Magazine article American Banker

Appeals Court Hears Activists' Bid to Sue Fed

Magazine article American Banker

Appeals Court Hears Activists' Bid to Sue Fed

Article excerpt

Two cases that could change the way bank mergers are contested were argued before the federal appeals court here Monday.

Currently, community groups protest mergers at the Federal Reserve. But one group - Inner City Press/Community on the Move - wants the right to take the central bank to court.

If the group wins, most big bank mergers could end up in long legal battles.

A ruling for the government, however, could severely weaken efforts by activists to derail megabank mergers by making regulators the final arbitrators of community reinvestment and antitrust challenges.

A decision by the U.S. Court of Appeals for the Second Circuit is expected within three months.

The cases, which involve deals by Chase Manhattan Corp. and U.S. Trust Co. of New York, question whether the Community Reinvestment and Bank Holding Company acts give neighborhood groups the right to challenge the Fed's merger approvals.

Lawyers for the Fed argued that community groups may not sue because they are not directly affected by bank mergers. Activists countered that every resident in a neighborhood suffers when a merged bank closes branches.

Fed senior attorney Douglas B. Jordan told the court that Inner City Press must show that it was directly harmed by either Chase's 1995 acquisition of several U.S. Trust units or by Chemical Banking Corp.'s 1996 merger with Chase.

"A special interest in the case is not enough," Mr. Jordan said. "Residence in a particular neighborhood is not enough."

Matthew Lee, Inner City Press' executive director, responded that the holding company law gives consumers the right to challenge mergers on antitrust grounds. Also, he said, Congress expected community residents to challenge the Fed's review of mergers. T hat is why it prohibited CRA suits unless they are linked to mergers, he said.

"If a competitor has standing to sue, then surely a consumer who buys the services has standing," Mr. …

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