Independent Ins. Agents of America, Inc. v. Board of Governors of Federal Reserve System, s. 86-1572

• Citation: 835 F.2d 1452
• Decision Date: 29 December 1987
• Docket Number: 86-1576,Nos. 86-1572,86-1573,s. 86-1572
• Parties: , 56 USLW 2391 INDEPENDENT INSURANCE AGENTS OF AMERICA, INC., Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS, et al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent. NATIONAL ASSOCIATION OF CASUALTY, et al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 1452

835 F.2d 1452

266 U.S.App.D.C. 356, 56 USLW 2391

INDEPENDENT INSURANCE AGENTS OF AMERICA, INC., Petitioner, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS, et

al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

NATIONAL ASSOCIATION OF CASUALTY, et al., Petitioners, v. BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent.

Nos. 86-1572, 86-1573, 86-1576.

United States Court of Appeals, District of Columbia Circuit.

Argued Sept. 28, 1987.

Decided Dec. 29, 1987.

Jonathan B. Sallet, with whom Jamie S. Gorelick, Thomas E. Wilson and David G. Webbert were on the brief, for petitioners.

Richard M. Ashton, Federal Reserve System, with whom Richard K. Willard, Asst. Atty. Gen., Dept. of Justice, James E. Scott and Douglas B. Jordan, Federal Reserve System were on the brief, for respondent.

John J. Gill and Michael F. Crotty were on the brief for amicus curiae, American Bankers Ass'n, et al., urging affirmance.

James F. Bell and Arthur E. Wilmarth, Jr. were on the brief for amicus curiae, Conference of State Bank Sup'rs, urging affirmance.

Timothy C. Russell and Alan G. Priest entered appearances for amicus curiae, American Council of Life Ins., et al.

Before GINSBURG and WILLIAMS, Circuit Judges, and ROBINSON, ^* Chief Judge, United States District Court for the District of Columbia.

Opinion for the Court filed by Chief Judge AUBREY E. ROBINSON, Jr.

AUBREY E. ROBINSON, Jr., Chief Judge:

In this case, Petitioners, several insurance agents trade associations, challenge final regulations of the Board of Governors of the Federal Reserve System ("the Board") redefining permissible insurance agency and underwriting activities for bank holding companies. 12 C.F.R. Sec. 225 (Regulation Y) (1987). Specifically, Petitioners challenge two aspects of the regulations. ¹ First, they challenge the Board's decision to delete from its regulations the requirement, implemented in 1979, that a bank holding company have its principal place of business in a small town in order to be eligible to conduct insurance activities in a small town (i.e., a town with a population not exceeding 5,000). 12 C.F.R. Sec. 225.25(b)(8)(iii) (1987). Second, Petitioners For the reasons discussed below, we hold that the Board was not required by the Bank Holding Company Act as amended by the Garn-St Germain Act to retain the principal place of business requirement, that the Board validly exercised its discretion when it deleted the requirement from its regulations, and that the exemption D challenge is not ripe for review in this case. We therefore affirm the Board's regulations and deny the petition for review.

challenge the regulations as impermissibly permitting the transfer of grandfather rights created by exemption D to section 4(c)(8) of the Bank Holding Company Act, 12 U.S.C. Sec. 1843(c)(8)(D), to bank holding companies not entitled to exercise exemption D grandfather rights. See 12 C.F.R. Sec. 225.25(b)(8)(iv) (1987). The Board counters that its decision to delete the principal place of business requirement was a valid exercise of discretion, consistent with the amendments to the Bank Holding Company Act effected by enactment of the Garn-St Germain Depository Institutions Act of 1982 ("the Garn-St Germain Act"), and that this Court, primarily because of ripeness considerations, should not entertain Petitioners' exemption D challenge.

BACKGROUND

The Bank Holding Company Act of 1956 ² ("the Act") provides a comprehensive framework for the supervision of bank holding companies, companies that control one or more banks. 12 U.S.C. Sec. 1841(a). A primary purpose of the Act is to separate banking from commerce, and the Board is charged with primary responsibility for maintaining that separation. Under the Act, a bank holding company is prohibited from engaging in, or acquiring and retaining "shares of any company" engaged in, nonbanking activities unless the Board determines that such activities are "so closely related to banking ... as to be a proper incident thereto." 12 U.S.C. Sec. 1843(c)(8).

Beginning in 1971, the Board determined that certain types of insurance agency and underwriting activities were "so closely related" to banking that bank holding companies could, consistent with the Act, engage in them. One of these was the sale of any insurance in a community that had a population not exceeding 5,000. In 1979, in response to a decision of the United States Court of Appeals for the Fifth Circuit instructing the Board to support this small town exemption with "further findings which establish the necessary close relationship of banking to general insurance agency activity in towns with populations not exceeding 5,000," Alabama Association of Insurance Agents v. Board of Governors, 558 F.2d 729, 731 (5th Cir.1977), cert. denied, 435 U.S. 904, 98 S.Ct. 1448, 55 L.Ed.2d 494 (1978), the Board imposed the principal place of business requirement, which limited the small town exemption to bank holding companies that had their principal place of business in a small town. This requirement was satisfied as long as the bank holding company had its principal place of business in any small town; it was not necessary that the principal place of business be in the small town in which the insurance activity was to be conducted. Also in response to the decision of the Fifth Circuit Court of Appeals, the Board required, before a bank holding company could qualify to sell insurance in a small town, that the bank holding company operate another subsidiary serving the public (e.g., a lending office) in the small town in which it wished to sell insurance. These restrictions, when added to the general restriction that insurance could be sold only in the small town or place of fewer than 5,000 residents, were deemed adequate by the Board to satisfy the command of the Fifth Circuit Court of Appeals.

In 1982, Congress enacted the Garn-St Germain Act, ³ in part an effort to define the contours of the closely related test as it pertained to insurance activities. In relevant part, this Act defined insurance activity as not closely related to banking (and thus not a proper activity for bank holding Following enactment of the Garn-St Germain Act, the Board conducted rulemaking proceedings to implement the seven exemptions listed in Sec. 1843(c)(8). Noting that exemption C did not contain the principal place of business requirement previously used by the Board to limit the scope of its small town exemption, the Board solicited comments on the advisability of retaining or deleting this requirement. After reviewing the comments submitted, the Board determined that the principal place of business requirement was not necessary to effectuate the purposes of the Act and deleted it from the new regulations. 12 C.F.R. Sec. 225.25(b)(8)(iii) (1987). The Board determined that requiring the bank holding company to maintain a lending office in the small town in which it desired to sell insurance and the restriction that insurance could be sold only in the small town or place of fewer than 5,000 residents insured that the necessary nexus existed between banking and general insurance activity in small towns so as to satisfy the closely related test of the Act. On the other hand, the Board determined that the effect of the principal place of business requirement was to arbitrarily limit which bank holding companies could engage in insurance activities in small towns primarily by reference to the size of the bank holding company, a result determined by the Board not to be The exemption D regulation closely tracks the language of the statute. ⁷ Two footnotes to the regulation discuss the applicability of the exemption to situations involving mergers, prior applications to engage in insurance activities, and prior contracts of sale of companies engaged in grandfathered insurance activities. 12 C.F.R. Sec. 225.25(b)(8)(iv) nn. 10-11 (1987). ⁸ Although Petitioners do not challenge the interpretation of the exemption as set forth in these two footnotes, they claim, relying in part on these footnotes, that the Board has concluded that the regulation allows "transfers" of exemption D rights when a company having such rights is acquired by another, an impermissibly broad interpretation of statutory exemption D according to Petitioners. The Board, however, points out that it expressly reserved judgment on how exemption D rights are affected by the acquisition of a company engaged in grandfathered insurance activity.

                companies and their subsidiaries), but specified seven exemptions to this general prohibition, thereby permitting bank holding companies and their subsidiaries to engage in insurance activities fitting within the exemptions. 4   The two exemptions relevant to our review are exemptions C and D.  Exemption C allows the Board to determine that "any insurance agency activity in a place that (i) has a population not exceeding five thousand" is closely related to banking.  12 U.S.C. Sec. 1843(c)(8)(C). 5   Exemption D grandfathers "insurance agency activity which was engaged in by the bank holding company or any of its subsidiaries on May 1, 1982."    12 U.S.C. Sec. 1843(c)(8)(D). 6
                mandated by the Act's language, structure, or purposes
                

DISCUSSION

A. Small Town Exemption and the Principal Place of Business Requirement.

As indicated, the language of statutory exemption C does not contain a principal place of business requirement. By its structure and terms, the statute allows the Board to determine that "any insurance agency activity in a place that has a population not exceeding 5,000" is "closely related" to banking. 12 U.S.C. Sec. 1843(c)(8). The only relevant restrictions exemption C places on the Board relate to the population limit and geographic considerations; in all other respects it leaves to the Board, by applying its expertise, the task of...