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Northeast Bancorp Inc. v. Board of Governors of Federal Reserve System

August 1, 1984

NORTHEAST BANCORP, INC. AND UNION TRUST COMPANY, PETITIONERS-APPELLANTS,
v.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, RESPONDENT-APPELLEE. CITICORP, A CORPORATION, PETITIONER, V. THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, RESPONDENT



Appeal from orders of the Federal Reserve Board approving mergers pursuant to Sections 3 and 4(c)(8) of the Bank Holding Company Act of 1956. Affirmed.

Author: Bonsal

CARDAMONE and PRATT, Circuit Judges, and BONSAL, District Judge.*fn*

BONSAL, District Judge:

Petitioners Citicorp ("Citicorp"), Northeast Bancorp, Inc. together with Northeast's subsidiary bank, Union Trust Company (collectively "Northeast"), and intervenor Bank of Boston corporation ("BBC") petition this court to review three orders of the Board of Governors of the Federal Reserve System (the "Board") which, pursuant to Sections 3 and 4(c)(8) of the Bank Holding Company Act of 1956 (the "BHCA"), approved the applications of:

1) Bank of New England Corporation ("BNE"), a Massachusetts bank holding company, to acquire CBT Corporation ("CBT"), a Connecticut bank holding company;

2) Hartford National Corporation ("HNC"), a Connecticut bank holding company, to acquire Arltru Bankcorporation ("Arltru"), a Massachusetts bank holding company; and

3) Bank of Boston Corporation ("BBC"), a Massachusetts bank holding company, to acquire Colonial Bancorp, Inc. ("Colonial"), a Connecticut bank holding company.

In enacting the BHCA, Congress established a framework for the supervision and regulation of bank holding companies, i.e., companies that control one or more banks.*fn1 Section 3 of the BHCA prohibits any acquisition of a bank by a bank holding company without prior approval of the Board. Section 4 of the BHCA allows bank holding companies, through "non-bank" subsidiaries, to provide financial services which the Board deems to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto." 12 U.S.C. ยง 1843(c)(8).*fn2

The BHCA, as originally passed by the House of Representatives, banned interstate acquisitions. See H.R. Rep. No. 609, 84th Cong., 1st Sess. 3, 15 (1955). The original version of the bill reported out by the Senate Committee contained no provision dealing with interstate acquisitions. See S. Rep. No. 1095, 84th Cong., 1st Sess. 10-11 (1955). However, Senator Douglas of Illinois proposed an amendment in the Senate which was adopted by both Houses as Section 3(d) of the BHCA (the Douglas Amendment). The Douglas Amendment provided that no application by a bank holding company to acquire a bank located in another state could be approved by the Board unless the state in which such bank was located had, by statute, specifically authorized such acquisition.*fn3

Massachusetts, in 1982, and Connecticut, in 1983, enacted statutes (hereinafter referred to as the Massachusetts and Connecticut statutes, respectively) to permit interstate bank acquisitions. The Massachusetts statute authorized bank holding companies located in any other New England state to acquire banks located in Massachusetts, provided that the New England state in which such bank holding company was located had granted reciprocal privileges to bank holding companies located in Massachusetts. The Connecticut statute contained a similar provision.*fn4

(1) THE BNE APPLICATION

On July 11, 1983 BNE entered into an agreement to acquire CBT under the authority of the Connecticut statute. On August 5, 1983, pursuant to Sections 3 and 4(c)(8) of the BHCA, BNE applied to the Board for approval of its proposed acquisition of CBT. By notice published in the Federal Register dated September 15, 1983, the Board invited comment on BNE's application.*fn5 Citicorp and Northeast opposed the application and asked the Board to defer action pending the outcome of litigation Northeast had instituted challenging the constitutionality of the Connecticut statute, which litigation was dismissed on December 16, 1983.*fn6 On March 26, 1984 the Board approved BNE's proposed acquisition of CBT pursuant to Sections 3 and 4(c)(8) of the BHCA.*fn7 The Board found that the acquisition came within the Douglas Amendment because it had been specifically authorized by the Connecticut statute. The Board found that "the Douglas Amendment should be read as a renunciation of federal interest in regulating the interstate acquisition of banks by bank holding companies." The Board also found no "clear and unequivocal" basis for finding the Connecticut statute unconstitutional.

(2) THE HNC APPLICATION

On September 1, 1983 HNC entered into an agreement to acquire Arltru under the authority of the Massachusetts statute. On October 19, 1983, pursuant to Section 3 of the BHCA, HNC applied to the Board for approval of its proposed acquisition of Arltru. By notice published in the Federal Register dated November 25, 1983, the Board invited comment.*fn8 By letter dated December 16, 1983 and attachments, Citicorp opposed HNC's application. On March 26, 1984 the Board approved HNC's proposed acquisition of Arltru pursuant to Section 3 of the BHCA.*fn9 The Board found that the acquisition came within the Douglas Amendment because it had been specifically authorized by the Massachusetts statute. The Board found that "the Douglas Amendment should be read as a renunciation of ...


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