Opinion ID: 580887
Heading Depth: 2
Heading Rank: 2

Heading: consolidation requirements

Text: 18 OTS promulgated regulations requiring consolidation of assets and liabilities of all domestic insured subsidiaries with those of their parent associations for purposes of determining compliance with capital standards. 22 The district court enjoined OTS from requiring Security to abide by these regulations, reasoning that the specific exception in § 301(t)(5)(E) prohibits OTS from requiring associations such as Security and its subsidiaries to use consolidated accounting standards. 23 OTS challenges this ruling. 19 Section 301(t)(5)(E) provides in relevant part: 20 (E) Consolidation of subsidiaries not separately capitalized 21 In determining compliance with capital standards prescribed under paragraph (1), the assets and liabilities of each of a savings association's subsidiaries (other than any subsidiary described in subparagraph (C)(ii)) shall be consolidated with the savings association's assets and liabilities, unless all of the savings association's investments in and extensions of credit to the subsidiary are deducted from the savings association's capital pursuant to subparagraph (A). 22 Subsidiaries defined in § 301(t)(5)(C)(ii), which are expressly excluded from § 301(t)(5)(E), are those that are themselves both insured depository institution[s] and were acquired by the parent depository institution prior to May 1, 1989. 24 Security's subsidiaries were acquired prior to May 1, 1989. FIRREA has no provision that expressly requires a particular method of accounting for those associations excepted from § 301(t)(5)(E). 23 OTS argues that § 301(t)(5)(E), by its own terms, is inapplicable to Security's subsidiaries. It contends that § 301(t)(5)(E) should be interpreted as mandating only that certain associations must use consolidated accounting--not that those associations defined in § 301(t)(5)(C)(ii) are exempted from consolidated accounting. In other words, as interpreted by OTS, FIRREA is silent on the accounting treatment of associations that come within the exception in § 301(t)(5)(E). OTS locates its statutory authority to promulgate regulations requiring consolidated accounting standard for those associations defined in § 301(t)(5)(C)(ii) in FIRREA's provisions granting OTS broad power to provide for safe and sound operation, and regulation of savings associations, 25 to issue regulations and make determinations regarding the operations of savings institutions, 26 and to require all savings associations to achieve and maintain adequate capital.... 27 24 In Chevron v. NRDC, 28 the Supreme Court articulated the process by which federal courts review administrative constructions of statutes. First, we decide whether Congress has spoken to the precise question at issue. Then, if Congress's intent is not clear--if the statute is silent or ambiguous with respect to the specific issue--we decide whether the administrative agency's interpretation of the statute is reasonable. 25 We find that OTS's counter-intuitive interpretation of FIRREA is neither reasonable nor permissible. First and foremost, we cannot agree with OTS that § 301(t)(5)(E) is silent on the accounting treatment of associations acquired prior to May 1989. Rather, § 301(t)(5)(E) affirmatively excepts those subsidiaries defined in § 301(t)(5)(C)(ii) from the consolidated accounting standards required for all other associations. If Congress intended the statute to be silent, logically it would have required certain associations to use consolidated accounting and simply said nothing about the others. Moreover, had Congress intended to leave open the possibility of consolidated accounting treatment of those associations defined in § 301(t)(5)(C)(ii), what reason could it have had to exclude such associations from § 301(t)(5)(E)? Congress knew well how to draft all-encompassing provisions, as evidenced by FIRREA's capital requirements, but in this instance, for whatever reason, it elected not to do so. We also take comfort in FIRREA's legislative history, which supports our interpretation of § 301(t)(5)(E), albeit only weakly. 29 26 Therefore, given that § 301(t)(5)(E) specifically excepts subsidiaries defined in § 301(t)(5)(C)(ii) from consolidated accounting, we conclude, as did the district court, that FIRREA's broad but unspecific grants of regulatory authority do not give OTS the authority to require Security and its subsidiaries to use consolidated accounting standards. 27 We admit, however, certain discomfort with our conclusion--OTS makes a convincing argument that consolidated accounting ensures that FIRREA's capital requirements are not circumvented through double-counting of capital assets or other such accounting gimmickry. But § 301(t)(5)(E)'s explicit exception of associations in § 301(t)(5)(C)(ii) from its requirements indicates Congress's intent to deprive OTS of the authority to mandate the consolidated accounting for all domestic insured subsidiaries. OTS should therefore make its policy argument to Congress.