By a vote of 9 to 7, a House Banking subcommittee moved yesterday to dilute the Justice Department's enforcement of long-standing antitrust laws prohibiting bank interlocks.
The subcommittee voted at the same time to keep interlocking relationships between banks and other competing institutions, such as insurance companies, beyond the reach of the Justice Department's antitrust division.
"We got skinned," subcommittee Chairman Fernand St. Germain (D.R.I.) told reporters. He credited the banking lobby, "aided and abetted by its interlocked friends in the insurance industry," for the outcome at yesterday's session.
The vote involved Section 8 of the Clayton Antitrust Act, which Justice Department lawyers said has not been changed substantially for more than 40 years. In general, it prohibits officers, directors or employes of any bank in the Federal Reserve System from serving at the same time as "a director, officer, or employe of any other bank, banking association, savings bank or trust company."
The law also prohibits anticompetitive interlocks in industry at large by prohibiting directors of corporations above a certain size from serving as directors of a competing company. But "banks, banking associations, [and] trust companies" are exempt from this provision.
Despite the exemption, the Justice Department tried several years ago to end the widespread practice of having banks and insurance company directors sitting on each other's boards, on the grounds that they were competing financial institutions, especially in the area of mortgage loans. In filing suit in 1975, Justice Department lawyers said 40 percent of all insurance company directors also serve on bank boards.
The government lost the case in August 1976, however, when U.S. District Court Judge Robert F. Peckham of San Francisco held the Clayton Act clearly exempted such tie-ins.
As part of his mammoth safe banking legislation, which he introduced last September. St. Germain proposed first to stiffen the Clayton Act by prohibiting interlocking directorates between financial institutions (including savings and loan associations and credit unions) and insurance companies, title companies and the like. Then he toned it down with advice from the Justice and Treasury Department lawyers with a legal basis of challenging such interlocks when they were found to be anticompetitive.
"Neither the big banks nor the big insurance companies want to end this cozy relationship - this tremendous concentration of economic power - this massive control of great blocks of this nation's money and credit," St. Germain asserted as markup sessions began last week.
Yesterday, however, Rep. Garry Brown (R-Mich.) offered an amendment to drop the St. Germain proposal and at the same time to prohibit the Justice Department from enforcing what will be left of the Clayton Act's provisions dealing with financial institutions unless federal banking authorities ask for help. Primary supervision of the law would be turned over to such agencies as the comptroller of the currency, the Federal Reserve Board and the Federal Deposit Insurance Corp.
The only expansion of the Clayton Act after yesterday's 9-to-7 vote would be to forbid bank officials and directors from serving on the boards of savings and loan institutions, mutual banks, and credit unions as well as other banks.
St. Germain charged that Brown's proposal would make the Justice Department "a second-class citizen insofar as enforcing antitrust issues in the financial community" is concerned. He said it would make antitrust lawyers at Justice "dependent solely on the whims of the banking agencies" which, St. Germain charged, have been too closely tied to the institutions they are supposed to regulate.
In reply, Brown contended that banks are subjected to too much supervision by government agencies, from banking regulators to the Justice Department and the Federal Trade Commission. He said he saw no justification for "this overreach."
"We don't even prosecute criminals under state law and federal law - simultaneously," Brown argued.
Four Democrats joined the committee's five Republicans in adopting the Brown amendment.