Franklin Nat Bank of Franklin Square v. People of State of New York, No. 427

CourtUnited States Supreme Court
Writing for the CourtREED
Citation74 S.Ct. 550,98 L.Ed. 767,347 U.S. 373
Docket NumberNo. 427
Decision Date05 April 1954

347 U.S. 373
74 S.Ct. 550
98 L.Ed. 767



No. 427.
Argued March 9, 10, 1954.
Decided April 5, 1954.


Samuel O. Clark, Jr., Washington, D.C., for appellant.

Mr. Daniel M. Cohen, New York City, for appellee.

Simon E. Sobeloff, Solicitor General, Washington, D.C., for the United States amicus curiae, by special leave of Court.

Page 374

Opinion of the Court by Mr. Justice JACKSON, announced by Mr. Justice FRANKFURTER.

This appeal from the Court of Appeals of New York presents the narrow question whether federal statutes which authorize national banks to receive savings deposits conflict with New York legislation which prohibits them from using the word 'saving' or 'savings' in their advertising or business. We think the federal and state statutes are incompatible, and in such circumstances the policy of the State must yield.

It is the policy of New York to charter and foster the mutual savings bank, a nonprofit institution whose earnings inure to the benefit of depositors rather than to stockholders. These institutions have a long history as relatively stable and safe depositaries for the accumulations of thrifty New Yorkers and as a source of credit for limited uses. They have grown to be an important part of New York's banking and economic structure. That State also charters the savings and loan association, an institution of a different type, intended to serve somewhat similar ends. The Legislature was concerned lest commercial banks, in seeking to induce deposits of the same character, so use the word 'savings' as to lead uninformed and indiscriminating persons to believe that they were dealing with the chartered savings institutions. Hence, by its Banking Law, New York has forbidden use of the word 'savings,' or its variants, by any banks other than its own chartered savings banks and savings and loan associations.1

Page 375

However, the Federal Government is a rival chartering authority for banks. Since McCulloch v. State of Maryland, 4 Wheat. 316, 4 L.Ed. 579, it has not been open to question that the Federal Government may constitutionally create and govern such institutions within the states. The United States has set up a system of national banks as federal instrumentalities to perform various functions such as providing circulating medium and government credit, as well as financing commerce and acting as private depositaries. Some of their functions, especially as a source for federal credit, depend upon their success in attracting private deposits. That these federal institutions may be at no disadvantage in competition with state-created institutions, the Federal Government has frequently expanded their functions and authority. Of such nature are the measures now before us.

The Federal Reserve Act provides that a national bank 'may continue hereafter as heretofore to receive time and savings deposits and to pay interest on the same, but the rate of interest which such association may pay upon such time deposits or upon savings or other deposits shall not exceed the maximum rate authorized by law to be paid upon such deposits by State banks or trust com-

Page 376

panies organized under the laws of the State in which such association is located.'2 The Act authorizes the Board of Governors of the Federal Reserve System to make necessary rules and regulations,3 which the Board has done by defining such terms as 'time deposits' and 'savings deposits.'4 The National Bank Act authorizes national banks to receive deposits without qualification or limitation, and it provides that they shall possess 'all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this chapter.' 5

Appellant, believing it was authorized by the Federal Government to do so, used the word 'saving' and savings' in advertising, in signs displayed in the bank, on its deposit and withdrawal slips, and in its annual reports. It is beyond question that appellant violated the State's prohibition if it is a valid one.

The Attorney General of the State initiated this case by a complaint alleging such violations, seeking a broad injunction. The trial accumulated a large record devoted mainly to the merits and demerits of the New York legislation and its consequences upon banks and depositors. The trial court found no purposeful deception of the public. It held that the advertising and other use of the forbidden terms were in pursuit of implied and incidental powers conferred upon national banks by the

Page 377

Acts of Congress and that the New York statute in conflict with them must yield. The Appellate Division disagreed and directed a permanent injunction prohibiting the use of the term. The Court...

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    ...narrow issue of whether the state law impeded the bank's ability to receive deposits. For example, Franklin Nat'l Bank v. New York (1954) 347 U.S. 373, 74 S.Ct. 550, 98 L.Ed. 767 held that a New York statute which prohibited all banks except nonprofit state chartered banks from using the te......
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