** Excluding mergers. (For 1973, limited service facilities are in parentheses.) Source: FHLBB data.

of admission of a new applicant to system membership and deposit insurance is more of an initial decision, the factors that the FRB, FDIC and FSLIC consider under the relevant statutes are quite similar to those that state authorities were supposed to consider in their chartering decision, which precedes the membership application. The outcome is reflected in Tables 5, 6, and 7. The approval rate on branch applications was 99 percent for the FDIC and almost 100 percent for the FRB. On membership applications, the approval rate was 98 percent for both the FRB and the FDIC; only the FSLIC had a significant rejection rate of 30 percent. With this latter exception, it is apparent that the main area in which discretion is exercised, at least in a manner that applicants do not fully comprehend and anticipate, is in the decisions of those agencies that act as primary supervisors: the Comptroller of the Currency and the Federal Home Loan Bank Board.

B. A Closer Look-The Comptroller

In order to understand better the agency decision-making process, a study was made of a number of Comptroller's office de

* Excluding mergers. The FRB also during this period approved 416 applications for foreign branches of national and state member banks; one was denied and one withdrawn.

* Excluding mergers. (For 1972-73, limited service facilities are in parentheses.)

Source: FDIC data.

Source: FSLIC data. No breakdown between operating associations and proposed

new associations was available.

cision files. That agency, was chosen since it has figured in most of the significant judicial review litigation of the last decade and is the most important of the primary approval agencies in terms of the size of the industry segment it regulates.202 A random sample was taken from charter decisions, branch approvals and branch denials over the 1969-1973 period; with the usual vicissitudes of files that were checked out or missing, the study group consisted of twentyseven charter files (fifteen approved and twelve rejected), twentynine branch approvals, and thirty branch denials. These are fairly small samples, and the analysis based on them is intended to be suggestive, not conclusive. Nevertheless, it seemed desirable to look at the decision process from the inside, since no similar study had ever been undertaken.

1. Charter Decisions. The process formally begins when an “Application to Organize a National Bank"203 is filed with the Regional Comptroller. This is a short form containing little more than the proposed name, locations, and initial capital of the new bank, together with rather long and detailed biographical and financial statements by each of the organizers.204 The applicant is separately required to submit additional information, primarily on the issue of profitability: the location chosen, the population and economic character of the area the bank will serve, competing financial institutions in that area, and projections of deposit and loan growth and of income and expenses.205 This information is frequently

204. Form CC 6021-05 and 7021-04. The Comptroller customarily also requires these forms from each director, officer and substantial stockholder (holding five percent or more of the stock) of the new bank.

205. See Form CC 7022-18, set forth in the Appendix, pp. 297-98 infra.

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provided in the form of a “market survey” prepared by a consulting firm.

The application is then assigned to a national bank examiner for a field investigation. His comments and findings are rendered206 in two parts, the "Examiner's Report of an Investigation," which is available to the public, and the "Confidential Memorandum" to the Comptroller, which is not. The Examiner's Report summarizes some of the application information and gives a brief economic description of the service area and community, but contains little in the way of evaluation That is provided in the Confidential Memorandum, on a number of topics. The examiner gives his views on how much initial capital the bank should have; he checks on the biographical and financial data furnished by the principal figures in the proposed bank and offers his conclusions about whether they are acceptable persons; and he answers questions such as these:

4. Is there a public need for the proposed bank or is the area reasonably well served by existing banks and branches?...

5. Is it reasonable to expect that the available banking business will be adequate to support the proposed bank, if established, together with existing competitive banks and branches, or will an overbanked situation be created? Indicate whether a healthy or unhealthy degree of competition will accrue.

He concludes by recommending either approval or denial of the application. Neither the form nor any standard instructions provide criteria by which these judgments and conclusions are to be reached; consequently, they rest largely on the personal attitudes of the examiner to whom the application was assigned.

The applicant has to publish notice of the filing of the charter application, and it is permissible, though uncommon, for objectors to request a hearing. 207 Otherwise, the application simply proceeds along a recommendation chain. The Regional Comptroller adds his comments and recommendation to those of the local examiner, and then the application goes to Washington, where three more recommendations are added-in turn, those of the Director of the Bank Organization Division, an Economist, and a Deputy Comptroller. These latter three recommendations are

206. See Form CC-1956-OX.
207. 12 C.F.R. §§ 5.2, 5.4 (1974).

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usually explained in a few sentences; the basis given for the other two recommendations is summarized in a paragraph or two. When the form arrives at the Comptroller's desk for final decision, he has five recommendations set forth on two pages. The Comptroller signifies his decision by signing on the approval or rejection line, without any statement of reasons.

Although this decision procedure defies close analysis, as a number of courts have found out, it is possible to make some simple breakdowns, based on the sample of twenty-seven charter files. Table 8 shows the frequency with which the Comptroller agreed

with the recommendations of his various subordinates. The Comptroller disagreed with his field examiner's view in almost half the cases, and with his more senior staff in about quarter of the cases, on the average. The disagreements were mostly over implicit standards and values, for the examiner was the only one to undertake a significant factual investigation and there were few disputes along the recommendation chain over what could be called a matter of historical fact.

Table 9 provides a picture of the extent to which these disagreements were clustered. It indicates the number of staff recommendations contrary to the Comptroller's decision in each case. In forty-one percent of the cases, the Comptroller and his staff were in complete agreement, but` twenty-six percent of the time the Comptroller's decision was the opposite of the recommendation of a majority of his staff.

It is more difficult to get at the basis of these disagreements, since the Comptroller makes no statement of his reasons and the statements of the last three staff members in the recommendation chain are usually very brief and conclusory. In each case, however,