Opinion ID: 3033121
Heading Depth: 3
Heading Rank: 2

Heading: The OCC’s Authority To Allow National Banks To

Text: Operate Through Operating Subsidiaries As noted, the Bank Act is silent regarding “operating subsidiaries.”12 Congress has thus not addressed, except indirectly, whether banks may organize and delegate banking functions to such entities in the first place. 12 The Commissioner argues that Congress’s silence in the Bank Act regarding operating subsidiaries resolves step one of the Chevron inquiry in his favor. The district court in Wachovia Bank, N.A. v. Burke explained why this expressio unius argument must fail: “While this silence might have been significant to the court were it to interpret the statute de novo, it does not answer the question asked by the first step of Chevron — namely, whether Congress has ‘unambiguously expressed [its] intent.’ ” 319 F. Supp. 2d 275, 285 n.5 (D. Conn. 2004) (quoting Chevron, 467 U.S. at 843) (alteration in original), aff’d in part, rev’d and vacated in part on other grounds, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005). We agree. The absence of any reference to operating subsidiaries in the Bank Act does not unambiguously provide that national banks may not create and perform banking functions through such entities. WELLS FARGO BANK v. BOUTRIS 10469 [4] The Bank Act, however, does bestow upon national banks the authority “[t]o exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; . . . .” 12 U.S.C. § 24(Seventh) (emphasis added). This “incidental powers” provision is central to our analysis here, as it is the basis for the OCC’s permission to national banks to create and operate banking functions, through subsidiaries. Because § 24(Seventh) is not explicit on the limits of “incidental powers,” the OCC is entitled to Chevron step-two deference as to whether the Bank Act supports the creation of operating subsidiaries pursuant to that provision. See Indep. Ins. Agents of Am., Inc. v. Hawke, 211 F.3d 638, 640 (D.C. Cir. 2000) (holding that the “incidental powers” provision permits “the Comptroller [to] authorize additional activities if encompassed by a reasonable interpretation of § 24(Seventh)”). Our inquiry, then, is whether the agency interpretation allowing operating subsidiaries as an exercise of “incidental powers” is reasonable. See, e.g., Hemp Indus. Ass’n v. Drug Enforcement Admin., 357 F.3d 1012, 1015 (9th Cir. 2004) (citing Barnhart v. Walton, 535 U.S. 212, 217-18 (2002)). We hold that it is. The Supreme Court has approved the OCC’s interpretation of the “incidental powers” provision as permitting a range of bank authority beyond that specified in the statute. As the Court has noted, because “the ‘business of banking’ is not limited to the enumerated powers[13] in § 24 Seventh . . . the Comptroller therefore has discretion to authorize activities 13 Section 24(Seventh) mentions some of the banks’ powers, including “discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt,” “receiving deposits,” “buying and selling exchange, coin, and bullion,” “loaning money on personal security,” and “obtaining, issuing, and circulating notes according to the provisions of title 62 of the Revised Statutes [the Bank Act].” 10470 WELLS FARGO BANK v. BOUTRIS beyond those specifically enumerated.” NationsBank, 513 U.S. at 258 n.2; see also Bank of Am., 309 F.3d at 562. At the same time, “[t]he exercise of the Comptroller’s discretion, however, must be kept within reasonable bounds. Ventures distant from dealing in financial investment instruments — for example, operating a general travel agency — may exceed those bounds.” NationsBank, 512 U.S. at 258 n.2.14 [5] We have endorsed the approach adopted by the First Circuit in Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972), for delineating the scope of “incidental powers” under § 24(Seventh): [A] national bank’s activity is authorized as an incidental power, “necessary to carry on the business of banking,” within the meaning of 12 U.S.C. § 24, Seventh, if it is convenient or useful in connection with the performance of one of the bank’s estab- lished activities pursuant to its express powers under the National Bank Act. If this connection between an incidental activity and an express power does not exist, the activity is not authorized as an incidental power. Id. at 432, quoted in M & M Leasing Corp. v. Seattle First Nat’l Bank, 563 F.2d 1377, 1382 (9th Cir. 1977); see also Nat’l Retailers Corp. of Ariz. v. Valley Nat’l Bank of Ariz., 604 F.2d 32, 33 (9th Cir. 1979) (per curiam) (discussing our adoption of Arnold Tours in M & M Leasing). Applying this standard, we agree with the district court that the Comptroller had the authority under § 24(Seventh) to permit banks to delegate some of their banking functions to operating subsidiaries. 14 Congress, not the OCC, has explicitly authorized national banks to engage in real estate lending. See 12 U.S.C. § 371(a). The Commissioner’s argument, at various points in his briefs, that the regulation of real estate lending falls outside the substantive scope of the OCC’s delegated authority is therefore unavailing. WELLS FARGO BANK v. BOUTRIS 10471 Allowing national banks to create, control, and delegate banking functions to operating subsidiaries provides some assistance to banks in performing their authorized activities. Indeed, the stated considerations motivating the initial adoption of the operating subsidiary rule in 1966 were that developing such subsidiaries would aid banks in “controlling operations costs, improving effectiveness of supervision, [providing for] more accurate determination of profits, decentralizing management decisions[,] or separating particular operations of the bank from other operations.” Operating Subsidiary Rule, 31 Fed. Reg. at 11,460. At the same time, permitting operating subsidiaries does not expand the functions carried out by the banks. The determination whether to conduct business through operating subsidiaries or, instead, through subdivisions of the bank itself is thus essentially one of internal organization, so long as the operating subsidiary form of organization cannot be used to evade the rules that apply to national banks. Under 12 C.F.R. § 5.34, the rule governing operating subsidiaries, such evasion is not permitted. See 12 C.F.R. § 5.34(e)(1) (providing that “[a] national bank may conduct in an operating subsidiary activities that are permissible for a national bank to engage in directly either as part of, or incidental to, the business of banking, as determined by the OCC, or otherwise under other statutory authority”); id. § 5.34(e)(3) (“An operating subsidiary conducts activities authorized under this section pursuant to the same authorization, terms and conditions that apply to the conduct of such activities by its parent national bank.”). [6] Allowing national banks to conduct business through operating subsidiaries is therefore a permissible construction of those banks’ incidental powers under the Bank Act. We hold that the OCC’s interpretation of 12 U.S.C. § 24(Seventh) as authorizing it to allow national banks to conduct business through operating subsidiaries is a permissible one. 10472 WELLS FARGO BANK v. BOUTRIS