Independent Ins. Agents of America, Inc. v. Board of Governors of Federal Reserve System, 559
| Decision Date | 25 January 1988 |
| Docket Number | D,No. 559,559 |
| Citation | 838 F.2d 627 |
| Parties | INDEPENDENT INSURANCE AGENTS OF AMERICA, INC., Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, Merchants National Corporation, The National Association of Casualty and Surety Agents, The National Association of Life Underwriters, The National Association of Professional Insurance Agents, and The National Association of Surety Bond Producers, Intervenors. ocket 87-4118. |
| Court | U.S. Court of Appeals — Second Circuit |
Jonathan B. Sallet, Washington, D.C. (Jamie S. Gorelick, Jay L. Alexander, Miller, Cassidy, Larroca & Lewin, Washington, D.C., on brief), for petitioner and ins. agent intervenors.
Richard M. Ashton, Assoc. Gen. Counsel, Washington, D.C. (Richard K. Willard, Asst. Atty. Gen., U.S. Dept. of Justice, Michael Bradfield, Gen. Counsel, Douglas B. Jordan, Bd. of Governors of Fed. Reserve System, Washington, D.C., on brief), for respondent.
James A. McDermott, Indianapolis, Ind. (Stanley C. Fickle, Barnes & Thornburg, Indianapolis, Ind., on brief), for intervenor Merchants Nat. Corp.
Paul B. Galvani, Martin E. Lybecker, William L. Patton, Alan G. Priest, Mark P. Szpak, Ropes & Gray, Washington, D.C., on brief as amici curiae for ins. co. associations.
John J. Gill, Gen. Counsel, Michael F. Crotty, Assoc. Gen. Counsel, American Bankers Assn., and Richard Whiting, Ass'n of Bank Holding Companies, Washington, D.C., on brief as amici curiae for American Bankers Ass'n and Ass'n of Bank Holding Companies.
John L. Warden, H. Rodgin Cohen, Michael M. Wiseman, Lauretta E. Murdock Charles S. Sullivan, Sullivan & Cromwell, New York City, on brief as amicus curiae for New York Clearing House Ass'n.
Linley E. Pearson, Atty. Gen., J. Gordon Gibbs, Jr., Chief Counsel, Samuel L. Bolinger, Deputy Atty. Gen., Indianapolis, Ind., on brief as amicus curiae for Indiana Dept. of Financial Institutions.
James T. McIntyre, Jr., Leslie A. Dent, Hansell & Post, Washington, D.C., on brief as amicus curiae for Ins./Financial Affiliates of America, Inc.
James F. Bell, Ernest Gellhorn, Carol R. Van Cleef, Imran M. Raschid, Jones, Day, Reavis & Pogue, and Arthur E. Wilmarth, Jr., George Washington Univ. Nat. Law Center, Washington, D.C., on brief as amicus curiae for Conference of State Bank Supervisors.
Before NEWMAN, CARDAMONE, and PIERCE, Circuit Judges.
The Independent Insurance Agents of America ("IIAA") petition for review of an order of the Board of Governors of the Federal Reserve System ("the Board" or "the Fed") permitting two Indiana state banks recently acquired by the Merchants National Corporation, a bank holding company, to resume specified insurance activities permitted under Indiana state law. The Board's approval rested upon a determination that the non-banking prohibitions of section 4 of the Bank Holding Company Act, as amended, 12 U.S.C. Sec. 1843 (1982), do not apply to the insurance activities of the banking subsidiaries of bank holding companies. Merchants National Corp., 73 Fed.Res.Bull. 876 (Sept. 10, 1987). For purposes of this appeal, the critical aspect of the Board's order is its conclusion that the order is not precluded by the moratorium Congress imposed upon federal banking agencies prohibiting for one year the approval of certain nonbanking activities. The moratorium is contained in Title II of the Competitive Equality Banking Act of 1987 (CEBA), Pub.L. No. 100-86, Secs. 201-205, 101 Stat. 552, 581-85 (1987) (). Section 201(b)(3) of the CEBA prohibits any federal banking agency from issuing, between March 6, 1987, and March 1, 1988, any rule, regulation, or order that would "have the effect of increasing the insurance powers" of any entity subject to the Bank Holding Company Act, and section 201(b)(4) specifically prohibits the Fed from approving the "acquisition" by a bank holding company of any entity, including a state-chartered bank, engaging in those insurance activities prohibited under section 4 of the Bank Holding Company Act. We hold that the Board's Merchants National order is within the scope of the moratorium and therefore grant the petition for review and vacate the order.
Before introducing the facts, it will be helpful to outline the pertinent statutory provisions of both the Bank Holding Company Act and the Competitive Equality Banking Act.
The Bank Holding Company Act of 1956. Though our disposition makes it unnecessary to rule on the Board's interpretation of section 4 of the Bank Holding Company Act, a brief mention of the Act's structure is appropriate as background. Briefly, the principal regulatory powers of the Fed under the Bank Holding Company Act are set forth in sections 3 and 4 of the Act. 12 U.S.C. Secs. 1842, 1843. Section 3 requires Board approval of the acquisition of ownership or control of any bank by a bank holding company with narrow exceptions not here relevant. 1 Section 3 sets forth factors governing acquisition approval focusing on the competitive effect of the proposed acquisition, the financial and managerial resources of both the holding company and the acquired bank, and the convenience and needs of the community served. 12 U.S.C. Sec. 1842(c).
Section 4 of the Act, the focal point of the Board's order in this case, regulates the non-banking activities of a bank holding company. Without intimating our views on the correctness of the Board's interpretation of the precise scope of section 4, it is sufficient to point out generally that section 4(a) prohibits a bank holding company from engaging in non-banking activities other than those permitted under section 4(c)(8) of the Act. Section 4(c)(8) sets forth the so-called "closely related to banking" exception to the non-banking provision. In relevant part, section 4(c)(8) states that the section 4(a) nonbanking prohibitions shall not bar ownership by a bank holding company of:
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, but for purposes of this subsection it is not closely related to banking or managing or controlling banks for a bank holding company to provide insurance as a principal, agent or broker....
12 U.S.C. Sec. 1843(c)(8).
The Competitive Equality Banking Act of 1987. Title II of the CEBA 2 imposes a moratorium, effective between March 6, 1987, and March 1, 1988, on the exercise of federal banking agency authority relating to specified non-banking activities, including securities, real estate, and insurance activities of bank holding companies or their subsidiaries in order that Congress may have the opportunity to "conduct a comprehensive review of our banking and financial laws and to make decisions on the need for financial restructuring legislation in the light of today's changing financial environment ... before the expiration of such moratorium." CEBA, Sec. 203(a).
That part of the moratorium statute relating to insurance activities of bank holding companies and their subsidiaries is divided into two primary substantive subsections. Section 201(b)(3) of Title II states:
A Federal banking agency may not issue any rule, regulation, or order that would have the effect of increasing the insurance powers of banks, bank holding companies, foreign banks or other companies subject to the Bank Holding Company Act of 1956 under section 8(a) of the International Banking Act of 1978, or banking or nonbanking subsidiaries thereof with respect to any activities in the United States, either with respect to specific banks or bank holding companies or subsidiaries thereof or generally beyond those expressly authorized for bank holding companies under subparagraphs (A) through (G) of section 4(c)(8) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c)(8)(A) through (G)).
(Emphasis added).
Section 201(b)(4) contains the second moratorium provision relating to insurance, and specifically concerns the Fed. This provision states that during the moratorium period the Board
may not approve the acquisition by a bank holding company or by a foreign bank or other company subject to the Bank Holding Company Act of 1956 under section 8(a) of the International Banking Act of 1978, of any company, including a State-chartered bank, unless the bank holding company, foreign bank, or other company has agreed to limit the insurance activities in the United States of the company to be acquired to those permissible under section 4(c)(8) of the Bank Holding Company Act of 1956.
(Emphasis added). Finally, section 202 of Title II states that nothing in the section 201 moratorium provisions is intended to prevent a regulated agency from issuing any rule, regulation, or order pursuant to preexisting legal authority "to expand the securities, insurance, or real estate powers of banks or bank holding companies ... if the effective date of such rule, regulation, or order is delayed until the expiration" of the moratorium period, March 1, 1988.
A number of states, including Indiana, 3 historically have authorized state-chartered banks to provide insurance services to their customers. On July 1, 1986, Merchants National Corporation, a bank holding company within the meaning of the Bank Holding Company Act, 12 U.S.C. Sec. 1841(a), sought permission from the Fed to acquire the stock of two banks chartered under the laws of the State of Indiana, the Anderson Banking Company ("Anderson Bank") and the Mid State Bank of Hendricks County ("Mid State Bank"). Both of these state banks had engaged in general insurance activities prior to the date of Merchants National's applications, Anderson Bank directly since its incorporation in 1916, and Mid State Bank since its purchase of an insurance...
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