472 U.S.

159
105 S.Ct. 2545
86 L.Ed.2d 112

NORTHEAST BANCORP, INC., et al., Petitioners

v.
BOARD OF GOVERNORS OF the FEDERAL RESERVE
SYSTEM et al.
No. 84-363.
Argued April 15, 1985.
Decided June 10, 1985.

Syllabus
The Bank Holding Company Act of 1956 (BHCA) requires a bank
holding company to obtain the approval of the Federal Reserve Board
(Board) before it may acquire a bank. Section 3(d) of the Act (known as
the Douglas Amendment) prohibits the Board from approving an
application of a bank holding company located in one State to acquire a
bank located in another State unless the acquisition "is specifically
authorized by the statute laws of the State in which such bank is located,
by language to that effect and not merely by implication." Substantially
similar Connecticut and Massachusetts statutes provide that an out-of-state
bank holding company with its principal place of business in one of the
other New England States may acquire an in-state bank, provided that the
other State accords equivalent reciprocal privileges to the enacting State's
banking organizations. Certain bank holding companies (respondents
here) applied to the Board as out-of-state companies for purposes of either
the Connecticut or Massachusetts statute, seeking approval for
acquisitions of banks located in one or the other of those States.
Petitioners, prospective competitors, opposed the proposed acquisitions in
proceedings before the Board, contending that the acquisitions were not
authorized by the Douglas Amendment and that, if they were, the
applicable Connecticut or Massachusetts statute, by discriminating against
non-New England out-of-state bank holding companies, violated the
Commerce, Compact, and Equal Protection Clauses of the Federal
Constitution. Rejecting petitioners' contentions, the Board approved the
applications, and the Court of Appeals, in consolidated review

proceedings, affirmed.
Held:
1. The Connecticut and Massachusetts statutes are of the kind
contemplated by the Douglas Amendment to lift its ban on interstate
acquisitions. The Amendment's language plainly permits States to lift the
federal ban entirely, and although it does not specifically indicate that a
State may partially lift the ban, neither does it specifically indicate that a
State is allowed only the alternatives of leaving the federal ban in place or
lifting it completely. The Amendment's legislative history indicates that
Congress intended to allow each State flexibility in its approach,
contemplating that some States might partially lift the ban on interstate
banking without opening themselves up to interstate banking from
everywhere in the Nation. Moreover, the Connecticut and Massachusetts
statutes, by allowing only regional acquisitions, are consistent with the
Amendment's and the BHCA's purpose of retaining local, communitybased control over banking. Pp. 168-173.
2. The Connecticut and Massachusetts statutes do not violate the
Commerce Clause. Congress' commerce power is not dormant here, but
has been exercised by enactment of the BHCA and the Douglas
Amendment, authorizing the challenged state statutes. State actions that
Congress plainly authorizes are invulnerable to constitutional attack under
the Commerce Clause. Pp. 174-175.
3. The challenged state statutes do not violate the Compact Clause, which
provides that no State, without Congress' consent, shall enter into an
agreement or compact with another State. Even assuming, arguendo, that
the state statutes (along with statutes of other New England States under
petitioners' theory) constitute an agreement or compact, "application of the
Compact Clause is limited to agreements that are 'directed to the
formation of any combination tending to the increase of political power in
the States, which may encroach upon or interfere with the just supremacy
of the United States.' " New Hampshire v. Maine, 426 U.S. 363, 369, 96
S.Ct. 2113, 2117, 48 L.Ed.2d 701, quoting Virginia v. Tennessee, 148
U.S. 503, 519, 13 S.Ct. 728, 734, 37 L.Ed. 537. In view of the Douglas
Amendment, the challenged state statutes, which comply with the BHCA,
cannot possibly infringe federal supremacy. Nor do the state statutes in
question either enhance the political power of the New England States at
the expense of other States or have an impact on the federal structure. Pp.
175-176.

4. The Connecticut and Massachusetts statutes do not violate the Equal

Protection Clause. The statutes favor out-of-state corporations within the
New England region over corporations from other parts of the country.
However, Connecticut and Massachusetts, in enacting their statutes,
considered that interstate banking on a regional basis combined the
beneficial effect of increasing the number of banking competitors with the
need to preserve a close relationship between those in the community who
need credit and those who provide credit, and that acquisition of in-state
banks by holding companies headquartered outside the New England
region would threaten the independence of local banking institutions.
These concerns meet the traditional rational basis for judging equal
protection claims. Metropolitan Life Ins. Co. v. Ward, 470 U.S. 869, 105
S.Ct. 1676, 84 L.Ed.2d 751, distinguished. Pp. 176-178.
740 F.2d 203 (CA2 1984) affirmed.
Stephen M. Shapiro, Chicago, Ill., for petitioners.
Sol. Gen. Rex E. Lee, Washington, D.C., for federal respondent.
Laurence Henry Tribe, Cambridge, Mass., for the respondents, Bank of
New England Corp., et al.
[Amicus Curiae Information from pages 161-162 intentionally omitted]
Justice REHNQUIST delivered the opinion of the Court.

Respondents Bank of New England Corporation (BNE), Hartford National

Corporation (HNC), and Bank of Boston Corporation (BBC) are bank holding
companies which applied to the Federal Reserve Board to obtain approval for
the acquisition of banks or bank holding companies in New England States
other than the ones in which they are principally located. Petitioners Northeast
Bancorp, Inc., Union Trust Company, and Citicorp opposed these proposed
acquisitions in proceedings before the Board. The Board approved the
acquisitions, and the Court of Appeals for the Second Circuit affirmed the
orders of the Board. Petitioners sought certiorari, contending that the
acquisitions were not authorized by the Bank Holding Company Act of 1956,
70 Stat. 133, as amended, 12 U.S.C. 1841 et seq., and that, if they were
authorized by that Act, the state statutes which permitted the acquisitions in
each case violated the Commerce Clause and the Compact Clause of the
United States Constitution. We granted certiorari because of the importance of
these issues, 469 U.S. 810, 105 S.Ct. 776, 83 L.Ed.2d 772, and we now affirm.

The Bank Holding Company Act (BHCA), regulates the acquisition of state and
national banks by bank holding companies. The Act generally defines a bank as
any institution organized under state or federal law which "(1) accepts deposits
that the depositor has a legal right to withdraw on demand, and (2) engages in
the business of making commercial loans." 12 U.S.C. 1841(c). The Act
defines a bank holding company as any corporation, partnership, business trust,
association, or similar organization that owns or has control over a bank or
another bank holding company. 1841(a)(1), (b); see 1841(a)(5). Before a
company may become a bank holding company, or a bank holding company
may acquire a bank or substantially all of the assets of a bank, the Act requires
it to obtain the approval of the Federal Reserve Board. 12 U.S.C. 1842.

The Board will evaluate the proposed transaction for anticompetitive effects,
financial and managerial resources, community needs, and the like. 1842(c).
In addition, 3(d) of the Act, 12 U.S.C. 1842(d), known as "the Douglas
Amendment," prohibits the Board from approving an application of a bank
holding company or bank located in one State to acquire a bank located in
another State, or substantially all of its assets, unless the acquisition "is
specifically authorized by the statute laws of the State in which such bank is
located, by language to that effect and not merely by implication." Pursuant to
the Douglas Amendment, a number of States recently have enacted statutes
which selectively authorize interstate bank acquisitions on a regional basis. This
case requires us to consider the validity of these statutes.

From 1956 to 1972, the Douglas Amendment had the effect of completely
barring interstate bank acquisitions because no State had enacted the requisite
authorizing statute. Beginning in 1972, several States passed statutes permitting
such acquisitions in limited circumstances or for specialized purposes. For
example, Iowa passed a grandfathering statute which had the effect of
permitting the only out-of-state bank holding company owning an Iowa bank to
maintain and expand its in-state banking activities, Iowa Code 524.1805
(1983); see Iowa Independent Bankers v. Board of Gover nors, 167
U.S.App.D.C. 286, 511 F.2d 1288, cert. denied, 423 U.S. 875, 96 S.Ct. 144, 46
L.Ed.2d 106 (1975); Washington authorized out-of-state purchasers to acquire
failing local banks, Wash.Rev.Code 30.04.230(4)(a) (Supp.1985); and
Delaware allowed out-of-state bank holding companies to set up special
purpose banks, such as credit card operations, in Delaware so long as they do
not compete in other respects with locally controlled full-service banks,
Del.Code Ann., Tit. 5, 801 et seq. (Supp.1984).

Beginning with Massachusetts in December 1982, several States have enacted

statutes lifting the Douglas Amendment ban on interstate acquisitions on a

reciprocal basis within their geographic regions. The Massachusetts Act

specifically provides that an out-of-state bank holding company with its
principal place of business in one of the other New England States
(Connecticut, Maine, New Hampshire, Rhode Island, and Vermont), which is
not directly or indirectly controlled by another corporation with its principal
place of business located outside of New England, may establish or acquire a
Massachusetts-based bank or bank holding company, provided that the other
New England State accords equivalent reciprocal privileges to Massachusetts
banking organizations. Mass.Gen.Laws Ann., ch. 167A, 2 (West 1984). In
June 1983, Connecticut followed suit by adopting a substantially similar statute.
1983 Conn.Pub.Acts 83-411.
6

The other New England States have taken different courses or have not acted.
Rhode Island, in May 1983, authorized acquisition of local banks by out-ofstate bank holding companies on a reciprocal basis similarly limited to the New
England region, but this geographic limitation will expire on June 30, 1986,
after which the authorization will extend nationwide subject only to the
reciprocity requirement. R.I.Gen.Laws 19-30-1 et seq. (Supp.1984). Since
February 1984, Maine has permitted banking organizations from all other
States to acquire local banks without any reciprocity requirement.
Me.Rev.Stat.Ann., Tit. 9-B, 1013 (Supp.1984-1985). At the other extreme,
New Hampshire and Vermont have not enacted any statute releasing the
Douglas Amendment's ban on interstate bank acquisitions.

One predictable effect of the regionally restrictive statutes will apparently be to

allow the growth of regional multistate bank holding companies which can
compete with the established banking giants in New York, California, Illinois,
and Texas. See 740 F.2d 203, 209, and n. 16 (CA2 1984). The Massachusetts
and Connecticut statutes have prompted at least 15 other States to consider
legislation which, according to the Federal Reserve Board, would establish
interstate banking regions in all parts of the country. 70 Fed.Res.Bull. 374, 375376 (1984). At least seven of these States have already enacted the necessary
statutes.

Two months after Connecticut passed its statute, BNE applied to the Board for
approval of its merger with respondent CBT Corporation (CBT), a Connecticut
bank holding company, and thereby to acquire indirectly the Connecticut Bank
and Trust Company, N.A., of Hartford, Connecticut. Soon thereafter HNC
applied to the Board for approval of the acquisition of Arltru Bank Corporation
(Arltru), a Massachusetts bank holding company which owns the Arlington
Trust Company, a bank located in Lawrence, Massachusetts. Finally BBC
applied to the Board for approval of the acquisition of the successor by merger

to Colonial Bancorp, Inc., a Connecticut bank holding company, by which it

would acquire Colonial Bank of Waterbury, Connecticut.
9

Citicorp offers financial services to consumers and businesses nationally

through its bank and nonbank subsidiaries. In response to the Board's invitation
for comments from interested persons on these three proposed acquisitions,
Citicorp submitted comments opposing all three of them. Northeast owns
petitioner Union Trust Company, a Connecticut bank that competes directly
with banks owned by CBT, HNC and Colonial. In addition, Bank of New York
Corporation has agreed to acquire Northeast if Connecticut or the United States
enacts the necessary enabling legislation. Northeast and Union Trust submitted
comments opposing BNE's application to acquire CBT.

10

The petitioners challenged the applications in part on the ground that the
Douglas Amendment did not authorize them, and in part on the grounds that the
Massachusetts and Connecticut statutes, by discriminating against non-New
England bank holding companies, violated the Commerce, Compact, and Equal
Protection Clauses of the Federal Constitution. They claimed, therefore, that
the proposed interstate acquisitions were not authorized by valid state statutes
as required by the Douglas Amendment. The Board rejected these arguments. It
first determined that the BNE-CBT and BBC-Colonial acquisitions were
specifically authorized by the Connecticut statute and the HNC-Arltru
acquisition was specifically authorized by the Massachusetts statute, and
therefore that the Douglas Amendment would not prevent the Board from
approving any of the three proposed transactions.

11

The Board then rejected the constitutional challenge to the two state statutes. In
doing so, it noted that it would hold a state statute unconstitutional only if there
was "clear and unequivocal evidence" of its unconstitutionality. 70
Fed.Res.Bull. 353, 354 (1984); id., at 376; 70 Fed.Res.Bull. 524, 525-526
(1984). While stating that "the issue is not free from doubt," it concluded that
this standard had not been met. 70 Fed.Res.Bull., at 376-377. Interpreting the
statutory language and the legislative history of the Douglas Amendment, it
determined that "the Douglas Amendment should be read as a renunciation of
federal interest in regulating the interstate acquisition of banks by bank holding
companies." Id., at 380. This renunciation of federal interest eliminated any
objection to the statutes under the Compact Clause or dormant Commerce
Clause.

12

The Board also found nothing in the history of the Amendment to suggest that
"the states were to be permitted only to choose between not allowing out-ofstate bank holding companies to enter, and allowing completely free entry." Id.,

at 386. The Board disposed of the equal protection challenge by reasoning that
the regional restriction in the two statutes was "rationally related to an attempt
to maintain a banking system responsive to local needs in New England." Id., at
381. The Board then analyzed the proposed transactions in light of the relevant
statutory considerations set out in 12 U.S.C. 1842(c) and 1843(c)(8) and
approved the applications.
13

Pursuant to 12 U.S.C. 1848, which provides that "[a]ny party aggrieved by an

order of the Board" may seek review in a federal court of appeals, and 1850,
which permits prospective competitors to be aggrieved parties under 1848,
Citibank, Northeast, and Union Trust petitioned the Court of Appeals for the
Second Circuit to review the Board's order approving the BNE-CBT
acquisition. Citibank also petitioned for review of the HNC-Arltru acquisition,
and Northeast and Union Trust were permitted to intervene. These petitions
were consolidated and the acquisitions stayed pending expedited review.
Meanwhile, the Board stayed its order approving the BBC-Colonial acquisition,
and the Court of Appeals consolidated a petition filed by Citicorp for review of
that transaction with the two other pending review petitions. The court also
permitted BBC, BNE, CBT, HNC, the State of Connecticut, and the
Commonwealth of Massachusetts to intervene. The Court of Appeals affirmed
the Board's orders approving the three applications in all respects. 740 F.2d 203
(CA2 1984). It agreed with the Board's determination that the Connecticut and
Massachusetts statutes satisfied the terms of the Douglas Amendment, and it
then rejected challenges to the Board's orders under the Commerce Clause, the
Compact Clause, and the Equal Protection Clause. The Court of Appeals stayed
its mandate and ordered that the status quo be maintained pending disposition
by this Court.

The Douglas Amendment

14

The Douglas Amendment to the BHCA prohibits the Board from approving the
application of a bank holding company or a bank located in one State to acquire
a bank located in another State, or substantially all of its assets, unless the
acquisition "is specifically authorized by the statute laws of the State in which
such bank is located, by language to that effect and not merely by implication."
1842(d). Clearly the proposed acquisitions with which we deal in this case
must be consistent with the Douglas Amendment, or they are invalid as a matter
of federal statutory law. If the Massachusetts and Connecticut statutes allowing
regional acquisitions are not the type of state statutes contemplated by the
Douglas Amendment, they would not lift the ban imposed by the general
prohibition of the Douglas Amendment. While petitioners blend together
arguments about the meaning of the Douglas Amendment with arguments

about the effect of the Commerce Clause, U.S. Const., Art. I, 8, cl. 3, we
think the contentions are best treated separately.
15

The Board resolved the statutory issue in favor of the state statutes, concluding
that they were the sort of laws contemplated by the Douglas Amendment.
While the Board apparently does not consider itself expert on any constitutional
issues raised, it is nonetheless an authoritative voice on the meaning of a
federal banking statute. Securities Industry Assn. v. Board of Governors of
Federal Reserve System, 468 U.S. 207, 104 S.Ct. 3003, 82 L.Ed.2d 158 (1984).
The Board may have applied a higher standard than was necessary when it
analyzed the Douglas Amendment to see whether there was a "clear
authorization" for selective lifting of the ban, such as the Massachusetts and
Connecticut statutes undertake to do. Whether or not so stringent a standard was
applicable, we think the Board was correct in concluding that it was in fact met
in this case.

16

The language of the Douglas Amendment plainly permits States to lift the
federal ban entirely, as has been done by Maine. It does not specifically indicate
that a State may partially lift the ban, for example in limited circumstances, for
special types of acquisitions, or for purchasers from a certain geographic region.
On the other hand, it also does not specifically indicate that a State is allowed
only two alternatives: leave the federal ban in place or lift it completely. The
Board concluded that the language "does not appear on its face to authorize
discrimination" by region or "to meet the stringent test of explicitness laid
down by" this Court in the dormant Commerce Clause cases. 70 Fed.Res.Bull.,
at 384. We need not resolve this issue because we agree with the Board that the
legislative history of the Amendment supplies a sufficient indication of
Congress' intent.

17

At the time of the BHCA, interstate branch banking was already prohibited by
the McFadden Act. 12 U.S.C. 36(c). The bank holding company device,
however, had been created to get around this restriction. A holding company
would purchase banks in different localities both within and without a State,
and thereby provide the equivalent of branch banking. One of the major
purposes of the BHCA was to eliminate this loophole. H.R.Rep. No. 609, 84th
Cong., 1st Sess., 2-6 (1955); 101 Cong.Rec. 4407 (1955) (remarks of Rep.
Wier); id., at 8028-8029 (remarks of Rep. Patman); 102 Cong.Rec. 6858-6859
(1956) (remarks of Sen. Douglas). As enacted by the House in 1955, the BHCA
contained a flat ban on interstate bank acquisitions. The legislative history from
the House makes it clear that the policies of community control and local
responsiveness of banks inspired this flat ban. See 101 Cong.Rec. A2454
(1955) (remarks of Rep. Wier); id., at 8030-8031 (remarks of Rep. Rains);

H.R.Rep. No. 609, supra, at 2-6.

18

The Douglas Amendment was added on the floor of the Senate. Its entire
legislative history is confined to the Senate debate. In such circumstances, the
comments of individual legislators carry substantial weight, especially when
they reflect a consensus as to the meaning and objectives of the proposed
legislation though not necessarily the wisdom of that legislation. The instant
case is not a situation where the comments of an individual legislator, even a
sponsor, is at odds with the language of the statute or other traditionally more
authoritative indicators of legislative intent such as the conference or committee
reports.

19

The bill reported out by the Senate Committee on Banking and Currency
permitted interstate bank acquisitions conditioned only on approval by the
Federal Reserve Board. This approach apparently was favored by many of the
large bank holding companies which sought further expansion, see, e.g.,
Control of Bank Holding Companies, 1955: Hearings on S. 880 et al. before the
Subcommittee of the Senate Committee on Banking and Currency, 84th Cong.,
1st Sess., 132, 136 (1955) (testimony of Ellwood Jenkins, First Bank Stock
Corp.), 298-299 (Baldwin Maull, Marine Midland Corp.), 320 (Cameron
Thomson, Northwest Bancorporation), cf. 375, 385 (Frank N. Belgrano, Jr.,
Transamerica Corp.), and by some who thought the total ban in the House bill
offensive to States' rights, see 102 Cong.Rec. 6752 (1956) (remarks of Sen.
Robertson, floor manager of Committee bill, quoting Sen. Maybank).

20

The Douglas Amendment was a compromise between the two extremes that
also accommodated the States' rights concern:

21

"Our amendment would prohibit bank holding companies from purchasing

banks in other States unless such purchases by out-of-State holding companies
were specifically permitted by law in such States." Id., at 6860 (remarks of Sen.
Douglas).

22

Accord, ibid. (remarks of Sen. Bennett in opposition to the Amendment).

23

Of central concern to this litigation, the Douglas compromise did not simply
leave to each State a choice one way or the othereither to permit or bar
interstate acquisitions of local banksbut to allow each State flexibility in its
approach. Senator Douglas explained that under his amendment bank holding
companies would be permitted to acquire banks in other States "only to the
degree that State laws expressly permit them." Id., at 6858. Petitioners contend

that by the phrase "to the degree" Senator Douglas intended merely a
quantitative reference to the number of States which might lift the ban, and did
not mean that a State could partially lift the ban. Petitioners' contention,
however, is refuted by the close analogy drawn by Senator Douglas between
his amendment and the McFadden Act, 12 U.S.C. 36(c):
24

"The organization of branch banks proceeded very rapidly in the 1920's, and to
check their growth various States passed laws limiting, and in some cases
preventing it, as in the case of Illinois. National banks had previously been
implicitly prohibited from opening branches, and there was a strong movement
to remove this prohibition and completely open up the field for the national
banks. This, however, was not done. Instead, by the McFadden Act and other
measures, national banks have been permitted to open branches only to the
degree permitted by State laws and State authorities.

25

"I may say that what our amendment aims to do is to carry over into the field of
holding companies the same provisions which already apply for branch
banking under the McFadden Actnamely, our amendment will permit out-ofState holding companies to acquire banks in other States only to the degree that
State laws expressly permit them; and that is the provision of the McFadden
Act." Ibid.

26

See id., at 6860.

27

In enacting the McFadden Act in 1927, Congress relaxed federal restrictions on

branch banking by national banks, but at the same time subjected them to the
same branching restrictions imposed by the States on state banks. First
National Bank v. Walker Bank & Trust Co., 385 U.S. 252, 258, 87 S.Ct. 492,
496, 17 L.Ed.2d 343 (1966). Congress intended "to leave the question of the
desirability of branch banking up to the States," ibid., and to permit branch
banking by national banks " 'in only those States the laws of which permit
branch banking, and only to the extent that the State laws permit branch
banking.' " Id., at 259, 87 S.Ct., at 496 (quoting Sen. Glass, 76 Cong.Rec. 2511
(1933)). The McFadden Act did not offer the States an all-or-nothing choice
with respect to branch banking. As Senator Douglas observed, some States had
limited intrastate branching by state banks, and others like Illinois had
prohibited it altogether.

28

This variative approach to intrastate branching was nicely illustrated at the time
by the structure in New York, which Senator Douglas described as follows: "In
New York the State is divided into 10 zones. Branch banking is permitted

within each of the zones, but a bank cannot have branches in another zone." 102
Cong.Rec. 6858 (1956). At the same time, Pennsylvania permitted branching in
contiguous counties. Upper Darby National Bank v. Myers, 386 Pa. 12, 124
A.2d 116 (1956). In view of this analogy to the McFadden Act and Senator
Douglas' explanation of that Act, there can be no other conclusion but that
Congress contemplated that some States might partially lift the ban on
interstate banking without opening themselves up to interstate banking from
everywhere in the Nation.
29

Not only are the Massachusetts and Connecticut statutes consistent with the
Douglas Amendment's anticipation of differing approaches to interstate
banking, but they are also consistent with the broader purposes underlying the
BHCA as a whole and the Douglas Amendment in particular to retain local,
community-based control over banking. Faced with growing competition from
nonbank financial services that are not confined within state lines, these States
sought an alternative that allowed expansion and growth of local banks without
opening their borders to unimpeded interstate banking. The Connecticut
General Assembly established a Commission in 1979 to study the problem. It
concluded:

30

"Both at the national and state levels the philosophy underlying our structure of
bank regulation has been to promote a pluralistic banking systema system
comprised of many units, rather than a highly concentrated system made up of
a few large banks. The promotion of local ownership and control of banks has
as one of its objectives the preservation of a close relationship between those in
our communities who need credit and those who provide credit. To allow the
control of credit that is essential for the health of our state economy to pass to
hands that are not immediately responsive to the interests of Connecticut
citizens and businesses would not, we believe, serve our state well. Similarly,
to expose our smaller banks to the rigors of unlimited competition from large
out-of-state banking organizationsparticularly at a time when deregulation of
banking products at the federal level is already putting strains on the resources
of smaller banks would not be wise." Report to the General Assembly of the
State of Connecticut (Jan. 5, 1983), 4 App. in No. 84-4047 (CA2), pp. 1230,
1240-1241.

31

Rather, the Commission proposed "an experiment in regional banking" as a

first step toward full interstate banking which "would afford the legislature an
opportunity to make its own calculus of the benefits and detriments that might
result from a broader program of interstate banking." Id., at 1241-1242. The
Connecticut General Assembly adopted the Commission's recommendations,
and we believe that Connecticut's approach is precisely what was contemplated

by Congress when it adopted the Douglas Amendment.

32

We hold that the Connecticut and Massachusetts statutes are of the kind
contemplated by the Douglas Amendment to lift its bar against interstate
acquisitions. Commerce Clause

33

Petitioners contend that the regional limitation in the Massachusetts and

Connecticut statutes burdens commerce from without the region while
permitting a free flow of commerce among the States within the region. They
provide numerous citations to prove that one of the principal purposes of the
Framers of the Constitution was to break up and forestall precisely this type of
economic "Balkanization" into confederations of States to the detriment of the
welfare of the Union as a whole. See, e.g., H.P. Hood & Sons, Inc. v. Du Mond,
336 U.S. 525, 533, 69 S.Ct. 657, 662, 93 L.Ed. 865 (1949); Hughes v.
Oklahoma, 441 U.S. 322, 325-326, 99 S.Ct. 1727, 1730-1731, 60 L.Ed.2d 250
(1979); The Federalist Nos. 7 and 22, pp. 62-63, 143-145 (Rossiter ed. 1961).
There can be little dispute that the dormant Commerce Clause would prohibit a
group of States from establishing a system of regional banking by excluding
bank holding companies from outside the region if Congress had remained
completely silent on the subject. Lewis v. BT Investment Managers, Inc., 447
U.S. 27, 39-44, 100 S.Ct. 2009, 2017-2019, 64 L.Ed.2d 702 (1980). Nor can
there be serious question that an individual State acting entirely on its own
authority would run afoul of the dormant Commerce Clause if it sought to
comprehensively regulate acquisitions of local banks by out-of-state holding
companies. Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941, 102 S.Ct.
3456, 73 L.Ed.2d 1254 (1982).

34

But that is not our case. Here the commerce power of Congress is not dormant,
but has been exercised by that body when it enacted the Bank Holding
Company Act and the Douglas amendment to the Act. Congress has authorized
by the latter Amendment the Massachusetts and Connecticut statutes which
petitioners challenge as violative of the Commerce Clause. When Congress so
chooses, state actions which it plainly authorizes are invulnerable to
constitutional attack under the Commerce Clause. Western & Southern Life
Insurance Co. v. State Board of Equalization, 451 U.S. 648, 653-654, 101 S.Ct.
2070, 2075, 68 L.Ed.2d 514 (1981); White v. Massachusetts Council of
Construction Employers, Inc., 460 U.S. 204, 103 S.Ct. 1042, 75 L.Ed.2d 1
(1983); cf. South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82,
104 S.Ct. 2237, 81 L.Ed.2d 71 (1984). Petitioners' Commerce Clause attack on
the challenged acquisitions therefore fails.

Compact Clause

35

Petitioners maintain that the Massachusetts and Connecticut statutes constitute

a compact to exclude non-New England banking organizations which violates
the Compact Clause, U.S. Const., Art. I, 10, cl. 3, because Congress has not
specifically approved it. We have some doubt as to whether there is an
agreement amounting to a compact. The two statutes are similar in that they
both require reciprocity and impose a regional limitation, both legislatures favor
the establishment of regional banking in New England, and there is evidence of
cooperation among legislators, officials, bankers, and others in the two States in
studying the idea and lobbying for the statutes. But several of the classic
indicia of a compact are missing. No joint organization or body has been
established to regulate regional banking or for any other purpose. Neither
statute is conditioned on action by the other State, and each State is free to
modify or repeal its law unilaterally. Most importantly, neither statute requires
a reciprocation of the regional limitation. Bank holding companies based in
Maine, which has no regional limitation, and Rhode Island, which will drop the
regional limitation in 1986, are permitted by the two statutes to acquire
Massachusetts and Connecticut banks. These two States are included in the
ostensible compact under petitioners' theory, yet one does not impose the
exclusion to which petitioners so strenuously object and the other plans to drop
it after two years.

36

But even if we were to assume that these state actions constitute an agreement
or compact, not every such agreement violates the Compact Clause. Virginia v.
Tennessee, 148 U.S. 503, 13 S.Ct. 728, 37 L.Ed. 537 (1893).

37

"The application of the Compact Clause is limited to agreements that are

'directed to the formation of any combination tending to the increase of political
power in the States, which may encroach upon or interfere with the just
supremacy of the United States.' " New Hampshire v. Maine, 426 U.S. 363,
369, 96 S.Ct. 2113, 2117, 48 L.Ed.2d 701 (1976), quoting Virginia v.
Tennessee, supra, 148 U.S., at 519, 13 S.Ct., at 734.

38

See United States Steel Corp. v. Multistate Tax Comm'n, 434 U.S. 452, 471, 98
S.Ct. 799, 812, 54 L.Ed.2d 682 (1978).

39

In view of the Douglas Amendment to the BHCA, the challenged state statutes
which comply with that Act cannot possibly infringe federal supremacy. To the
extent that the state statutes might conflict in a particular situation with other
federal statutes, such as the provision under which the Federal Deposit
Insurance Corporation will arrange for the acquisition of failing banks by outof-state bank holding companies, 12 U.S.C. 1823(f), they would be preempted by those statutes, and therefore any Compact Clause argument would

be academic. Petitioners also assert that the alleged regional compact

impermissibly offends the sovereignty of sister States outside of New England.
We do not see how the statutes in question either enhance the political power of
the New England States at the expense of other States or have an "impact on
our federal structure." United States Steel Corp. v. Multistate Tax Comm'n,
supra, at 471, 473, 98 S.Ct., at 812, 813.
Equal Protection Clause
40

Petitioners argued before the Board and the Court of Appeals that the
Massachusetts and Connecticut statutes violated the Equal Protection Clause,
U.S. Const., Amdt. 14, 2, by excluding bank holding companies from some
States while admitting those from others. This claim was abandoned in their
petition for certiorari and their briefs on the merits, but after our decision in
Metropolitan Life Insurance Co. v. Ward, 470 U.S. 869, 105 S.Ct. 1676, 84
L.Ed.2d 751 (1985), petitioners filed a supplemental brief urging us to consider
the equal protection issue. Because the issue was fully reviewed by the Board
and the Court of Appeals and because it would undoubtedly cloud other
pending applications for acquisitions by bank holding companies, we elect to
decide it.

41

In Metropolitan Life we held that encouraging the formation of new domestic

insurance companies within a State and encouraging capital investment in the
State's assets and governmental securities were not, standing alone, legitimate
state purposes which could permissibly be furthered by discriminating against
out-of-state corporations in favor of local corporations. There we said:

42

"This case does not involve or question, as the dissent suggests, post, at 1693,
the broad authority of a State to promote and regulate its own economy. We
hold only that such regulation may not be accomplished by imposing
discriminatorily higher taxes on nonresident corporations solely because they
are nonresidents." Id., at 882, n. 10, 105 S.Ct., at 1684, n. 10.

43

Here the States in questionMassachusetts and Connecticutare not favoring

local corporations at the expense of out-of-state corporations. They are
favoring out-of-state corporations domiciled within the New England region
over out-of-state corporations from other parts of the country, and to this extent
their laws may be said to "discriminate" against the latter. But with respect to
the business of banking, we do not write on a clean slate; recently in Lewis v.
B.T. Investment Managers, Inc., 447 U.S., at 38, 100 S.Ct., at 2016, we said
that "banking and related financial activities are of profound local concern."
This statement is a recognition of the historical fact that our country

traditionally has favored widely dispersed control of banking. While many

other western nations are dominated by a handful of centralized banks, we have
some 15,000 commercial banks attached to a greater or lesser degree to the
communities in which they are located. The Connecticut legislative
Commission that recommended adoption of the Connecticut statute in question
considered interstate banking on a regional basis to combine the beneficial
effect of increasing the number of banking competitors with the need to
preserve a close relationship between those in the community who need credit
and those who provide credit. 4 App. in No. 84-4047 (CA2), pp. 1239-1241.
The debates in the Connecticut Legislature preceding the enactment of the
Connecticut law evince concern that immediate acquisition of Connecticut
banks by holding companies headquartered outside the New England region
would threaten the independence of local banking institutions. See, e.g., App. to
Pet. for Cert. A157-A160. No doubt similar concerns motivated the
Massachusetts Legislature.
44

We think that the concerns which spurred Massachusetts and Connecticut to

enact the statutes here challenged, different as they are from those which
motivated the enactment of the Alabama statute in Metropolitan, meet the
traditional rational basis for judging equal protection claims under the
Fourteenth Amendment. Barry v. Barchi, 443 U.S. 55, 67, 99 S.Ct. 2642, 2650,
61 L.Ed.2d 365 (1979); Vance v. Bradley, 440 U.S. 93, 97, 99 S.Ct. 939, 942,
59 L.Ed.2d 171 (1979).

45

We hold that the state statutes here in question comply with the Douglas
Amendment and that they do not violate the Commerce Clause, the Compact
Clause, or the Equal Protection Clause of the United States Constitution. The
judgment of the Court of Appeals is therefore

46

Affirmed.

47

Justice POWELL took no part in the decision of this case.

48

Justice O'CONNOR, concurring.

49

I agree that the state banking statutes at issue here do not violate the Commerce
Clause, the Compact Clause, or the Equal Protection Clause. I write separately
to note that I see no meaningful distinction for Equal Protection Clause
purposes between the Massachusetts and Connecticut statutes we uphold today
and the Alabama statute at issue in Metropolitan Life Insurance Co. v. Ward,
470 U.S. 869, 105 S.Ct. 1676, 84 L.Ed.2d 751 (1985).

50

The Court distinguishes this case from Metropolitan Life on the ground that
Massachusetts and Connecticut favor neighboring out-of-state banks over all
other out-of-state banks. It is not clear to me why completely barring the banks
of 44 States from doing business is less discriminatory than Alabama's scheme
of taxing the insurance companies from 49 States at a slightly higher rate. Nor
is it clear why the Equal Protection Clause should tolerate a regional "home
team" when it condemns a state "home team." See id., at 878, 105 S.Ct., at
1682.

51

The Court emphasizes that here we do not write on a clean slate as the business
of banking is "of profound local concern." Ante, at 177. The business of
insurance is also of uniquely local concern. Prudential Insurance Co. v.
Benjamin, 328 U.S. 408, 415-417, 66 S.Ct. 1142, 1147-1148, 90 L.Ed. 1342
(1946). Both industries historically have been regulated by the States in
recognition of the critical part they play in securing the financial well-being of
local citizens and businesses. Metropolitan Life Insurance Co. v. Ward, supra,
470 U.S., at 888-893, 105 S.Ct., at 1687-1690 (dissenting opinion). States have
regulated insurance since 1851. Like the local nature of banking, the local
nature of insurance is firmly ensconced in federal law. 470 U.S., at 888-889,
105 S.Ct., at 1687-1688. The McCarran-Ferguson Act, enacted in 1945, states:

52

"Congress hereby declares that the continued regulation and taxation by the
several States of the business of insurance is in the public interest, and that
silence on the part of the Congress shall not be construed to impose any barrier
to the regulation or taxation of such business by the several States." 59 Stat. 33,
15 U.S.C. 1011.

53

The Court distinguishes the Connecticut and Massachusetts banking laws as

having a valid purpose: "to preserve a close relationship between those in the
community who need credit and those who provide credit." Ante, at 178. This
interest in preserving local institutions responsive to local concerns was a
cornerstone in Alabama's defense of its insurance tax. It survives as one of the
"15 additional purposes" the Court remanded for reconsideration. Metropolitan
Life Insurance Co. v. Ward, supra, 470 U.S., at 875-876, n. 5, 105 S.Ct., at
1680, n. 5.

54

Especially where Congress has sanctioned the barriers to commerce that

fostering of local industries might engender, this Court has no authority under
the Equal Protection Clause to invalidate classifications designed to encourage
local businesses because of their special contributions. Today's opinion is
consistent with the longstanding doctrine that the Equal Protection Clause
permits economic regulation that distinguishes between groups that are

legitimately differentas local institutions so often arein ways relevant to

the proper goals of the State.