PART VI.

SECTION EIGHT OF THE CLAYTON ANTITRUST LAW MODIFIED BY THE KERN AMENDMENT

September 24, 1914, the Federal Trade Commission Law was enacted. It is entitled "An Act to create a Federal Trade Commission, to define its powers and for other purposes."

October 15, 1914, the Clayton Law or Supplemental Anti-Trust Law was enacted. It is entitled "An Act to supplement existing laws against unlawful restraints and monopolies and for other purposes.' These two statutes aggregate ninety-one sections and are to be construed as one law.

Section 54 is entitled: "Interlocking between banks, one of which has $5,000,000 resources, unlawful."

Section 55 is entitled: "Interlocking between banks in cities of over 200,000 population prohibited."

May 15, 1916, the statute was enacted which is known as the Kern Amendment and which amends section eight of the Clayton Anti-Trust Law. The title is as follows:

An Act to amend section eight of an Act entitled "An Act to supplement existing laws against unlawful restraints and monopolies and for other purposes, approved October fifteenth, nineteen hundred and fourteen."

That portion of section eight of the Clayton Anti-Trust Law which applies to the interlocking system of directing banks, as altered by the Kern Amendment, follows:

SEC. 8. That from and after two years from the date of the approval of this act no person shall at the same time be a director or other officer or employee of more than one bank, banking association or trust company, organized or operating under the laws of the United

States, either of which has deposits, capital, surplus and undivided profits aggregating more than $5,000,000; and no private banker or person who is a director in any bank or trust company, organized and operating under the laws of a State, having deposits, capital, surplus and undivided profits aggregating more than $5,000,000, shall be eligible to be a director in any bank or banking association organized or operating under the laws of the United States. The eligibility of a director, officer, or employee under the foregoing provisions shall be determined by the average amount of deposits, capital, surplus, and undivided profits as shown in the official statements of such bank, banking association or trust company filed as provided by law during the fiscal year next preceding the date set for the annual election of directors, and when a director, officer or employee has been elected or selected in accordance with the provisions of this act it shall be lawful for him to continue as such for one year thereafter under said election or employment.

No bank, banking association or trust company, organized or operating under the laws of the United States, in any city or incorporated town or village of more than two hundred thousand inhabitants, as shown by the last preceding decennial census of the United States, shall have as a director or other officer or employee any private banker or any director or other officer or employee of any other bank, banking association or trust company located in the same place: Provided, That nothing in this section shall apply to mutual savings banks not having a capital stock represented by shares: Provided further, That a director or other officer or employee of such bank, banking association or trust company may be a director or other officer or employee of not more than one bank or trust company organized under the laws of the United States or any State where the entire capital stock of one is owned by the stockholders in the other: And provided further, That nothing contained in this section shall forbid a director of class A of a federal reserve bank, as defined in the Federal Reserve Act, from being an officer or director or both an officer and director in one member bank: And provided further, That nothing in this act shall prohibit any officer, director or employee of any member bank or class A director of a federal reserve bank, who shall first procure the consent of the Federal Reserve Board, which board is hereby authorized, at its discretion, to grant, withhold, or revoke such consent, from being an officer, director or employee of not more than two other banks, banking associations or trust companies, whether organized under the laws of the United States or any State, if such other bank, banking association or trust company is not in substantial competition with such member bank.

The consent of the Federal Reserve Board may be procured before the person applying therefor has been elected as a class A director of a Federal Reserve bank or as a director of any member bank.

When any person elected or chosen as a director or officer or selected as an employee of any bank or other corporation subject to the provisions of this act is eligible at the time of his election or selection to act for such bank or other corporation in such capacity, his eligibility to act in such capacity shall not be affected and he shall not become or be deemed amenable to any of the provisions hereof by reason of any change in the affairs of such bank or other corporation for whatsoever cause, whether specifically excepted by any of the provisions hereof or not, until the expiration of one year from the date of his election or employment.

ANALYSIS OF THE CLAYTON ANTI-TRUST LAW AS MODIFIED BY THE KERN

AMENDMENT

The Kern amendment materially modified the requirements of section eight of the Clayton Anti-Trust Statute from those originally named. The Clayton statute prohibited interlocking between National banks in any part of the United States, either of which had deposits, capital, surplus and undivided profits aggregating more than $5,000,000. It forbade any director of a State bank or trust company with deposits, capital, surplus and profits of more than $5,000,000 to be a director in any National bank, of whatever size, and it forbade interlocking in cities of more than 200,000 inhabitants between National banks and any other banks or trust companies located in the same place. The law as it now stands permits the official connection of a director, officer or employee in a National bank with a total of three banks, without reference to their size, location or character of business. The single restriction imposed is that none of the institutions shall be in competition with one another. An individual may be a director, officer or employee in three banks which have resources in excess of $5,000,000 and which are not in competition with one another. Permission for such interlocking is to be obtained from the Federal Reserve Board. State banks and trust companies which

have joined the Federal Reserve System, and are now known as member banks, are subject in the same manner as National banks.

STATE BANKING INSTITUTIONS NOT SUBJECT TO THIS LAW

State banking institutions, except those which have entered the Federal Reserve System, are not subject to the prohibitions of the Clayton Law unless they interlock with member banks. Mutual savings banks which have no capital stock represented by shares are totally exempt from the restrictions imposed by this statute. Banks of common ownership are partially exempt. An officer or employee of a National bank may serve as a director or employee of one other bank or trust company where the entire capital stock of one is owned by stockholders of the other. He may at the same time serve as a director, officer, or employee of two other banks not in substantial competition with the member bank. Directors of Class A in a federal reserve bank do not come within these restraints.

ELIGIBILITY OF DIRECTORS

An individual who is director of three non-competing $5,000,000 banks and a smaller bank at the same time will not be compelled at once to withdraw from one of them, should the smaller bank, by increasing its deposits, capital or surplus, come into the class that is subject to the provisions of the law. His eligibility to serve the full year for which he was elected is conceded in every case in which, at the time of his election, his choice was not in violation of any part of section eight. The manner in which it is determined whether a bank is subject to the provisions of the law is by taking the average amount of deposits, capital, surplus and undivided profits shown in the official statements of the institution in question, as required by law to be filed during the fiscal year preceding the annual election at which officers or employees are chosen.

DUAL POSITIONS

The first paragraph of section eight, relating to dual positions in National banks states "a director or other officer or employee" is specified in the law's interdictions. In the second paragraph, which relates to interlocking between National and State institutions, merely "a director" is specified and the statute does not mention any other officer or employee. The statute does not prevent an officer of a $5,000,000 National bank, who at the same time is not a director, from being a director on the boards of as many $5,000,000 State banks and trust companies as he desires, provided no two of the institutions are in cities of 200,000 inhabitants, and provided none of them is a member of the Federal Reserve System. So long as a State bank officer or trust company officer is not a director of a $5,000,000 State bank or trust company, he may sit upon the boards of three $5,000,000 National banks, if all banks are in separate cities, or, if in the same city, provided the population is not over 200,000 or provided none of the banks are in competition.

INTERLOCKING OF NATIONAL BANKS AND STATE BANKING INSTITUTIONS

The statute contains no provision against interlocking between National banks and State banks and trust companies, in cases where total resources of the individual State institutions are less than $5,000,000 and where such institutions are in cities of less than 200,000 inhabitants. Officers of a National bank may serve at the same time as an officer or director in State institutions with total resources of less than $5,000,000, provided that such institutions are located in a city of fewer than 200,000 population or located in different cities. An officer or director of a $5,000,000 National bank may hold directorship in any number of small State banks and trust companies, where not located in the same city of 200,000 population. An officer or director of a $5,000,000 National bank is distinctly prohibited, however.