The US government dual banking regulation levels, transaction costs and HSBC's strategy in acquiring Marine Midland Banks, Inc., 1978–80

Abstract

This paper undertakes a case study of HSBC acquiring Marine Midland Banks, Inc. (MMBI) in the US between 1978 and 1980, a historic incident that had a catalytic impact on the whole debate about foreign banking in the US and re-examination of the restrictions on the US banks' inter-state operations. This paper explores the impact of the US government's financial regulatory structure on HSBC's acquisition and how HSBC dealt with difficulties caused by the US government regulations. We find that the structure of the US government financial regulation caused political hazards which further influenced HSBC's contractual hazards and business transaction costs. We have established that the different attitudes of the federal and state regulatory authorities toward HSBC's acquisition were closely related to their interests, regulatory capability and resources. Our analysis also confirms that HSBC's commitment strategy did help it to earn the federal regulatory authorities' support and MMBI's cooperation, which facilitated the conversion of Marine Midland Bank (MMB), a principal subsidiary of MMBI, to the status of a national chartered bank and allowed HSBC to circumvent the NYBD's regulation.

Keywords:

• US financial regulatory structure
• acquisition
• transaction costs
• HSBC

Acknowledgements

Thanks for the constructive comments received from the reviewers and the 21st Accounting, Business and Financial History Annual Conference; thanks for the support received from HSBC Group Archives.

Notes

 1. Also see HSBC Group Archives GHO 559.3, letter Marine Midland Banks, Inc. to its shareholders, 31 August 1978; HSBC Group Archives, Interview with Ian MacDonald, 2 June 1980, and Interview with Michael Sandberg, 15 April 1980.

 2. HSBC Group Archives 1459/box 2.15 File 1, Offer to Purchase of Marine Midland Banks, Inc. by HSBC Holdings B.V., 18 January 1979.

 3. HSBC Group Archives, Interview with Ian MacDonald, 2 June 1980, and Interview with Michael Sandberg, 15 April 1980; HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the Proposed Acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

 4. HSBC Group Archives, Interview with Frank Frame, 9 April 1980, and Interview with John Heimann, 20 October 1980.

 5. HSBC Group Archives, Interview with John Boyer, 15 April 1980.

 6. HSBC Group Archives GHO 559.3, Marine Midland Banks, Inc. News, 18 October 1978; HSBC Group Archives 1459/box 2.15 File 1, Offer to Purchase of Marine Midland Banks, Inc. by HSBC Holdings B.V., 18 January 1979.

 7. ‘Buying banks: The bidding gets dizzy’, Forbes, 10 July 1978; HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the Proposed Acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

 8. ‘Buying banks: The bidding gets dizzy’, Forbes, 10 July 1978.

 9. Also see HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the Proposed Acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

10. HSBC Group Archives 1459/box 2.15 File 1, Offer to Purchase of Marine Midland Banks, Inc. by HSBC Holdings B.V., 18 January 1979.

11. HSBC Group Archives GHO559.2, Assignment, 18 May 1978; HSBC Group Archives GHO559.2, Assumption Agreement, 18 May 1978.

12. HSBC Group Archives GHO 559.3, Marine Midland Banks, Inc. News, 18 October 1978.

13. ‘Here come foreign banks again’, Business Week, 26 June 1978, pp. 78–86.

14. HSBC Group Archives GHO 559.1, Agreement, 4 April 1978; HSBC Group Archives GHO 559.3, Marine Midland Banks, Inc. News, 18 October 1978; HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980.

15. HSBC Group Archives 1459/box 2.15 File 1, Letter from Group Legal Adviser to HSBC Chairman, 11 October 1978.

16. Also see Office of the Comptroller of the Currency, Quarterly Journal: Special Anniversary Issue, 1981–1991 (September 1992), pp. 3–8, 71–74.

17. Also see Gerald R. Ford Library, John G. Carlson Files, 1972–77, folder ‘Hunt Commission’, box 3, The Report of the President's Commission on Financial Structure and Regulation, December 1971, pp. 87–95; Gerald R. Ford Library, L. William Seidman Files, folder ‘Stephen Gardner’, box 132, memo from Jim Connelly and Harry Meyers to Deputy Secretary Stephen S. Gardner, Proposed Financial Institutions Act of 1976, 6 February 1976.

18. A.A. Milligan, ABA President, 23 August 1978 Testimony before Senate Committee on Governmental Affairs and Committee on Banking Joint Hearings on Consolidated Banking Regulation Act of 1978, 95th Cong., 2nd sess. Washington, DC: US Government Printing Office, 1978, p. 66.

19. Also see HSBC Group Archives, Interview with John Heimann, 20 October 1980.

20. Arthur Burns Speech of 21 October 1974, ‘Maintaining the Soundness of Our Banking System’ (reprinted in Burns, 1978, pp. 364–365).

21. HSBC Group Archives 1459/box 2.15, Report by the Comptroller General of the United States, 1 August 1979.

22. Ibid.

23. ‘Here come foreign banks again’, Business Week, 26 June 1978, pp. 78–86.

24. Ibid.

25. Also see HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Independent Bankers Association of New York State Press Release, 10 May 1979.

26. HSBC Group Archives 1459/box 2.15, Statement by Henry C. Wallich, Member of Board of Governors of the Federal Reserve System before the United States House of Representatives, 1 August 1979.

27. HSBC Group Archives GHO 559.2, Federal Reserve Press Release, 16 March 1979.

28. HSBC Group Archives 1459/box 2.15, Report by the Comptroller General of the United States, 1 August 1979.

29. HSBC Group Archives, Chairman's Confidential File 3, Independent Bankers Association of New York State, Release for A.M. Papers, 11 May 1979.

30. HSBC Group Archives, Chairman's Confidential File 3, New York State Assembly Standing Committee on Banks: Public Hearing on Interstate and Foreign Banking, New York City, 11 May 1979.

31. HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the proposed acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979; HSBC Group Archives, 1685/004, Interview with Mr Richard Tucker, 1 April 1980.

32. HSBC Group Archives, Interview with John Heimann, 20 October 1980.

33. HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the proposed acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979; HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980.

34. HSBC Group Archives 1459/box 2.15 File 1, Letter Group Legal Adviser to Chairman, 13 June 1978; HSBC Group Archives 1459/box 2.15, Statement by Henry C. Wallich, Member of Board of Governors of the Federal Reserve System before the United States House of Representatives, 1 August 1979.

35. HSBC Group Archives 1459/box 2.15 File 1, Letter from Group Legal Adviser to HSBC Chairman, 11 September 1978.

36. HSBC Group Archives, Interview with Frank Frame, 9 April 1980.

37. Also see HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980.

38. HSBC Group Archives 1459/box 2.13 Chairman's Confidential File, Proposed Assurances, Undertakings and Safeguards, 15 May 1979; HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the proposed acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

39. HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Letter from the Financial Secretary to Ms Muriel Siebert, 27 May 1979.

40. HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the proposed acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

41. HSBC Group Archives 1459/box 2.13, Chairman's Confidential File. Letter from James F. Munsell to Ms Muriel Siebert, 8 June 1979.

42. HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the proposed acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979; HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980, and Interview with Michael Sandberg, 15 April 1980.

43. HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980, and Interview with Peter Edward Hammond, 15 April 1980, and Interview with Michael Sandberg, 15 April 1980.

44. Also see HSBC Group Archives, 1459/box 2.15, Marine Midland Banks, Inc. Legal Adviser, File 2, Stenographic Transcript of Hearings Before the Subcommittee on Commerce, Consumer, and Monetary Affairs, Committee on Government Operations, House of Representatives, 31 July 1979, Washington, DC; HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the Proposed Acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

45. HSBC Group Archives, 1459/box 2.15 Marine Midland Banks Inc. Legal Adviser, File 2, Statement of Muriel Siebert in Stenographic Transcript of Hearings Before the Subcommittee on Commerce, Consumer, and Monetary Affairs, Committee on Government Operations, House of Representatives, 31 July 1979, Washington, DC.

46. HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980, and Interview with Michael Sandberg, 15 April 1980.

47. Also see ‘Buying banks: The bidding gets dizzy’, Forbes, 10 July 1978; HSBC Group Archives GHO 559.2, New York State Banking Department News Release, Report of the Superintendent of Banks of New York State on the Proposed Acquisition by the Hongkong and Shanghai Banking Corporation of Marine Midland Banks, Inc., 29 June 1979.

48. HSBC Group Archives GHO 559.3, Marine Midland Banks, Inc. News Release, 27 June 1979.

49. HSBC Group Archives GHO559.2, Assignment, 18 May 1978.

50. HSBC Group Archives GHO 559.1, Agreement, 4 April 1978.

51. HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Proposed Assurances, Undertakings and Safeguards, 15 May 1979; HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Letter from James F. Munsell to Ms Muriel Siebert, 8 June 1979; HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980; HSBC Group Archives, Interview with Michael Sandberg, 15 April 1980.

52. HSBC Group Archives 1459/box 2.15 File 1, Offer to Purchase of Marine Midland Banks, Inc. by HSBC Holdings B.V., 18 January 1979.

53. 96th US Congress, 2nd session, House of Representatives, Foreign Acquisitions of U.S. Banks, p. 50.

54. HSBC Group Archives GHO 559.2, Letter from Thomas W. Taylor to Mr Frank J. Laski, 2 July 1979.

55. HSBC Group Archives GHO 559.3, Letter from Marine Midland Banks, Inc. to its Shareholders, 31 August 1979; HSBC Group Archives, Interview with John Heimann, 20 October 1980.

56. HSBC Group Archives GHO 559.2, Letter from Thomas W. Taylor to Mr Frank J. Laski, 2 July 1979.

57. HSBC Group Archives, Interview with Michael Sandberg, 15 April 1980.

58. HSBC Group Archives, Interview with Ian H. MacDonald, 2 June 1980.

59. HSBC Group Archives, Interview with John Heimann, 20 October 1980.

60. HSBC Group Archives 1459/Box 2.13, Chairman's Confidential File, Letter from F.R. Frame to M.G.R. Sandberg, 6 December 1979.

61. HSBC Group Archives GHO 559.2, Comptroller of the Currency Press Release, 28 January 1980.

62. HSBC Group Archives, 1459/box 2.15, Marine Midland Banks, Inc. Legal Adviser, File 2, Stenographic Transcript of Hearings Before the Subcommittee on Commerce, Consumer, and Monetary Affairs, Committee on Government Operations, House of Representatives, 31 July 1979, Washington, DC.

63. HSBC Group Archives 1459/box 2.15, Statement by Henry C. Wallich, Member of Board of Governors of the Federal Reserve System before the United States House of Representatives, 1 August 1979.

64. HSBC Group Archives, 1685/004, Interview with Federal Reserve Board Staff, 21 March 1980.

65. HSBC Group Archives 1459/Box 2.13 Chairman's Confidential File, Letter from F.R. Frame to M.G.R. Sandberg, 12 December 1979; HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Letter from Evelyn C. Fallek to Steuart L. Pittman, 12 June 1980.

66. HSBC Group Archives GHO 565.2, Letter from Robert S. Cohen to James Dreaper c/o Neville Mills, 9 August 1979.

67. HSBC Group Archives, Interview with John Heimann, 20 October 1980.

68. HSBC Group Archives 1459/Box 2.13, Chairman's Confidential File, Letter from F.R. Frame to M.G.R. Sandberg, 6 December 1979.

69. HSBC Group Archives, Interview with John Heimann, 20 October 1980.

70. HSBC Group Archives GHO 559.2, Comptroller of the Currency Press Release, 28 January 1980; HSBC Group Archives, Interview with John Heimann, 20 October 1980.

71. HSBC Group Archives GHO 559.2, Comptroller of the Currency Press Release, 28 January 1980; HSBC Group Archives, Interview with John Heimann, 20 October 1980.

72. HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Letter from Evelyn C. Fallek to Steuart L. Pittman, 12 June 1980.

73. HSBC Group Archives 1459/box 2.13, Chairman's Confidential File, Marine Midland Banks, Inc. Annual Report 1979; HSBC Group Archives GHO 559.3, Marine Midland Banks, Inc. Listing Application to New York Stock Exchange, Inc., 28 January 1980; HSBC Group Archives GHO 559.2, Letter from Ian H. MacDonald to Securities and Exchange Commission, 13 November 1980.

74. HSBC Group Archives GHO 559.3, Marine Midland Banks, Inc. Listing Application to New York Stock Exchange, Inc., 28 January 1980.

75. Also see HSBC Group Archives, GHO 565.3, Group Legal Adviser, MMBI-Press Cuttings 1980.