National Association, Providence, Rhode Island ( cFleet Bank (RI) d), a nationally chartered credit card bank that is not considered a cbank d for purposes of the BHC Act.<br><br> 2 Bank of America and FleetBoston also have requested the Board 9s approval to hold and exercise an option that allows Bank of America to purchase up to 19.9 percent of FleetBoston 9s common stock and FleetBoston to purchase up to 19.9 percent of Bank of America 9s common stock, if certain events occur. Both options would expire on consummation of the proposal by Bank of America to merge with FleetBoston. -2- Bank of America, with total consolidated assets of approximately $736.5 billion, is the third largest commercial banking organization in the United States, controlling approximately 7.4 percent of total assets of insured banking organizations in the United States.<br><br> 3 Bank of America operates subsidiary depository institutions in 22 states and the District of Columbia, and it engages nationwide in numerous permissible nonbanking activities. FleetBoston, with total consolidated assets of approximately $201.5 billion, operates depository institutions in Connecticut, Florida, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island. FleetBoston is the eighth largest commercial banking organization in the United States, controlling approximately 2.2 percent of total assets of insured banking organizations in the United States.<br><br> It also engages in a broad range of permissible nonbanking activities nationwide. On consummation of the proposal, Bank of America would become the second largest commercial banking organization in the United States, with total consolidated assets of approximately $938 billion. The combined organization would operate under the name of Bank of America Corporation and control approximately 9.6 percent of total assets of insured banking organizations in the United States.<br><br> Factors Governing Board Review of the Transaction The BHC Act enumerates the factors the Board must consider when reviewing the merger of bank holding companies or the acquisition of banks. These factors are the competitive effects of the proposal in the relevant geographic 3 Asset data are as of December 31, 2003, and have been adjusted to account for FleetBoston 9s acquisition of Progress Financial Corp., Blue Bell, Pennsylvania ( cProgress d), on February 1, 2004. National ranking data are as of September 30, 2003.<br><br> -3- markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the convenience and needs of the communities to be served, including the records of performance under the Community Reinvestment Act (12 U.S.C. § 2901 et seq. ) ( cCRA d) of the insured depository institutions involved in the transaction; and the availability of information needed to determine and enforce compliance with the BHC Act.<br><br> In cases involving interstate bank acquisitions, the Board also must consider the concentration of deposits nationwide and in certain individual states, as well as compliance with other provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ( cRiegle-Neal Act d). 4 Public Comment on the Proposal Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (68 Federal Register 65,070, 65,932, and 75,565 (2003)), and the time for filing comments has expired. The Board extended the initial period for public comment to accommodate the broad public interest in this proposal, providing interested persons more than 60 days to submit written comments.<br><br> Because of the extensive public interest in the proposal, the Board held public meetings in Boston, Massachusetts, and San Francisco, California, to provide interested persons an opportunity to present oral testimony on the factors that the Board must review under the BHC Act. 5 More than 180 people testified at the public meetings, and many of the commenters who testified also submitted written comments. 4 Pub.<br><br> L. No. 103-328, 108 Stat.<br><br> 2338 (1994). 5 The Boston public meeting was held on January 14, 2004, and the San Francisco public meeting was held on January 16, 2004. -4- In total, approximately 2200 individuals and organizations submitted comments on the proposal through oral testimony, written comments, or both.<br><br> 6 Comments were submitted by organizations, individuals, and representatives from several states where the companies operate. Commenters included members of Congress, state and local government officials, community groups, nonprofit organizations, customers of Bank of America and FleetBoston, and other interested organizations and individuals. Commenters filed information and expressed views supporting and opposing the merger.<br><br> A large number of commenters supported the proposal and commended Bank of America and FleetBoston for their commitment to local communities and for their leadership in community development activities. These commenters praised Bank of America 9s and FleetBoston 9s records of providing affordable mortgage loans, investments, grants and loans in support of economic and community revitalization projects, and charitable contributions in local communities. Some commenters also noted favorably the small business activities of both organizations, which included lending, educational seminars, and technical assistance.<br><br> Many of the commenters also praised Bank of America 9s nationwide $750 billion, 10-year community economic development plan ( cCommunity Development Initiative d) and stated that the plan would increase the availability of loans and investments to support community development and affordable housing activities. 6 Comments included 1,400 identical e-mail messages from members of an organization that expressed concerns about whether large bank mergers were good for consumers, 300 identical letters about the alleged involvement of a FleetBoston predecessor in the illegal slave trade, and more than 500 other comments on the proposal. -5- A large number of commenters opposed the proposal, requested that the Board approve the proposal subject to certain conditions, expressed concern about some aspect of the CRA performance of Bank of America or FleetBoston, or argued that the proposal might lead to a reduction in banking services in particular communities or regions of the country.<br><br> Many of these commenters focused on Bank of America 9s and FleetBoston 9s records of lending to small businesses and minorities and in low- and moderate-income ( cLMI d) and rural areas. A number of commenters from New England and other states currently served by FleetBoston expressed concern that Bank of America might not serve the diverse credit needs of their local communities as well or might terminate relationships or programs that FleetBoston has developed to meet the credit needs of its communities, such as FleetBoston 9s First Community Bank and the FleetBoston Foundation. In addition, many commenters criticized Bank of America 9s Community Development Initiative, stating that the initiative was not enforceable and did not provide specific lending commitments for individual states or regions or for particular loan products or programs.<br><br> Some commenters believed that the merger would reduce competition for banking services, substantially increase concentration in the banking industry, result in the loss of local control over lending and investment decisions, or exceed the nationwide deposit cap in the BHC Act. Other commenters expressed concern about Bank of America 9s investment in mortgage-backed securities pools that include subprime loans, the potential adverse effects that might result from branch closings, the loss of a major financial institution headquartered in New England, or job losses. Some commenters expressed concerns about Bank of America 9s or FleetBoston 9s managerial resources in light of certain lawsuits and investigations involving one or both companies and their securities and mutual fund affiliates.<br><br> -6- In evaluating the statutory factors under the BHC Act, the Board carefully considered the information and views presented by all commenters, including the testimony at the public meetings and the information and views submitted in writing. The Board also considered all the information presented in the applications, notices, and supplemental filings by Bank of America and FleetBoston; various reports filed by the relevant companies; publicly available information; and other reports. In addition, the Board reviewed confidential supervisory information, including examination reports on the bank holding companies and the depository institutions involved and information provided by other federal banking agencies, the Securities and Exchange Commission ( cSEC d), and the Department of Justice ( cDOJ d).<br><br> After a careful review of all the facts of record, and for the reasons discussed in this order, the Board has concluded that the statutory factors it is required to consider under the BHC Act and other relevant banking statutes are consistent with approval of the proposal. Interstate Analysis Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire control of a bank located in a state other than the bank holding company 9s home state if certain conditions are met. For purposes of the BHC Act, the home state of Bank of America is North Carolina, 7 and FleetBoston 9s subsidiary banks are located in Connecticut, 7 See 12 U.S.C.<br><br> § 1842(d). A bank holding company 9s home state is the state in which the total deposits of all banking subsidiaries of such company were the largest on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. -7- Florida, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island.<br><br> 8 The Board may not approve an interstate proposal under section 3(d) if the applicant controls, or upon consummation of the proposed transaction would control, more than 10 percent of the total amount of deposits of insured depository institutions in the United States ( cnationwide deposit cap d). The nationwide deposit cap was added to section 3(d) when Congress broadly authorized interstate acquisitions by bank holding companies and banks in the Riegle-Neal Act. The intended purpose of the nationwide deposit cap was to help guard against undue concentrations of economic power.<br><br> 9 Although the nationwide deposit cap prohibits interstate acquisitions by a company that controls deposits in excess of the cap, it does not prevent a company from exceeding the nationwide deposit cap through internal growth and effective competition for deposits or through acquisitions entirely within the home state of the acquirer. Several commenters questioned whether the proposed acquisition would violate the nationwide deposit cap and presented differing views on how the deposit cap should be calculated. Some commenters challenged Bank of America 9s computation of its pro forma share of total deposits in the United States provided in the application, suggested that the Board rely on the Summary of Deposits ( cSOD d) data collected annually by the Federal Deposit Insurance Corporation ( cFDIC d), or argued that certain geographies or types of deposits or types of institutions should be excluded from the calculations.<br><br> 8 For purposes of the Riegle-Neal Act, the Board considers a bank to be located in the states in which the bank is chartered or headquartered or operates a branch. See 12 U.S.C. §§ 1841(o)(4)-(7) and 1842(d)(1)(A) and (d)(2)(B).<br><br> 9 See S. Rep. No.<br><br> 102-167 at 72 (1991). -8- As required by section 3(d), the Board has carefully considered whether Bank of America controls, or upon consummation of the proposed transaction would control, a total amount of deposits in excess of the nationwide deposit cap. Not all of the terms used in defining the nationwide deposit cap are specifically defined in the BHC Act.<br><br> The Federal Deposit Insurance Act ( cFDI Act d) contains an identical nationwide deposit cap applicable to bank-to-bank mergers, and, consequently, many of the terms used in the nationwide deposit cap in the BHC Act refer to terms or definitions contained in the FDI Act. In particular, the BHC Act adopts the definition of cinsured depository institution d used in the FDI Act. The FDI Act 9s definition includes all banks (whether or not the institution is a bank for purposes of the BHC Act), savings banks and savings associations that are insured by the FDIC, and insured U.S.<br><br> branches of foreign banks, as each of those terms is defined in the FDI Act. 10 10 A number of commenters have asserted that deposits held by insured depository institutions in Puerto Rico and the U.S. territories should not be included in the deposit calculation because these areas are not cStates. d The terms cState d and cUnited States d are not defined in the BHC Act.<br><br> The Board believes that the term cUnited States d include the States, the District of Columbia, Puerto Rico, Guam, American Samoa, the Virgin Islands, the Northern Mariana Islands, the islands formerly referred to as the Trust Territory of the Pacific Islands, and any territory of the United States. This definition of cUnited States d is consistent with the purpose of the nationwide deposit cap. All banks operating in these areas are eligible for FDIC deposit insurance and are subject to the jurisdiction of the FDIC in the same manner as other FDIC-insured banks.<br><br> If these areas are not included in the definition of cUnited States d for purposes of the nationwide deposit cap, an institution such as Bank of America could expand in these areas without limit, thereby increasing its control of FDIC-insured deposits. This definition is also consistent with the definition of cUnited States d contained in the Board 9s Regulation Y, which governs applications under section 3 of the BHC Act. -9- Section 3(d) also specifically adopts the definition of cdeposit d in the FDI Act.<br><br> 11 Each insured bank in the United States must report its total deposits in accordance with this definition on the institution 9s Consolidated Report of Condition and Income ( cCall Report d). Each insured savings association must similarly report its total deposits on the institution 9s Thrift Financial Report ( cTFR d). Deposit data for FDIC-insured U.S.<br><br> branches of foreign banks and Federal branches of foreign banks are obtained on the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks ( cRAL d). These data are reported on a quarterly basis to the FDIC and are publicly available.<br><br> The Call Report, TFR, and RAL reflect data based on the FDI Act 9s definition of cdeposit d and represent the best and most complete data reported by all insured depository institutions in the United States. Consequently, the Board has relied on the data collected in these reports to calculate the total amount of deposits of insured depository institutions in the United States and the total amount of deposits held by Bank of America, both before and upon consummation of the proposed transaction, for purposes of applying the nationwide deposit cap in this case. 12 The items on the Call Report, TFR, and RAL used to calculate the total 11 12 U.S.C.<br><br> § 1842(d)(2)(E) (incorporating the definition of cdeposit d at 12 U.S.C.§ 1813( l )). 12 Some commenters argued that the SOD collected by the FDIC should be used for applying the deposit cap to the proposal. SOD data disclose an institution 9s deposits broken out by branch office.<br><br> However, SOD data are not, and are not intended to be, an exact representation of deposits as defined in the FDI Act. Rather, these data are intended to provide a useful proxy for the size of each institution 9s presence in various banking markets primarily for the purpose of conducting examinations and performing competitive analysis in local banking markets. Consequently, SOD data require a variety of adjustments, most of which would be based on Call Report data, if SOD data are to be used to better approximate total deposits as defined in the FDI Act and the BHC Act.<br><br> Moreover, SOD data are collected only once each year at the end of the second quarter, which -10- amount of deposits of insured depository institutions in the United States are enumerated in Appendix A. These items, combined as explained in Appendix A, conform the data collected on the Call Reports and TFR as closely as possible to the statutory definition of deposits in the FDI Act and BHC Act. The Board has developed this formulation in consultation with the staff of the FDIC, which collects and uses these data for purposes of applying the same definition of deposits for deposit insurance purposes and the nationwide deposit cap in the FDI Act.<br><br> Based on the latest Call Report, TFR, and RAL data available for all insured depository institutions, the total amount of deposits of insured depository institutions in the United States is approximately $5.33 trillion. Also based on the latest Call Report, Bank of America (including all of its insured depository institution affiliates) controls deposits of approximately $394.8 billion and FleetBoston (including all of its insured depository institution affiliates) controls means that the most recent SOD data provide an estimation of deposits held by institutions more than eight months ago. Call Report data, on the other hand, are collected each quarter, with the most recent data representing deposits as of December 31, 2003.<br><br> Given the limitations of SOD data, the Board believes that Call Report data, rather than SOD data, provide a more complete and accurate representation of the amount of deposits held by the institutions involved in this transaction and in all insured depository institutions in the United States as of the date the Board has considered the proposal. A number of commenters noted the Board 9s past use of SOD data in concluding a proposal was within the Riegle-Neal Act 9s nationwide deposit cap. See , e.g.<br><br> , Fleet Financial Corporation , 85 Federal Reserve Bulletin 747 (1999); NationsBank , 84 Federal Reserve Bulletin 858, 860 (1998) ( cNationsBank d). In these proposals, the Board used information from the FDIC 9s SOD reports as an approximation of nationwide deposits. To date, the largest concentration of nationwide deposits was approximately 8.1 percent (see NationsBank ) and the use of SOD data was a sufficient first screen in light of these proposals 9 clear compliance with the nationwide deposit cap.<br><br> -11- deposits of approximately $133.5 billion. 13 Bank of America, therefore, currently controls approximately 7.4 percent of total U.S. deposits.<br><br> Upon consummation of the proposed transaction, Bank of America would control approximately 9.904 percent of the total amount of deposits of insured depository institutions in the United States. Thus, the Board finds that Bank of America does not now control, and upon consummation of the proposed transaction would not control, an amount of deposits that would exceed the nationwide deposit cap. Section 3(d) also prohibits the Board from approving a proposal if, on consummation of the proposal, the applicant would control 30 percent or more of the total deposits of insured depository institutions in any state in which both the applicant and the organization to be acquired operate an insured depository institution, or such higher or lower percentage that is established by state law.<br><br> 14 Bank of America would control less than 30 percent, and less than the appropriate percentage established by applicable state law, of total deposits of insured depository institutions in Florida and New York, the states in which Bank of America currently operates a bank or branch and would assume additional deposits on consummation of the proposal. 15 All other requirements of section 3(d) of the 13 FleetBoston 9s deposits include approximately $770 million in deposits held by Progress. 14 12 U.S.C.<br><br> § 1842(d)(2)(B)-(D). 15 On consummation, Bank of America would control less than 30 percent of total deposits in insured depository institutions in Florida. See Fla.<br><br> Stat. ch. 658.295(8)(b) (2003).<br><br> New York does not have a deposit cap applicable to this proposal, and Bank of America currently does not control an insured depository institution in Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, Pennsylvania, or Rhode Island. -12- BHC Act also would be met after consummation of the proposal. 16 In view of all the facts of record, the Board is permitted to approve the proposal under section 3(d) of the BHC Act.<br><br> Competitive Considerations Section 3 of the BHC Act prohibits the Board from approving a proposal that would result in a monopoly. It also prohibits the Board from approving a proposal that would substantially lessen competition in any relevant banking market unless the anticompetitive effects of the proposal are clearly outweighed in the public interest by the probable effect of the proposal in meeting the convenience and needs of the community to be served. 17 The Board has carefully considered the competitive effects of the proposal in light of all the facts of record, including public comments on the proposal.<br><br> A number of commenters argued that the proposed merger would have adverse competitive effects. Many of these commenters expressed concern that large bank mergers in general, or the proposed merger of Bank of America and FleetBoston in particular, would have adverse effects on competition nationwide. Some commenters also contended that the proposed merger would result in higher fees and costs.<br><br> To determine the effect of a proposed transaction on competition, it is necessary to designate the area of effective competition between the parties, which the courts have held is decided by reference to the relevant cline of commerce d or 16 Bank of America is adequately capitalized and adequately managed as defined in the Riegle-Neal Act. 12 U.S.C. § 1842(d)(1)(A).<br><br> FleetBoston 9s subsidiary banks have been in existence and operated for the minimum age requirements established by applicable state law. See 12 U.S.C. § 1842(d)(1)(B).<br><br> All other requirements under section 3(d) of the BHC Act also would be met on consummation of the proposal. 17 12 U.S.C. § 1842(c)(1).<br><br> -13- product market and a geographic market. The Board and the courts have consistently recognized that the appropriate product market for analyzing the competitive effects of bank mergers and acquisitions is the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) offered by banking institutions. 18 Several studies support the conclusion that businesses and households continue to seek this cluster of services.<br><br> 19 Consistent with these precedents and studies, and on the basis of the facts of record in this case, the Board concludes that the cluster of banking products and services represents the appropriate product market for analyzing the competitive effects of this proposal. In defining the relevant geographic market, the Board and the courts have consistently held that the geographic market for the cluster of banking products and services is local in nature. The appropriate geographic markets for considering the competitive effects of this proposal are the four local banking markets in which the subsidiary banks of Bank of America and FleetBoston 18 See Chemical Banking Corporation , 82 Federal Reserve Bulletin 239 (1996) ( cChemical d) and the cases and studies cited therein.<br><br> The Supreme Court has emphasized that it is the cluster of products and services that, as a matter of trade reality, makes banking a distinct line of commerce. See United States v. Philadelphia National Bank , 374 U.S.<br><br> 321, 357 (1963) ( cPhiladelphia National d); accord United States v. Connecticut National Bank , 418 U.S. 656 (1974); United States v.<br><br> Phillipsburg National Bank , 399 U.S. 350 (1969) ( cPhillipsburg National d). 19 Cole and Wolken, Financial Services Used by Small Businesses: Evidence from the 1993 National Survey of Small Business Finance , 81 Federal Reserve Bulletin 629 (1995); Elliehausen and Wolken, Banking Markets and the Use of Financial Services by Households , 78 Federal Reserve Bulletin 169 (1992); Elliehausen and Wolken, Banking Markets and the Use of Financial Services by Small- and Medium-Sized Businesses , 76 Federal Reserve Bulletin 726 (1990).<br><br> -14- compete directly. 20 Bank of America and FleetBoston both operate in the Metropolitan New York-New Jersey banking market, and in the Florida banking markets of West Palm Beach, Fort Pierce, and Sarasota. 21 The Board has reviewed carefully the competitive effects of the proposal in each of these banking markets in light of all the facts of record.<br><br> These considerations include the number of competitors that would remain in the markets, the relative share of total deposits in depository institutions controlled by Bank of America and FleetBoston in the markets ( cmarket deposits d), 22 the concentration level of market deposits and the increase in this level as measured by 20 See Phillipsburg National ; Philadelphia National , 374 U.S. at 357. See also , First Union Corporation , 84 Federal Reserve Bulletin 489 (1998); Chemical ; and St.<br><br> Joseph Valley Bank , 68 Federal Reserve Bulletin 673 (1982) ( cSt. Joseph d). In delineating the relevant geographic market in which to assess the competitive effects of a bank merger or acquisition, the Board reviews population density; worker commuting patterns; the usage and availability of banking products; advertising patterns of financial institutions; the presence of shopping, employment, and other necessities; and other indicia of economic integration and transmission of competitive forces among banks.<br><br> See Crestar Bank , 81 Federal Reserve Bulletin 200, 201, n.5 (1995); Pennbancorp , 69 Federal Reserve Bulletin 548 (1983); and St. Joseph . 21 These markets are described in Appendix B.<br><br> 22 Deposit and market share data are based on SOD reports filed as of June 30, 2003, and on calculations in which the deposits of thrift institutions are included at 50 percent. The Board has indicated previously that thrift institutions have become, or have the potential to become, significant competitors of commercial banks. See , e.g.<br><br> , Midwest Financial Group , 75 Federal Reserve Bulletin 386 (1989); National City Corporation , 70 Federal Reserve Bulletin 743 (1984). Thus, the Board regularly has included thrift deposits in the calculation of market share on a 50 percent weighted basis. See , e.g.<br><br> , First Hawaiian, Inc. , 77 Federal Reserve Bulletin 52 (1991). -15- the Herfindahl-Hirschman Index ( cHHI d) under the Department of Justice Merger Guidelines ( cDOJ Guidelines d), 23 and other characteristics of the markets.<br><br> After consummation of the proposal, the Metropolitan New York- New Jersey banking market would remain unconcentrated, and the Fort Pierce, Sarasota, and West Palm Beach banking markets would remain moderately concentrated, as measured by the HHI. 24 Numerous competitors would remain in each banking market. Consummation of the proposal would be consistent with Board precedent and the DOJ Guidelines in each of the banking markets.<br><br> In addition, no agency has indicated that competitive issues are raised by the proposal. Based on these and all other facts of record, the Board concludes that consummation of the proposal is not likely to result in a significantly adverse effect on competition or on the concentration of banking resources in the four banking markets noted above or in any other relevant banking market. Accordingly, based on all the facts of 23 Under the DOJ Guidelines, 49 Federal Register 26,823 (1984), a market is considered unconcentrated if the post-merger HHI is under 1000 and moderately concentrated if the post-merger HHI is between 1000 and 1800.<br><br> The DOJ has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The DOJ has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial institutions. 24 In the Metropolitan New York-New Jersey banking market, the HHI would increase 9 points to 983.<br><br> The HHI would increase 35 points to 1,349 in the West Palm Beach banking market; remain unchanged at 1,259 in the Fort Pierce banking market; and increase 4 points to 1,252 in the Sarasota banking market. The effect of the proposal on the concentration of banking resources in each market is described in Appendix C. -16- record, the Board has determined that the competitive effects are consistent with approval of the proposal.<br><br> Financial, Managerial, and Other Supervisory Factors Section 3 of the BHC Act requires the Board to consider the financial and managerial resources and future prospects of the companies and banks involved in the proposal and certain other supervisory factors. The Board has carefully considered the financial and managerial resources and future prospects of Bank of America, FleetBoston, and their respective subsidiary banks in light of all the facts of record. In reviewing the financial and managerial factors, the Board has considered, among other things, confidential reports of examination and other supervisory information received from the primary federal supervisors of the organizations involved and the Federal Reserve System 9s confidential supervisory information.<br><br> In addition, the Board has consulted with the relevant supervisory agencies, including the Office of the Comptroller of the Currency ( cOCC d), which is the primary supervisor of Bank of America 9s and FleetBoston 9s banks, and the SEC. The Board also has considered publicly available financial and other information on the organizations and their subsidiaries and all the information on the proposal 9s financial and managerial aspects submitted by Bank of America and FleetBoston during the application process. The Board received several comments on the proposal criticizing the financial and managerial resources of Bank of America or FleetBoston and their respective subsidiaries.<br><br> 25 Some commenters questioned whether the Board and 25 More than 300 commenters expressed concern about accusations that a predecessor bank of FleetBoston financed slave trading allegedly conducted by one of its founders, after Congress outlawed the importation of slaves. The Board has carefully reviewed its authority under the federal banking laws and the extent that the matters raised by commenters relate to the factors that the Board is authorized to consider. The Board also notes that these concerns relate to instances that -17- other federal agencies would have the ability to supervise the combined organization, or whether the combined organization would present special risks to the federal deposit insurance funds or the financial system in general.<br><br> In addition, some commenters asserted that the Board should postpone consideration of the proposal in light of various investigations into certain investment banking, investment advisory, and corporate finance practices of Bank of America and its affiliates and should conduct its own inquiry into these matters. 26 occurred more than 125 years ago and that have been the subject of substantial and repeated court proceedings. The Board believes that the matter primarily involves subjects of public concern that are not within the Board 9s limited jurisdiction to adjudicate or do not relate to the factors that the Board may consider when reviewing an application or notice under the BHC Act.<br><br> See Deutsche Bank AG , 85 Federal Reserve Bulletin 509 (1999); Union Bank of Switzerland , 84 Federal Reserve Bulletin 684 (1998); Norwest Corporation , 82 Federal Reserve Bulletin 580 (1996). See also , Western Bancshares, Inc. v.<br><br> Board of Governors , 480 F.2d 749 (10 th Cir. 1973). 26 Some commenters cited press reports about investigations into the mutual fund industry generally, and Bank of America 9s mutual fund activities specifically, as well as structured financing transactions and other securities-related matters.<br><br> As noted below, the Board has and will continue to consult with the SEC on these matters. The Board also received comments asserting that Bank of America, N.A., Charlotte, North Carolina ( cBA Bank d), and other subsidiaries of Bank of America lack sufficient policies and procedures and other resources to prevent money laundering. The Board has reviewed confidential supervisory information on the policies, procedures, and practices of Bank of America to comply with the Bank Secrecy Act and has consulted with the OCC, the appropriate federal financial supervisory agency of BA Bank.<br><br> Three commenters alleged that a predecessor institution of FleetBoston engaged in illegal tying in several loan transactions, and they criticized the behavior of FleetBoston 9s counsel in the ensuing litigation. The dispute involves several individual transactions that have been previously cited by the commenters. The Board and the OCC have the matter under review, and together they have sufficient supervisory authority to address any violation of law that may be determined.<br><br> -18- In evaluating financial factors in expansion proposals by banking organizations, the Board consistently has considered capital adequacy to be an especially important factor. 27 Bank of America and FleetBoston and their subsidiary banks are well capitalized and would remain so on consummation of the proposal. The Board has considered that the proposed merger is structured as a share-for-share transaction and would not increase the debt service requirements of the combined company.<br><br> The Board also has carefully reviewed other indicators of the financial strength and resources of the companies involved, including the earnings performance and asset quality of the institutions. In addition, the Board has considered the managerial resources of the entities involved and of the proposed combined organization. Bank of America, FleetBoston, and their subsidiary depository institutions are considered well managed overall.<br><br> 28 The Board has considered the supervisory experience and 27 See , e.g. , First Union Corporation , 87 Federal Reserve Bulletin 663, 688 (2001). 28 Several commenters from Hawaii requested that the Board postpone action on the proposal until Bank of America fulfills two ccommitments d it made to state and local governments and community groups in 1994.<br><br> See BankAmerica Corporation 80 Federal Reserve Bulletin 623, 628 (1994) ( cLiberty Bank d); and NationsBank at 876. A commenter also asserted that Bank of America 9s alleged failure to meet its Hawaii lending program ccommitments d reflects adversely on its managerial resources and that the Board should take enforcement action. As also discussed below in considering the convenience and needs factor, Bank of America 9s public announcement of its Hawaii lending programs and goal for mortgage lending to Native Hawaiians on Hawaiian Home Lands was not a commitment to the Board and it is not enforceable by the Board.<br><br> Bank of America has made progress toward meeting its announced lending goal and has represented that its assumptions for achieving the goal within the original time frame proved to be unrealistic because of unexpected complexities in the lending process and competition with other lenders. Bank of America recently affirmed its intent to complete the goal for mortgage lending on Hawaiian Home Lands and has announced steps to enhance its ability to meet that goal, including actions that have been coordinated with the State of Hawaii Department of Hawaiian Home Lands. -19- assessments of management by the various bank supervisory agencies and the organizations 9 records of compliance with applicable banking law.<br><br> In addition, the Board has reviewed carefully the examination records of Bank of America and its subsidiary depository institutions, including assessments of their risk management systems and other policies. Senior management of the combined organization would draw from the senior executives of Bank of America and FleetBoston based on the individual management strengths of each company. In this case, senior executives of the two companies have formed a transition team to plan and manage the integration of the bank holding companies and their subsidiaries.<br><br> Bank of America and FleetBoston have had experience with large mergers and have indicated that they are devoting significant resources to address all aspects of the merger process. The Board is monitoring the various federal and state investigations of Bank of America 9s and FleetBoston 9s securities-related activities that are being conducted by agencies and other authorities with jurisdiction over these matters and is consulting with the SEC and other relevant authorities. Bank of America has cooperated with all regulatory authorities and has conducted an internal investigation into these matters.<br><br> Importantly, Bank of America has demonstrated a willingness and ability to take actions to address concerns raised in these investigations, which include enhancing corporate governance capabilities, improving its monitoring of mutual fund operations, and providing more stringent disclosure requirements for structured-finance clients. The Board has broad supervisory authority under the banking laws to require Bank of America to take steps necessary to address deficiencies identified in these investigations and examinations of Bank of America 9s and FleetBoston 9s securities-related and other activities after these reviews have been completed. This authority is in addition to authority vested in the SEC and other agencies to -20- take appropriate action to determine and address violations of applicable securities and other laws.<br><br> The Board and other financial supervisory agencies have extensive experience supervising Bank of America, FleetBoston and their subsidiary depository institutions, as well as other banking organizations that operate across multiple states or multiple regions. The Board has already instituted an enhanced supervisory program that permits the Board to monitor and supervise the combined organization effectively on a consolidated basis. This program involves, among other things, continuous holding company supervision, including both on- and off- site reviews, of the combined organization 9s material risks on a consolidated basis and across business lines; access to and analyses of the combined organization 9s internal reports for monitoring and controlling risks on a consolidated basis; and frequent contact with the combined organization 9s senior management.<br><br> It also includes reviews of the policies and procedures in place at the holding company for assuring compliance with applicable banking, consumer, and other laws. 29 Consistent with the provisions of section 5 of the BHC Act as amended by the Gramm-Leach-Bliley Act, the Board relies on the SEC and other appropriate functional regulators to provide examination and other supervisory information 29 Some commenters have questioned whether the securitization activities of Bank of America promote the origination of predatory loans. As described more fully below in footnote 35, the Board has considered the policies and programs in place at Bank of America to help ensure that the subprime loans it purchases and securitizes are in compliance with applicable state and federal consumer protection laws.<br><br> -21- regarding functionally regulated subsidiaries in order that the Board can fulfill its responsibilities as holding company supervisor of the combined entity. 30 Based on these and all the facts of record, including review of all the comments received, 31 the Board concludes that considerations relating to the financial and managerial resources and future prospects of Bank of America, FleetBoston, and their respective subsidiaries are consistent with approval of the proposal. The Board also finds that the other supervisory factors that the Board must consider under section 3 of the BHC Act are consistent with approval.<br><br> Convenience and Needs Considerations As previously discussed, section 3 of the BHC Act requires the Board to consider the effects of the proposal on the convenience and needs of the communities to be served and to take into account the records of the relevant insured depository institutions under the CRA. The CRA requires the federal financial supervisory agencies to encourage financial institutions to help meet the credit needs of local communities in which they operate, consistent with their safe and sound operation, and it requires the appropriate federal financial supervisory agency to take into account an institution 9s record of meeting the credit needs of its 30 For additional information concerning the Board 9s supervisory program for large, complex banking organizations, such as Bank of America, see Supervision of Large Complex Banking Organizations , 87 Federal Reserve Bulletin 47 (2001). 31 Commenters also expressed concern about the following matters: (1) the number of minorities serving in Bank of America 9s senior management, (2) whether Bank of America 9s supplier diversity program is effectively serving minority- and women-owned businesses, (3) Bank of America 9s financing of various activities and projects worldwide that might damage the environment or cause other social harm, (4) Bank of America 9s alleged opposition to legislation addressing cpredatory d lending, and (5) interchange fees charged by Visa and Mastercard.<br><br> These contentions and concerns are outside the limited statutory factors that the Board is authorized to consider when reviewing an application under the BHC Act. See Western Bancshares . -22- entire community, including LMI neighborhoods, in evaluating bank expansionary proposals.<br><br> The Board has carefully considered the convenience and needs factor and the CRA performance records of the subsidiary depository institutions of Bank of America and FleetBoston, including public comments on the effect the proposal would have on the communities to be served by the resulting organization. A. Summary of Public Comments on Convenience and Needs In response to the Board 9s request for public comment on this proposal, approximately 300 commenters submitted comments or testified at the public meetings in support of the proposal.<br><br> These commenters generally commended Bank of America or FleetBoston for the financial and technical support provided to their community development organizations or related their favorable experiences with specific programs or services offered by Bank of America. Many of these commenters also expressed their support for Bank of America 9s Community Development Initiative. Approximately 190 commenters submitted comments that expressed concern about the lending records of Bank of America or FleetBoston, recommended approval only if subject to conditions suggested by the commenter, or expressed concern about large bank mergers in general.<br><br> 32 Other commenters alleged that lending, customer service, and philanthropy have declined at Bank of America and FleetBoston after their previous mergers. Some commenters 32 Several commenters contended that a greater risk exists that larger banking organizations may improperly share customer information among affiliates. One commenter questioned FleetBoston 9s procedures for safeguarding accounts from unauthorized access, based on her experiences with the bank.<br><br> This comment has been forwarded to the OCC, which is the primary federal regulator for Fleet Bank. Bank of America has policies and procedures in place to address the sharing and safeguarding of customer information. -23- neither supported nor opposed the proposal, but provided information about Bank of America 9s and FleetBoston 9s performance in their communities.<br><br> Many of the commenters who opposed or expressed concern about the proposal alleged that Bank of America 9s level of home mortgage lending to LMI or minority borrowers or in LMI or predominantly minority communities was low in various parts of the country, including California and North Carolina. In addition, several commenters criticized FleetBoston 9s home mortgage lending record. Some commenters alleged that Bank of America 9s small business lending in California or other markets was inadequate, particularly to businesses in LMI or predominantly minority communities.<br><br> 33 Several commenters criticized Bank of America 9s general efforts toward small business lending, especially its level of lending to microenterprises. 34 Several commenters criticized Bank of America 9s due diligence with respect to its purchase and securitization of subprime loans. 35 Other 33 Some commenters also criticized FleetBoston 9s level of small business lending for being too low.<br><br> 34 These commenters defined a microenterprise as a business with five or fewer employees and less than $35,000 in capital. 35 Several commenters maintained that Bank of America purchases subprime loans and securitizes them without performing adequate due diligence to screen for cpredatory d loans, and some commenters urged Bank of America to adopt particular factors or methods for such screening. Several commenters also criticized Bank of America for its recent investment in a subprime lending company, Oakmont Mortgage Company, Woodland Hills, California ( cOakmont d), after Bank of America had publicly announced that it would not originate subprime mortgage loans.<br><br> None of these commenters, however, provided evidence that Bank of America had originated, purchased, or securitized cpredatory d loans or otherwise engaged in abusive lending practices. Bank of America provides warehouse lines of credit to, and purchases subprime mortgage loans from, subprime lenders through BA Bank, and securitizes pools of subprime mortgage loans. Bank of America has policies and procedures, including sampling loans in the pool, to help ensure that the subprime loans it purchases and securitizes are in -24- commenters expressed concern that Bank of America 9s corporate decisions would not take into account the diversity and community reinvestment needs of New England, California, or North Carolina.<br><br> Some commenters expressed doubts that Bank of America would assign local representatives to its community reinvestment and development programs. 36 In addition, some commenters expressed concern that consummation of the proposal would result in branch closures in LMI or predominantly minority communities, or they criticized the percentage of Bank of America and FleetBoston branches in LMI areas. Many commenters asserted that Bank of America should augment the array or adjust the pricing of banking services that it provides, particularly to LMI individuals.<br><br> 37 Some commenters suggested that compliance with applicable state and Federal consumer protection laws. It also conducts a due diligence review of firms from which it purchases subprime loans, and the loan servicer firms selected for each securitization, to help prevent the purchase and securitization of loans that are not in compliance with applicable state and Federal consumer protection laws. As the Board previously has noted, subprime lending is a permissible activity and provides needed credit to consumers who have difficulty meeting conventional underwriting criteria.<br><br> The Board continues to expect all bank holding companies and their affiliates to conduct their subprime-lending-related operations free of any abusive lending practices and in compliance with all applicable law, including fair lending laws. See Royal Bank of Canada , 88 Federal Reserve Bulletin 385, 388 n.18 (2002). The Board notes that the OCC has responsibility for enforcing compliance with fair lending laws by national banks and that the Federal Trade Commission, Department of Housing and Urban Development ( cHUD d), and DOJ have responsibility for enforcing such compliance by nondepository institutions.<br><br> 36 Other commenters expressed concern that Bank of America 9s board of directors and senior management would not include local representation. 37 One commenter contended that Bank of America and FleetBoston have failed to serve the needs of LMI communities adequately under the CRA because they have discontinued the deposit accounts of check-cashing businesses. The Board previously addressed this allegation in its order approving the merger of -25- Bank of America should provide more culturally sensitive retail banking services and hire more minorities, including Native Americans.<br><br> Several commenters contended that data submitted under the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq .) ( cHMDA d) suggested that Bank of America and FleetBoston engaged in disparate treatment of minority individuals in home mortgage lending. Many commenters in several states criticized the terms of Bank of America 9s recent Community Development Initiative.<br><br> Other commenters criticized Bank of America 9s performance under its previous community reinvestment pledges or its refusal to enter into or renew written agreements with their respective community groups. In addition, some commenters expressed concern about the loss of FleetBoston as an independent organization, which they contended had a better overall CRA performance record than Bank of America. B.<br><br> CRA Performance Evaluations As provided in the CRA, the Board has evaluated the convenience and needs factor in light of the appropriate federal supervisors 9 examinations of the CRA performance records of the relevant insured depository institutions. An institution's most recent CRA performance evaluation is a particularly important consideration in the applications process because it represents a detailed, on-site evaluation of the institution's overall record of performance under the CRA by its appropriate federal supervisor. 38 FleetBoston and Summit Bancorp.<br><br> FleetBoston Financial Corporation , 87 Federal Reserve Bulletin 252 (2001). Other commenters criticized Bank of America for extending loans to payday lenders. 38 See Interagency Questions and Answers Regarding Community Reinvestment , 66 Federal Register 36,620 and 36,639 (2001).<br><br> -26- Bank of America 9s lead bank, BA Bank, received an coutstanding d rating at its most recent CRA performance evaluation by the OCC, as of December 31, 2001. Fleet Bank also received an coutstanding d rating at its most recent CRA performance evaluation by the OCC, as of July 23, 2001. All other subsidiary banks of Bank of America and FleetBoston received either coutstanding d or csatisfactory d ratings at their most recent CRA performance evaluations by the OCC.<br><br> 39 Bank of America stated that it would identify the best products and services currently offered by either Bank of America or FleetBoston and aim to make them available to all customers and that it has no current plans to discontinue any products or services of FleetBoston. C. CRA Performance of BA Bank Overview As noted above, BA Bank received an overall coutstanding d rating for performance under the CRA.<br><br> 40 The bank also received an coutstanding d rating under the lending test. Examiners commended BA Bank 9s overall lending 39 Bank of America, National Association (USA), Phoenix, Arizona, received a csatisfactory d rating, as of December 31, 2001; Fleet Bank (RI) received an coutstanding d rating, as of February 3, 2003. Fleet Maine is a limited-purpose bank that is not subject to the CRA.<br><br> 40 At the time of the 2001 performance evaluation, BA Bank had 218 assessment areas, 34 of which received a full-scope review. The overall rating for BA Bank is a composite of its state/multistate ratings. In the 2001 performance evaluation, examiners provided detailed narratives with respect to BA Bank 9s performance in certain assessment areas examiners selected as cprimary rating areas. d These areas represented 69 percent of the bank 9s deposits during the review period.<br><br> Examiners determined that BA Bank 9s primary rating areas were California, the Charlotte- Gastonia-Rock Hill (NC-SC) Multistate Metropolitan Statistical Area ( cCharlotte MSA d), Florida, and Texas. The evaluation period was January 1, 2001, through December 31, 2001. -27- performance, which they described as demonstrating excellent or good lending test results in all its rating areas.<br><br> During the evaluation period, BA Bank originated more than 828,200 HMDA-reportable home mortgage loans, totaling more than $112 billion throughout its assessment areas. 41 Examiners reported that rating areas in which the distribution of HMDA-reportable mortgage loans among areas of different income levels was good. In addition, examiners commended BA Bank for developing mortgage loan programs with flexible underwriting standards, such as its Neighborhood Advantage programs, and they reported that these programs assisted in meeting the credit needs of its assessment areas.<br><br> The Neighborhood Advantage programs include the Neighborhood Advantage Zero Down loan product, which is tailored for LMI applicants who have good credit histories but are unable to make a down payment. The Neighborhood Advantage Credit Flex program is another affordable mortgage product tailored for LMI borrowers, or borrowers who live in low-income census tracts, who pay their bills on time but who do not have established credit histories. Although this product requires a 3 percent down payment, examiners reported that the borrower is required to contribute only one-third of the down payment and the remainder may be provided from cgifts or other sources. d During the evaluation period, BA Bank originated more than 142,480 small business and small farm loans, totaling $12.4 billion, in its assessment areas.<br><br> 42 Examiners reported that the bank 9s small business lending was 41 In BA Bank 9s 2001 performance evaluation, home mortgage lending data included loans originated and purchased. 42 Commenters contended that BA Bank has a poor record of lending to small businesses, especially small businesses owned by women and minorities or operating in LMI areas. Commenters urged Bank of America to increase its small -28- excellent or good in the majority of its rating areas.<br><br> They also noted that the distribution of small business loans among businesses of different sizes was good in several of BA Bank 9s assessment areas. 43 Examiners noted that in many instances BA Bank originated community development loans in greater amounts than expected to achieve excellent performance. 44 BA Bank originated more than 970 community development loans, totaling $2.3 billion, in its assessment areas during the business lending in these communities.<br><br> Bank of America represented that, in 2002 and 2003, it was ranked as the number-one Small Business Administration ( cSBA d) lender in terms of the number of loans originated nationwide. Bank of America represented that BA Bank also is a SBA cPreferred Lender d in every state where it has retail branches, which helps to ensure an accelerated application process for small business customers. According to the SBA, Bank of America 9s average loan size is approximately $37,000, which is smaller than the average SBA loan, and it provides needed loans to businesses that have a more difficult time obtaining credit.<br><br> 43 Florida was among BA Bank 9s assessment areas cited by examiners as demonstrating excellent performance in the distribution of small business and small farm loans among businesses and farms of different revenue sizes. 44 Some commenters expressed concern about Bank of America 9s performance under its community development program for rural communities and Native Americans. Bank of America established the Rural 2000 Initiative in 1997 to increase its lending in rural LMI areas and communities with large Native-American populations.<br><br> See NationsBank . Bank of America represented that for the period 1999 through November 2003, it provided $28 billion for affordable housing, $9.1 billion for small business/small farm lending, $3.4 billion for consumer lending, and $466 million in economic development loans in these areas. Bank of America represented that between 2000 and 2003, it originated $120.8 million in loans to Indian Country (census tracts with a Native-American population of 50 percent or more) and it provided loans to improve the infrastructure on Native-American lands.<br><br> -29- evaluation period. 45 Examiners reported that letters of credit originated by the bank contributed significantly to BA Bank 9s community development goals because these activities supported the creation of an additional 13,622 affordable homes. BA Bank received an coutstanding d rating overall under the investment test.<br><br> 46 During the review period, the bank made more than 3,500 investments totaling $1.3 billion in the states in which it has a banking presence. Examiners reported that BA Bank consistently demonstrated strong investment test performance, noting that its performance was excellent or good in the majority of its assessment areas. 47 Throughout its assessment areas, BA Bank funded more than 17,000 housing units for LMI families through its community 45 In June 2003, Bank of America began a new nationwide loan program to support the construction of 15,000 new affordable housing units in the next three years.<br><br> 46 Several commenters maintained that Bank of America should be required to donate a specified percentage of its pre-tax income to charities. Bank of America represented that it has a record of providing significant corporate philanthropic donations in all the communities that it serves. One commenter also asserted that Bank of America allocates a disproportionate share of its charitable giving to health, education, and the arts and that its contributions to community development are insufficient.<br><br> The Board notes that neither the CRA nor the agencies 9 implementing rules require that institutions engage in charitable giving. 47 One commenter asserted that Bank of America financially rewards community groups that comment or testify in support of Bank of America merger proposals and refuses to invest in or lend to organizations that oppose its merger proposals. The CRA does not authorize the Board to direct Bank of America 9s community development investment or lending activities to specific groups, individuals, or projects.<br><br> -30- development investments. 48 Examiners commended BA Bank for taking a leadership role in developing and participating in complex investments that involved multiple participants and both public and private funding. In addition, examiners noted that BA Bank frequently extended grants to assist organizations that are incapable of supporting additional debt or providing a sufficient investment return.<br><br> Overall, BA Bank received a chigh satisfactory d rating under the service test. 49 Examiners commended BA Bank 9s service performance throughout its assessment areas. 50 They reported that the bank 9s retail delivery systems were 48 Bank of America also has provided grants to nonprofit organizations, s<br><br>

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