## Facts

- Individuals controlling First National Bank of Lincolnwood (Illinois) formed First Lincolnwood Corporation to acquire the bank as a bank holding company.
- The applicants sought Federal Reserve Board approval under § 3 of the Bank Holding Company Act of 1956 (BHCA).
- The Federal Reserve Bank of Chicago and the Comptroller of the Currency recommended approval.
- The Board’s staff concluded the bank’s capital position and proposed financing were inadequate and that the holding company’s debt structure reduced financial flexibility.
- The Board denied the application, finding the bank’s financial position did not meet the Board’s standards and approval was not in the public interest.
- On review, the Seventh Circuit set aside the denial, holding the Board could rely on financial or managerial deficiencies only if those deficiencies would be caused or worsened by the transaction.
- The Supreme Court granted certiorari.

## Issues

1. Whether § 3(c) of the BHCA authorizes the Board to deny a bank holding company application based solely on financial or managerial unsoundness, even when the transaction has no anticompetitive effects.
2. Whether the Board’s consideration of financial or managerial deficiencies under § 3(c) is limited to deficiencies caused or exacerbated by the proposed transaction.

## Decision

- The Supreme Court reversed the Seventh Circuit and upheld the Board’s denial.
- Section 3(c) requires the Board, “in every case,” to consider financial and managerial resources and future prospects, and community convenience and needs.
- These factors are independent grounds for disapproval and are not confined to situations where the transaction itself causes or aggravates financial or managerial weaknesses.
- The Board’s longstanding interpretation treating these factors as freestanding considerations was entitled to substantial respect.
- The Board acted within its authority in denying approval based on findings that the bank’s condition and proposed debt structure did not meet the Board’s standards and could weaken the bank’s financial condition.

## Legal Principles

- Under BHCA § 3(c), the Board must consider, in every application, (i) financial and managerial resources and future prospects of the entities and banks involved and (ii) convenience and needs of the community served.
- The Board may deny approval solely on financial or managerial unsoundness, even absent anticompetitive effects and even if the deficiencies are not caused or worsened by the proposed transaction.
- Statutory structure and legislative history support the Board’s broad gatekeeping authority over bank holding company formations, including safety-and-soundness judgments.

## Conclusion

The Court held that § 3(c) gives the Federal Reserve Board independent authority to reject bank holding company applications on financial or managerial grounds, rejecting a limitation that would confine denials to weaknesses created or intensified by the transaction.


Bd. of Governors of Fed. Rsrv. Sys. v. First Lincolnwood Corp., 439 U.S. 234 (1978)