Connecticut Bankers Ass'n v. Board of Governors of Federal Reserve System, 79-1554
| Decision Date | 07 February 1980 |
| Docket Number | No. 79-1554,79-1554 |
| Citation | 627 F.2d 245 |
| Parties | CONNECTICUT BANKERS ASSOCIATION and The Connecticut Bank and Trust Company, Petitioners, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Citicorp, Intervenor. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Petition for Review of an Order of the Board of Governors of the Federal Reserve System.
Sharon S. Tisher, Hartford, Conn., with whom Howard W. Fogt, Jr., F. Anthony Maio and Catherine B. Klarfeld, Washington, D. C., were on brief, for petitioner.
Richard M. Ashton, Atty., Board of Governors of the Federal Reserve System, with whom Michael E. Bleier and Susan B. Weinberg, Atty., Board of Governors of the Federal Reserve System, Washington, D. C., was on brief, for respondent.
Arnold M. Lerman, Washington, D. C., with whom Michael L. Burack and Bruce Maximov, Washington, D. C., were on brief, for intervenor.
Barbara Allen Babcock, Asst. Atty. Gen. and Ronald R. Glancz, Atty., Dept. of Justice and James V. Mattingly, Jr., Atty., Board of Governors, Federal Reserve System, Washington, D. C., entered an appearance for respondent.
Before LEVENTHAL *, ROBB and WALD, Circuit Judges.
Opinion for the Court filed by Circuit Judge LEVENTHAL.
For the second time 1 this court is called upon to examine the hearing requirement under Section 4(c)(8) of the Bank Holding Company Act of 1956, 2 as amended in 1970.
Petitioners challenge an order of the Board of Governors of the Federal Reserve System ("the Board") which, inter alia, denied their request for a formal evidentiary hearing on the application of a bank holding company to engage in limited nonbanking activities. On the major issues in the case, which were addressed by the Board, we find no error at this time in the Board's decision not to hold a formal hearing. On at least one of petitioners' contentions, however, the record before us does not reflect any Board inquiry, and we remand it for further consideration.
Citicorp, a bank holding company headquartered in New York City, proposes that Person-to-Person Financial Center of Connecticut, Inc. ("Person-to-Person") establish an office in Westport, Connecticut, to engage in second mortgage lending and the sale of credit related insurance. 3 Person-to-Person will operate as a wholly-owned subsidiary of Nationwide Financial Services Corporation ("Nationwide") which in turn is wholly-owned by Citicorp. Citicorp is the second largest bank holding company in the nation. It has diverse controlling interests in domestic nonbanking institutions, such as Nationwide, as well as in two New York banks, including "Citibank" of New York City. Nationwide provides a wide range of consumer finance services through 179 offices in 29 states.
On September 26, 1978, following publication of its proposal in several Connecticut newspapers, Citicorp submitted the Person-to-Person application to the Federal Reserve Bank of New York. Timely objections to the application were filed by 12 protestants including the two petitioners in this case. In separate letters of October 12, 1978, opposition was registered by petitioner Connecticut Bankers Association (CBA), a trade association of 66 commercial banks doing business in Connecticut, and petitioner Connecticut Bank and Trust Company (CBTC), a large Connecticut bank. 4
Petitioners raised two principal objections that are relevant to this appeal. First, they maintained that the structural, managerial, and operational interrelationship of Citicorp, Citibank, Nationwide, and Person-to-Person would constitute a unitary operation amounting to branch banking by Citibank in violation of state and federal statutes. Second, they argued that the adverse effects of the Citicorp proposal, including the undue concentration of economic resources, the diminution of competition, and the potential for unfair competition against Connecticut banks, outweighed the application's public benefits. 5 From the outset petitioners requested that the Board afford them a formal evidentiary hearing and prehearing discovery rights in order to examine factual matters pertinent to their objections. 6 Citicorp responded to the comments of petitioners and other application protestants.
The Board 7 extensively investigated the Citicorp application over the period of eight months subsequent to its filing. Early in that inquiry, the Board requested petitioners to provide a statement summarizing the evidence they intended to submit and elicit at the requested hearing as well as a statement detailing specific issues of fact requiring an evidentiary hearing. CBA's response of November 21, 1978, refined somewhat its arguments on the branch banking and net public benefits issues. With respect to the former it listed ten specific areas dealing with the relationship between Citicorp and its subsidiaries which it believed warranted a hearing. 8 CBTC's response essentially incorporated the CBA submission by reference. Citicorp rejoined that the CBA letter was generally inadequate as a matter of law to require a formal hearing or to justify denying the Person-to-Person application.
Based on the written submissions and other information generated by its inquiry, the Board on February 7, 1979, asked Citicorp to provide "specific and detailed answers" to eight questions pertaining to the proposed relationship, if any, between Person-to-Person and Citibank. 9 On February 16, Citicorp gave answers to these questions. 10
On March 16, 1979, the Board of Governors met to consider Citicorp's application and petitioners' request for a formal hearing. It deferred final action on both matters, but gave petitioners an opportunity to make an informal presentation before members of the Board's staff "to develop a record and to clarify any issues of fact" relevant to the application. 11 That presentation took place on March 29. Subsequently, petitioners filed written arguments in support of their hearing request, and Citicorp responded by letter.
On May 25, 1979, the Board met again on the proposal. The Board approved Citicorp's application and denied petitioners' requests for a formal hearing. 12 It specifically rejected each of petitioners' substantive objections, and denied petitioners' request for an evidentiary hearing "because there are no facts in dispute that bear upon the determination the Board must make." 13 The Board conceded that a hearing is required when material issues of fact are in dispute, but found in this case that petitioners' unsupported conclusory allegations did not satisfy the requisite showing for invoking the hearing requirement.
On May 30, 1979 petitioners filed their petition to review the Board's order. Citicorp was permitted to intervene. This court ordered that the Board order be stayed 14 and expedited consideration of the appeal.
The issue on appeal is narrowly framed. Petitioners do not directly contest the Board's findings on any of the substantive matters addressed in its order. They argue that the Board erroneously deprived them of their statutory right to an evidentiary hearing.
We begin by examining the framework within which the Board processes applications of bank holding companies to engage in nonbanking activities. The Bank Holding Company Act of 1956 restrains banks and bank holding companies from entering into unrelated business pursuits. Congress heeded the frequently voiced fear that banks could wield their economic power in such a way as to dominate other elements of the private sector. 15 It responded with a general prohibition forbidding bank holding companies from acquiring nonbanking enterprises. 16
Congress recognized, however, that an absolute prohibition might not best serve the public interest. It took account of numerous services closely related to banking, such as performing trust activities or acting as a financial advisor, which holding companies could provide in an efficient, competitive fashion. Accordingly, Congress established several exceptions to the general prohibition. The most significant exception, found in Section 4(c) (8) of the Act, 17 permits bank holding companies to acquire
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. 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.
Congress broadly entrusted in the Board the responsibility for administering the Bank Holding Company Act. Among its delegated duties, the Board must grant permission for bank holding companies to enter related fields on a determination that the proposed activities are "so closely related to banking . . . as to be a proper incident thereto" and that the public benefits of such an activity by the bank holding company can reasonably be expected to outweigh possible adverse effects.
The Board has adopted a two-step procedure for reviewing Section 4(c)(8) applications. First, the Board determines as a general matter whether the type of activity is closely related and incidental to banking. Exercising its rulemaking authority, the Board issued Regulation Y, which at present lists 13 permissible banking-related activities, including the making of second mortgage loans and the sale of credit-related insurance. 18 Second, the...
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