FAIC Securities, Inc. v. U.S., s. 84-5408
| Decision Date | 26 July 1985 |
| Docket Number | 84-5411 and 84-1512,84-5409,Nos. 84-5408,s. 84-5408 |
| Parties | FAIC SECURITIES, INC. v. UNITED STATES of America, et al. Federal Home Loan Bank Board, et al., Appellants. SECURITIES INDUSTRY ASSOCIATION v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Federal Home Loan Bank Board, et al., Appellants. FAIC SECURITIES, INC. v. UNITED STATES of America, et al., Appellants, Federal Home Loan Bank Board, et al. SECURITIES INDUSTRY ASSOCIATION v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Appellants, Federal Home Loan Bank Board, et al. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeals from the United States District Court for the District of Columbia (Civil Action Nos. 84-00959 and 84-01136).
Nicholas S. Zeppos, Atty., Dept. of Justice, Washington, D.C., with whom Richard K. Willard, Acting Asst. Atty. Gen., Dept. of Justice, Joseph E. diGenova, U.S. Atty., and Anthony J. Steinmeyer, Atty., Dept. of Justice, Washington, D.C., were on brief, for appellant Federal Deposit Ins. Corp. in Nos. 84-5411 and 84-5412.
James A. Smith, Washington, D.C., with whom John Lansdale, Jr., James P. Murphy and William K. Black, Washington, D.C., were on brief, for appellants Federal Home Loan Bank Bd., et al., in Nos. 84-5408 and 84-5409.
James E. Kaplan, Washington, D.C., with whom Jeffrey C. Martin and Lawrence J. Latto, Washington, D.C., were on brief, for appellee FAIC Securities, Inc. in Nos. 84-5408 and 84-5411. Bruce C. Swartz and Stephen J. Hadley, Washington, D.C., entered appearances for appellee in Nos. 84-5408 and 84-5411.
James B. Weidner, New York City, with whom John M. Liftin was on brief, for appellee Securities Industry Ass'n in Nos. 84-5409 and 84-5412.
Before MIKVA, EDWARDS and SCALIA, Circuit Judges.
Opinion for the Court filed by Circuit Judge SCALIA.
These appeals are from an order of the District Court declaring regulations promulgated by appellants, the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board, to be unlawful and enjoining their implementation. The regulations change the existing federal insurance coverage of $100,000 per depositor, per financial institution, by adding the qualification that coverage of funds deposited by or through a deposit broker is limited to $100,000 per broker, per financial institution. The issues presented are whether the appellees, FAIC Securities, Inc. ("FAIC"), and the Securities Industry Association ("SIA"), have standing to maintain the action, and whether the regulations exceed the appellants' statutory authority.
The stock market crash of 1929 and the Great Depression of the 1930's resulted in an almost total collapse of the nation's banking system, with the result that a large part of the public ceased placing their money in banks, and banks were unable to extend credit. To restore depositor confidence and stimulate economic growth, Congress in 1933 established the federal deposit insurance system for eligible banks, and created the FDIC to administer it. Banking Act of 1933, ch. 89, 48 Stat. 162 (1933). The statutory provisions currently governing the FDIC were enacted in the Federal Deposit Insurance Act of 1950, Pub.L. No. 81-797, 64 Stat. 873 ("FDIA"). In 1934, Congress established the Federal Savings and Loan Insurance Corporation ("FSLIC"), which operates under the management and direction of the appellant Bank Board, see 12 U.S.C. Sec. 1725(a) (1982), to provide similar protection for eligible savings and loan associations. National Housing Act ("NHA"), ch. 847, 48 Stat. 1246 (1934).
Recent advances in technology, and Federal legislative and regulatory action, 1 have given birth to the deposit brokerage industry. Deposit brokers assist two types of investors in placing deposits. Some assist the large institutional customer to deposit millions of dollars of funds, directly and in its own name, in certificates of deposit none of which, in any single financial institution, exceeds the value of $100,000--the limit on federal insurance. The principal advantage of this service for the large investor is that all its funds will be federally insured. This form of brokerage, known as "deposit splitting," is engaged in by appellee FAIC. Other deposit brokers, among them the members of appellee SIA, serve smaller, individual investors in one of two ways. First, the broker, acting on its own or at the request of a financial institution, may solicit deposits from its customers, to be deposited with the institution either directly by the customers or by the broker (in which latter case the broker is listed as a nominee or agent, and notifies the financial institution that the funds are actually payable to the broker's individual customers). Second, a broker may engage in what is called (apparently with no apologies for transitiving an intransitive verb) "participating" certificates of deposit to its customers. Under this method a broker purchases a certificate of deposit, sells interests in the certificate to its customers, and then notifies the issuing financial institution that it has sold the participating units and requests that the deposits be registered in its name as nominee. Whichever of these methods is used, under existing law each customer receives federal deposit insurance up to the statutory limit of $100,000 per institution. The principal advantage of this service for the small investor is that the readily accessible broker can place his funds in distant banks with higher interest rates, or (at least according to the Bank Board) can negotiate higher rates by reason of its aggregation of funds.
In November 1983, the FDIC and the Bank Board issued a joint Advance Notice of Proposed Rulemaking soliciting comments on insured brokered deposits. 48 Fed.Reg. 50,339 (1983). The concern prompting the Notice was expressed as follows:
[D]eposit-placement practices enable virtually all institutions to attract large volumes of funds from outside their natural market area irrespective of the institutions' managerial and financial characteristics. The ability to obtain de facto one-hundred-percent deposit insurance through the parceling of funds eliminates the need for the depositor to analyze institutions' likelihood of continued financial viability. The availability of these funds to all institutions, irrespective of financial and managerial soundness, reduces market discipline.... This impediment to natural market forces results in increased costs to the FDIC and the FSLIC in the form of either greater insurance payments or higher assistance expenditures if the institutions are subsequently closed because of insolvency.
Id. at 50,340. Following an analysis of the comments received, on January 23, 1984 the FDIC and the Bank Board published a joint Notice of Proposed Rulemaking, 49 Fed.Reg. 2,787 (1984), and, after receipt and consideration of comments, jointly adopted the rule that is the subject of this appeal, Final Rule, Brokered Deposits; Limitations on Deposit Insurance, 49 Fed.Reg. 13,00 3 (1984) ("Final Rule"). It reads in relevant part as follows (unless otherwise indicated, italicized portions indicate language applicable only to the FDIC, and bracketed portions, language applicable only to the Bank Board):
Notwithstanding any other provision of this Part [12 C.F.R. Part 330 (FDIC); 12 C.F.R. Part 564 (Bank Board) ], funds deposited into [invested in] one or more deposit accounts by or through a deposit broker shall be added to any other deposits placed by or through that deposit broker and insured up to $100,000 in the aggregate.
Appellees FAIC and SIA each filed separate actions in the District Court against both of the appellants, seeking judicial review pursuant to 5 U.S.C. Sec. 702 (1982), contending that the regulations contravene the FDIA and the NHA. 2 The District Court agreed, and granted the appellees' motion for summary judgment. See FAIC Securities, Inc. v. United States, 595 F.Supp. 73 (D.D.C.1984). These consolidated appeals followed. On January 30, 1985, we issued an order affirming the judgment of the District Court, 753 F.2d 166. This is the opinion which we announced at that time would follow.
Appellee SIA is a national trade association whose members include "deposit brokers" within the meaning of that term as defined in the regulations at issue. 3 Appellee FAIC is itself a "deposit broker." Both appellees alleged in their complaints that the regulations will effectively eliminate the deposit brokerage industry, thus causing them direct economic injury, and depriving their customers of the benefits of placing deposits through a broker. Appellant Bank Board argues that this is not enough to establish their standing to sue for the alleged statutory violations here at issue, since "[t]he NHA and the FDIA are intended to protect the security of depositors, banks and thrifts, not the profits of deposit brokers." Brief for Appellant Bank Board at 52.
It is obvious, and the Bank Board does not contest, that the allegations suffice to establish the "irreducible minimum" that Article III of the Constitution requires a party to show: that he "personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant," that the injury "fairly can be traced to the challenged action" and that it is "likely to be redressed by a favorable decision." Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70 L.Ed.2d 700 (1982) (internal quotations and citations omitted). They must also meet, however, what the Supreme Court has described as one of the "prudential" requirements of standing: that the asserted interests fall within "the zone of interests to be...
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