Nos. 93-1612 and 93-1613

In the Supreme Court of the United States 

OCTOBER TERM, 1994

NATIONSBANK OF NORTH CAROLINA, N.A., ET AL.,
PETITIONERS

v.

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL.

EUGENE LUDWIG, COMPTROLLER OF THE 
CURRENCY, ET AL., PETITIONERS

v.

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL.

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

BRIEF FOR THE FEDERAL PETITIONERS

DREW S. DAYS, III
Solicitors General

FRANK W. HUNGER
Assistant Attorney General

PAUL BENDER
Deputy Solicitor General

EDWARD C. DuMONT
Assistant to the Solicitor General

MARK B. STERN
JACOB M. LEWIS
Attorneys

Department of Justice
Washington, D.C. 20530
(202)514-2217

JULIE L. WILLIAMS
Chief Counsel

L. ROBERT GRIFFIN
ROSA M. KOPPEL
YVONNE D. McINTIRE
Attorneys

Office of the Comptroller
of the Currency
Washington, D.C. 20219
(202)874-5200

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QUESTION PRESENTED

Whether federal law permits national banks, wher-
ever located, to act as agents in the sale of annuities.

(I)

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II

PARTIES TO THE PROCEEDINGS

In addition to the parties identified in the captions,
the parties in the court of appeals included the United
States, the Office of the Comptroller of the Currency,
and NCNB National Bank of North Carolina and
NCNB Securities, Inc. (the corporate predecessors of
petitioners NationsBank of North Carolina, N. A.,
and NationsBanc Securities, Inc.).

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TABLE OF CONTENTS

Page

Opinions below . . . . 1 
Jurisdiction . . . . 2
Statutory provisions involved . . . . 2 
Statement . . . . 4 
Introduction and summary of argument . . . .13 
Argument:
I. Acting as an intermediary with respect to cus-
tomers' financial investments falls within a na-
tional bank's statutory authority to exercise "all
such incidental powers as shall be necessary to
carry on the business of banking" . . . . 16
A. Federal law grants national banks broad and
flexible authority to carry on the business of
banking . . . . 16 
B. Acting as an intermediary in customers' in-
vestment transactions is traditionally part
of or incidental to the business of banking . . . . 20 
II. The Comptroller reasonably determined that the
sale of annuities by national banks is not pro-
hibited by 12 U.S.C. 92 . . . . 24
A. The Comptroller reasonably determined that
annuities are not "insurance" for purposes
of Section 92 . . . . 25 
B. The Comptroller reasonably concluded that
Section 92 does not prohibit agency sales of
specialized "insurance" products outside
small towns if the Comptroller has deter-
mined that such sales are part of or inci-
dental to the business of banking . . . . 40
Conclusion . . . . 44 
   
TABLE OF AUTHORITIES

Cases:

American Ins. Ass'n V. Clarke, 865 F.2d 278 (D.C.
Cir. 1988) . . . . 19 
           
(III)

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IV

Cases-Continued:              

Page

American Land Title Ass'n  v. Clarke, 743 F. Supp.
491 (W.D. Tex. 1989) . . . . 38
Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir.
1972) . . . . 18
Associates in Adolescent Psychiatry, S.C. v. Home
Life Co., 941 F.2d 561 (7th Cir. 1991), cert. de-
nied, 112 S. Ct. 1182 (1992) . . . . 5-6
Beecham v. United States, 114 S. Ct. 1669 (1994 ) . . . . 41
Chatham County Hosp. Auth. v. John Hancock
Mut. Life Ins. Co., 325 F. Supp. 614 (S.D. Ga.
1971) . . . . 36
Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984) 12, 15, 25, 37, 43
Cippollone v. Liggett Group, 112 S. Ct. 2608
(1992) . . . . 40
Clarke v. Securities Indus. Ass'n, 479 U.S. 388
(1987)  . . . . l5, 20-21, 25, 37
Clement Nat'1 Bank v. Vermont, 231 U.S. 120
(1913) . . . . 18, 19
Colorado Nat'1 Bank v. Bedford, 310 U.S. 41
(1940) . . . . 18, 19
Corporation Comm'n v. Equitable Life Assur.
Soc'y, 239 P.2d 360 (Ariz. 1951) . . . . 32
Curtis v. Leavitt, 15 N.Y. 9 (1857) . . . . 17, 18, 23
Daniel v. Life Ins. Co. of Va., 102 S.W.2d 256 (Tex.
Civ. App. 1937) . . . . 36
Dickerson v. New Banner Inst., 460 U.S. 103
(1983) . . . . 36
Dyer v. Broadway Central Bank, 169 N.E. 635
(N.Y. 1930) . . . . 19
First Nat'1 Bank of Charlotte v. National Exch.
Bank, 92 U.S. 122 (1876) . . . . 18,19
First Nat'1 Bank of E. Ark. v. Taylor, 907 F.2d
775 (8th Cir.), cert. denied, 498 U.S. 972
(1990) . . . . 19
Franklin Nat'1 Bank v. New York, 347 U.S. 373
(1954) . . . . 18, 19
Good Samaritan Hosp. v. Shalala, 113 S. Ct. 2151
(1993) . . . . 38
Helvering v. Le Gierse, 312 U.S. 531 (1941) . . . . 32

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V

Cases-Continued:              

Page

Howerton, In re, 21 B.R. 621 (Bankr. N.D. Tex.
1982) . . . . 36
Hughey v. United States, 495 U.S. 411 (1990) . . . . 41
Independent Ins. Agents v. Board of Governors,
736 F.2d 468 (8th Cir. 1984) . . . . 39
Independent Ins. Agents v. Ludwig, 997 F.2d 958
(D.C. Cir. 1993) . . . . 38
Investment Co. Inst. v. Camp, 401 U.S. 617
(1971) . . . . 13, 15, 37
M & M Leasing Corp. v. Seattle First Nat'1 Bank,
563 F.2d 1377 (9th Cir. 1977), cert. denied, 436
U.S. 956 (1978) . . . . 19, 23
M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316
(1819) . . . . 23
Merchants' Bank v. State Bank, 77 U.S. (10 Wall.)
604 (1871) . . . . 18, 19
National R.R. Passenger Corp. v. Boston & Maine
Corp., 112 S. Ct. 1394 (1992) . . . . 23, 24
New York State Ass'n of Life Underwriters v.
New York State Banking Dep't:
598 N.Y.S.2d 824 (App. Div. 1993), aff'd, 632
N.E.2d 876 (N.Y. 1994)  . . . . 36-37
632 N.E.2d 876 (N.Y. 1994) . . . . 19-20, 23, 28, 35
New York Stock Exch. v. Bloom, 562 F.2d 736
(D.C. Cir. 1977), cert. denied, 435 U.S. 942
(1978) . . . . 38
Rishel v. Pacific Mutual Life Ins. Co. of Cal., 78
F.2d 881 (10th Cir. 1935) . . . . 36
SEC v. Chenery Corp., 318 U.S. 80 (1943) . . . . 28
SEC v. United Benefit Life Ins. Co., 387 U.S. 202
(1967) . . . . 6, 35
SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65
(1959) . . . . 6, 8, 30, 35, 36
Saxon v. Georgia Ass'n of Indep. Ins. Agents, 399
F.2d 1010 (5th Cir. 1968) . . . . 12
Securities Indus. Ass'n v. Board of Governors, 468
U.S. 207 (1984) . . . . 21, 24
Securities Indus. Ass'n v. Clarke, 885 F.2d 1034
(2d Cir. 1989), cert. denied, 493 U.S. 1070
(1990) . . . . 19

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VI

Cases Continued:              

Page

Thomas Jefferson Univ. v. Shalala, No. 93-120
(June 24, 1994) . . . . 38
United States v. Bess, 357 U.S. 51 (1958) . . . . 36
United States v. Price, 361 U.S. 304 (1960) . . . . 40
United States v. Shimer, 367 U.S. 374 (1961) . . . . 43
Young, In re, 806 F.2d 1303 (5th Cir. 1987) . . . . 35

Statutes and regulation:

Act of Feb. 25, 1863, ch. 58, 11, 12 Stat. 668 . . . . 16, 17
Act of June 3, 1864, ch. 106, 8, 13 Stat. 99 . . . . 17
Act of Dec. 23, 1913 (Federal Reserve Act), ch. 6,
13, para. 9, 38 Stat. 263 . . . . 3
Act of Feb. 27, 1927 (McFadden Act), ch. 191,
2, 44 Stat. 1226 . . . . 20
Act of June 16, 1933 (Glass-Steagall Act), ch. 89,
16, 48 Stat. 184 . . . . 7-8, 20
Securities Act of 1933, 3(a) (8), 15 U.S.C.
77c(a) (8) . . . . 35
Rev. Stat  5136 (1878) (12 U.S.C. 24) . . . . 2
12 U.S.C. 1 . . . . 13
12 U.S.C. 24 Seventh . . . . passim
12 U.S.C. 26-27 . . . . 13
12 U.S.C. 92 (Supp. V 1993) . . . . passim
12 U.S.C. 181 . . . . 13
26 U.S.C. 72 . . . . 7, 32
26 U.S.C. 72 (e) . . . . 7, 32
26 U.S.C. 72 (q) . . . . 7
26 U.S.C. 101 (a) . . . . 32
26 U.S. 816(a) . . . . 35
N.Y. Free Banking Law of 1838, ch. 260, 18,
1838 N.Y. Laws 249 . . . . 17
17 C.F.R. 230.151 (Rule 151) . . . . 35

Miscellaneous:

American Council of Life Insurance, 1993 Life
Insurance Fact Book Update (1993) . . . . 33
1 J. Appleman, Insurance Law & Practice (1981) . . . . 35
Black's Law Dictionary (6th ed. 1990) . . . . 23, 25, 26, 31

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VII

Miscellaneous-Continued:           

Page

Cong. Globe, 37th Cong., 3d Sess. (1863) . . . . 17
53 Cong. Rec. (1916):
p. 11,001 . . . . 39, 40
p. 11,002 . . . . 39
2 Fed. Res. Bull. 73 (1916) . . . . 40
Bray Hammond, Sovereignty and an Empty
Purse: Banks and Politics in the Civil War
(1970) . . . . 17, 18
David Hariton, The Taxation of Complex Finan-
cial Instruments, 43 Tax L. Rev. 731 (1988) . . . . 29  
Note, Reverse Annuity Mortgages and the Due-
on-Sale Clause, 32 Stan. L. Rev. 143 (1979) . . . . 29
Office of the Comptroller of the Currency:
OCC Interpretive Letter No. 241, [1983-1984
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,405 (Mar. 26, 1982) . . . . 38 
OCC  Interpretive Letter No. 271, [1983-1984
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,435 (Sept. 21, 1983) . . . . 22
OCC Interpretive Letter No. 326, [1985-1987
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,496 (Jan. 17, 1985) . . . . 22 
OCC "Interpretive Letter No. 331, [1985-1987
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,501 (Apr. 4, 1985) . . . . 7, 8, 28
OCC Interpretive Letter No. 356, [1985-1987
Transfer Binder] Fed. Banking L. Rep.
(CHH) "Par" 85,526 (Jan. 7, 1986) . . . . 22
OCC Interpretive Letter No. 357, [1985-1987
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,527 (Feb. 26, 1986) . . . . 22
OCC Interpretive Letter No. 365, [1985-1987
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,535 (Aug. 1, 1986) . . . . 22
OCC Interpretive Letter No. 387, [1988-1989
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,611 (June 22, 1987) . . . . 22

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VIII

Miscellaneous-Continued:

Page

OCC Interpretive Letter No. 494, [1989-1990
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par", 83,083 (Dec. 20, 1989) . . . . 21, 22
OCC Interpretive Letter No. 499, [1989-1990
Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par", 83,090 (Feb. 12, 1990) . . . . 6, 7, 28
Rev. Rul. 79-335, 1979-2 C.B. 292 . . . . 32
D. Shapiro & T. Streiff, Annuities (1992) . . . . passim
Symons, The "Business of Banking" in Historical
Perspective, 51 Gee. Wash. L. Rev. 676 (1983 ) . . . . 17
Webster's Third New International Dictionary
(1986) . . . . 25, 26

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In the Supreme Court of the United States
      
OCTOBER TERM, 1994

No. 93-1612

NATIONSBANK OF NORTH CAROLINA, N. A., ET AL.,
PETITIONERS

v.

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL.

No. 93-1613

EUGENE LUDWIG, COMPTROLLER OF THE
CURRENCY, ET AL., PETITIONERS

v.

VARIABLE ANNUITY LIFE INSURANCE COMPANY, ET AL.

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

BRIEF FOR THE FEDERAL PETITIONERS

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-
17a) 1. is reported at 998 F.2d 1295. That court's or-
der denying rehearing and rehearing en banc, and

___________________(footnotes)

1 "Pet. App." refers to the appendix to the petition in
No. 93-1612.      

(1)

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2

the opinion dissenting therefrom (Pet. App. 18a-
28a), are reported at 13 F.3d 833. The opinion of
the district court (Pet. App. 29a-34a) is reported at
786 F. Supp. 639. The approval letter of the Office
of the Comptroller of the Currency (Pet. App. 35a-
48a) is unreported.
       
JURISDICTION

The judgment of the court of appeals was entered
on August 26, 1993. A petition for rehearing was
denied on January 13, 1994. Pet. App. 18a-19a. The
petitions for certiorari were filed on April 13, 1994,
and were granted on June 6, 1994. The jurisdiction
of this Court rests on 28 U.S.C. 1254(1).
   
STATUTORY PROVISIONS INVOLVED

1. Section 5136 of the Revised Statutes of 1878,
12 U.S.C. 24, as amended, provides in pertinent part
as follows:
  
Upon duly making and filing articles of as-
sociation and an organization certificate a na-
tional banking association shall become, as from
the date of the execution of its organization cer-
tificate, a body corporate, and as such, and in
the name designated in the organization certifi-
cate, it shall have power-

* * * * *

Seventh. To exercise by its board of directors
or duly authorized officers or agents, subject to
law, all such incidental powers as shall be neces-
sary 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 sell-
ing exchange, coin, and bullion; by loaning money

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3

on personal security; and by obtaining, issuing,
and circulating notes according to the provisions
of title 62 of the Revised Statutes. The business
of dealing in securities and stock by the associ-
ation shall be limited to purchasing and selling
such securities and stock without recourse, solely
upon the order, and for the account of, custo-
mers, and in no ease for its own account, and
the association shall not underwrite any issue of
securities or stock [.]

2. Section 13, para. 9, of the Federal Reserve Act,
Act of Dee. 23, 1913, ch. 6, 38 Stat. 263, 12 U.S.C.
92 ( Supp. V 1993), provides as follows:

In addition to the powers now vested by law
in national banking associations organized under
the laws of the United States any such associ-
ation located and doing business in any place the
population of which does not exceed five thou-
sand inhabitants, as shown by the last preced-
ing decennial census, may, under such rules and
regulations as may be prescribed by the Comp-
troller of the Currency, act as the agent for any
fire, life, or other insurance company author-
ized by the authorities of the State in which said
bank is located to do business in said State, by
soliciting and selling insurance and collecting
premiums on policies issued by such company;
and may receive for services so rendered such
fees or commissions as may be agreed upon be-
tween the said association and the insurance
company for which it may act as agent: Pro-
vided, however, That no such bank shall in any
case assume or guarantee the payment of any
premium on insurance policies issued through
its agency by its principal: And provided fur-
ther, That the bank shall not guarantee the truth

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4

of any statement made by an assured in filing
his application for insurance.

STATEMENT

1. This litigation involves a challenge to the
Comptroller of the Currency's approval of an ap-
plication by the corporate predecessors of petition-
ers NationsBank of North Carolina, N.A. and its
brokerage subsidiary, NationsBanc Securities, Inc.
(collectively, NationsBank), for permission for the
subsidiary to act as an agent in the sale of a variety
of fixed and variable annuity contracts. Although
annuities come in many forms, in general they are
contracts under which the purchaser makes one or
more premium payments to the issuer, in return for
the right to receive a series of periodic payments,
which continue either for a fixed period or for the
life of the purchaser or a designated beneficiary. See
generally D. Shapiro & T. Streiff, Annuities 2-4
(1992) (hereafter Annuities). The annuity contracts
that NationsBank proposed to sell were "designed to
provide investors with the opportunity to invest and
accumulate capital on a tax-deferred basis, for retire-
ment or other long-term goals." Pet. App. 35a.
"Immediate" annuities begin making periodic pay-
ments shortly after the contract is purchased, and are
primarily a mechanism for structuring the invest-
ment of a given capital sum and its repayment on a
level-payment, self-amortizing basis. 2. See Annuities 3.

___________________(footnotes)

2 That is, the amount of each periodic payment is fixed, and
is calculated so that over the agreed or actuarially predicted
payout period the purchaser will receive back an amount equal
to the total premium paid, less applicable expenses and fees,
plus interest at a predetermined rate. As explained below,
modern annuities often guarantee a minimum fixed payment
amount, but provide that the issuer may increase payments, in

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5

Most annuities sold in the modern market, how-
ever, are "deferred" annuities. Id. at 4. Deferred
annuities involve an initial "accumulation period,"
during which the purchaser's payments are held and
invested by the issuer, and interest or investment
returns are periodically credited to the purchaser's
account. See id. at 3. At the end of the accumulation
period the purchaser generally has the right to select
one of a number of options for repayment of the
account's accumulated value, including lump-sum dis-
tribution, systematic withdrawals, or the purchase of
an "immediate" annuity (generally at rates specified
in the original contract). Id. at 4.
Annuities are commonly described as either "fixed"
or "variable." Those terms refer to the terms on
which the annuity issuer promises to hold and repay
the purchaser's investment. The issuer of a fixed
annuity promises that the purchaser's investment will
earn interest (during both the accumulation and the
payout phase) at a modest guaranteed rate. In addi-
tion, most modern "fixed" annuities (including all
those at issue in this case) also provide for the poten-
tial payment of "excess " interest, at the issuer's dis-
cretion and at whatever rate it may set from time
to time (although a particular "excess" rate may be
guaranteed for some period after inception of the
contract). See Pet. App. 36a-37a & n. 1; see generally
Annuities 34-36, 41-42 & illus. 5.1; Associates in
Adolescent Psychiatry, S.C. v. Home Life Ins. Co.,
941, F.2d 561, 564-568 (7th Cir. 1991) (discussing
securities law consequences of particular "excess in-
terest" structure ), cert. denied, 112 S. Ct. 1182

___________________(footnotes)

its discretion, on the basis of favorable overall investment
experience.

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6

(1992). Thus, the purchaser of a deferred fixed an-
nuity relinquishes control over the invested premium
and receives, in return, a general obligation of the
issuer, backed by its overall credit and assets, that
promises repayment of principal, a modest guaran-
teed return, and the possibility of greater returns
based on the issuer's investment experience. See Pet.
App. 36a; see also Annuities 39-40, 69-70.
In a "variable" annuity, on the other hand, the
issuer typically promises to segregate premiums re-
ceived from the purchaser into a separate account
and to invest them in one or more of a number of
possible investments-such as a group of mutual
funds-as directed by the purchaser. The value of a
deferred variable annuity during or at the end of the
accumulation period is determined largely by the per-
formance of the selected investments, although the
issuer may guarantee preservation of principal or a
modest minimum rate of return. Thus, the purchaser
retains both substantial investment control and the
associated risk of gain or loss. See generally Pet.
App. 35a-36a; Annuities 5, 49, 51; Office of the
Comptroller of the Currency (OCC), Interpretive
Letter No. 499, [1989-1990 Transfer Binder] Fed.
Banking L. Rep. (CCH) "Par", 83,090 at 71,211 (Feb. 12,
1990 ) (OCC Ltr. No. 499) (describing annuities in-
volved in this case). A deferred annuity may be vari-
able only during the accumulation period, or may
continue to provide variable returns if the contract
provides for (or the purchaser chooses) a variable
annuity payout option. Compare, e.g., SEC v. United
Benefit Life Ins. Co., 387 U.S. 202, 205-206 (1967),
with SEC v. Variable Annuity Life Ins. Co., 359
U.S. 65,69-72 & n.13 (1959).

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7

Both fixed and variable annuities are covered by
an unique and complex set of federal income tax rules
that generally allow for deferral of tax on the invest-
ment returns allocable to a purchaser's annuity pay-
ments until those returns are withdrawn during the
payout phase of the contract. See 26 U.S.C. 72;
Annuities 70-73. Because the tax rules also generally
provide for penalties if an annuity investment is
withdrawn before the purchaser is 59 1/2 years old,
and for unfavorable tax treatment of amounts with-
drawn before the maturity of the contract, annuities
are frequently marketed as a tax-sheltered means of
saving for retirement. See Annuities 7, 83-85, 107-
108; 26 U.S.C. 72(e) and (q) ; Pet. App. 38a.
2. NationsBank sought approval from the Comp-
troller of the Currency for its proposal to act as a
sales agent for (not as issuer of) a variety of annuity
contracts that would allow purchasers to design "a
flexible, multi-faceted investment package comprised
of variable and fixed annuity options." Pet. App.
37a. The OCC Chief Counsel's interpretive letter
underlying the Comptroller's approval of Nations-
Bank's proposal (see id. at 35a) noted that the OCC
had previously reached the conclusion that national
banks have the authority to sell variable annuities,
on the ground that "variable annuity contracts are
securities, functionally resembling shares in a mutual
fund, and * * * banks are authorized, pursuant to 12
U.S.C. 24 (7) to buy and sell securities for the
account of customers. " OCC Ltr. No. 499 at 71,211,
citing OCC, Interpretive Letter No. 331, [1985-1987
Transfer Binder] Fed. Banking L. Rep. (CCH)
"par"  85,501 (Apr. 4, 1985) (OCC Ltr. No. 331). 3. The

___________________(footnotes)

3 The second sentence of 12 U.S.C. 24 Seventh (added by
Section 16 of the Banking Act of 1933 (Glass-Steagall Act),

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8

Comptroller adopted (Pet. App. 37a) the Chief Coun-
sel's view that insofar as the annuities involved in
NationsBank's proposal were "securities" within the
meaning of 12 U.S.C. 24 Seventh, they would fall
within the scope of that prior determination. The
additional analysis provided by the Chief Counsel's
letter and the Comptroller's approval in this case
therefore focused on NationsBank's proposal to mar-
ket fixed annuities, although the approval extended
to the entire range of annuity products described in
the bank's application. 4.
The statutory grant of power to national banks,
12 U.S.C. 24 Seventh, provides that such banks may

___________________(footnotes)

Act of June 16, 1933, ch. 89, 16, 48 Stat. 184) refers ex-
pressly to the "business of dealing in securities and stock"
by a national bank, but limits that business "to purchasing
and selling such securities without recourse, solely upon the
order, and for the account of, customers, and in no case for
its own account," and provides that banks "shall not under-
write any issue of securities or stock." OCC Ltr. No. 331
concluded (at 77,774 ) that because variable annuities are
similar to shares in a mutual fund, they should be considered
"securities" within the meaning of that provision, and there-
fore within the power of national banks to sell "solely upon
the order, and for the account of, customers." Compare SEC
V. Variable Annuity Life Ins. Co., 359 U.S. at 71-72 (variable
annuities are "securities" subject to the registration require-
ments of the Securities Act of 1933); SEC v. United Benefit
Life Ins. Co., 387 U.S. at 210-211 (1967) (same as to variable
accumulation period of contract with fixed annuity payout
option ).

4 The Comptroller determined (Pet. App. 37a-38a) that
sales of fixed annuities were permissible even if such annuities
were not "securities" for purposes of 12 U.S.C. 24 Seventh
(see note 3, supra). He therefore had no occasion to consider
the question whether fixed annuities are "securities," and
that question is not presented in this case.

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9

exercise "all such incidental powers as shall be neces-
sary to carry on the business of banking." In apply-
ing that general provision to NationsBank's applica-
tion, the Comptroller stated that "[a]s part of their
traditional role as financial intermediaries, [na-
tional] banks have broad powers to buy and sell
financial investment instruments as agent for cus-
tomers," Pet. App. 38a. He noted that "[a]lthough
annuities have historically been a product of insur-
ance companies, they are primarily financial invest-
ments," because annuity purchasers "are not seeking
to pool a catastrophic risk such as death, injury, or
property damage, but are instead seeking a guaran-
teed, long-term return on their assets." Ibid. The
opinion acknowledged the element of "mortality risk"
present in some annuities, but concluded (in accord-
ance with a number of authorities) that it "is essen-
tially an investment risk, not an insurance risk,"
and that "although annuities often share with insur-
ance the need for actuarial calculations, they are
primarily a vehicle for investment." Id. at 38a-39a.
Further, the Comptroller found a "close functional
resemblance between fixed annuity contracts and
other financial investment instruments that banks
may sell as agent" (Pet. App. 39a), including vari-
able annuities, conventional debt instruments, and
certificates of deposit. Id. at 39a-41a. Indeed,
"[t]he financial marketplace provides many exam-
ples of instruments that, like fixed annuities, pay
the investor a fixed stream of income over time in
return for an initial investment." Id. at 41a. The
Comptroller therefore concluded that "fixed annuity
contracts are financial investment instruments that
national banks have authority to sell as agent."
Ibid.

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10

The Comptroller next considered (Pet. App. 41a-
47a) whether 12 U.S.C. 92 (Supp. V 1993), which
permits national banks in towns of 5,000 or fewer
inhabitants to "act as the agent for any fire, life,
or other insurance company * * * by soliciting and
selling insurance and collecting premiums," by impli-
cation prohibits national banks in larger towns and
cities from selling annuities. He first noted the OCC'S
traditional position that Section 92, which grants
small-town banks general insurance agency powers
"in addition" to their other powers as national banks,
was intended only to provide such banks with an
additional source of revenue, and implies no restric-
tion on the powers conferred by Section 24 Seventh
on all national banks, wherever located. Pet. App.
42a. Moreover, after reviewing available authorities
(id. at 43a-47a), the Comptroller concluded that
because annuities are "primarily a vehicle for invest-
ment" (id. at 45a) and "lack the basic insurance
characteristic of indemnification against risk" (id.
at 47a), they should not in any event be considered
"insurance" for purposes of Section 92. Pet. App.
47a.
The Comptroller also pointed out (Pet. App. 42a-
43a) that Section 92 speaks only of a bank's power
to act as an agent for any "fire, life, or other
insurance company." Applying the principle of
"ejusdem generis," he concluded that the statute
should be read to apply only to "types of insurance
that are similar to fire and life insurance, such as
other general casualty insurance policies." Pet. App.
43a. Thus, even if annuities were to be considered
"insurance" for purposes of Section 92, they would
remain "a specialized product, unrelated to the gen-

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11

eral life and casualty policies that section 92 con-
cerns. " Pet. App. 43a. That Section would therefore
have no application to annuities, which should be
analyzed only to determine whether their sale was
part of or incidental to "the business of banking"
under 12 U.S.C. 24 Seventh. Pet. App. 43a.
Finally, the Comptroller determined (Pet. App.
47a-48a ) that there were no policy or supervisory
issues that counseled against permitting NationsBank
to make agency sales of annuities. On the contrary,
he noted that such sales would provide "a logical
complement to other financial services offered by
[NationsBank], such as investment advice and dis-
count brokerage services," would provide additional
income for the banks, and would help the bank "com-
pete effectively with other providers of financial serv-
ices." Ibid. Customers would also benefit from the
increased range of products made available to them
through the bank. Ibid. Because the bank would
act only as agent, it would incur no interest rate or
actuarial risks. Id. at 48a. Finally, in order to
eliminate any risk of customer confusion, the Comp-
troller required that NationsBank "expressly disclose
in its advertising and promotional materials, and
* * * when describing the [annuities] to customers,
that the [annuities] are not products of [Nations-
Bank] and are not FDIC insured," and obtain a
signed statement from each annuity purchaser ac-
knowledging the bank's agency status and the lack
of federal insurance. Ibid. On those conditions, the
Comptroller permitted NationsBank to proceed with
agency sales of annuities.
3. Respondent Variable Annuity Life Insurance
Company, an issuer of annuities, filed suit in federal
district court to overturn the Comptroller's approval.

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12

The district court granted summary judgment for
the Comptroller. Pet. App. 29a-34a. Addressing pri-
marily respondent's argument under 12 U.S.C. 92,
the court found it "neither arbitrary nor capricious"
to view that Section "as a supplemental powers pro-
vision and not a limitation on national banks [']
incidental powers under 24(7)." Pet. App. 33a-
34a. Moreover, applying the principles articulated in
Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984), the court deferred
to the Comptroller's "reasonable interpretation" that
"annuities are primarily financial investment instru-
ments, not insurance" for purposes of the relevant
banking laws. Pet. App. 33a. Finally, the court
upheld as reasonable the Comptroller's determination
that "annuities are a specialized product," unlike the
general life and casualty insurance covered by Sec-
tion 92. Pet. App. 34a.
The court of appeals reversed. Pet. App. 1a-17a.
Relying in substantial part on its decision in Saxon
v. Georgia Ass'n of Indep. Ins. Agents, 399 F.2d
1010 (5th Cir. 1968), the court determined that 12
U.S.C. 92 imposes an affirmative limitation on the
power of national banks not located in small towns
to sell any form of "insurance." Pet. App. 6a-10a,
15a-17a. The court then rejected the Comptroller's
conclusions that annuities are not "insurance" for
purposes of Section 92 (Pet. App. 10a-13a) and that,
in any event, the statute applies only to general forms
of insurance akin to fire and life insurance (id. at
13a-14a).
The court read the legislative history of Section
92 to indicate that the general banking authority
conferred by 12 U.S.C. 24 Seventh "did not grant
banks the power to sell insurance products." Pet.

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13

App. 16a-17a. The court remarked in passing (id.
at 15a) that even if agency sales of annuities were
"incidental" to the "business of banking," the power
to make them could not be deemed "necessary" to
carrying on that business under Section 24 Seventh's
general grant of "all such incidental powers as shall
be necessary to carry on the business of banking."
In any event, the court held that even if Section 24
Seventh, read alone, would authorize banks to sell
annuities, the specific limitations that the court found
in Section 92 would supersede anything to the con-
trary in the more general statute. Pet. App. 15a-16a.
The full court of appeals rejected petitioners' sug-
gestions of rehearing en bane, with six judges recused
and four dissenting. Pet. App. 18a-19a. The four
dissenters observed that "Section 92 nowhere defines
'insurance,'" and reasoned that "[u]nder Chevron,
this should leave it to the Comptroller to arrive at
a reasonable definition, insofar as [the statute]
relates to the industry within his jurisdiction." Id.
at 24a. Their opinion reviewed a number of relevant
authorities (id. at 24a-27a) and concluded that on
the question whether annuities are "insurance" for
purposes of Section 92, "[t] he better view-and cer-
tainly a reasonable one that is entitled to deference
under Chevron-is that of the Comptroller." Pet.
App. 24a.

INTRODUCTION AND SUMMARY OF ARGUMENT

The Comptroller of the Currency has been charged
by Congress with the oversight and regulation of
national banks. See generally 12 U.S.C. 1, 26-27,
481; Investment Co. Inst. v. Camp, 401 U.S. 617,
626-627 (1971). In this case, the Comptroller deter-

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14

mined that federal law permits such banks to act as
agencies in the sale of annuities to their customers,
because the power to conduct such sales is "inci-
dental" to the "business of banking" under 12 U.S.C.
24 Seventh. That determination rests in large part
on the Comptroller's conclusion that the annuities in
question are functionally investment instruments for
purposes of the federal banking laws, whether or not
they are also "securities" that banks are expressly
permitted to broker under Section 24 Seventh. Na-
tional banks have traditionally served as intermedi-
aries for their customers in the purchase and sale
of financial investments. If annuities are invest-
ments, then acting as an agent for their sale is
certainly part of, or incidental to, the business of
banking.
The court of appeals overturned the Comptroller's
decision in this case on the basis of two conclusions
of its own: that annuities should be considered forms
of "insurance" for purposes of 12 U.S.C. 92 (Supp.
V 1993), and that Section 92 prohibits banks located
outside small towns from acting as sales agents for
any "insurance" product, even if the Comptroller has
determined that sales of that product are incidental
to the "business of banking." Both those conclusions
are erroneous. Dictionary definitions, functional anal-
ysis and relevant authorities all indicate that annuity
products are distinctly different from policies of
insurance: instead of focusing on indemnification
from risk of loss, they focus largely or even exclu-
sively on investment management and the return of
principal and investment income over time. More-
over, the language of Section 92 indicates that it is a
grant of additional authority to national banks lo-
cated in small towns to act as agents for the full

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15

range of life and casualty insurance products, with-
out regard to the relationship of those products to
the business of banking; there is no reason to read it
more broadly to prohibit national banks located in
other places from acting as agents in the sale of
particular "insurance" products when the Comp-
troller has specifically determined that such sales
are properly incidental to the banks' business within
the meaning of the general grant of authority found
in 12 U.S.C. 24 Seventh.
In any event, the Comptroller's resolution of each
of the questions of statutory interpretation involved
in this case is clearly reasonable, and reflects the
application of his specialized knowledge and policy
judgment. The court of appeals erred in substituting
its judgment for that of the Comptroller in an im-
portant area entrusted by Congress to the Comp-
troller's administrative oversight and regulation.
Chevron U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 842-845 (1984) ; Clarke
v. Securities Indus. Ass'n, 479 U.S. 388, 403-404
(1987 ) ; Investment Co. Inst. v. Camp, supra.

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16

ARGUMENT

I. ACTING AS AN INTERMEDIARY WITH RESPECT
TO CUSTOMERS' FINANCIAL INVESTMENTS
FALLS WITHIN A NATIONAL BANK'S STATU-
TORY AUTHORITY TO EXERCISE "ALL SUCH
INCIDENTAL POWERS AS SHALL BE NECES-
SARY TO CARRY ON THE BUSINESS OF
BANKING"

A. Federal Law Grants National Banks Broad And
Flexible Authority To Carry On The Business Of
Banking

The first sentence of 12 U.S.C. 24 Seventh author-
izes national banks

[t]o exercise * * * all such incidental powers as
shall be necessary to carry on the business of
banking; by discounting and negotiating promis-
sory notes, drafts, bills of exchange, and other
evidences of debt; by receiving deposits; by buy-
ing and selling exchange, coin, and bullion; by
loaning money on personal security; and by ob-
taining, issuing, and circulating notes according
to the provisions of title 62 of the Revised
Statutes.

That provision originated in Section 11 of the 1863
statute that first established the national banking
system. Act of Feb. 25, 1863, ch. 58, 11, 12 Stat.
668. Section 11 granted national banks the power

to carry on the business of banking by obtaining
and issuing circulating notes * * *; by discount-
ing bills, notes, and other evidences of debt; by
receiving deposits; by buying and selling gold
and silver bullion, foreign coins, and bills of ex-
change; by loaning money on real and personal
security * * *, and by exercising such incidental

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17

powers as shall be necessary to carry on such
business [.]

The language, purpose, and original structure of the
statute all indicate that Congress intended both to
enumerate certain core banking activities, and also
to leave ample scope for the exercise of other, un-
enumerated powers that might be or become part of
or "incidental" to carrying on the business of bank-
ing. 5. Section 11 of the 1863 Act was modeled on Section
18 of New York's Free Banking Law of 1838, ch.
260, 1838 N.Y. Laws 249. See Cong. Globe, 37th
Cong., 3d Sess. 1114 (1863) (remarks of Rep. Spauld-
ing); Bray Hammond, Sovereignty and an Empty
Purse: Banks and Politics in the Civil War 160
(1970). That fact is significant because, at the
time Congress passed the 1863 Act, New York's
highest court had made clear that the state statute
was to be broadly interpreted. In Curtis v. Leavitt,
15 N.Y. 9 (1857), the state Court of Appeals upheld
the power of banks chartered under the Free Bank-
ing Law to borrow money in the course of their
business, even though the statute did not specifically

___________________(footnotes)

5 One year after Section 11's initial passage, Congress
changed its language to substantially the form it takes today.
See Act of June 3, 1864, ch. 106, 8, 13 Stat. 99, 101. There
is no indication that Congress intended the 1864 consolidation,
of the statute's references to "carry[ing] on the business of
banking" and "exercising * * * incidental powers" into one
introductory clause to effect any substantive change in the
authority conferred by the statute. See Symons, The "Busi-
ness of Banking" in Historical Perspective, 51 Gee. Wash. L.
Rev. 676, 700 (1983). Indeed, because the object of the 1864
Act was to encourage state banks to convert to national char-
ters, it would have been counterproductive to use it to narrow
the scope of national bank authority. Ibid.

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18

grant any such power. One judge explained that the
statutory specifications were not intended "to restrict
the appropriate business of banking," id. at 58
(Comstock, J.), while another observed that the
"implied powers" granted by the statute were "not
enumerated and defined; because no human sagacity
can foresee what implied powers may, [with] the
progress of time, the discovery and perfection of bet-
ter methods of business, and the ever-varying atti-
tude of human relations, be required to give effect
to the express powers." Id. at 157 (Brown, J.). 6.
Similarly, this Court has long allowed national
banks considerable flexibility in exercising, under the
Comptroller's supervision, the authority granted by
Section 24 Seventh. Thus, national banks have been
permitted to certify checks, Merchants' Bank v.
State Bank, 77 U.S. (10 Wall. ) 604 (1871); pur-
chase securities in the course of settling a claim,
First Nat'l Bank of Charlotte v. National Exch.
Bank, 92 U.S. 122 (1876); pay state taxes on de-
positors' accounts, Clement Nat'1 Bank v. Vermont,
231 U.S. 120 (1913); operate a safe deposit busi-
ness, Colorado Nat'1 Bank v. Bedford, 310 U.S. 41
(1940); and engage in advertising, Franklin Nat'l
Bank v. New York, 347 U.S. 373 (1954), although
none of those activities is specifically mentioned in
Section 24 Seventh. 7.

___________________(footnotes)

6 It is reasonable to assume that Congress was aware of the
decision in Curtis when it passed the federal bank powers
provision six years later. Arnold Tours, Inc. v. Camp, 472
F.2d 427, 431 (lst Cir. 1972). Two of the three members of
the House subcommittee that originated the federal statute-
including Elbridge  Spaulding, its principal draftsman-were
New York bankers. Hammond,  supra, at 159-160.

7 This Court's decisions have adopted a pragmatic approach
to the scope of bank powers. Thus, the Court has considered

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19

Recent cases in the lower courts have continued
to recognize that, because the banking business is con-
tinually changing and evolving, the powers of national
banks "must be construed so as to permit the use of
new ways of conducting the very old business of
banking." M & M Leasing Corp. v. Seattle First
Nat'1 Bank, 563 F.2d 1377, 1382 (9th Cir. 1977),
cert. denied, 436 U.S. 956 (1978) (power to enter
into financing arrangements structured as leases) ;
see also First Nat'1 Bank of E. Ark. v. Taylor, 907
F.2d 775, 778 (8th Cir. ), cert. denied, 498 U.S. 972
(1990 ) (debt cancellation contracts); Securities In-
dus. Ass'n v. Clarke, 885 F.2d 1034, 1049 (2d Cir.
1989), cert. denied, 493 U.S. 1070 (1990) (issuance
of mortgage pass-through certificates); American
Ins. Ass'n v. Clarke, 865 F.2d 278, 281-282 (D.C.
Cir. 1988) (provision of municipal bond "insurance");
Dyer v. Broadway Central Bank, 169 N.E. 635, 636
(N.Y. 1930) ("care should be exercised not to crip-
ple [banks] and break down their usefulness by a
narrow and unreasonable construction of the statues
which will result in unwisely limiting their useful-
ness in the transaction of business under modern
conditions."). And the New York Court of Appeals
has recently reaffirmed, in upholding the authority

___________________(footnotes)

it relevant that an activity "has grown out of the business
needs of the country," Merchants' Bank, 77 U.S. (10 Wall.)
at 648; that it is a "reasonable and appropriate measur[e]
* * * to meet all the legitimate demands of the authorized
business," First Nat'1 Bank of Charlotte, 92 U.S. at 127; that
it  would "promote the convenience of [the] business:" Clement
Nat'1 Bank, 231 U.S. at 140; that it is a "generally adopted
method" of banking, Colorado Nat'l Bank, 310 US. at 50; or
that "[m]odern competition for business finds [it] one of the
most usual and useful of weapons," Franklin Nat'1 Bank,
347 U.S. at 377.

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20

of New York banks to sell fixed and variable an-
nuities under state law, its longstanding broad
construction of the statute that provided the original
pattern for Section 24 Seventh: "We have long been
mindful that the business of banking is not static
but rather must adjust to meet the needs of the
customers to whom banking organizations provide a
useful service." New York State Ass'n of Life Un-
derwriters v. New York State Banking Dep't, 632
N.E.2d 876, 880 ( 1994).

B. Acting As An Intermediary In Customers' Invest-
ment Transactions Is Traditionally Part Of Or
Incidental To The Business Of Banking

1. Brokerage of financial instruments, such as
securities, has long been a customary part of the
business of banking. Indeed, Congress acknowledged
the power of national banks to engage in securities
brokerage in Section 2 of the McFadden Act, Act of
Feb. 27, 1927, ch. 191, 44 Stat. 1226, and Section 16
of the Glass-Steagall Act, Act of June 16, 1933, ch.
89, 16, 48 Stat. 184. The McFadden Act explicitly
authorized banks to engage in "the business of buy-
ing and selling securities"; the Glass-Steagall Act, a
few years later, limited banks' "business of dealing
in securities and stock" to purchasing and selling
securities "solely upon the order, and for the account
of, customers." 12 U.S.C. 24 Seventh. Neither Act
created the authority for banks to broker securities;
each merely recognized and regulated that authority,
which stems instead from Section 24 Seventh's gen-
eral grant of power to banks to "exercise all such
incidental powers as shall be necessary to carry on
the business of banking." See Clarke v. Securities    
Indus. Ass'n, 479 U.S. 388, 407-408 & nn.20-22     

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21

(1987) (before McFadden Act, banks conducted secu-
rities transactions "on a widespread * * * basis");
Securities Indus. Ass'n v. Board of Governors, 468
U.S. 207, 215 (1984) ("[b]anks long have arranged
the purchase and sale of securities as an accommo-
dation to their customers"; Glass-Steagall "expressly
endorsed" that "traditional banking service").
The authority of national banks to broker invest-
ment instruments for customers is not limited to
instruments that are "securities" within the meaning
of Section 24 Seventh and the Glass-Steagall Act.
The Comptroller has explained that brokerage of in-
vestment instruments is generally within the "busi-
ness of banking," because of the financial aspects of
such brokerage and its relationship to other tradi-
tional banking functions:

National banks possess various express or im-
plied powers to invest in, trade, deal in, under-
write, and otherwise act in various capacities
with a wide variety of financial, investment, and
monetary instruments and other financial com-
modities (such as exchange, coin, and bullion).
Banks are regular, active participants in the
financial trading markets and normally will have
trading expertise. It is a natural part of the
same trading process for banks to serve as
broker[s] for their customers in other transac-
tions where the bank could not or does not serve
as principal but where the trading activity is
essentially similar.

OCC, Interpretive Letter No. 494, [1989-1990 Trans-
fer Binder] Fed. Banking L. Rep. (CCH) "Par", 83,083,
at 71,199 (Dec. 20, 1989) (OCC Ltr. No. 494). The
Comptroller has accordingly permitted national banks
to broker various other types of investment instru-

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22

ments on behalf of their customers, whether or not
particular instruments would be considered "securi-
ties" for purposes of Section 24 Seventh. 8. Thus, once
the Comptroller had analyzed the characteristics of
the annuities that NationsBank proposed to market
and determined, as discussed below, that they were
essentially investment instruments, it was reasonable
for him to conclude that agency sales of such an-
nuities fell well within the scope of national banks'
traditional activities in brokering investment instru-
ments for their customers.
2. The court of appeals suggested in passing (Pet.
App. 15a) that Section 24 Seventh does not authorize
agency sales of annuities, because the power to make
such sales is neither "incidental" nor "necessary" to
the "business of banking." Assuming that the court's
brief remark to that effect should be regarded as an
independent holding, it is incorrect. First, in light of

___________________(footnotes)

8 See OCC Ltr. No. 494 at 71,199-71,200 & n.4 (commodities
futures and related options); OCC Letter No. 387, [1988-1989
Transfer Binder] Fed. Banking L. Rep. ( CCH) "Par", 85,611
(June 22, 1987) (real estate loans); OCC Letter No. 365,
[1985-1987 Transfer Binder] Fed. Banking L. Rep. (CCH)
"Par" 85,535 (Aug. 1, 1986) (financial futures); OCC Letter No.
357, [1985-1987 Transfer Binder] Fed. Banking L. Rep.
(CCH) "Par" 85,527 (Feb. 26, 1986) (options on financial instru-
ments and on financial futures); OCC Letter No. 356, [1985-
1987 Transfer Binder] Fed. Banking L. Rep. (CCH) "Par" 85,526
(Jan. 7, 1986) (agricultural and metal futures used for
hedging); OCC Letter No. 326, [1985-1987 Transfer Binder]
Fed. Banking L. Rep. (CCH) "Par" 85,496 (Jan. 17, 1985) (op-
tions); OCC Letter No, 271, [1983-1984 Transfer Binder]
Fed. Banking L. Rep. (CCH) "Par" 85,435 (Sept. 21, 1983) (real
estate loans and equity interests).

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23

the history discussed above, the language of Section
24 Seventh explicitly recognizing banks' "business of
dealing in securities and stock," and banks' "tradi-
tional role as financial intermediaries" (Pet. App.
38a), it is implausible to contend that brokering in-
vestment instruments on behalf of customers is not
"incidental" to the traditional, let alone the contem-
porary, business of banking.
Second, the suggestion that the power to engage
in activities that are properly part of or incidental
to the banking business should be restricted by some
narrow concept of what is "necessary" cannot be
reconciled with the well-established proposition that
the statutory term "necessary" need not mean "in-
dispensable." As this Court recognized long ago, par-
ticularly when used to define general powers avail-
able to meet changing and unforeseeable future cir-
cumstances, the term need mean no more than con-
venient or useful. M'Culloch v. Maryland, 17 U.S.
(4 Wheat.) 316, 413-415 (1819); see also National
R.R. Passenger Corp. v. Boston & Maine Corp., 112
S. Ct. 1394, 1402 (1992) ; Black's Law Dictionary
1029 (6th ed. 1990); Curtis v. Leavitt, 15 N.Y. at
64 (Comstock, J.); New York State Ass'n of Life
Underwriters, 632 N.E.2d at 880; M & M Leasing,
563 F.2d at 1382. Moreover, even if the meaning of
the word "necessary" in Section 24 Seventh might,
at one time, have been open to question, that question
has long been settled by the Comptroller, to whom
Congress has entrusted the statute's administration,
Both the Comptroller's view on that issue and his
further determination of what "incidental powers"
are "necessary" to allow national banks to conduct

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23

the history discussed above, the language of Section
24 Seventh explicitly recognizing banks' "business of
dealing in securities and stock," and banks' "tradi-
tional role as financial intermediaries" (Pet. App.
38a), it is implausible to contend that brokering in-
vestment instruments on behalf of customers is not
"incidental" to the traditional, let alone the contem-
porary, business of banking.
Second, the suggestion that the power to engage
in activities that are properly part of or incidental
to the banking business should be restricted by some
narrow concept of what is "necessary" cannot be
reconciled with the well-established proposition that
the statutory term "necessary" need not mean "in-
dispensable." As this Court recognized long ago, par-
ticularly when used to define general powers avail-
able to meet changing and unforeseeable future cir-
cumstances, the term need mean no more than con-
venient or useful. M'Culloch v. Maryland, 17 U.S.
(4 Wheat.) 316, 413-415 (1819); see also National
R.R. Passenger Corp. v. Boston & Maine Corp., 112
S. Ct. 1394, 1402 (1992); Black's Law Dictionary
1029 (6th ed. 1990); Curtis v. Leavitt, 15 N.Y. at
64 (Comstock, J.); New York State Ass'n of Life
Underwriters, 632 N.E.2d at 880; M & M Leasing,
563 F.2d at 1382. Moreover, even if the meaning of
the word "necessary" in Section 24 Seventh might,
at one time, have been open to question, that question
has long been settled by the Comptroller, to whom
Congress has entrusted the statute's administration.
Both the Comptroller's view on that issue and his
further determination of what "incidental powers"
are "necessary" to allow national banks to conduct
                                                    
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24

their business are permissible constructions of the
statute, and are entitled to deference. National R.R.
Passenger Corp., 112 S. Ct. at 1402.

II. THE COMPTROLLER REASONABLY DETER-
MINED THAT THE SALE OF ANNUITIES BY
NATIONAL BANKS IS NOT PROHIBITED BY 12
U.S.C. 92

In rejecting the Comptroller's decision in this case
the court of appeals relied primarily on its conclusion
that bank sales of annuities, whether or not otherwise
authorized under 12 U.S.C. 24 Seventh, are inde-
pendently prohibited by 12 U.S.C. 92. Section 92
provides:

In addition to the powers now vested by law
in national banking associations * * *[,] any
such association located and doing business in
any place the population of which does not ex-
ceed five thousand inhabitants * * * may, under
such rules and regulations as may be prescribed
by the Comptroller of the Currency, act as the
agent for any fire, life, or other insurance com-
pany * * * by soliciting and selling insurance
and collecting premiums on policies issued by
such company.

The Comptroller, on the other hand, determined that
annuities are not "insurance" within the meaning of
Section 92 (Pet. App. 43a-47a) ; and that, even if
they were, Section 92 should not be read to limit their
sale, particularly if such sales would be incidental to
the business of banking under Section 24 Seventh.
Pet. App. 41a-43a.
Section 92 itself neither defines the term "insur-
ance" nor specifies whether its supplemental grant of
authority is meant to limit the powers of national             

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25

banks not located in small communities. As the dis-
trict court (and the dissenters from denial of rehear-
ing en bane) recognized (Pet. App. 33a, 24a), those
interpretive questions are for the Comptroller to an-
swer, so long as his interpretations are reasonable.
E.g., Chevron, 467 U.S. at 843; see also Clarke v.
Securities Indus. Ass'n, 479 U.S. at 403-404. The
Comptroller's conclusions in this case were reason-
able, and the court of appeals erred in failing to defer
to his construction of the statute.

A. The Comptroller Reasonably Determined That
Annuities Are Not "Insurance" For Purposes Of
Section 92

1. As the Comptroller's approval in this case ex-
plained, "[d]ictionary definitions of 'insurance' in-
variably describe it as a contract for indemnification
against risk of loss. " Pet. App. 43a-44a (citing ex-
amples ). Black's Law Dictionary (6th ed. 1990), for
example, defines "insurance" in part as "[a] contract
whereby, for a stipulated consideration, one party
undertakes to compensate the other for loss on a spec-
ified subject by specified perils," or "undertakes to
indemnify another against loss, damage, or liability
arising from an unknown or contingent event. " Id.
at 802. Webster's Third New International Diction-
ary (1986) includes similar definitions: "a device
for the elimination or reduction of an economic risk
common to all members of a large group and employ-
ing a system of equitable contributions out of which
losses are paid"; "coverage by contract whereby
for a stipulated consideration one party undertakes
to indemnify or guarantee another against loss by a
specified contingency or peril." Id. at 1173.

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26

Definitions of the term "annuity," on the other
hand, emphasize (as the term itself suggests) the
periodicity of payments and their character as invest-
ment returns. Thus, Black's Law Dictionary describes
an annuity (at 90) as "[a] right to receive fixed,
periodic payments, either for life or for a term of
years" or "[a] fixed sum payable to a person at
specified intervals for a specific period of time or for
life," and notes specifically that "[p]ayments repre-
sent a partial return of capital and a return (inter-
est ) on the capital investment." According to Web-
ster's (at 88), the term means "an amount payable
yearly or at other regular intervals (as quarterly)
for a certain or uncertain period (as for years, for
life, or in perpetuity)," or "a contract or agreement
under which one or more persons receive annuities in
return for prior set payments made by themselves or
another (as an employer)." 9.
The difference in dictionary definitions reflects a
difference in commercial and financial reality. In his
decision in this case, the Comptroller first considered

___________________(footnotes)

9 The court of appeals cited (Pet. App. 10a) the reference
to "annuity insurance" in the seven-page catalogue of descrip-
tive "classifications" following the definition of "insurance" in
Black's Law Dictionary (at 802). Although its meaning is not
entirely clear, that reference appears to describe a particular
type of insurance policy, the proceeds of which would be paid
out as an annuity, rather than in a lump sum. That is, it seems
likely that the description of "annuity insurance" is not meant
to define the word "annuity," any more than the immediately
following description of "assessment insurance" is intended
to define the word "assessment." The definition of "annuity"
(like the definition of "assessment") is located where one
would expect it-under "A." See id. at 90; compare the de-
scriptions of various types of annuities following the primary
definition.

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27

the functional nature of the annuity products in ques-
tion, and concluded that they are "primarily financial
investments." Pet. App. 38a. As the decision noted
(ibid.), investors who purchase fixed annuities gen-
erally "are not seeking to pool a catastrophic risk
such as death, injury or property damage, but are in-
stead seeking a guaranteed, long-term return on their
assets." 10. Indeed, "[m]ost commonly, annuities are
marketed as a tax-sheltered means of saving for re-
tirement." Ibid.
During the accumulation period, annuities bear a
close functional resemblance to other investment
products that banks would be allowed to purchase or
sell on behalf of customers: mutual fund shares in
the case of variable annuities (under which the pur-
chaser retains significant investment control and
risk), and conventional interest-bearing debt in the
ease of fixed annuities. 11. See Pet. App. 39a-41a; see

___________________(footnotes)

10 The amount of the return (or of principal) that is "guar-
anteed" may vary considerably from contract to contract.
See generally pages 4-6, supra.

11 As explained above (see pages 7-8 & n.3, supra), the
OCC'S legal staff some years ago reached the conclusion that
national banks are permitted to broker variable annuities, on
the ground that variable annuities resemble mutual fund
shares and are "securities" for purposes of 12 U.S.C. 24
Seventh's explicit reference to banks' "business of dealing in
securities." The Comptroller's decision in this case restated
that conclusion as to variable annuities, and then proceeded
to uphold the sale of fixed annuities on the broader ground
that even if fixed annuities are not "securities" for purposes
of Section 24 Seventh, they are "financial investment inter-
ests" that banks may buy and sell on behalf of customers as
part of their "traditional role as financial intermediaries."
Pet. App. 38a. The judicial opinions below in this case do not
distinguish in their analysis between fixed and variable an-

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28

also New York State Ass'n of Life Underwriters v.
New York State Banking Dep't, 632 N.E.2d at 882.
Many modern annuity products provide for single or
staged investments, an interest rate that is known or
predictable at the beginning of each accumulation
period, and lump-sum withdrawals during or at the
end of each period or at maturity of the entire con-
tract. Others provide for single investments, a known
or predictable interest rate, and a guaranteed payout
over a set term of years. Annuities with such fea-
tures are virtually indistinguishable from certificates
of deposit ( although without federal deposit insurance)
or conventional debt. See generally, e.g., Annuities
19-22, 44-45. 12. At the same time, some modern

___________________(footnotes)

nuity products. In our view, the Comptroller's rationale for
approving the sale of fixed annuities applies a fortiori" to sales
of variable annuities, which are even more clearly investment-
oriented products; indeed, a primary rationale for the prior
staff opinion was that variable annuities are primarily invest-
ment instruments. See OCC Ltr. No. 331, at 77,774, 77,776.
Alternatively, the Comptroller's decision in this case adopts
the legal staff's prior conclusion concerning variable annuities.
Pet. App. 35a, 37a-38a; OCC Ltr. No. 499; cf. SEC V. Chenery
Corp., 318 U.S. 80, 95 (1943) (agency decision maybe upheld
only on grounds relied upon by agency). That conclusion is
also sound on its own terms (set out in OCC Ltr. No. 331),
and the Comptroller's decision to adopt it is entitled to
deference.

12 "As annuity providers became more sophisticated in their
marketing efforts, they began to design products that more
closely resembled those of the competition. As an annuity was
a safe place to invest money at a fixed return, the bank cer-
tificate of deposit became the target competition. These prod-
ucts have become known as certificate or CD annuities. * * *
[T] hese products have met with outstanding success [.] * * *
A certificate annuity is any product where the initial interest
rate guarantee period precisely parallels the surrender charge

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29

debt instruments involve mortality risks or other con-
tingencies that may significantly affect the interest
rate, the time at which repayment is required, or
the amount of principal that must be repaid. See
generally, e.g., Note, Reverse Annuity Mortgages and
the Due-on-Sale Clause, 32 Stan. L. Rev. 143, 145-
151 (1979 ) (discussing mortgages that incorporate
mortality risk) ; David Hariton, The Taxation of
Complex Financial Instruments, 43 Tax L. Rev. 731,
731-732 & nn.2-7 (1988). There is therefore ample
support for the Comptroller's conclusion that annui-
ties of the type that petitioner NationsBank sought to
make available for purchase by its customers are
correctly characterized as investment products, rather
than "insurance."
2. The only feature that may lend some annuities
a flavor of insurance is the mortality risk assumed
by one or both parties under some annuity contracts.
Under the terms of a classic single-premium, immedi-
ate-payout fixed annuity (i.e., one that provides im-
mediate income, with no accumulation period during
which income is deferred), the issuer agrees to make
level periodic payments throughout (but not beyond)
the life of the purchaser, and the amount of each
payment is calculated so as to amortize the amount
paid by the purchaser, together with interest at an
agreed rate, to zero as of the purchaser's actuarially
expected date of death. If the purchaser dies before
that date, he loses part of his principal investment,
and the issuer realizes a mortality gain; if the pur-
chaser lives beyond that date, he continues to receive

___________________(footnotes)

(or lack of surrenderability) period. * * * It is not a coin-
cidence that this design is almost identical to a bank certifi-
cate of deposit." Annuities 44-45.

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30

payments even though his principal has been ex-
hausted, and the issuer realizes a mortality loss, The
computations for and pricing of such a contract, like
those of life insurance policies, depend on actuarial
assumptions, and may reflect a single issuer's pooling
of its mortality risks across a large group of pur-
chasers. 13.
As this Court pointed out in holding that variable
annuities are securities for purposes of the Securities
Act of 1933, however, it is necessary to look beyond
the "aspect of insurance" imparted by the presence
of some mortality risk, and to focus on the char-
acteristics of a particular product as they relate to a
particular federal statutory scheme. SEC v. Variable
Annuity Life Ins. Co., 359 U.S. at 71. In that case,
the relevant characteristic was the purchaser's as-
sumption of substantial investment risk. Ibid. In
this case, the relevant characteristic is the nature of
the product, measured by its primary nature and pur-
poses in the eyes of a prospective purchaser who is a
customer of a national bank. From that perspective,
the "insurance" aspect of any annuity contract is, as
this Court said in an analogous context in SEC v.
Variable Annuity Life, "apparent, not real; super-
ficial, not substantial." Ibid.

___________________(footnotes)

13 Most annuity contracts provide for payment of the full
accumulated account value to a designated beneficiary in the
event that the purchaser dies during the accumulation period.
The risk that a purchaser may die before the issuer has been
able to recover its sales, administrative and investment ex-
penses through the spread between its investment returns and
the returns credited to the purchaser's annuity account may
also be thought of as a "mortality risk" from the issuer's point
of view. See Annuities 93. That risk is one that the issuer
runs by reason of its pricing and marketing strategy, how-
ever, and is at most a minor feature of the annuity contract.

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31

While both life insurance contracts and some
annuities involve actuarial assumptions and mortality
risks, the two products are very different from the
purchaser's point of view. The point of an actuarial
mortality assumption is that it represents a fair esti-
mate, at the time of contracting, of the expected life
of the purchaser. The dominant character of a con-
tract that involves such assumptions is therefore de-
termined by the results, under the contract, if those
expectations prove true. The purchaser of term life
insurance pays a small amount in relation to the face
amount of the policy, and expects to receive no pay-
ment in return. The dominant characteristic of such
a contract is therefore indemnification against the
risk of an unexpected occurrence. The purchaser of
a classic, immediate-payout fixed annuity, on the
other hand, pays a comparatively large amount for
his contract, and expects to receive it all back, with
interest. The dominant characteristic of that con-
tract is therefore investment for an expected future
income stream. 14.

___________________(footnotes)

14 Under some life insurance policies a portion of each
premium payment is invested and accumulates cash value over
time. See, e.g., Black's Law Dictionary 805 (6th ed. 1990)
(descriptions of "universal" and "whole life" insurance); com-
pare id. at 806 (description of "term insurance"). An annuity
contract that requires or permits periodic investments (as
opposed to payment of a single purchase price) bears some
resemblance to the investment component of such insurance
policies, but offers no analogue to the term life insurance
component. That observation is consistent with the Comp-
troller's conclusion (Pet. App. 45a) that annuities are "pri-
marily a vehicle for investment, not indemnification." Annui-
ties and cash-value life insurance also both typically allow
invested funds to compound on a federal income tax-deferred
basis. The tax benefits accorded annuities do not, however,

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32

Thus, even in the case of the classic immediate-
payout, lifetime-based fixed annuity-the annuity con-
tract with the most prominent "mortality risk" feature
from the purchaser's point of view-the distinction
between annuities and life insurance is quite apparent.
As one court aptly put it, "annuities are not indemni-
ties for death but are investments for life." Corpora-
tion Comm'n v. Equitable Life Assur. Soc'y, 239 P.2d
360, 362 ( Ariz. 1951 ); see also Helvering v. Le
Gierse, 312 U.S. 531, 541 (1941) (in terms of mor-
tality risks, "annuity and insurance are opposites" ) ;
Annuities 7. 15. Nor do immediate-payout fixed annui-

___________________(footnotes)

depend on assimilating the annuity contract to insurance;
annuities are treated as sui generi's for federal income tax
purposes. See 26 U.S.C. 72. In fact, it is interesting to note
that death benefits received by beneficiaries under life insur-
ance contracts are generally excluded from gross income for
federal income tax purposes, whereas amounts received by a
beneficiary under an annuity contract by reason of the death
of the purchaser are, like other annuity payments, exempt
only to the extent that they represent a return of the pur-
chaser's invested capital. See generally 26 U.S.C. 72(e),
101 (a); see also Rev. Rul. 79-335, 1979-2 C.B. 292, 294.

15 "[A]n annuity is a cash contract * * * whose orientation
to the insurer is primarily investment or asset management,
and secondly, mortality management. That single fact dif-
ferentiates the annuity from the life insurance product. Un-
like a life insurance policy, where the primary objective is to
provide death protection or estate protection for a deceased's
survivors, the primary objectives of the annuity are tax de-
ferral, safety and a higher yield than what can typically be
found in a certificate of deposit, money market or savings
account. Those objectives are used by the contract-holder to
accumulate funds for retirement, create income for retirement
or both." Annuities 7. The same source explains that "An-
nuities have very little mortality risk. * * * Instead, the
annuity is an asset-management product, by which the insur-

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33

ties-whether purchased on their own, or selected as
a payout option after the accumulation period of a
deferred fixed or variable annuity contract-represent
the entire modern annuities market. Other types of
annuity contract are much more common, and even
less like insurance. 16. For example, many contempo-
rary annuities (sometimes called "refund" annuities)

___________________(footnotes)

ance company makes its profit from the difference between
what it can earn on its investments, and what it then pays
out to the contract-holder in the form of interest rates credited
to the contract." Ibid.

16  Statistics compiled by the American Council of Life In-
surance indicate that of 20,383,000 fixed annuity contracts
issued by insurance companies and in force at the end of
1992, 89% were deferred annuities in the accumulation period.
American Council of Life Insurance, 1993 Life Insurance Fact
Book Update 18 (1993) (ACLI Update). Of the remaining
11%, just over half (55%) were individual contracts-that
is, either single-payment immediate annuities, or deferred
annuities in the payout phase under which the owner had
selected annuitized payments (rather than a lump-sum or
"systematic withdrawals," as described below). The remain-
der were "supplementary contracts," providing annuitized
payments of the death benefit on a life insurance policy, or of
the accumulated value of a deferred annuity contract termi-
nated by reason of the death of the purchaser. The figures
for both individual and supplementary contracts include all
types of annuitized payments-those payable for the life of
the annuitant (and/or another beneficiary), those payable
for life but with a guaranteed minimum term, and those pay-
able for a specified term without regard to mortality. Thus,
"classic" single-payment immediate annuities with a simple
lifetime payout term would represent less than-and probably
significantly  less  than-11%  of the fixed annuities outstand-
ing at the end of 1992. And those figures do not include an-
other 6.6 million or more persons covered by individual or
group variable annuity contracts issued by insurance compa-
nies. Ibid.

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34

guarantee the return of the purchaser's principal in-
vestment (and perhaps a specified return), even if
the purchaser dies during the payout phase but be-
fore the actuarially predicted time. See, e.g., Annui-
ties 20-22. Such provisions eliminate any mortality
risk on the part of the purchaser, and severely limit
the issuer's ability to pool positive and negative mor-
tality experience over a broad group of annuities.
In addition, most deferred annuities provide the
purchaser with the option to take payment in a lump
sum at the end of the accumulation period; as regular
payments over a fixed term of years, without refer-
ence to the life of the purchaser; or through "sys-
tematic withdrawals" flexibly arranged to meet the
purchaser's needs, with any remaining principal paid
to a beneficiary on the purchaser's death. See, e.g.,
Annuities 4, 21-22, 24-26 & illus. 3.5, 122-123
(sample contract ). Under those options the contract
involves no element of mortality risk whatsoever,
and does not even vaguely resemble "insurance."
Moreover, even in cases where both return of the
original investment and continued payment over
the life of the purchaser is guaranteed, the remain-
ing "mortality" element-the risk of unexpected
longevity-might be characterized variously as "in-
surance" of a sort, as a contingent debt of the
issuer, or as a contingent, post hoc adjustment in the
guaranteed rate of return on the purchaser's invest-
ment. See Annuities 23 illus. 3.3 (computing effective
rates of return under various payout options and
assumptions).
The salient financial characteristics of annuities
thus make clear that they are, as the Comptroller
concluded, either wholly or overwhelmingly invest-
ment products. It is therefore not surprising that,

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35

as the New York Court of Appeals recently observed,
"the great weight of authority supports the position
that annuities are not insurance." New York State
Ass'n of Life Underwriters v. New York State Bank-
ing Dep't, 632 N.E.2d at 881. See also, e.g., Pet.
App. 38a-39a, 44a-45a and authorities there cited;
Annuities 7 (in contrast to life insurance, "[a]nnui-
ties * * * are primarily investment products" ) ; 1 J.
Appleman, Insurance Law & Practice 84, at 295
(1981 ) ("Annuity contracts must * * * be recog-
nized as investments rather than as insurance.") ;
In re Young, 806 F.2d 1303, 1306 (5th Cir. 1987).
The Comptroller's opinion in this case marshaled
(Pet. App. 45a) numerous court decisions holding
that annuities are not "insurance" for a variety of
tax, bankruptcy, and other federal and state law
purposes. 17.

___________________(footnotes)

17 The Comptroller acknowledged (Pet. App. 46a) that
cases construing the exemption for any "insurance or endow-
ment policy or annuity contract or optional annuity contract"
under Section 3(a) (8) of the Securities Act of 1933, 15 U.S.C.
77c (a) (8), "occasionally speak of fixed annuities as being
'insurance' rather than `securities.' " See, e.g., SEC v. United
Benefit Life Ins. Co., 387 U.S. 202 (1966); SEC v. Variable
Annuity Life Ins. Co., 359 U.S. 65 (1959); see also SEC Rule
151, 17 C.F.R. 230.151. However, as the Comptroller pointed
out (Pet. App. 46a), the text of Section 3 (a) (8) itself  refers
to both "annuity contract [s]" and "insurance * * * polic[ies],"
rather than merely subsuming the former under the latter
heading. Compare 26 U.S.C. 816 (a) (defining "life insurance
company" as "an insurance company which is engaged in
the business of issuing life insurance  and annuity contracts"
(emphasis added) ). In any event, as the Comptroller noted
(Pet. App. 46a-47a), cases under Section 3 (a) (8) interpret
a different statute with different purposes, and do not control
the analysis in the context of the banking statutes,

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36

3. The court of appeals criticized the Comptroller's
determination that annuities are not "insurance" for
purposes of Section 92 on the ground that annuities
are often issued by life insurance companies, and
are typically regulated under state insurance laws.
Pet. App. 10a-11a & n.2. But an annuity contract
is not "insurance" simply because it has been issued
by an insurance company, see In re Howerton, 21
B.R. 621, 623 (Bankr. N.D. Tex. 1982) ; and regu-
lation of annuities under state insurance laws reflects
little more than the fact that insurance companies
have traditionally written a large proportion of an-
nuity contracts. See Daniel v. Life Ins. Co. of Vu.,
102 S.W.2d 256, 261 (Tex. Civ. App. 1937); compare
Rishel v. Pacific Mutual Life Ins. Co. of Cal., 78
F.2d 881, 883-884 (10th Cir. 1935) (annuity not
"policy of insurance" required to be filed with Colo-
rado Insurance Commissioner) ; Chatham County
Hosp. Auth. v. John Hancock Mut. Life Ins. Co., 325
F. Supp. 614, 619 (S.D. Ga. 1971) (annuities not
regulated as "insurance" in Georgia in 1955). Both
the court of appeals' observations beg the relevant
question whether annuities are properly considered
"insurance" or investment instruments for federal
banking law purposes. 18. New York State Ass'n of

___________________(footnotes)

18 As this Court recognized in the context of determining
the treatment of variable annuities under the federal securi-
ties laws, what constitutes "insurance" within the meaning of
a federal statute is a question of federal law. SEC v. Van-able
Annuity Life Ins. Co., 359 U.S. at 69; cf., e.g., Dickerson v.
New Banner Inst., 460 U.S. 103, 111-112 (1983) (meaning of
"convicted" in federal statute was question of federal law,'
although offense and punishment were defined by state law);
United States v. Bess, 357 U.S. 51, 55-57 (1958) (whether
contract rights defined by state law constitute "property"
under federal tax lien statute is a matter of federal law).

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37

Life Underwriters, 598 N.Y.S.2d 824, 828 (App.
Div. 1993), aff'd, 632 N.E.2d 876 (N.Y. 1994).
The court of appeals asked that question but
reached the wrong conclusion. Pet. App. 12a-13a.
The court recognized that, as discussed above (see
pages 29-31, supra), annuities with lifetime payout
terms may be thought of as the "inverse" or "mirror
image" of term life insurance, in the sense that the
mortality risk involved in one case is that the pur-
chaser will live too long, while in the other case.
it is that he will die prematurely. Pet. App. 12a. But
to say that two things are the "inverse" of each
other is not to say that they are the same. As ex-
plained above, protecting against mortality risk is
the primary functional and financial aspect of a life
insurance contract. In the case of annuity contracts,
on the other hand, protecting against such risk is
typically no more than a supplemental consideration
in an arrangement primarily concerned with the man-
agement and staged repayment of invested funds. It
therefore makes little sense to argue that the banking
laws should treat the two products as identical.
In all events, the court of appeals erred in ap-
proaching the question whether annuities should
be viewed as "insurance" for purposes of Section 92
essentially de novo. That court should, like the dis-
trict court, have confined its review to inquiring
whether the Comptroller's fundamental determina-
tion that annuities are primarily investment vehicles,
rather than contracts of indemnification, represented
a permissible interpretation of the statute. See, e.g.,
Chevron, 467 U.S. at 843-845; Clarke v. Securities
Indus. Ass'n, 479 U.S. at 403-404; Investment Co.
Inst. v. Camp, 401 U.S. at 626-627. As the preceding
discussion demonstrates, the Comptroller's interpre-

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38

tation was at least a reasonable one. Having failed
to impeach its reasonableness in light of the language
and purposes of Section 92 and the remainder of
the federal banking laws, the court of appeals erred
in substituting its judgment for that of the Comp-
troller on matters within his expertise and regulatory
competence. 19.

___________________(footnotes)

19 In its opposition to the certiorari petitions in this case,
respondent contended (Br. in Opp. 12) that the Comptroller's
determination is not entitled to deference because its is in-
consistent with positions taken in 1978 and 1982. Even
revised administrative positions are, of course, entitled to
deference. E.g., Good Samaritan Hosp. v. Shalala, 113 S. Ct.
2151, 2160-2161 (1993). The letters to which respondent re-
fers, however, "hardly establis[h] an inconsistent policy."
Thomas Jefferson Univ. v. Shalala, No. 93-120 (June 24,
1994), slip op. 11-12. As we pointed out in our reply brief
at the petition stage (at 3-4), the 1978 letter represents
informal advice by an agency lawyer, contains no analysis
supporting the views expressed, and clearly identifies its
conclusions as the personal opinion of its author. See Br. in
Opp. la-2a. Such a letter would not bind the agency or the
recipient or be subject to review by the courts. See New York
Stock Exch. v. Bloom, 562 F.2d 736, 741 (D.C. Cir. 1977),
cert. denied, 435 U.S. 942 (1978); American Land Title Ass'n
v. Clarke, 743 F. Supp. 491, 494 (W.D, Tex, 1989). It there-
fore cannot provide a basis for contending that the agency
has changed course. Independent Ins. Agents v. Ludwig, 997
F.2d 958, 962 (D.C. Cir. 1993). The 1982 letter sets forth a
similar informal opinion by a member of the OCC legal staff,
See OCC Interpretive Letter No. 241, [1983-1984 Transfer
Binder] Fed. Banking L. Rep. (CCH) "par"  85,405 (Mar. 26,
1982). Moreover, as explained in our reply brief (at 4-5),
that letter's discussion of sales of term life insurance does not
conflict with the Comptroller's decision in this case concern-
ing annuities.

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39

B. The Comptroller Reasonably Concluded That Sec-
tion 92 Does Not Prohibit Agency Sales Of Special-
ized "Insurance" Products Outside Small Towns If
The Comptroller Has Determined That Such Sales
Are Part Of Or Incidental To The Business Of
Banking

The court of appeals also erred in refusing to defer
to the Comptroller's conclusion that even if annuities
were to be considered "insurance" for purposes of
12 U.S.C. 92, the statute should not be construed to
prohibit banks outside small towns from selling them
(as agents ) once the Comptroller has concluded that
such sales are incidental to the business of banking.
Section 92 provides that "[i]n addition to the
powers now vested by law in national banking asso-
ciations," national banks in small towns may "act
as the agent for any fire, life, or other insurance
company" in selling insurance policies (emphasis
added ). The introductory phrase "in addition to"
shows that Section 92 is a grant of additional powers
for a special situation. 20. It does not purport to define,
or confine, the scope of the other lawful "powers"
whose existence it assumes and supplements. Those

___________________(footnotes)

20 The statute's legislative history also indicates that Con-
gress thought of Section 92 as a grant of additional powers,
not a limitation on otherwise authorized activities. Senator
Owen, Section 92's sponsor, described the provision as "giving
some additional powers to the small banks to act  as agents in
insurance matters." 53 Cong. Rec. 11,002 (1916); see also id.
at 11,001 ( Comptroller's letter explaining that proposal re-
flected consideration of "how the powers of these small na-
tional banks might be enlarged"). See also Independent Ins.
Agents v. Board of Governors, 736 F.2d 468, 477 n.6 (8th
Cir. 1984) ("Congress was concerned only with providing
small-town banks with an additional profit source, not with
prohibiting city banks from selling insurance.").

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40

powers, which pre-date and survive Section 92, in-
clude the general authority under Section 24 Seventh
to "exercise * * * all such incidental powers as shall
be necessary to carry on the business of banking."
Even if annuities were "insurance" for purposes of
Section 92, there would be no reason why the Comp-
troller could not conclude that those incidental powers
extend to acting as a sales agent for limited classes
of such "insurance" products whose essential invest-
ment character also brings them within the ambit
of banks' traditional investment activities on behalf
of their customers. 21.
To be sure, Section 92 carries some negative impli-
cation; Congress would have' had little reason to
grant small-town banks the power to act as general

___________________(footnotes)

21 The court of appeals cited (Pet. App. 16a) documents
written by the Comptroller and counsel to the Federal Re-
serve, prior to Section 92's passage, to show that Congress
believed national banks had no authority to act as insurance
agents before Section 92 was enacted. See 53 Cong. Rec.
11,001 (1916) (letter from Comptroller Williams to Senator
Owen); Right of a National Bank To Write Insurance Through
Its Officers, 2 Fed. Res. Bull. 73, 74 (1916) (letter from Board
Counsel Elliot to Board Governor Hamlin). Both documents
refer to insurance in broad terms. See 53 Cong. Rec. 11,001
(1916) (referring to "fire, life, etc." insurance); 2 Fed. Res.
Bull. at 73 (analyzing the power of national banks to write
"fire, cyclone, liability or other kinds of insurance"). Neither
suggests that specific kinds of insurance agency activity that
are closely connected to banking would not fall within the
incidental powers of national banks. In any event, slim intima-
tions of possible administrative or congressional understand-
ings in 1916 form at best a "hazardous basis" for determining
the meaning of a statute (12 U.S.C. 24 Seventh) passed 75
years earlier, as applied to the banking and investment world
of today. See Cippollone v. Liggett Group, 112 S. Ct. 2608,
2619 (1992); United States v. Price, 361 U.S. 304,313 (1960).

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insurance agents if it had thought, in 1916, that
any national bank could already do so under Section
24 Seventh. See Pet. App. 7a. But the court of
appeals swept too broadly in concluding that Section
92's reference to some "insurance" sales necessarily
implied that national banks could have no power,
independent of Section 92, to sell any "insurance"
product. Section 92 permits national banks in small
communities to act as agents for any "fire, life, or
other insurance company." Under the interpreta-
tional principle of ejusdem generis, a general term
in a statutory list should be understood in light of
the specific terms that surround it. 22. E.g., Hughey v.
United States; 495 U.S. 411, 419 (1990) ; see also
Securities Indus. Ass'n v. Board of Governors, 468
U.S. 207, 218 (1984); Beecham v. United States,
114 S. Ct. 1669, 1671 (1994). In accordance with
that principle, the Comptroller permissibly concluded
that Section 92's grant of authority-and any con-
comitant implication that authority was otherwise
lacking-should be construed to refer only to the un-
restricted operation of a general agency for fire, life,
or other casualty insurance, and not to agency sales
of particular "insurance" products when the Comp-
troller has determined that such sales fall within or
are incidental to the business of banking. 23.

___________________(footnotes)

22 Indeed, application of ejusdem generis is necessary to
give significance to Congress's specification of "fire" and "life"
insurance in Section 92. Under the court of appeals' reading
of the statute those terms become unnecessary, because all
types of insurance, including fire and life insurance, are en-
compassed in the phrase "any * * * insurance company."

23 In its brief in opposition, respondent objected (at 9) to
the Comptroller's reasoning on the ground that the words

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42

The Comptroller's construction maintains an ap-
propriate balance between Section 24 Seventh and
section 92. The general grant of powers in Section
Seventh permits banks to engage only in activi-
ties (including insurance agency activities) that are
"incidental" to the "business of banking." Section
92 by contrast, grants banks located in small towns
the additional authority to act as agents for the sale
of a broader range of insurance products, whether
or not such sales are incidental to the business of
banking. That grant of additional authority does
not  negate the possibility that the sale of annuities,
even if properly denominated as "insurance," is suf-
ficiently related to the business of banking to come
within the existing incidental powers of national
banks. And the question whether such products, or
any others, are so related is one within the expertise
and competence of the Comptroller, not the courts.

* * * * * 

In sum, Section 24 Seventh provides that  national
banks may exercise "all such incidental powers as
shall be necessary to carry on the business of bank-
ing." It does not, however, define the "business of
banking" or the powers that may be "incidental"
thereto. Section 92 provides that national banks in
small towns may act as the agent for "any fire, life,

___________________(footnotes)

"fire, life, or other" in Section 92 describe only the type of
company for which a covered bank may act as agent, not the
types of insurance it may sell. The statute provides, however,
that covered banks may "act as the agent for any fire, life,
or other insurance company * * * by soliciting and selling
insurance and collecting premiums on policies issued by such
company." The Comptroller could fairly read that language
to limit both the types of companies and the types of "insur-
ance" to which Congress intended the statute to apply.

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43

or other insurance company" in the sale of insurance.
Similarly, however, it does not specify to what types
of "insurance" it refers. And neither provision
speaks directly to the issue of whether a national
bank may sell fixed and variable annuities as agent.
If "Congress has not directly addressed the pre-
cise question at issue," then "the question for the
court is whether the agency's answer is based on a
permissible construction of the statute." Chevron,
467 U.S. at 843. That construction need not be the
only one those responsible for administration of the
statute could have adopted, "or even the reading the
court would have reached if the question initially
had arisen in a judicial proceeding"; it need only be
rationally permissible under the governing statute.
Id. at 843 n.11. As demonstrated above and in the
Comptroller's thorough opinion approving the appli-
cation at issue here, there is ample support for the
Comptroller's statutory interpretations in this case.
The regulation of banking is an area of prime
importance, requiring a combination of special func-
tional expertise and informed choices among some-
times conflicting goals. Those goals include both the
maintenance of a strong banking industry in light
of modern developments in investment and finance,
and the protection of banks and bank customers from
the expansion of bank activities into inappropriate
areas. It would be difficult to identify a regulatory
context in which it is clearer that courts should defer,
in matters of statutory interpretation, to `{reason-
able accommodation [s] of conflicting policies that
were committed to the agency's care by the statute."
Chevron, 467 U.S. at 845 (quoting United States v.
Shimer, 367 U.S. 374, 383 (1961)). The reasonable
statutory interpretations adopted by the Comptroller

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44

in this case were thoroughly discussed and well sup-
ported in his decision, and they are entitled to
deference.     

CONCLUSION

The judgment of the court of appeals should be
reversed.

Respectfully submitted.

DREW S. DAYS, III
Solicitor General

FRANK W. HUNGER
Assistant Attorney General

PAUL BENDER
Deputy Solicitor General

EDWARD C. DUMONT
Assistant to the Solicitor General

MARK B. STERN
JACOB M. LEWIS
Attorneys

JULIE L. WILLIAMS
Chief counsel

L. ROBERT GRIFFIN
ROSA M. KOPPEL
YVONNE D. MCINTIRE
Attorneys

Office of the Comptroller
of the Currency

JULY 1994

** U.S. GOVERNMENT PRINTING OFFICE;  1994     301157  86180

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