533 F.2d 224 (5th Cir. 1976), 74-2981, Alabama Ass'n of Ins. Agents v. Board of Governors of Federal Reserve System

Docket Nº:74-2981, 74-3544 and 74-3843.
Citation:533 F.2d 224
Party Name:ALABAMA ASSOCIATION OF INSURANCE AGENTS et al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. GEORGIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS et al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. NATIONAL ASSOCIATION OF INSURANCE AGENTS, INC., Petitioner, v. BOARD OF GOVERNORS OF t
Case Date:June 10, 1976
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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533 F.2d 224 (5th Cir. 1976)

ALABAMA ASSOCIATION OF INSURANCE AGENTS et al., Petitioners,

v.

BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

GEORGIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS et al.,

Petitioners,

v.

BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

NATIONAL ASSOCIATION OF INSURANCE AGENTS, INC., Petitioner,

v.

BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

Nos. 74-2981, 74-3544 and 74-3843.

United States Court of Appeals, Fifth Circuit

June 10, 1976

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Herbert E. Marks, Thomas J. Bacas, Thomas E. Wilson, Washington, D. C., Bibb Allen, Birmingham, Ala., for petitioners Ala. Ass'n of Ins. Agents et al.

Wm. B. Scher, Jr., Washington, D. C., for Nat. Ass'n of Life Underwriters and Alabama State Ass'n of Life Underwriters, Inc., amici curiae.

Macbeth Wagnon, Jr., Birmingham, Ala., for intervenor Southern Bancorporation.

William B. Saxbe, Atty. Gen., Edward H. Levi, Atty. Gen., U. S. Dept. of Justice, Theodore E. Allison, Secretary, Board of Governors of the Federal Reserve System, Leonard Schaitman, Ronald R. Glancz, Dept. of Justice, Washington, D. C., for respondent Bd. of Governors.

John V. Austin, Eugene J. Metzger, Lawrence F. Noble, Washington, D. C., for intervenor Committee to Preserve Consumer Options.

Herbert E. Marks, Thomas J. Bacas, Thomas E. Wilson, Washington, D. C., Robert R. Richardson, Atlanta, Ga., John F. Neville, Gen. Counsel, National Ass'n of Ins. Agents, Inc., New York City, for petitioners Ga. Ass'n of Independent Ins. Agents et al.

John V. Austin, Washington D. C., McChesney H. Jeffries, Howard O. Hunter, Atlanta, Ga., for intervenors.

Herbert E. Marks, Washington, D. C., Robert R. Richardson, Atlanta, Ga., for petitioner Nat. Ass'n of Ins. Agents, Inc.

Petitions for Review of Orders of the Board of Governors of the Federal Reserve System (Alabama, Georgia and Georgia Cases respectively).

Before TUTTLE, THORNBERRY and CLARK, Circuit Judges.

THORNBERRY, Circuit Judge:

These consolidated petitions for review of orders by the Board of Governors of the

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Federal Reserve System represent the culmination of a four year campaign by Southern Bancorporation (Southern) of Birmingham, Alabama, and First National Holding Corporation (First National) of Atlanta, Georgia, to gain entry into certain aspects of the insurance agency business. From a broader perspective, they represent only one of many episodes in a huge commercial tug-of-war between the bank holding company industry on one hand and independent insurance agents and other insurance industry groups on the other. This struggle has taken place not only in the courts, but in the Congress and before the Federal Reserve System Board of Governors as well. After carefully considering the efforts and accomplishments of the contending parties before those bodies and the arguments advanced by the able counsel in this case, we find that substantial ground has been gained by the bank holding companies. We uphold for the most part the Board of Governors' action in granting Southern and First National permission to act as agent with respect to specified types of insurance and leave further struggle between insurance agents and these holding companies in the specified areas to the marketplace. 1

I. Legislative and Procedural Background

While recognizing that the protection of savings and the extension of credit are useful and even essential to our economic wellbeing, we as a nation have often been distrustful of the concentrated economic power that may accrue to the organizations that provide those services. This feeling has not been left at large in the streets, the factories, and the small businesses of the land, but has been written into the law by Congress; the Bank Holding Company Act, 12 U.S.C. § 1841 et seq. is an expression of that sentiment. 2 In passing the Act in 1956, Congress sought both to limit the concentration of banking resources and to implement a policy that "bank holding companies ought not to manage or control nonbanking assets having no close relationship to banking." Sen.Rep. No. 84-1095, 84th Cong., 1st Sess. (1956), 1956 U.S.Code & Adm.News at p. 2482. In furtherance of the latter objective, acquisition by holding companies of nonbanking enterprises was prospectively forbidden. 12 U.S.C. § 1843(a) (1970). But a very important exception to the general prohibition was included: it remained acceptable to acquire companies "of a financial, fiduciary, or insurance nature . . . which the (Federal Reserve) Board . . . has determined to be so closely related to the business of banking or of managing or controlling banks as to be a proper incident thereto . . ." § 4(c)(8) of the Bank Holding Company Act of 1956, 12 U.S.C. § 1843(c)(8) (1970). 3

Pursuant to this provision, the Federal Reserve System Board of Governors (hereinafter the Board) in the late 1950's and 1960's granted many individual applications by holding companies to engage in nonbanking activities, including the sale of insurance. And when amendments to the Act were discussed in the late 1960's, there was significant sentiment for broadening the Board's discretion in the area. Whether the proponents of liberalization succeeded will be dealt with hereinafter; but it is clear that the Holding Company Act Amendments passed in 1970 contained several changes of significance in this case. First, Congress permitted the Board to

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make the determination whether particular lines of business were closely related to banking and thus within the § 4(c)(8) exception by general regulation, as well as by order in individual cases. Second, the limitation of such activities to those "of a financial, fiduciary, or insurance nature" was deleted. Third, Congress manifested unhappiness with the language requiring § 4(c)(8) activities to be "closely related to the business of banking"; it required in 1970 only that the business be "closely related to banking". Fourth, the Board was permitted to "differentiate between activities commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concern." Finally, and most significantly, a "public benefits test" was added to the criteria under § 4(c)(8); it provides that:

(I)n 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.

The Federal Reserve Board was not slow to use its new power to issue § 4(c)(8) regulations. After rulemaking proceedings in 1971, in which petitioner National Association of Insurance Agents (NAIA) participated, the Board promulgated § 225.4(a) of Regulation Y, which lists several nonbanking activities deemed sufficiently related to banking to satisfy the requirements of § 4(c)(8). Those relating to the insurance industry and to this appeal are set out in § 225.4(a)(9):

(a) . . . The following activities have been determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto: . . .

(9) acting as insurance agent or broker in offices at which the holding company or its subsidiaries are otherwise engaged in business (or in an office adjacent thereto) with respect to the following types of insurance:

(i) Any insurance for the holding company and its subsidiaries;

(ii) Any insurance that (a ) is directly related to an extension of credit by a bank or a bank-related firm of the kind described in this regulation, or (b ) is directly related to the provision of other financial services by a bank or such a bank-related firm, or (c ) is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within this subdivision (ii)(c ) does not constitute a significant portion of the aggregate insurance premium income of the holding company from insurance sold pursuant to this subdivision (ii);

(iii) Any insurance sold in a community that (a ) has a population not exceeding 5,000, or (b ) the holding company demonstrates has inadequate insurance agency facilities.

12 C.F.R. § 225.4(a)(9) (1976).

No judicial review of this regulation was immediately sought. On September 6, 1972, the Board issued a regulation indicating its views as to the operative meaning of § 225.4(a)(9) in several particulars. § 225.228 of Regulation Y, 12 C.F.R. § 225.228 (1976). NAIA sought review of that regulation in the Court of Appeals for the District of Columbia Circuit, but that court dismissed the petition, holding that the regulation was merely interpretive and did not have the force of law. Because the issues thereby raised could be litigated in connection with specific applications under the Act, the court found the petition premature. National Ass'n of Ins. Agents, Inc. v. Board of Governors of Federal Reserve System, 160 U.S.App.D.C. 144, 489 F.2d 1268 (1974).

Among the flurry of applications for permission to engage in nonbanking activities which followed the adoption of § 225.4(a) of

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Regulation Y were those of Southern Bancorporation and First National Holding Corporation. They were submitted separately in February of 1972, but sought authority to...

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