Mid-50s BHC battle helped shape today’s banking landscape, literally. E-mail
Mid-50s battle shaped today’s banking
By Steve Cocheo, executive editor
After more than two decades of often-bitter wrangling, in mid-1956, Congress passed the Bank Holding Company Act, including the “Douglas Amendment.” At the time, the act and that amendment, especially, represented a major restriction on the activities of a portion of the banking industry. However, it also helped bring about today’s geographic landscape in banking.
One of the authors of the act was Sen. A. Willis Robertson (D.-Va.), successor to Sen. Carter Glass, of Glass-Steagall Act fame, and father of Pat Robertson, today’s tv evangelist. Robertson chaired what was then the banking subcommittee of the Senate Banking and Currency Committee. In the June 1956 Banking, Robertson wrote that the new law was “… the most significant banking statute that has been enacted since the Banking Act of 1935 [Glass-Steagall]. It is important to bankers of every state of the Union, but is of particular concern to bankers in the 33 states where bank holding companies are carrying on active operations.”
Today, there are holding companies, large, medium, and small, all over the business. But at the time of passage they were a relatively new, and increasingly powerful, factor. The 1956 act’s two main purposes were to rein in future expansion of bank holding companies, and to require them to divest themselves of nonbanking investments.
Regarding the latter point, one of the best examples of what was going on was Transamerica Corp. Founded by A.P. Giannini, founder also of Bank of America, Transamerica owned banks in multiple states as well as nonbanking businesses in insurance and other. In a January 1956 Banking commentary, F.N. Belgrano, Jr., Transamerica’s chairman and president, argued against the pending holding company act. He noted that the industry was fighting itself, with smaller, hometown banks and their allies on one side, and larger, holding-company-centered banking firms on the other.
Wrote Belgrano: “… the real bone of contention is whether bank holding companies have an advantage over their competitors and, if so, whether this advantage is ‘unfair’ so as to justify congressional intervention.”
An opponent, and a former ABA president, banker A.L.M. “Lee” Wiggins, president, Bank of Hartsville, S.C., stated in the December 1955 Banking:
“… On the whole, holding companies have a splendid record in their operation of banks. They performed a valuable service in taking over and saving a number of banks during the depression period of the thirties. Simple fairness would dictate that holding companies owning banks across state lines should not be required to divest themselves of such ownership. However, future acquisitions across state lines should be prohibited by federal law. Such a policy would be consistent with that now applicable to branch banking across state lines …”
The holding companies lost the battle, and along the way, the Douglas Amendment became part of the new law. Paul Howard Douglas (D.-Ill.), economist and professor, and a strong backer of what became Truth in Lending, added a rule that extended the restrictions on bank branching contained in the McFadden Act (“Then and Now,” April) to holding companies. Holding companies had been seen as evading McFadden by acquiring banks in other states, in lieu of the McFadden-barred branching. As Robertson wrote in 1956:
“Interstate expansion is controlled by the Douglas amendment, which prohibits a bank holding company from acquiring a bank outside of the home state of the holding company unless the laws of the state to be entered specifically authorize such acquisitions by out-of-state holding companies. No state now has such an authorizing law, so at present no holding company can acquire additional banks across state lines.”
After passage of the 1956 act, divestitures were made. Transamerica, today part of a larger financial firm, kept its nonbanking activities and spun off its nearly two dozen banks in 11 western states into a separate firm. In time, that firm became First Interstate Bancorp, acquired in the mid-1990s by Wells Fargo, itself acquired by Norwest Corp., which adopted the name, in 1998. Today’s Wells has banking offices in 23 states.
In 1970 some amendments to the holding company act further tightened its strictures, but in the mid-1980s, exploitation of loopholes, and a Supreme Court case saw the barriers to bank holding company interstate expansion begin to erode. The High Court upheld the concept of regional compacts, in which participating states within a region would permit interstate activity within the region. This fostered regional powerhouses—by design—that in time became some of today’s giants. As successive banking laws further eroded interstate restrictions, these giants grew, and grew. The Douglas Amendment was officially repealed in 1994 by the Riegle-Neal Interstate Banking and Branching Efficiency Act.
In the May 1998 ABA Banking Journal, “Of maps and men” marked the takeover by NationsBank, Charlotte, N.C., of BankAmerica. The acquiror adopted the target’s name, and, in the end, a Bank of America—albeit headquartered in the East, not California—came to be, at $1.7 trillion, the nation’s second-largest bank holding company, with banking offices in 32 states and Washington, D.C.