Securities Industry Ass'n v. Board of Governors of Federal Reserve System, s. 86-5089

• Decision Date: 23 December 1986
• Docket Number: Nos. 86-5089,s. 86-5089
• Citation: 807 F.2d 1052
• Parties: , 55 USLW 2345, Fed. Sec. L. Rep. P 93,011 SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al. Bankers Trust Company, Appellant. SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al. Bankers Trust Company, Appellant. SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al. Bankers Trust Company, Appellant. SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al., Appellants, Bankers Trust Company. to 86-5091 and 86-5139.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1052

807 F.2d 1052

257 U.S.App.D.C. 137, 55 USLW 2345, Fed.

Sec. L. Rep. P 93,011

SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al.

Bankers Trust Company, Appellant.

SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al.

Bankers Trust Company, Appellant.

SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et al.

Bankers Trust Company, Appellant.

SECURITIES INDUSTRY ASSOCIATION v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, et

al., Appellants, Bankers Trust Company.

Nos. 86-5089 to 86-5091 and 86-5139.

United States Court of Appeals District of Columbia Circuit.

Argued April 4, 1986.

Decided Dec. 23, 1986.

Appeals from the United States District Court for the District of Columbia (Civil Action No. 80-2730).

Richard M. Ashton, Atty., Board of Governors of the Federal Reserve System, with whom Richard K. Willard, Asst. Atty. Gen., Anthony J. Steinmeyer, Nicholas S. Zeppos, Attys., Dept. of Justice, Robert M. Kimmitt, General Counsel, Dept. of Treasury and Richard V. Fitzgerald, Chief Counsel, Office of Comptroller of the Currency, Washington, D.C., were on the brief for appellants, Board of Governors of the Federal Reserve System, et al. in No. 86-5139.

Paul L. Friedman, with whom John W. Barnum, Washington, D.C., Laura B. Hoguet, New York City, and James D. Miller, Washington, D.C., were on the brief for appellant, Bankers Trust Co. in Nos. 86-5089, 86-5090 and 86-5091.

James B. Weidner, with whom David A. Schulz, New York City, was on the brief for appellee in Nos. 86-5089, 86-5090, 86-5091 and 86-5139.

Paul Blankenstein, Washington, D.C., was on the brief for amicus curiae, Marine Midland Bank, N.A., urging reversal.

Robert S. Rifkind, New York City, was on the brief for amici curiae, New York Clearing House Ass'n and California Bankers Clearing House Ass'n, urging reversal.

Leonard H. Becker and Daniel I. Prywes, Washington, D.C., were on the brief for amicus curiae, Goldman, Sachs & Co., urging affirmance.

John J. Gill, III and Michael F. Crotty, Washington, D.C., were on the brief for amicus curiae, American Bankers Ass'n, urging reversal.

Michael S. Hefler, Richard F. Goodstein, Henry T. Rathbun and Arnold M. Lerman, Washington, D.C., were on the brief for amicus curiae, Dealer Bank Association, urging reversal. Ronald J. Greene and Kerry W. Kircher, Washington, D.C., entered appearances for amicus curiae, Dealer Bank Ass'n.

Linda Chatman Thompson, Washington, D.C., was on the brief for amicus curiae, Morgan Guar. Trust Co. of New York, urging reversal.

Harvey L. Pitt, Henry A. Hubschman and David M. Miles, Washington, D.C., were on the brief for amicus curiae, Investment Co. Institute, urging affirmance.

Before MIKVA, EDWARDS and BORK, Circuit Judges.

Opinion for the Court filed by Circuit Judge BORK.

BORK, Circuit Judge:

This is an appeal from an order of the district court invalidating under the Glass-Steagall Act a decision of appellant Board of Governors of the Federal Reserve System that permitted appellant Bankers Trust Company, a state-chartered commercial bank and a member of the Federal Reserve System, to place commercial paper issued by third parties. The Act prohibits commercial banks from engaging in investment banking. The Board of Governors determined that Bankers Trust's activities did not cross the line into investment banking, but the district court concluded that they did. After considering the language and history of the Act and the applicable case law, we reverse the judgment of the district court and reinstate the Board's decision.

I.

"Commercial paper" comprises unsecured, large denomination promissory notes written with maturities of less than nine months to supply the current capital needs of corporate issuers. In privately negotiated transactions, issuers typically place commercial paper with large, financially sophisticated institutional investors (such as insurance companies or pension funds).

Bankers Trust acts as an advisor and agent to commercial paper issuers by advising each issuer of the interest rates and maturities that institutional investors are likely to accept, by soliciting prospective purchasers for commercial paper the client decides to issue, and by placing the issue with the purchasers. Bankers Trust does not make any general advertisement or solicitation regarding any issue it is seeking to place, and does not place any issues with individuals or the general public.

Bankers Trust receives a commission for its services based upon a percentage of the issuer's total outstanding commercial paper during a one-year period. To ensure that it acts solely as an agent without an independent financial stake in the success of issues it places, which would clearly involve it in investment banking, Bankers Trust does not purchase or repurchase for its own account, inventory overnight, or take any ownership interest in any commercial paper it places. Nor does Bankers Trust any longer make loans on or collateralize loans with the paper it places (a practice it formerly followed when necessary to remedy any deficiency in placement of an issue).

This appeal is the latest installment in a dispute that began in 1979 when the Securities Industry Association ("SIA"), a trade association of underwriters, brokers, and securities dealers, petitioned the Board of Governors for a ruling that it was unlawful for Bankers Trust and other commercial banks to sell commercial paper issued by unrelated entities. The Board ruled against the SIA, but ultimately the Supreme Court, disagreeing with the Board of Governors, held that commercial paper is included within the category of "notes or other securities" addressed by the Banking Act of 1933, commonly known as the Glass-Steagall Act, and remanded the case for a determination of an unresolved issue: whether Bankers Trust's placement of commercial paper constituted the "underwriting" or "business of issuing, underwriting, selling or distributing" that the Act prohibits. Securities Indus. Ass'n v. Board of Governors of the Fed. Reserve Sys., 468 U.S. 137, 160 n. 12, 104 S.Ct. 2979, 2992 n. 12, 82 L.Ed.2d 107 (1984) (SIA ).

Upon remand, the Board of Governors found that Bankers Trust's placement of commercial paper constituted the "selling" of a security without recourse and solely upon the order and for the account of customers, a practice permitted by section 16 of the Act, 12 U.S.C. Sec. 24 (Seventh) (1982). Federal Reserve System, Statement Concerning Applicability of the Glass-Steagall Act to the Commercial Paper Activities of Bankers Trust Company (June 4, 1985) ("Board Statement"), Joint Appendix ("J.A.") at 195. The district court reviewed the Board's decision on the petition of the SIA and granted SIA summary judgment, holding that Bankers Trust's activities involved the "underwriting" and "distributing" prohibited by section 21(a)(1) of the Act, 12 U.S.C. Sec. 378(a)(1) (1982). Securities Indus. Ass'n v. Board of Governors of the Fed. Reserve Sys., 627 F.Supp. 695 (D.D.C.1986). This appeal followed.

II.

In reviewing the Board's decision, we owe the agency's determination "the greatest deference." Board of Governors of the Fed. Reserve Sys. v. Investment Co. Inst., 450 U.S. 46, 56, 101 S.Ct. 973, 981, 67 L.Ed.2d 36 (1981) (ICI ); accord Securities Indus. Ass'n v. Board of Governors of the Fed. Reserve Sys., 468 U.S. 207, 217, 104 S.Ct. 3003, 3009, 82 L.Ed.2d 158 (1984) (Schwab ) (giving Board "substantial deference"); see also Board of Governors of the Fed. Reserve Sys. v. Agnew, 329 U.S. 441, 450, 67 S.Ct. 411, 415, 91 L.Ed. 408 (1947) (Rutledge, J., concurring) ("[The Board's] specialized experience gives [it] an advantage judges cannot possibly have, not only in dealing with the problems raised for [its] discretion by the system's working, but also in ascertaining the meaning Congress had in mind in prescribing the standards by which [the Board] should administer it."). This principle is not contradicted by SIA, 468 U.S. at 143-44 (according only "little deference"), or Investment Co. Inst. v. Camp, 401 U.S. 617, 626-28, 91 S.Ct. 1091, 1097, 28 L.Ed.2d 367 (1971) (Camp ) (rejecting a deferential approach).

In the latter cases, the agency involved failed to present the Court with anything to which to defer. In Camp, Justice Stewart, writing for the majority, noted that "courts should give great weight to any reasonable construction of a regulatory statute adopted by the agency charged with the enforcement of that statute," 401 U.S. at 626-27, 91 S.Ct. at 1097, but said the "difficulty" was that the Comptroller of the Currency had promulgated the challenged regulation "without opinion or accompanying statement," id. at 627, 91 S.Ct. at 1097. Without the benefit of any "expressly articulated position at the administrative level," the Court refused to defer to the agency's position, reasoning that "[i]t is the administrative official and not appellate counsel who possesses the expertise that can enlighten and rationalize the search for the meaning and intent of Congress." Id. at 628, 91 S.Ct. at 1097-98.

In SIA, the Board had provided an opinion explaining its view of whether commercial paper constituted "securities" for purposes of the Glass-Steagall Act but failed to analyze the legislative purposes behind the Act. Because of this omission, the Court gave "little deference" to the Board's position that its interpretation ran afoul of none of the purposes of the Act. 468 U.S. at 143-44, 104 S.Ct. at 2983-84. The Court at the same time observed generally that because "[t]he Board is the agency responsible for federal regulation of the national banking system, ... its interpretation of a federal banking statute is entitled to substantial deference." Id. at 142, 104 S.Ct. at 2983.

In the present case, as in ICI and Schwab, the Board has comprehensively addressed the...