Opinion ID: 501705
Heading Depth: 2
Heading Rank: 3

Heading: Gross Revenue Limitation

Text: 96 The Board determined that substantial activity, measured quantitatively, constituted five to ten percent of an affiliate's gross revenues over a two-year period. 73 Fed.Reserve Bull. at 485. It set the approved level of activity at the five percent end of this range, but stated its intent to review this level within a year after the order's effective date. Id. 97 One troublesome facet of the Board's ruling is that engaged principally in Sec. 20 is equally restrictive as--if not more restrictive than--primarily engaged in Sec. 32. The Board has stated that if a firm's prohibited activities constitute less than ten percent of its gross business, see Staff Opinion 3-939, 1 Fed.Reserve Reg.Serv. 389 (Dec. 14, 1981), or amount to less than ten million dollars regardless of the percentage figure, see Board Letter 3-896, 1 Fed.Reserve Reg.Serv. 367 (May 22, 1959), the firm is not primarily engaged in such activities under Sec. 32. By placing the permissible level of Sec. 20 activity currently at only five percent of gross revenues--and never more than ten percent--the Board is employing, at least for the present, a more restrictive gross revenue test for Sec. 20 than for Sec. 32. 98 This initially seems to contradict the Supreme Court's indication that Secs. 32 and 20 should be interpreted consistently. See Schwab, 468 U.S. at 219, 104 S.Ct. at 3010 (the term public sale should be interpreted consistently because Secs. 32 and 20 contain identical language, were enacted for similar purposes, and are part of the same statute.). But with regard to engaged principally versus primarily engaged, Secs. 20 and 32 differ; accordingly, there is justification for interpreting them slightly differently. 99 The legislative history also supports the conclusion that the Board's stringent quantitative interpretation of Sec. 20 is reasonable. What became Sec. 20 was proposed by Eugene Meyer, a governor of the Federal Reserve Board, as a substitute for the section which eventually became Sec. 32, see 1932 Hearings, supra, at 387-88, because he believed that the language in the predecessor to Sec. 32--in relevant respects identical to Sec. 32--was overbroad and that it would therefore be ineffectual. See id. at 387. Meyer commented on the difficulties in the way of accomplishing a complete divorce of member banks from their affiliates arising from the fact that a law intended for that purpose is likely to be susceptible of evasion or else to apply to many cases to which it is not intended to apply, id. at 388, and tentatively suggested substituting what is now Sec. 20 for what is now Sec. 32. It defies logic that Sec. 20 should be interpreted less restrictively than Sec. 32, based on Meyer's comments that Sec. 20 was intended to be more restrictive than Sec. 32. 100 Further support for a stricter interpretation of Sec. 20 than of Sec. 32 is derived from the fact that the dangers resulting from affiliation are arguably greater than those resulting only from personnel interlocks. The public associates a member bank and its affiliate because of their common ownership and often similar names. The potential for the public to associate the misfortunes of the affiliate with the bank is far greater than the association of firms with personnel interlocks, which are generally unknown to the public. 101 Given these considerations, we defer to the Board's determination that Sec. 20 allows an affiliate to engage in bank-ineligible securities activities so long as those activities do not exceed five to ten percent of the affiliate's gross revenue. This range is both reasonable and consistent with the statute. Because of the Board's expertise we also defer to its decision to set the gross revenue limitation at five percent.