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U.S. Supreme Court

Board of Governors of FRS v. First Lincolnwood, 439 U.S. 234 (1978)

Board of Governors of Federal Reserve System v.

First Lincolnwood Corp.

No. 77-832

Argued October 11, 1978

Decided December 11, 1978

439 U.S. 234


Section 3(a) of the Bank Holding Company Act of 1956 (Act) prohibits any company from acquiring control of a bank without prior approval by the Board of Governors of the Federal Reserve System (Board). Under § 3(c) of the Act, the Board must disapprove a transaction that would, inter alia, generate anticompetitive effects not clearly outweighed by beneficial effects upon the acquired bank's ability to serve the community. Section 3(c) also directs the Board "[i]n every case" to

"take into consideration the financial and managerial resources and future prospects of the company or companies and the banks concerned, and the convenience and needs of the community to be served."

Individual stockholders who controlled an existing bank organized respondent corporation to acquire their bank stock. Respondent submitted the transaction for the Board's approval. Upon review, the Board found that the transaction would have no anticompetitive effects and would not change the services offered by the bank to customers. However, it ultimately disapproved the transaction, against the recommendation of the Comptroller of the Currency, on the ground that formation of the holding company would not bring the bank's financial position up to the Board's standards. The Court of Appeals set aside the Board's order, holding that § 3(c) empowers the Board to withhold approval because of financial or managerial deficiencies only if those deficiencies would be "caused or enhanced by the proposed transaction."


1. The Board has authority under § 3(c) to disapprove formation of a bank holding company solely on grounds of financial or managerial unsoundness. This conclusion is supported by the language of the statute and the legislative history, and, in addition, comports with the Board's own longstanding construction, which is entitled to great respect. Pp. 439 U. S. 242-248.

2. The Board's authority is not limited to instances in which the financial or managerial unsoundness would be caused or exacerbated by the proposed transaction. Such a limitation would be inconsistent with the language and legislative history of the statute and with the Board's own construction of its mandate, a construction in which Congress has chanrobles.com-red

Page 439 U. S. 235

acquiesced. Nor does the legislative history suggest that Congress intended to reserve questions of bank safety to the Comptroller of the Currency or state agencies except where a transaction would harm the financial condition of an applicant or a bank. Pp. 439 U. S. 249-252.

3. The Board's denial of the application is supported by substantial evidence that respondent would not be a sufficient source of financial and managerial strength to its subsidiary bank. Pp. 439 U. S. 252-254.

560 F.2d 258, reversed.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J.,and BRENNAN, STEWART, WHITE, BLACKMUN, and POWELL, JJ., joined. SEVENS, J., filed a dissenting opinion, in which REHNQUIST, J., joined, post, p. 439 U. S. 254.