Source: https://supreme.justia.com/cases/federal/us/474/361/
Timestamp: 2019-04-26 05:50:18+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 474 › FRS v. Dimension Financial Corp.
"the purchase of retail installment loans or commercial paper, certificates of deposit, bankers' acceptances, and similar money market instruments."
In consolidated cases challenging the amended Regulation Y, the Court of Appeals set aside the regulation.
Held: The Board did not act within its statutory authority in defining "banks" as it did. Pp. 474 U. S. 366-375.
(a) The Board's definition of "demand deposit" is not an accurate or reasonable interpretation of § 2(c) of the Act. An institution that offers NOW accounts -- even if it engages in commercial lending -- is not a "bank" for the purposes of the Act because the requirement of prior notice of withdrawal withholds from the depositor any "legal right" to withdraw on demand. No amount of agency expertise can make the words "legal right" contained in § 2(c) mean a right to do something "as a matter of practice." Pp. 474 U. S. 367-368.
to describe the direct loan from a bank to a business customer for the purpose of providing funds needed by the customer in its business. Money market transactions, which the Board characterizes as "commercial loan substitutes," do not fall within the commonly accepted definition of "commercial loans." Nothing in the statutory language or the legislative history indicates that the term "commercial loan" meant anything different from its accepted ordinary commercial usage. Pp. 474 U. S. 368-373.
(c) The Board's new definition cannot be supported on the asserted basis that it falls within the Act's "plain purpose" of regulating institutions "functionally equivalent" to banks. The "plain purpose" of legislation is determined in the first instance with reference to the plain language of the statute itself. Here, rather than defining "bank" as an institution that offers the functional equivalent of banking services, Congress defined with specificity certain transactions that constitute banking subject to regulation. The statute may be imperfect, but the Board has no power to correct flaws that it perceives in the statute it is empowered to administer. Its rulemaking power is limited to adopting regulations to carry into effect Congress' will as expressed in the statute. Pp. 474 U. S. 373-375.
BURGER, C.J., delivered the opinion of the Court, in which all other Members joined, except WHITE, J., who took no part in the consideration or decision of the case.
We granted certiorari to decide whether the Federal Reserve Board acted within its statutory authority in defining "banks" under § 2(c) of the Bank Holding Company Act of 1956, 12 U.S.C. § 1841 et seq., as any institution that (1) accepts deposits that "as a matter of practice" are payable on demand and (2) engages in the business of making "any loan other than a loan to an individual for personal, family, household, or charitable purposes" including "the purchase of retail installment loans or commercial paper, certificates of deposit, bankers' acceptances, and similar money market instruments." 12 CFR § 225.2(a)(1) (1985).
"which (1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans."
70 Stat. 133, as amended, 12 U.S.C. § 1841(c).
the purchase of money market instruments such as certificates of deposit and commercial paper.
12 CFR § 225.2(a)(1)(B) (1985).
of Congress' definition of "bank," accept "deposits that the depositor has a legal right to withdraw on demand."
The Court of Appeals also concluded that the Board's new definition of "commercial loan" was at odds with the Act. The legislative history revealed that in passing § 2(c) Congress intended to exempt from Board regulation institutions whose only commercial credit activity was the purchase of money market instruments. Although agencies must be "able to change to meet new conditions arising within their sphere of authority," any expansion of agency jurisdiction must come from Congress, and not the agency itself. 744 F.2d at 1409. Accordingly, the Court of Appeals invalidated the amended regulations.
We granted certiorari. 471 U.S. 1064 (1985). We affirm.
"to restrain the undue concentration of commercial banking resources and to prevent possible abuses related to the control of commercial credit."
S.Rep. No. 91-1084, p. 24 (1970). The Act authorizes the Board to regulate "any company which has control over any bank." 12 U.S.C. § 1841(a)(1).
"(1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans."
views of interested parties, the Board found that nonbank banks pose three dangers to the national banking system. First, by remaining outside the reach of banking regulations, nonbank banks have a significant competitive advantage over regulated banks, despite the functional equivalence of the services offered. Second, the proliferation of nonbank banks threatens the structure established by Congress for limiting the association of banking and commercial enterprises. See 12 U.S.C. § 1843(c)(8) (bank holding company can purchase nonbanking affiliate only if entity "closely related to banking"). Third, the interstate acquisition of nonbank banks undermines the statutory proscription on interstate banking without prior state approval. 49 Fed.Reg. 794, 835-836 (1984). Since the narrowed statutory definition required that both the demand deposit and the commercial loan elements be present to constitute the institution as a bank, the Board proceeded to amend Regulation Y redefining both elements of the test. We turn now to the two elements of this definition.
Board in its amended definition closes this loophole by defining demand deposits as a deposit, not that the depositor has a "legal right to withdraw on demand," but a deposit that "as a matter of practice is payable on demand."
In determining whether the Board was empowered to make such a change, we begin, of course, with the language of the statute. If the statute is clear and unambiguous, "that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 467 U. S. 842-843 (1984). The traditional deference courts pay to agency interpretation is not to be applied to alter the clearly expressed intent of Congress.
Application of this standard to the Board's interpretation of the "demand deposit" element of § 2(c) does not require extended analysis. By the 1966 amendments to § 2(c), Congress expressly limited the Act to regulation of institutions that accept deposits that "the depositor has a legal right to withdraw on demand." 12 U.S.C. § 1841(c). The Board would now define "legal right" as meaning the same as "a matter of practice." But no amount of agency expertise -- however sound may be the result -- can make the words "legal right" mean a right to do something "as a matter of practice." A legal right to withdraw on demand means just that: a right to withdraw deposits without prior notice or limitation. Institutions offering NOW accounts do not give the depositor a legal right to withdraw on demand; rather, the institution itself retains the ultimate legal right to require advance notice of withdrawal. The Board's definition of "demand deposit," therefore, is not an accurate or reasonable interpretation of § 2(c).
"it is proper to include these instruments within the scope of the term commercial loan as used in the Act in order to carry out the Act's basic purposes: to maintain the impartiality of banks in providing credit to business, to prevent conflicts of interest, and to avoid concentration of control of credit."
extension of credit to commercial entities but, because they do not entail the face-to-face negotiation of credit between borrower and lender, are not "commercial loans."
"the decision should be left to Congress whether, in light of the policies underlying the Bank Holding Company Act, such 'near-banks' should be treated as 'banks' or 'nonbanks.'"
The Board now contends that the new definition conforms with the original intent of Congress in enacting the "commercial loan" provision. The provision, the Board argues, was a "technical amendment to the Act designed to create a narrowly circumscribed exclusion from the Act's coverage." Brief for Petitioner 41. The Board supports this revisionist view of the purpose of the "commercial loan" provision by citing a comment in the "legislative history" indicating that, at the time the provision was enacted, it operated to exclude only one institution, the Boston Safe Deposit & Trust Co. The Board does not go so far as to claim that the commercial loan amendment was a private bill, designed only to exempt Boston Safe. It suggests, however, that, because the amendment was prompted by the circumstances of one particular institution, the language "commercial loan" should be given something other than its commonly accepted meaning.
since the purpose of the act was to restrain undue concentration of commercial banking resources and to prevent possible abuses related to the control of commercial credit. However, the Federal Reserve Board has noted that this definition may be too broad, and may include institutions which are not in fact engaged in the business of commercial banking in that they do not make commercial loans. The committee, accordingly, adopted a provision which would exclude institutions that are not engaged in the business of making commercial loans from the definition of 'bank.'"
"The Board understands that Boston Safe purchases 'money market instruments,' such as certificates of deposit, commercial paper, and bank acceptances. In the circumstances of this case, such transactions are not regarded as commercial loans for the purposes of the Act."
Federal Reserve Bank of Boston, from Michael A. Greenspan, Assistant Secretary, Board of Governors, p. 2 (May 18, 1972) (App. 94A). Nothing in the statutory language or the legislative history, therefore, indicates that the term "commercial loan" meant anything different from its accepted ordinary commercial usage. The Board's definition of "commercial loan," therefore, is not a reasonable interpretation of § 2(c).
"a statute must be read with a view to the 'policy of the legislation as a whole,' and cannot be read to negate the plain purpose of the legislation."
problems Congress is called upon to address and the dynamics of legislative action. Congress may be unanimous in its intent to stamp out some vague social or economic evil; however, because its Members may differ sharply on the means for effectuating that intent, the final language of the legislation may reflect hard-fought compromises. Invocation of the "plain purpose" of legislation at the expense of the terms of the statute itself takes no account of the processes of compromise and, in the end, prevents the effectuation of congressional intent.
Blueprint for Reform: Report of the Task Group on Regulation of Financial Services (July 1984). Our present inquiry, however, must come to rest with the conclusion that the action of the Board in this case is inconsistent with the language of the statute, for here, as in TVA v. Hill, 437 U. S. 153, 437 U. S. 194 (1978), "[o]nce the meaning of an enactment is discerned . . . the judicial process comes to an end."
Cases filed in the United States Courts of Appeal for the Fourth and Sixth Circuits were transferred to the Tenth Circuit pursuant to 28 U.S.C. § 2112(a).
"the bill redefines 'bank' as an institution that accepts deposits payable on demand (checking accounts), the commonly accepted test of whether an institution is a commercial bank so as to exclude institutions like industrial banks and nondeposit trust companies."
S.Rep. No. 1179, 89th Cong., 2d Sess., 7 (1966).
The Board explained that, since 1980, a large number of insurance, securities, industrial, and commercial organizations have acquired Federal Deposit Insurance Corporation insured financial institutions that are the functional equivalent of banks. The Board also noted that the powers of previously unregulated industrial banks "have substantially expanded . . . making them for all intents and purposes banks" for the purposes of the Bank Holding Company Act. 49 Fed.Reg. at 834.
The Board stated in its implementing order that "commercial paper is an important substitute for commercial loans." 49 Fed.Reg. at 840, n. 34. See also Citicorp, 69 Fed.Res.Bull. 921, 922 (1983) ("[C]ommercial loans include such commercial loan substitutes as the purchase of commercial paper, bankers acceptances and certificates of deposit, and the sale of federal funds"); Hurley, The Commercial Paper Market, 63 Fed.Res.Bull. 525 (1977) ("[C]ommercial paper is an important substitute for bank credit").
"represented a willingness by the Board to refrain from applying the full scope of the Act in conditions that did not appear to generate the potential for its evasion."
49 Fed.Reg. at 842. But the decisions themselves make no mention of such self-imposed restraint. Rather, the decisions represented the Board's interpretation of the meaning of the statute based on the language of the Act and the legislative history of its passage.
In a related argument, the Board contends that it has the power to regulate these institutions under § 5(b), which provides that the Board may issue regulations "necessary to enable it to administer and carry out the purposes of this chapter and prevent evasions thereof." 12 U.S.C. § 1844(b). But § 5 only permits the Board to police within the boundaries of the Act; it does not permit the Board to expand its jurisdiction beyond the boundaries established by Congress in § 2(c).
The process of effectuating congressional intent at times may yield anomalies. In TVA v. Hill, 437 U. S. 153 (1978), for example, we were confronted with the explicit language of a statute that, in application, produced a curious result. Noting that nothing prohibited Congress from passing unwise legislation, we upheld the enforcement of the statute as Congress had written it. Congress swiftly granted relief to the petitioner in Hill, but it did so in a fashion that could not have been tailored by the courts. See Pub.L. 95-632, § 5, 92 Stat. 3760.

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