Huston v. Board of Governors of Federal Reserve System, s. 84-1084
| Decision Date | 26 March 1985 |
| Docket Number | 84-1361,Nos. 84-1084,s. 84-1084 |
| Citation | 758 F.2d 275 |
| Parties | Thomas H. HUSTON, as Superintendent of Banking, State of Iowa, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. Intervenor (KSAD, Inc.) for Respondents. Thomas H. HUSTON, as Superintendent of Banking, State of Iowa, Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. Intervenors (Banks of Iowa, Inc.; First Bank System, Inc.) for Respondents. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Howard Hagen, Des Moines, Iowa, for petitioner.
Richard M. Ashton, Washington, D.C., for respondent.
Before HEANEY, Circuit Judge, ROSS, Circuit Judge, and HENLEY, Senior Circuit Judge.
These direct appeals from two decisions of the Board of Governors of the Federal Reserve System (the Board) are brought under the Bank Holding Company Act, 12 U.S.C. Secs. 1841-50 (the Act), by the Superintendent of Banking for the State of Iowa. Although the appeals involve separate factual situations, they have been consolidated for purposes of today's decision, because they involve similar issues as to the extent of the Board's responsibilities under Sec. 3(d) of the Act (the so-called "Douglas Amendment," 12 U.S.C. Sec. 1842(d)) for regulating interstate expansion of bank holding companies.
Both Board decisions concern acquisitions of interests in Iowa bank holding companies by out-of-state bank holding companies--acquisitions the Superintendent has challenged as violative of Iowa banking law and of the Douglas Amendment. The primary purpose of the Board's first decision was to approve an application filed by KSAD, Inc., a newly formed Iowa corporation, for Board permission to become a bank holding company by acquiring First National Bank of Council Bluffs (First National), an Iowa bank. As part of the approval decision, however, the Board concluded that a concurrent transaction proposed by KSAD, whereby Omaha National Corporation (Omaha National), a Nebraska bank holding company, would purchase nonvoting stock in KSAD, was not subject to Board approval under the Act. The second Board decision before us concerns an acquisition by First Bank Systems, Inc. (First Bank), a Minnesota bank holding company, of nonvoting stock in, and contractual rights with, Banks of Iowa, Inc. (BI), an Iowa bank holding company. The Board concluded that the BI/First Bank transaction, like the KSAD/Omaha National transaction, would not require Board approval under the Act.
The Superintendent now petitions under 12 U.S.C. Sec. 1848 for judicial review of the Board's decisions, contending, in essence, that Iowa law prohibits interstate ownership of interests in Iowa banking institutions; that the Board is responsible under the Douglas Amendment for enforcing state limitations on interstate expansion of bank holding companies; and that the Board's refusal to disturb the KSAD/Omaha National and BI/First Bank transactions constituted an abdication of the Board's statutory duties. First Bank, BI, and KSAD have intervened in defense of their interstate transactions. Finding no error in the conclusion that neither transaction required Board approval under the Douglas Amendment, we affirm.
Congress enacted the Bank Holding Company Act in 1956, intending, among other things, to prevent undue concentration of banking resources, and to deter anticompetitive tendencies in national credit markets. Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 46, 100 S.Ct. 2009, 2020, 64 L.Ed.2d 702 (1980). To those ends, Congress vested the Board with supervisory authority over direct and indirect acquisitions of banks by holding companies. Under Sec. 3(a) of the Act, any company wishing to obtain control or ownership of a bank, and any bank wishing to place itself under the control or ownership of another company, must first obtain the Board's approval. 12 U.S.C. Sec. 1842(a)(1), (a)(2). Initial approval by the Board is also required In addition to vesting these and other powers in the Board, Congress also chose to rely in part on state law to check undue concentration of banking resources. Section 7 of the Act reserves to the states a general power to regulate bank holding companies. 12 U.S.C. Sec. 1846; Lewis v. BT Investment Managers, Inc., 447 U.S. at 48-49, 100 S.Ct. at 2022. Also, Sec. 3(d) of the Act--the Douglas Amendment--provides:
when a bank holding company proposes to acquire "direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, such company will directly or indirectly own or control more than 5 per centum of the voting shares of such bank." 12 U.S.C. Sec. 1842(a)(3). Section 2(a)(2)(C) of the Act gives the Board discretion in determining whether or not a company controls a bank or other company; control will be found if "the Board determines, after notice and opportunity for hearing," that a company directly or indirectly exercises a "controlling influence over the management or policies of [another] bank or company." 12 U.S.C. Sec. 1841(a)(2)(C) (emphasis added). The Board is also empowered to issue such regulations as are necessary to prevent evasions of the Act. 12 U.S.C. Sec. 1844(b)
[N]o application ... shall be approved [by the Board] which will permit any bank holding company or any subsidiary thereof to acquire, directly or indirectly, any voting shares of, interest in, or all or substantially all of the assets of any additional bank located outside of the State in which the operations of such bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which such company became a bank holding company, whichever is later, unless the acquisition of such shares or assets of a State bank by an out-of-State bank holding company is specifically authorized by the statute laws of the State in which such bank is located, by language to that effect and not merely by implication.
12 U.S.C. Sec. 1842(d) (emphasis added).
Both Board decisions under review followed a similar course. The Board concluded that even if Iowa banking law prohibited any acquisition by out-of-state companies of interests in Iowa bank holding companies, the Board was not required to disturb the KSAD/Omaha National and BI/First Bank transactions unless those transactions were subject to initial Board approval under Sec. 3(a) of the Act. In the KSAD/Omaha National decision, the Board also concluded that Iowa law prohibited only those interstate transactions which would require approval by the Board under the Act; the Board further indicated that a contrary reading of Iowa law would render that law invalid as violative of the Commerce Clause. In support of its constitutional analysis, the Board cited Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980).
The Board then analyzed each transaction. The Board determined that because neither transaction would result in Omaha National or First Bank obtaining control of more than five percent of the voting stock of KSAD or BI, the Sec. 3(a)(3) [12 U.S.C. Sec. 1842(a)(3) ] requirement of prior Board approval was inapplicable. The Board also determined that the transactions did not give Omaha National or First Bank a controlling influence over the Iowa bank holding companies; therefore, the Board reasoned, the transactions were not subject to Board approval under other provisions of Sec. 3(a). The Board also concluded that it need not conduct hearings, as there were no issues of material fact presented by either record.
The Superintendent contends that the Board's handling of the KSAD/Omaha National and BI/First Bank transactions contravened the spirit and letter of the Act in three ways. He first contends that the Board's interpretation of the extent of its responsibilities under the Douglas Amendment for enforcing restrictive state laws was unduly narrow--that such responsibilities exist without regard to whether a given transaction would otherwise be subject to mandatory regulation by the Board. Second, the Superintendent contends that the acquisitions of interests in KSAD and BI were subject to prior Board approval under Sec. 3(a) of the Act, and that the Board's decisions to the contrary were erroneous. Third, the Superintendent believes the Board was required, under Sec. 2(a)(2)(C) of the Act [12 U.S.C. Sec. 1841(a)(2)(C) ], to hold formal hearings to determine whether the interstate acquisitions would be consistent with the Act. In connection with this last point, the Superintendent also alleges that the procedures used by the Board to review the KSAD/Omaha National and BI/First Bank transactions were defective under the Administrative Procedure Act. We will address each of these contentions in turn.
The Superintendent's first argument concerns the proper interpretation of the Douglas Amendment, and of Iowa Code Sec. 524.1805 (1983). The Douglas Amendment, the Superintendent states, obligates the Board to insure that bank holding companies comply with all state restrictions of their ability to expand over state lines. In support of this interpretation of the Douglas Amendment, the Superintendent notes that the Douglas Amendment by its own terms applies to acquisitions of any "interest in" out-of-state banks. 12 U.S.C. Sec. 1842(d). The Superintendent contends his reading of the Douglas Amendment is also buttressed by legislative history; prior Board decisions under Douglas; statutory provisions requiring the Board to prevent evasions of the Act, and recognizing the power of the states to regulate banking, 12 U.S.C. Secs. 1844(b), 1846; Iowa Independent Bankers v. Board of Governors, 511 F.2d 1288 (D.C.Cir.), cert. denied, 423 U.S. 875, 96 S.Ct. 144, 46 L.Ed.2d 106 (197...
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