies and the third independent one that someday hopefully might become more vigorous, management can change, we now have the three of them in there.

    Warren E. Burger:

    But doesn’t it improve competition if you substitute a strong competitor for a weak one —

    Friedman:

    Not — not —

    Warren E. Burger:

    — whether it’s by acquisition or by new entry?

    Friedman:

    I don’t — I don’t — it may improve in the — in that sense, but I — I think it doesn’t in the long run improve the competitive situation because what you have — what you have, when it’s all over, is the same basic market structure Three large firms and what you have lost, what you have lost in this process is the fact that you have a fourth large firm standing outside the market which is a pro-competitive effect.

    Warren E. Burger:

    Do you agree with Mr. Metzger that the acquired bank is — has been a declining competitor?

    Friedman:

    I think — I don’t say it’s a declining — had it’s share of the market has declined but during this entire period, it has still been virtually as large or as — as any bank in the market.

    It’s been a profitable bank.

    It is — we’ve had this in Greeley, as it’s true in most cities, development of suburbs and since a bank under Colorado law is permitted only to have one office, inevitably, it may not share quite as much in the deposits in the suburban areas as the downtown bank.

    But it seems to us if competition — if competition is to be injected into this market area, if competition is to be injected into this market area, the congressional determination in Section VII is not that, it’s to be done by having a large firm take over one of the big existing firms but to preserve whatever there may be in the whole structure of the market, that pose pro-competitive possibilities.

    That is, someone on the outside waiting.

    That — that’s the whole theory.

    That’s the whole theory of potential competition, the doctrine of the Government is urging before this Court and this — Mr. Metzger referred to these six standards that this Court announced in Brown Shoe and suggested we didn’t need any of them.

    But of course, Brown Shoe was a case involving elimination of direct competition.

    It was vertical — and a vertical foreclosure of competition, horizontal combination of — horizontal merger between competitors and it was in that context that the Court announced these — these factors.

    Now, these factors seem to us, are not the factors to decide in a potential competition case.

    Now, I’d just like to refer to one other thing that Mr. Metzger said.

    Friedman:

    Mr. Metzger said that there is no evidence in this record at all that the presence of Bancorporation outside had any effect, whatsoever, on competition in Greeley market.

    That statement is based on a question that was put to each of the three presidents of the leading banks in the city of Greeley and the question is shown at page 301, 303 and 305.

    It is virtually identical in all cases.

    Let me just read the question as frankly as put, had you had a decision to grant or deny credit to set a given rate of interest to charge or to pay ever been affected by the prospect that you might thereby induce First National Bancorporation to apply for and secure a charter to operate a bank in Greeley.

    And the answer to each of these questions was no.

    Now, we don’t suggest that when a particular customer came in to make a loan, and the question was, “Should I give him the loan?

    What interest rate should I charge?

    What the terms of the loan should be”, that any of the bank has said to himself, “Well now, if I don’t give him this loan or if I charge him an eighth of a percent more, that means that Bancorporation is going to try to charter a bank in Greeley”.

    What we do say is, that the whole market situation, the presence of this important firm on the outside, was a fact that it influenced the general competitive practices in the Greeley market.

    That we think is the role of potential competition.

    The fact that this outside firm could come in and could shake the market up is bound to have some effect upon the firms in the market.

    And, of course, as long it’s out there, it has this effect and if it comes in through either the foothold acquisition or through signing a small new bank, then for the first time, you do have a real, strong, vigorous competitor in this hitherto static market.

    Thank you.

    Warren E. Burger:

    Thank you, Mr. Friedman and thank you, Mr. Metzger.

    The case is submitted.