Board of Governors of the Federal Reserve System v. First Lincolnwood Corp.

Under § 3(a) of the Bank Holding Company Act of 1956, prior approval by the Board of Governors of the Federal Reserve System (the board) (defendant) was required for any company acquiring control of a bank. The board was not permitted to approve any transactions that would create a banking monopoly. The board was required to disapprove any transaction in which the anticompetitive effects were not clearly outweighed by the beneficial effects to the community. First National Bank of Lincolnwood, Illinois (the bank) was controlled by four individuals. The four individuals sought to restructure their ownership interests, so they created First Lincolnwood Corporation (plaintiff) to serve as a bank holding company for the bank. Both the Federal Reserve Bank of Chicago and the United States Comptroller of the Currency recommended approval of First Lincolnwood’s proposal. However, the staff of the board then reviewed the proposed transaction, and it concluded that the capital position of the bank was inadequate and that financing arrangements should be made more definite. The board concurred with the staff’s conclusions. The board found that the bank lacked adequate financial flexibility based on its debt structure. The board concluded that approval of the proposed transaction was not in the public interest because the initial debt structure of the holding company could result in the weakening of the bank’s financial condition, so it denied First Lincolnwood’s proposal. First Lincolnwood sued the board. The court of appeals set aside the board’s denial. The board appealed.