First National Bank of Logan, Utah v. Walker Bank and Trust Company First Security Bank of Utah v. Commercial Security Bank Saxon v. Commercial Security Bank

Citation87 S.Ct. 492,17 L.Ed.2d 343,385 U.S. 252
Decision Date12 December 1966
Docket NumberNos. 51,88,73,s. 51
CourtUnited States Supreme Court

See 385 U.S. 1032, 87 S.Ct. 738.

Richard A. Posner, Washington, D.C., and Theodore S. Perry, Logan, Utah, for petitioners.

John Wilson, Washington, D.C., for First Security Bank.

James F. Bell, Washington, D.C., and Joseph S. Jones, Salt Lake City, Utah, for respondents.

Mr. Justice CLARK delivered the opinion of the Court.

These cases involve the construction of those portions of the National Banking Act, 44 Stat. 1228, 12 U.S.C. § 36(c), which authorize a national banking association, with the approval of the Comptroller of the Currency, to establish and operate new branches within the limits of the municipality in which the bank is located, if such operation is 'at the time authorized to State banks by the law of the State in question.'1 Two national banks with their main banking houses in Logan and Ogden, Utah, respectively, seek to open branches in those municipalities. The Utah statute prohibits Utah banks, with certain exceptions not here relevant, from establishing branches except by taking over an existing bank which has been in operation for not less than five years. Utah Code Ann., Tit. 7, c. 3, § 6 (1965 Supp.)2 In No. 51 First National Bank of Logan v. Walker Bank & Trust Co., the petitioner seeks to establish a new branch in Logan, where its principal banking house is located, without taking over an established bank. The District Court approved its doing so but the Court of Appeals reversed. 352 F.2d 90 (C.A.10th Cir.), sub nom. Walker Bank & Trust Co. v. Saxon. In No. 73, First Security Bank of Utah, N.A. v. Commercial Security Bank, and No. 88, Saxon v. Commercial Security Bank, First Security seeks to establish a new branch in Ogden, in which its home office is situated, without taking over an established bank. The District Court held that state law must be complied with, 236 F.Supp. 457, and the Court of Appeals affirmed in a judgment, without opinion, citing Walker Bank & Trust Co., supra. In view of a conflict between these holdings and the decision in First National Bank of Smithfield v. Saxon, 352 F.2d 267 (C.A.4th Cir.), we granted certiorari, and consolidated the three cases for argument. 384 U.S. 925, 86 S.Ct. 1441, 16 L.Ed.2d 530. We affirm the judgments.

In No. 51, the petitioner maintains its principal banking house in Logan, Utah, which is a second class city under Utah law (Utah Code Ann., Tit. 10, c. 1, § 1 (1953, as amended)), and is therefore subject to § 7—3—6 of the Utah Code, supra. It applied to the Comptroller of the Currency for a certificate to establish an 'inside' branch office in Logan. At the time of the application there were no other banks with their main banking offices in Logan. However, there were two branches of banks whose home offices were situated outside of Logan, one of which belonged to respondent, Walker Bank & Trust Co., whose home office was located in Salt Lake City. After a hearing, the Comptroller ordered the certificate issued. The respondent subsequently filed this suit seeking a declaratory judgment and injunctive relief against the Comptroller and First National claiming the action of the Comptroller to be void since the proposed branch was not taking over an established bank in Logan, as required by Utah law. The District Court dismissed the complaint. It found 'express authority' under Utah law for state banks to establish branch offices in Logan, relying on the general authority of the statute and holding that the subsequent conditions, such as the acquisition of another bank, did not 'change the 'express authority' into a lack of authority on the part of State banks or a lack of a statutory expression of such authority, and (did) not add to the Federal statute a requirement that compliance be made by National banks with all State conditions.' 234 F.Supp. 74, 78, n. 8. The Court of Appeals reversed, holding that the Congress in enacting § 36(c)(1) acceded to state law and created 'a competitive equality between state and national banks.' Finding that the trial court's interpretation was to the contrary, it declared 'the proper approach is for the Comptroller to look at all the State law on branch banking not just part of it.' 352 F.2d 90, 94.

In Nos. 73 and 88, the First Security Bank of Utah, a national bank, applied for a certificate from the Comptroller to establish a branch bank in Ogden, where it maintained its principal banking house. Its proposal was to open a new branch and not to take over an existing bank in Ogden. Under Utah law, Ogden is also a second class city and the 'take over' provision of § 7—3 6, supra, was therefore applicable. Two other banks have their main offices in Ogden. After the Comptroller approved the issuance of the certificate, respondent filed suit in the District Court of the United States for the District of Columbia asking for injunctive and other relief. The District Court imposed all of the restrictions of § 7—3—6 of Utah law on the establishment of national banks and the Court of Appeals for the District of Columbia Circuit affirmed, by a judgment without opinion, but cited the opinion of the 10th Circuit, Walker Bank & Trust Co., supra.

2. The National Banking Act: Its Background.

There has long been opposition to the exercise of federal power in the banking field. Indeed, President Jefferson was opposed to the creation of the first Bank of the United States and President Jackson vetoed the Act of Congress extending the charter of the second Bank of the United States. However, the authority of Congress to act in the field was resolved in the landmark case of M'Culloch v. State of Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819). There Chief Justice Marshall, while admitting that it does not appear that a bank was in the contemplation of the Framers of the Constitution, held that a national bank could be chartered under the implied powers of the Congress as an instrumentality of the Federal Government to implement its fiscal powers. The paramount power of the Congress over national banks has. therefore, been settled for almost a century and a half.

Nevertheless, no national banking act was adopted until 1863 (12 Stat. 665), and it was not until 1927 that Congress dealt with the problem before us in these cases. This inaction was possibly due to the fact that at the turn of the century, there were very few branch banks in the country. At that time only five national and 82 state banks were operating branches with a total of 119 branches. By the end of 1923, however, there were 91 national and 580 state banks with a total of 2,054 branches.3 The Comptroller of the Currency, in his Annual Report of 1923, recommended congressional action on branch banking. The report stated that if state banks continue to engage 'in unlimited branch banking it will mean the eventual destruction of the national banking system * * *.' H.R.Doc.No.90, 68th Cong., 1st Sess., 6 (1924). Soon thereafter legislation was introduced to equalize national and state branch banking. The House Report on the measure, H.R.Rep.No.83, 69th Cong., 1st Sess., 7 (1926), stated among other things:

'The bill recognizes the absolute necessity of taking legislative action with reference to the branch banking controversy. The present situation is intolerable to the national banking system. The bill proposes the only practicable solution by stopping the further extension of state-wide branch banking in the federal reserve system by State member banks and by permitting national banks to have branches in those cities where State banks are allowed to have them under State laws.'

This bill failed to pass in the Senate and, although Congress continued to study the problem, it was not until 1927 that the McFadden Act was adopted. The bill originated in the House and, in substance, proposed that both national and state banks be permitted to establish 'inside' branches within the municipality of their main banking facilities in those States that permitted branch banking at the time of the enactment of the bill. H.R.Rep.No.83, 69th Cong., 1st Sess., 4—5 (1926). The intent of the Congress to leave the question of the desirability of branch banking up to the States is indicated by the fact that the Senate struck from the House bill the time limitation, thus permitting a subsequent change in state law to have a corresponding effect on the authority of national banks to engage in branching. The Senate Report concluded that the Act would permit 'national banks to have branches in those cities where State banks are allowed to have them under State laws.' S.Rep.No.473, 69th Cong., 1st Sess., 14 (1926). In the subsequent Conference Committee, the Senate position was adopted. State banks which were members of the Federal Reserve System were also limited to 'inside' branches. A grandfather clause permitted retention of branches operated at the date of enactment. H.R.Rep.No.1481, 69th Cong., 1st Sess., 6 (1926). The Act was finally passed on February 25, 1927, and became known as the McFadden Act of 1927, taking its name from its sponsor, Representative McFadden. At the time of its enactment he characterized it in this language:

'As a result of the passage of this act, the national bank act has been so amended that national banks are able to meet the needs of modern industry and commerce and competitive equality has been established among all member banks of the Federal reserve system.' (Emphasis added.) 68 Cong.Rec. 5815 (1927).

During the economic depression there was much agitation that bank failures were due to small undercapitalized rural banks and that these banks should...

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