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Certain bank holding companies located principally in either Connecticut or Massachusetts applied to the Federal Reserve Board (Board) to obtain approval for acquisitions of banks or bank holding companies (banks) in the other state. If a bank from one state seeks to acquire a bank, or substantially all of a bank's assets, from another state, the Douglas Amendment to the Bank Holding Company Act (BHCA), 12 U.S.C. Section 1842(d), allows the Board to approve the acquisition only if it "is specifically authorized by the statute laws of the State in which such [acquired] bank is located." Massachusetts and Connecticut have substantially similar laws allowing out-of-state banks to buy in-state banks only if the out-of-state banks (1) have their principal place of business in another New England State, and (2) the other New England State accords equivalent reciprocal privileges. Certain banks from outside of New England opposed the acquisitions, but the Board found that the Douglas Amendment did not prevent their authorization, and approved them.

Does the Douglas Amendment permit states to allow banks only from certain other states to buy in-state banks, and, if so, do such state laws violate the Commerce, the Compact, or the Equal Protection Clauses of the Constitution?

Yes to part 1; no to part 2. Though the Douglas Amendment's language does not specifically indicate that a state may partially lift the ban on out-of-state banks acquiring in-state banks, the Amendment's legislative history indicates that Congress intended to allow each state such flexibility. Moreover, the Massachusetts and Connecticut laws favoring out-of-state banks from New England are consistent with the broader purpose underlying the BHCA: to retain local control over banking. As for the constitutionality of these state laws, there is no violation of the dormant Commerce Clause because Congress exercised its commerce power by enacting the BHCA and the Douglas Amendment. There is no violation of the Compact Clause because Massachusetts and Connecticut did not form a compact, and even if they did, they do not pose a threat to federal supremacy. Finally, there is no violation of the Equal Protection Clause because our country has traditionally favored widely dispersed control of banking, and so the concerns Massachusetts and Connecticut had with preserving the local nature of banking meet the traditional rational basis for judging equal protection claims.