Antitrust, Banking, and Competition
| Author | Lee Loevinger |
| Published date | 01 September 1985 |
| Date | 01 September 1985 |
| DOI | http://doi.org/10.1177/0003603X8503000302 |
| Subject Matter | Article |
The Antitrust Bulletin/Fall 1985
Antitrust, banking, and competition
BY
LEE
LOEVINGER
583
Banking is an ancient institution and so is government regulation
of
banks. Some
of
the earliest known banks existed in Babylonia
as long ago as 2000 B.C.,! and since then the banking function
has been performed by a variety of institutions, including relig-
ious temples in ancient times, medieval churches, goldsmiths in
the seventeenth century, and the government itself. 2Throughout
the history
of
banking, banks have been regulated by and in-
volved with government, Rome having promulgated minute regu-
lations covering all aspects
of
private banking as early as 210
B.C.3 The deposit function has been an aspect
of
banking from
the beginning but the issuance
of
bank notes and the validation
of
checks and other negotiable instruments have evolved over time,
banks in their modern form, performing both the deposit and the
issue functions, having developed in Britain and Europe during
the seventeenth and eighteenth centuries.' With the development
of
modern banking, since about the end of the seventeenth
century in England, and the somewhat later establishment
of
banks in America, banking has been separated by law from other
commercial activities largely because of fears that bankers would
Banks, History
of,
in 3 ENCYCLOPEDIA BRITANNICA 67 (1947 ed.).
2Id.
Id.
4ENCYCLOPEDIA BRITANNICA, Banks and Banking, in 2
MACROPEDIA
(15th ed. 1975).
© 1985by Federal LegalPublications, Inc.
584 The antitrust bulletin
have too much economic powerv--a situation that has prevailed
until the 1980s. The separation of banking and other business
activities not only inhibited the growth of banking hegemony but
also protected banks against competition from other types
of
enterprises.
In the United States the first banks were state-chartered
institutions, and the federal government was not involved in bank
regulation until 1863, except for two banks established by act
of
Congress which operated from
1791
to
1811
and from 1816 to
1836.6In
1863
Congress passed the National Currency Act and in
1864 the National Bank Act which, for the first time, provided
for the federal chartering of private national banks authorized to
issue bank notes secured by the deposit of federal obligations in
the Treasury
of
the United States. The act also established the
office of the Comptroller
of
the Currency to issue the charters
and supervise the operations
of
national banks. The Comptroller
remains the Administrator of National Banks to this day.
In
1913
the Federal Reserve AcC established the Federal
Reserve Bank to act as a national central bank and help stabilize
the monetary and banking system. All national banks are re-
quired to join the Federal Reserve System, and state banks are
permitted to join, although only about ten percent have done SO.8
Alarmed by the large number
of
bank failures during the late
5B. Shull, The Separation
of
Banking and Commerce: Origin,
Development and Implications
for
Antitrust, 28
ANTITRUST
BULL.
255
(1983).
6 C. H.
GOLEMBE
&D. S.
HOLLAND,
FEDERAL
REGULATION
OF
BANKING
(1983-84).
7Act
of
Dec. 23, 1913, ch. 6, 38 Stat. 251 (codified at 12 U.S.C.
ch. 3, §§ 221-522, ch. 17, §§ 1841-1851, and other dispersed sections
of
title 12). There have been dozens
of
amendments to the Federal Reserve
Act since 1913.
8See
STATISTICAL
ABSTRACT
OF
THE
UNITED
STATES
1984, at 510, table
842 (1983).
It
is reported that as
of
Dec. 31, 1982, there was a total
of
10,384 state banks
of
which 1,040 were members
of
the Federal Reserve
System.
Banking and competition :585
1920s, and particularly during the period 1929 to 1933, Congress
enacted the Federal Deposit Insurance Act" in 1933, which set up
the Federal Deposit Insurance Corporation (FDIC) to insure
deposits in all banks that became members
of
its system. All
national banks and state member banks
of
the Federal Reserve
System were required to become members and state nonmember
banks were permitted to do so. In order to attract deposits, all
but a very small minority of nonmember banks have found it
necessary to
join."
Thus, since
1933
federal regulation
of
the
banking system has become virtually complete, although frag-
mented. National banks are regulated by the Comptroller. State
members of the Federal Reserve System are regulated by the
Federal Reserve Board, which also regulates bank holding com-
panies. State nonmember banks that have federal deposit insur-
ance are regulated by the FDIC.
The three federal banking agencies constituted the federal
regulatory presence in the banking system until 1961. In
that
year
the Department
of
Justice filed half a dozen antitrust suits
against bank mergers,
II
the first of which, against the Phila-
delphia National Bank, reached the Supreme Court in 1963.12 In
that case the Court held that Clayton Act section 7 applied to
bank mergers despite the then prevailing view
of
antitrust experts
that the statutory language exempted banks from that section."
9Act of Sept. 21, 1950, ch. 967, §§
1,2,64
Stat. 873 (codified at
12 U.S.C. ch. 16, §§ 1811-1832,
and
other dispersed sections
of
title 12).
There have been about three dozen amendments to the Federal Deposit
Insurance Act subsequent to 1950.
10 Aprintout
of
FDIC
records provided to the
author
by the
FDIC
in
January
1985 showed less
than
one percent
of
all state banks were not
insured by the
FDIC
as
of
June
30, 1984.
11 See L. Loevinger, Antitrust in 1961 and 1962, 8
ANTITRUST
BULL.
349, 359 (1963). The
author
was the Assistant Attorney General in
charge
of
the Antitrust Division in
1961
and 1962.
12 United States v. Philadelphia National Bank, 374 U.S. 321
(1963). The
author
argued the case for the government as Assistant
Attorney General.
13 W. T. Lifland, The Supreme Court, Congress, and Bank Mergers,
32 L. &
CONTEMP.
PROBS.
15 (1967).
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