Tying and other Conditional Agreements under Section 106 of the Bank Holding Company Act: A Reconsideration

• Author: Bernard Shull
• Published date: 01 December 1993
• Date: 01 December 1993
• DOI: 10.1177/0003603X9303800403
• Subject Matter: Article

The AntitrustBulietinlWinter 1993

Tying and other conditional

agreements under section 106

of

the Bank Holding Company Act:

areconsideration

BY BERNARD SHULL*

I. Introduction

859

When Congress permitted bank holding companies to expand into

new activities by amending the Bank Holding Company Act in

1970, it also tailored prohibitions in section 106 against tying,

reciprocal, and exclusive dealing agreements.1Over the years,

*Professor, Hunter College, City University

of

New York; Special

Consultant, National Economic Research Associates, Inc.

AUTHOR'S

NOTE:

Iwish to acknowledge the helpful comments

of

Howard

Kitt

of

National Economic Research Associates (NIE/RIA), Devra Golbe

of

Hunter College and Stephen Rhoades

of

the Federal Reserve Board. The

article has also benefited from discussion

of

a number

of

relevant issues

with James Maloney, Esq.,

of

Wright, Manning,

Rips

and

Maloney.

Finally, Iwant also to express a general appreciation for the support

of

many colleagues at NIEIRIAduring the preparation

of

the article.

1Act to Amend the Bank Holding Company Act of 1956, P.L. 91-

607; §106, 12 U.S.C. 1972.

e1994by

Federal

LegalPublications. Inc.

860 : The antitrust bulletin

bank regulators have repeatedly suggested that section 106-type

restrictions are necessary precautionsin permitting

bank.

diversifi-

cation,s Congress has agreed. Parallel prohibitions in statutes

affecting other depository institutions have subsequently been

enacted."

One might infer that the competitive protection afforded by

section 106 restraints, particularly in the "new" markets into

which financial institutions have entered, has been reasonably

well established. In fact, nothing could be farther from the truth.

There have been no studies by the federal regulatory agencies, no

congressional reports reflecting oversight, and little in the way of

academic analysis.' Two decades after passage, there has yet to be

any serious evaluation.

2E.g., Robert L. Clarke, Comptroller of the Currency, Reform

of

the Nation's Banking and Financial Systems: Hearings Before the Sub-

committee on Financial Institutions, Supervision, Regulation &Insur-

ance

of

the Senate Committee on Banking, Finance &Urban Affairs,

100th Cong., 1st Sess. Part 1, 281-82 (1987); and H. Robert Heller,

Member, Board

of

Governors of the Federal Reserve System, 74

FED.

RES.

BULL.

743, 744 (1988) (statement before Subcommittee on Com-

merce, Consumer Protection &Competitiveness, Committee on Energy

&Commerce, U.S. House of Representatives, September 9,1988).

3In 1982, the Depository Institutions Act (Title Ill, Thrift Institu-

tions Restructuring, §331) made §106-type restrictions applicable to

federally chartered savings &loan associations by adding §5(q) to the

Home Owners Loan Act of 1933. P.L. 97-320; 96 Stat. 1469, 1503, 1504

(1982). In 1987, the Competitive Equality Banking Act (Title I, Financial

Institutions Competitive Equality, §101) amended the Bank Holding

Company Act to make §106 applicable to trust companies, credit card

banks, Edge Act and.Agreement corporations, industrial.loan companies,

savings banks, and to companies controlling such institutions; and (in

§104) amended the National Housing Act to make §5(q) applicable to

federally insured, state-chartered subsidiaries of savings and loan holding

companies, the holding companies themselves and their other affiliates.

P.L. 100-86, 101 Stat, 552, 561, 574. In 1989, the Financial Institutions

Reform, Recovery and Enforcement Act (Title III, Savings Associations,

§301) made §5(q) applicable to savings and loan holding companies and

all of their affiliates. P.L. 107-73,103 StaL 183,335 (1989).

4A few articles have provided an economic analysis of tying agree-

ments in banking, for example, Edwards, Tie-in Sales in Banking and