James J. Saxon was Comptroller of the Currency for exactly five years, from November 16, 1961 to November 15, 1966. In this short period of time, bank regulation changed in many ways to fit the needs of the 20th century.

tion left no doubt in the minds of most economists and lawyers about the intent of Congress to exclude commercial bank mergers from Clayton Act prosecution. But the 1960 statute did not explicitly state such exclusion, and in the Philadelphia National Bank decision of 1963, the Supreme Court, though wondering aloud why the Celler-Kefauver Amendment made no explicit mention of mergers not subject to Federal Trade Commission jurisdiction, could perceive "the basic Congressional design" and could infer that bank mergers were subject to the Clayton Act.

This opinion, when coupled with the decision in the Lexington case, subjected commercial banks to more stringent antitrust regulation than applied to firms in unregulated industry. The Bank Merger Act of 1966 imposed a single set of standards upon the banking agencies, the Department of Justice, and the courts by which to assess the legality of a merger. The Comptroller's Office then had to make an antitrust judgment and, finding a substantial lessening of competition, could approve a merger only if banking advantages outweighed the competitive disadvantages. The Department of Justice could then postpone a bank merger by merely commencing an action against it instead of seeking an injunction in the

courts.

Comptroller Saxon held the view that, in the expansion of banking, mergers may often be preferable to new charters or de novo branching.18 He felt strongly that the Comptroller of the Currency, along with the other federal regulatory agencies, had been unnecessarily hindered by the Justice Department and the courts in the determination of optimum allocation of commercial-bank resources. It was his contention to the end of his tenure on November 15, 1966, that decisions made by the bank-regulatory authorities would be based on a surer perception of the nature of competition in banking than that of the Justice Department. The consequence of Justice Department interference, he felt, would be less competition in national markets as medium-sized banks could not, through merger, achieve optimum size. On the other hand, the structure of banking in local markets being that of a few firms competing among themselves and against the nonbank intermediaries, precluding mergers would have no demonstrable local-market effects except, perhaps, to place commercial banks at a disadvantage with other financial institutions.

The Saxon Position

Comptroller Saxon was without question a stormy and controversial figure. As he has been frank to say, some of the turbulence of his term developed unnecessarily over procedural matters and as a consequence of

18 Comptroller of the Currency, "The Banking Structure in Evolution," Annual Report, 1964, p. 5.

unintentional slights to government colleagues. A frequently mentioned example of diplomatic failures during his tenure was his refusal, after a few months in office, to attend meetings of the FDIC Board of Directors. A precedent had been set by his predecessor, Comptroller Delano, who made a practice of sending a proxy to FDIC Board meetings. Saxon felt that his own time could be put to more productive use than attending meetings largely devoted to details of minor administrative problems. Moreover, he was often called on to vote on matters affecting the competitive position of national banks, and to avoid possible conflict of interest he thought it best to abstain from discussion and voting. Nevertheless, his practice of sending major staff officers to meetings, bolstered by the appointment of a liaison officer for FDIC affairs, failed to mollify critics, who felt that the Comptroller himself should vote on administrative questions ranging from establishing the salaries of chauffeurs to approval of insurance applications of new state banks.

Yet the debate over Saxon's policies turned on substantive matters. In general, national-bank officers approved his regime. Executives of larger banks were almost unanimously in favor of his rulings, and a large majority of officers of smaller national banks gave staunch support to his policies. In their judgment his decisions were well within a tradition that gives wide latitude to the Comptroller of the Currency. They represented an infusion of new ideas required by a growing and increasingly complex economy, and they meant increased profits to institutions, big and little, that really wished to compete. On the other hand, officers of small state banks and a few national banks feared and distrusted Saxon, for they were persuaded that an extension of his branching philosophy meant an end to small unit banks in America. Their alarm was first expressed in a public forum during the so-called Saxon hearings, which Representative Patman conducted to investigate the Comptroller's alleged nefarious activities in disregarding state laws on branching and in refusing to cooperate with state authorities in dividing up choice new branching sites between state and national banks.19 But Saxon's powerfully reasoned, articulate defense was more than adequate to win the respect of the press and, as nearly as such opinion can be judged, of the public at large.

The 21st Comptroller's most potent adversary was the Federal Reserve, which continually laid its immense prestige and power on the line to forestall permanent acceptance of decisions that flew in the face of traditional central-bank attitudes. In the midst of the controversy, Vice President Robert N. Hilkert of the Federal Reserve Bank of Philadelphia underscored the polarization of the conflict in a speech delivered in a series of meetings of bankers and businessmen. He described the technical nature of

19 See Conflict of Federal and State Banking Laws, Hearings before the Committee on Banking and Currency, House of Representatives, 88th Congress, 1st Session, 1963.

the dispute over such questions as whether debentures are capital or surplus, whether national banks should be allowed to hold savings deposits of corporations, and so on. Then he got to his major point: "The Federal Reserve's basic disagreement with the Comptroller seems to boil down to whether bank supervision should be substantially relaxed at this time. Mr. Saxon seems to be saying it should, and the System is saying that it shouldn't."20 Stressing the basic philosophic difference between the two agencies, Mr. Hilkert remarked that relaxation of bank supervision would be all right if serious depressions could be ruled out. But in his view they could not: "The late Norbert Wiener, an M.I.T. professor, said that fastaccelerating automation will bring a depression that will make the 1930's seem like a joke. I don't agree with him but I can't completely ignore the thought. At the very least the coming years will be an unsettled period for the Nation as a whole." 21

The issue would not be settled, either during Comptroller Saxon's tenure or for a long time after. But it was nevertheless clearly joined. Is modern stabilization policy effective enough to allow the freer allocation of resources in banking? Or is it not? For those who respond affirmatively, Comptroller Saxon moved in the direction of essential historic change. For those who respond negatively, the Federal Reserve's conservative ties to the past suggested the only prudent course. In general, a younger generation of economists and political scientists tended to side with Saxon's position, while those whose outlooks reflected memories of the depression years were inclined to the Federal Reserve view.

James J. Saxon argued, during his term in office and afterward, that the controversy between the Comptroller of the Currency and the Board of Governors was the inevitable consequence of Federal Reserve insistence upon a position as undisputed arbiter of the banking system. He saw the tension between the two agencies during his tenure as evidence of a continuing struggle for power that began with the framing of the Federal Reserve Act. It erupted during the term of John Skelton Williams, came temporarily to a halt with the 1935 removal of the Comptroller from his ex-officio position on the Board, and resumed a quarter of a century later when Saxon's rulings posed a threat to the long-held dominance of the central bank.

Thus, in Saxon's judgment the problems of bank supervision were deeper and more broadly based than the simple issue of maintaining the "soundness" of commercial banks. He saw in the portfolio diversification of nonbank intermediaries and in the extension of services they offered a threat to the competitive position of commercial banks, so he moved to increase the banks' competitive strength by expanding their powers. Impressed with 20 Robert N. Hilkert, "The Muddle in Bank Supervision," Business Review, Federal Reserve Bank of Philadelphia, June 1964, p. 4.

21 Ibid., p. 5.