First Bancorporation v. Board of Governors of Federal Reserve System

• Decision Date: 21 February 1984
• Docket Number: No. 82-1401,82-1401
• Citation: 728 F.2d 434
• Parties: FIRST BANCORPORATION, a bank holding company, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. Bankamerica Corporation and Wells Fargo and Company, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 434

728 F.2d 434

FIRST BANCORPORATION, a bank holding company, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

Bankamerica Corporation and Wells Fargo and Company, Amici Curiae.

No. 82-1401.

United States Court of Appeals, Tenth Circuit.

Feb. 21, 1984.

John D. Hawke, Jr. of Arnold & Porter, Washington, D.C. (Leonard H. Becker, John A. Kronstadt, Douglas L. Wald and William J. Sweet, Jr., of Arnold & Porter, Washington, D.C., Kent B. Linebaugh and William G. Marsden of Jardine, Linebaugh, Brown & Dunn, Salt Lake City, Utah, with him on brief), for petitioner.

Richard M. Ashton, Asst. Gen. Counsel, Bd. of Governors of the Federal Reserve System, Washington, D.C. (J. Paul McGrath, Asst. Atty. Gen., Civ. Div., U.S. Dept. of Justice, Washington, D.C., Michael Bradfield, Gen. Counsel, and Anthony S. Winer, Atty. Bd. of Governors of the Federal Reserve System, Washington, D.C., with him on brief), for respondent.

H. Helmut Loring, San Francisco, Cal., on brief for amicus curiae BankAmerica Corp.

Michael M. Moore of Brobeck, Phleger & Harrison, San Francisco, Cal., on brief for amicus curiae Wells Fargo and Co.

Before SETH, Chief Judge, SEYMOUR, Circuit Judge, and CHILSON, District Judge ^*.

SETH, Chief Judge.

The petitioner, First Bancorporation, seeks a review of two decisions of the Board of Governors of the Federal Reserve System. By these orders the Board conditionally authorized the petitioner to acquire the Beehive Financial Corporation and directed the petitioner to comply with similar conditions with respect to a previously acquired subsidiary, the Foothill Thrift & Loan Company. Both Beehive and Foothill are industrial loan companies subject to Utah law.

The petitioner is a bank holding company organized under the laws of Utah. The Bank Holding Company Act provides that a bank holding company may not acquire a nonbank unless the company to be acquired is "so closely related to banking ... as to be a proper incident thereto." 12 U.S.C. Sec. 1843(c)(8). The Board's Regulation Y provides that industrial loan companies are among those activities that are proper incidents to banking. 12 C.F.R. Sec. 225.4(a)(2).

In 1979, the petitioner applied to the Board to operate an industrial loan company, Foothill Thrift & Loan. The Board unconditionally approved the application. In 1981, Foothill began offering negotiable order of withdrawal (NOW) accounts. NOW accounts are interest-bearing accounts from which the account holder may withdraw funds by a negotiable order. Foothill's NOW accounts are offered pursuant to a Utah regulation requiring that Foothill, as an industrial loan company, must reserve the right to require thirty days' notice from the account holder before making a withdrawal. Utah Dept. of Financial Institutions Regulation No. 2, Rec. Vol. I, at 162.

In August 1981, the petitioner applied to the Board to acquire Beehive Financial Corporation, another Utah industrial loan company. The petitioner intended to offer NOW accounts through Beehive.

The Board conditionally approved the petitioner's acquisition of Beehive subject to two conditions. The Board's initial condition was that Beehive not offer both NOW accounts and make commercial loans. The Board's theory in imposing that condition was that if Beehive were to do both, it would be a bank rather than an industrial loan company under the Act, and would thus not be eligible for acquisition as a nonbank entity under section 4 of the Act. The Board's second condition was that if Beehive should elect to forego commercial lending and offer NOW accounts, it had to agree to subject the NOW accounts to Board regulations as to reserves and interest limitations.

Along with its letter to petitioner conditionally approving the Beehive acquisition, the Board ordered that the petitioner's industrial loan company, Foothill, should now also conform to the conditions announced as to Beehive. The Board forwarded copies of the Beehive order to other bank holding companies suggesting that the Board had adopted the Beehive decision as its policy.

The petitioner sought review of both the Beehive and Foothill orders in this court. Beehive has subsequently been acquired by an unrelated company since the filing of the petition for review; however, there remains a controversy as to the Board's Foothill order.

The Board, as mentioned, directed Foothill to choose between offering NOW accounts and making commercial loans. Foothill provided both services. The Board argues that unless Foothill elected to perform only one such function it will be considered a "bank" under the Act.

The petitioner contends that Foothill cannot be considered a bank under the Act because it does not meet the Act's definition of a bank. Section 2(c) of the Act defines a bank as an institution "which (1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans." 12 U.S.C. Sec. 1841(c) (emphasis added). The petitioner argues that its NOW accounts are not deposits that the depositor has a legal right to withdraw on demand. Utah law, it asserts, requires that an industrial loan company must reserve the legal right to require thirty days' notice before it makes payment. There being no legal right to withdraw on demand the petitioner asserts that Foothill cannot be considered a bank.

The Board determined that NOW accounts were demand deposits within the meaning of the Act. It concluded that by accepting such deposits and by offering commercial loans, Foothill was a bank under the Act.

We need look no further than the Act's definition of a "bank" to resolve this dispute. As the Supreme Court has announced, "There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes." United States v. American Trucking Associations, 310 U.S. 534, 60 S.Ct. 1059, 84 L.Ed. 1345. As mentioned, section 2(c) of the Act defines "bank" as an institution which makes commercial loans and "accepts deposits that the depositor has a legal right to withdraw on demand." 12 U.S.C. Sec. 1841(c) (emphasis added). Utah law specifically proscribes industrial loan companies from accepting demand deposits, requiring instead that the companies reserve the legal right to demand notice prior to withdrawal. There is therefore no legal right of withdrawal on demand. Accord, Pennsylvania Bankers Ass'n v. Secretary of Banking, 481 Pa. 332, 392 A.2d 1319; Savings Bank of Baltimore v. Bank Commissioner, 248 Md. 461, 237 A.2d 45.

The Third Circuit's opinion in Wilshire Oil Co. v. Board of Governors of the Federal Reserve System, 668 F.2d 732 (3d Cir.), is distinguishable. There, a bank holding company which owned a commercial bank sought to evade the Board's jurisdiction by advising the bank's checking account customers that the bank would henceforth reserve the right to require fourteen days' notice prior to withdrawal. The Board concluded that the holding company's action had not abrogated the depositor's legal right to withdraw on demand and that therefore the bank was still under the Board's jurisdiction. The Third Circuit affirmed, declaring that the Board had statutory authority to prevent evasions of the Act pursuant to section 5(b), 12 U.S.C. Sec. 1844(b). The record here evinces no evidence that Foothill has attempted to evade the Act's provisions. The Wilshire court " 'penetrat[ed] the form of the contracts to the underlying substance of the transaction.' " 668 F.2d at 740. No such piercing is possible here as the NOW accounts differ legally as well as in form from demand deposits. The substantive differences include that NOW accounts bear interest, are unavailable to certain depositors, and cannot be subject to a legal right of withdrawal on demand under Utah law.

The Board also argues that we should not literally interpret the statutory language but should look to the Board's "long-standing" interpretation of the scope of its authority and to the legislative intent behind section 2(c).

When section 2(c) was initially enacted in 1956, a bank was defined as "any national banking association, or any State bank, savings bank, or trust company." Act of May 9, 1956, ch. 240, Sec. 2(c), 70 Stat. 133. The Board issued two interpretations of the 1956 legislation as including those institutions which accepted deposits subject to check (demand deposits) as well as those which accepted funds from the public that were, in actual practice, repaid on demand. 49 Fed.Res.Bull. 166 (1963); 51 Fed.Res.Bull. 1539-40 (1965). The record here supports the Board's contention that withdrawals from NOW accounts are in actual practice permitted on demand. In 1966, after the Board's two interpretations had been issued, Congress amended Sec. 2(c) to include the "legal right to withdraw" provision. Act of July 1, 1966, Pub.L. No. 89-485, 80 Stat. 236. Congress rejected the Board's suggested amendment which would have read merely "payable on demand." Congress therefore overturned the Board's interpretation by substituting the "legal right to withdraw" language for the Board's right to withdraw on demand in actual practice provision. That differentiation, in the words of the Senate Banking Committee chairman, "clearly excludes industrial banks." 112 Cong.Rec. 12386. No room exists for an argument that a practice as to NOW accounts should prevail rather than the statute. The 1980 deregulation act, Pub.L. 96-221, has no impact on this issue.

The Board...