516 F.2d 1229 (D.C. Cir. 1975), 73-2235, National Courier Ass'n v. Board of Governors of Federal Reserve System

Docket Nº:73-2235, 73-2240.
Citation:516 F.2d 1229
Party Name:NATIONAL COURIER ASSOCIATION and Purolator Courier Corp., Petitioners, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Cameron Financial Corp., and Courier Express Corp., Intervenor. INDEPENDENT BANKERS ASSOCIATION OF AMERICA, INC., a non-profit corporation, Petitioner, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, R
Case Date:August 04, 1975
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 1229

516 F.2d 1229 (D.C. Cir. 1975)

NATIONAL COURIER ASSOCIATION and Purolator Courier Corp., Petitioners,

v.

The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent,

Cameron Financial Corp., and Courier Express Corp., Intervenor.

INDEPENDENT BANKERS ASSOCIATION OF AMERICA, INC., a

non-profit corporation, Petitioner,

v.

The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent,

Cameron Financial Corp. et al., Intervenors.

Nos. 73-2235, 73-2240.

United States Court of Appeals, District of Columbia Circuit

August 4, 1975

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Samuel K. Abrams, Washington, D. C., with whom Roger W. Langsdorf, Washington, D. C., was on the brief, for petitioners in No. 73-2235 also argued for petitioner in No. 73-2240.

Harry L. Hobgood, Washington, D. C., for petitioners in No. 73-2235.

Horace R. Hansen and Wayne P. Dordell, St. Paul, Minn., were on the brief for petitioner in No. 73-2240.

Ronald R. Glancz, Atty., Dept. of Justice, with whom Carla A. Hills, Asst. Atty. Gen., Morton Hollander, Atty., Dept. of Justice, and Andrew F. Oehmann, Acting Gen. Counsel, Board of Governors of the Federal Reserve System, were on the brief, for respondent.

Laurence C. Leafer of the bar of the Supreme Court of North Carolina, pro hac vice by special leave of court, with whom William F. King was on the brief, for intervenors.

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Before McGOWAN, ROBB and WILKEY, Circuit Judges.

McGOWAN, Circuit Judge :

The Bank Holding Company Act of 1956, which generally prohibits bank holding companies from owning shares in companies other than banks, allows such ownership where the activities of the non-bank affiliate have been found by the Federal Reserve Board to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto." 12 U.S.C. § 1843(c)(8) (1970). In the regulation herein challenged on direct review, the Board has enlarged the activities heretofore found by it to be "closely related." 1 The addition consists of certain courier or high speed transportation services for

(i) the internal operations of the holding company and its subsidiaries;

(ii) checks, commercial papers, documents, and written instruments (excluding currency or bearer-type negotiable instruments) as are exchanged among banks and banking institutions;

(iii) audit and accounting media of a banking or financial nature and other business records and documents used in processing such media.

12 C.F.R. § 225.4(a)(11) (1974).

A fourth category of service that may be provided by bank-affiliated couriers is contained in the following "interpretation," also added to Regulation Y by the contested order:

(T)he furnishing of courier services for non-financially-related material upon the specific, unsolicited request of a third party when courier services are not otherwise reasonably available may be regarded as an incidental activity of a bank-related courier.

Id. § 225.129.

For the reasons stated below, the regulation under attack is upheld in part, and in part held invalid.

I

We note at the outset the limited nature of the question we have been asked to decide. Section 4(c)(8) of the Bank Holding Company Act provides that the general ban on the ownership by a bank holding company of shares in any company other than a bank shall not apply to

shares of any company the activities of which the Board after due notice and opportunity for hearing has determined (by order or regulation) to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

12 U.S.C. § 1843(c)(8) (1970). By an amendment of the same section in 1970 the Board has been further instructed as follows:

In determining whether a particular activity is a proper incident to banking or managing or controlling banks the Board shall consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices.

Id.

The parties are agreed that there are two distinct issues raised by a bank holding company's seeking to hold shares in a company engaged in non-banking activities, and that they correspond to the statutory segments set out above. 2 The first is whether those activities are

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"closely related to banking." This is a question that asks only whether the activities in question are generally of a kind that Congress, having concluded that "banking and commerce should remain separate," 3 forbade bank holding companies to engage in, without regard to the merits of such engagement in a particular case.

The second or so-called "public benefits" issue, derived from the 1970 amendments to the Act, is one which normally must be resolved upon specific facts. It poses the question whether the performance of a non-banking activity by a bank holding company affiliate will achieve a favorable balance of the kinds of benefits and adverse effects enumerated in the statute. Naturally the conclusion that the non-banking activity of one bank holding company would be anticompetitive or threaten "unsound banking practices" may not hold for a different bank holding company under different circumstances.

Recognizing this distinction in the nature of the two issues, the Board has reserved the latter for case-by-case resolution at the time of individual bank holding company applications to engage in courier service. 4 The parties are therefore agreed that no Board determination on the "public benefits" of such engagement is now before this court for review. 5 What is before us is the final

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resolution of the former or "closely related" issue with respect to the activities that the Board has added to Regulation Y. The Board's determination that these are not activities necessarily forbidden to bank holding companies takes the form of a rule intended to be binding on all future parties to individual application proceedings. Board Brief at 44.

II

Courier services were described in the statement accompanying the Board's order as the "transportation of any item with a critical time schedule, provided such items are small in bulk, light in weight, and require only ordinary security measures." J.A. at 813. The items which are carried by courier service in far the greatest volume are financial documents and records particularly banking instruments which require speedy transportation from one place of business to another. It thus appears that the nation's banks are by far the largest consumers of courier services, accounting for more than half of that industry's sales. The industry itself is about thirty years old, and has thus far remained largely independent of the banks, though it is dominated by a very few firms. 6

Of the three categories of courier services that the Board has found to be "closely related" to banking, the first, that of courier services "for the internal operations of the holding company and its subsidiaries," is not in issue. The provision of services by one bank affiliate is expressly allowed by Section 4(c)(1)(C) of the statute. 12 U.S.C. § 1843(c)(1)(C) (1970).

The second category is that of courier services "for checks, commercial papers, documents, and written instruments (excluding currency or bearer-type instruments) as are exchanged among banks and banking institutions." What is meant are the so-called "cash letters" in which one bank transmits all the checks, drafts, and money orders that must be cleared or otherwise processed at another bank. As the Hearing Examiner explained:

The some 13,000 commercial banks of the country, with their 30-odd thousand banking offices, have check-drawing customers who generate perhaps 25 billion checks a year, drawn on those banking offices. These checks are sent to payees by the drawers, and the payees either cash them at a bank, the corner druggist or some similar establishment, or "deposit" them for collection with their own banks. More often than not (say, 80 percent of the time), a given check thus deposited will be drawn on another bank.

As is well known, the checks drawn on other banks are presented either directly to that bank, or if presented indirectly, through one or more intermediate collecting banks, which may include Federal Reserve banks. They are sent in what is called a "cash letter," which may be an adding machine tape or its equivalent, wrapped around the items, all of which are in an envelope or other container, suitably addressed. When indirect presentment occurs, the collecting banks in the

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chain are usually concentration points for the processing of huge volumes of checks.

J.A. 700-701.

The third category of "closely related" courier services are those "for audit and accounting media of a banking or financial nature and other business records and documents used in processing such media." The term "media" appears simply to refer to the physical form (paper documents, magnetic tapes, etc.) in which the financial data to be processed are conveyed. To cite a concrete example, one used by the Hearing Examiner, a bank which accepts demand deposits may find it efficient, particularly if it is a small bank, to employ a data processor to keep and update the records of those accounts in effect to perform a book-keeping function for it. As was testified at the hearings:

In such a service, the inbound movement from the customer bank to the data center requires a pickup after the close of business at the...

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