Document: 468 U.S. 137 104 S.Ct. 2979 82 L.Ed.2d 107 SECURITIES INDUSTRY ASSOCIATION et al., Petitioners,v.BOARD OF GOVERNORS THE FEDERAL RESERVE SYSTEM al. No. 82-1766. Supreme Court of the United States Argued March 21, 1984. Decided June 28, Syllabus Section 16 Banking Act 1933 (Act), commonly known as Glass-Steagall Act, prohibits commercial banks from underwriting "securities or stock," and § 21 them marketing "stocks, bonds, debentures, notes, other securities." When Bankers Trust Co., a state bank that is member Federal Reserve System, began serving agent for several its corporate customers their paper, petitioners (a national securities-industry trade association dealer in paper) petitioned Board ruling such activities were unlawful under §§ 21. Taking position if particular kind financial instrument evidences transaction more functionally similar to traditional banking operation than an investment transaction, then should not be viewed "security" purposes concluded paper closely resembles loan it "note" within meaning hence falls outside proscriptions. The District disagreed, but Appeals deferred Board's interpretation reversed Court's judgment. Held: Because plain language because inclusion terms fully consistent with purposes, therefore subject Pp. 142-160. (a) Although entitled substantial deference, this case presents considerations counsel against giving full deference interpretation. at administrative level took was unnecessary examine dangers intended eliminate, before insisted Trust's involved none dangers. Post hoc rationalizations by agency action are little deference. 142-144. (b) In enacting Congress' worries about commercial-bank involvement investment-bank reflected two general concerns. first these concerns might experience large losses investing funds speculative securities. addition concern, however, Congress focused on conflicts interest arise when goes beyond business acting fiduciary managing develops pecuniary Act's design reflects congressional perception some commercial-and investment-banking fundamentally incompatible justify strong prophylaxis. 144-148. (c) There nothing either suggest narrow reading word "securities," i.e., appears phrase includes [and] debentures," prohibitions apply only "notes securities" resemble enumerated instruments. To contrary, breadth term "securities" implicit fact antecedent encompasses equity securities also representing debt. While does define "notes" "other securities," there considerable evidence, particularly respect Acts enacted same time do include indicate ordinary used paper. effectively converts portion broad into system regulation, since concluding covered effect has obtained authority regulate supervisory power over banks. 148-154. (d) By focusing entirely nature ignoring bank's role "functional analysis" misapprehends facts relatively low risk, traditionally have acquired own accounts, sold largely "sophisticated" investors, Act. evidence depend safety discount very different underwrite it, admits no exception prohibition according expertise customer. 154-160. 224 U.S.App.D.C. 693 F.2d 136 (1982), remanded. Harvey L. Pitt, Washington, D.C., petitioners. Louis F. Claiborne, respondents. Justice BLACKMUN delivered opinion Court. 1 This involves challenge efforts enter selling third-party Governors System (Board) activity prohibited 1933, ch. 89, 48 Stat. 162 (commonly Act) neither nor disagreed Board, judgment we conclude reverse Appeals. 2 * During 1978 Company (Bankers Trust), New York-chartered placing paper1 commercial-paper market. Petitioners, Securities Industry Association (SIA), association, A.G. Becker Inc. (Becker), informally expressed concern activities. SIA subsequently for, among things, 12 U.S.C. 24 Seventh 378(a)(1). stocks," while Petitioners asserted violated both 3 On September 26, 1980, responded petitioners' request enforcement Trust. See Statement Regarding Petitions Initiate Enforcement Action (1980), App. 122A (Board Statement). acknowledged prevent engaging certain activities, explained did intend cover every could characterized "security." preclude maintaining many Accordingly, "if fidelity would dictate security." Id., 135A. Applying determination, consider whether constitutes "underwriting," 4 challenged Columbia under, inter alia, judicial-review provisions Administrative Procedure 5 701 seq., claiming contrary law. ruling, finding scope 21's reference . v. 519 F.Supp. 602, 612 (1981). court found error exclusively plays affairs issuer. approach ignored which central 615-616. Circuit, divided vote, (1982). Appeals' majority enough promissory note. explained, susceptible narrower reading, limited long-term debt resembling bond debenture shorter maturity. 28-29, F.2d, 143-144. legislative history indicates sought encourage invest heavily long-term, securities, sense. 29-31, 144-146. Finally, endorsed functional analysis resembled security default rate, denominations issued, sophistication buyers. view, features eliminate moved pass 32-36, 147-151. 6 importance issue Nation's markets, granted certiorari. 464 812, 65, 78 80 (1983). II 7 responsible federal regulation system, statute As states elsewhere today, "the primary responsibility implementing accord whenever provides reasonable construction statutory intent." 83-614, Assn. 207, 217, 3003, 3009, 158. We made clear, device emasculates significance judicial review. Judicial agency's "only sets 'the framework analysis; displace it.' " Vogel Fertilizer 455 16, 24, 102 821, 827, 70 792 quoting Cartwright, 411 546, 550, 93 1713, 1716, 36 528 (1973). A reviewing "must reject constructions [a] statute, reached adjudication rulemaking, inconsistent mandate frustrate policy implement." FEC Democratic Senatorial Campaign Committee, 454 27, 32, 38, 42, 23 8 principles establish appropriate standard review, additional consideration counsels Board. At level, that, therefore, "not appear necessary eliminate." Statement, 140A.2 Before Court, changed somewhat argument. now insists "involv[e] 'hazards' identified" aimed. Brief Respondents 40. previously stated post deference: "It official appellate who possesses can enlighten rationalize search intent Congress." Investment Institute Camp, 401 617, 628, 91 1091, 1097, 28 367 (1971); see Burlington Truck Lines, States, 371 156, 168-169, 83 239, 245-246, 9 207 (1962). result, presentation here policies behind they less had occurred level. apparent shift, moreover, contours present unclear; much argument addresses characteristics case, apparently leaving open possibility qualify 33-44. extent adopted weight. III A. Camp explored length produced passed aftermath collapse Great Depression 1930's. opinion, widely time, difficulty experienced traced directly through affiliates. least, held view extensive been unwise; illegal.3 Senator Glass bluntly "one greatest contributions unprecedented disaster caused almost incurable depression." 75 Cong.Rec. 9887 (1932). 10 Congressional inherent risks business. Speculation affiliates during fever 1920's tremendous markets went sour.4 palpable assets affected banks, eroded confidence depositors depository institutions. crisis contributed runs proved so devastating solvency 11 But considerably obvious risk lose money imprudent shows subtle hazards enters business." U.S., 630, S.Ct., 1099. conclusion conflicted fundamental ways institutional replete references various feared single institution banking. observed bankers serve important source advice clients. They routinely advise clients variety matters how best unrealistic expect banker give impartial he stands realize profit distribution See, e.g., 9912 (1932) (remarks Sen. Bulkley). Some legislators noted conflict exacerbated fixed cost must incur build maintain securities-distribution system. Explaining Bulkley, major sponsor described pressures securities: 13 "In order efficient department developed; salesmen; correspondent connections smaller throughout territory tributary great bank. Organizations developed enthusiasm efficiency. sales departments expenses reduced without danger disrupting organization put disadvantage competition rival These turn quickly loss sufficient originations underwritings keep busy." 9911. 14 compromise objectivity lending operations. pressure dispose successfully lead use credit facilities shore up company whose distribute. 1931 Hearings, pt. 7, p. 1064. even make unsound loans companies stake purchaser seeks Ibid. Alternatively, outstanding obtain needed repay loans. faced misused trust unload excessive holdings undesirable 633, 1100; 1, 237. 15 After hearing testimony concerning form response problems,5 rejected those preferred legislation simply chose instead structural "surround sound rules recognize imperfection human our may led temptation, evil sometimes easily recognized most honorable man." Through flat prohibitions, "separat[e] completely possible banking." Institute, 450 46, 70, 101 973, 989, 67 (1981) (ICI).6 Such costs efficiency competition, created mixing justified 1098. B Sections principal demarcate line separating limits "business dealing stock buying "investment account. Seventh. addition, section provision "shall any stock." 5(c) 335, makes 16's limitations applicable members System. It clear 17 separates perspective designed persons engaged specified entering commercial-banking person "engaged issuing, underwriting, selling, distributing stocks, receiving deposits. receives deposits, it. 18 seek draw line, parties agree sections coextensive, shall assume case. event, Trust, section. perhaps helpful, describes greater detail 19 common ground "stocks," "bonds," "debentures" encompass dispute focuses claims and, not, nevertheless encompassed inclusive Thus, claim untenable contend further played third precisely what prohibit. C 20 Neither defined statute. "This silence compels us 'start assumption purpose words used.' Russello 296, 299, (1983), Richards 369 9, 585, 591, 492 consists unsecured notes "notes." 131A; 2. assert, context suggests definition. seems debentures" normally considered "investments," meant prohibit "shar[e] characteristic feature each instruments." 23. criterion maintains qualifies For reasons, find unpersuasive notion sense respondents suggest. First, "there phrasing 'securities.' debt." 635, 1101. 22 is, one pieces collectively restore public markets. (codified amended scattered U.S.C.); 74, 77a seq.; Exchange 1934, 881, 78a Public Utility Holding 1935, 49 803, 79a seq. statutes, definition contains explicit exceptions where paper.7 demonstrate cognizance understanding unless modified, example, defines "any note." 77b(1). hearings dissatisfaction plainly With support amend exclude paper,8 exempt registration requirements 77c(a)(3),9 preserving application statute's antifraud all "securities." 77l, 77q(c). weeks later, Committees Congress, eponymous displayed attempt evidenced unsuccessful articulate meaningful distinction between purportedly covers not. statutes exempted identified feature, maturity period, class "notes," authorized regulation. n. supra. neither, provide workable excludes fraught uncertainty inconsistency. applies issued "to raise available extended period part corporation's capital structure." 143. finds derives. requirement, debentures meet corporation, were, significant. 25 contrast, note properly "investment." contends requires "cluster" note's features, 34, 60, prospective purchasers. Stocks, display wide range characteristics, sensitivity issue; all. Without clearer directive involve nebulous inquiry cannot endorse departure literal another context, said pertinently: "Had distinction, clearly history. so, function 'to sit super-legislature,' Griswold Connecticut, 381 479, 482, 85 1678, 1680, 510 (1965), create distinctions intended." American Tobacco Co. Patterson, 456 63, 72, 6, 1534, 1539, 71 748 26 respect, ourselves agreement suggestion acknowledges sale party involve, least circumstances, practices safe 141A. concerns, guidelines explaining circumstances place parties. 2, 27 regulatory potential problems, drafted adhered rejection ever since. refused permit "national regulations Comptroller Currency sell notes." H.R.Conf.Rep. 1822, 74th Cong., 1st Sess., 53 (1935). recently "carry out responsibilities office," expressly continued withhold National Banks 'Glass-Steagall Act.' Depository Institutions Deregulation Monetary Control 708, 94 188, 93a. accordingly. 303(a), 707, 378(a)(1) (exempting mortgage coverage 21). face refusal rulemaking difficult imagine engage ad D Both emphasized future arising investments speculative, investments. description underlying accurate incomplete. "[I]n contemplated using investments." ICI, 66, 986. derived promoter disinterested lender adviser. Camp: sum, acted believed promotional incentives banker's success opportunities destructive prudent system." 634, 1100. 29 promoting 140A. implicate unpersuaded belated assertion. adopting "salesman's interest" offering "might impair ability credit." 631, market, depends creditworthiness issuer, presumably enhance marketability extending backup Similarly, itself direct dealers, feel purchase unsold reliability normal standards. Recognizing pressures, "When puts [securities dealers], accommodation firmly prudently mixed 637, 1102. 30 1993 concerned relationships facilitate interest, issuer obligations. id., 1099; sales, will depositor lists prime sales. sells depositors, result especially severe. 31 incentive security, produce act advice. debates explained: 32 "Obviously, his better qualified disinterestedly regard diligently uses list savings distribute circulars advantages this, receive originating trading combination profits." 33 becomes acute decides behalf intends proceeds retire owes 34 addressing primarily extremely rate prime-quality doubt low—lower reliance misplaced. exemption proscriptions "prime." logic Second, above, "prime" practice seem fit squarely aid 35 More importantly, exhibit risk; risky And affect security" account,10 displays appreciation just them, governmental obligations specifically chosen favor. prophylactic mere existence operation, 'no matter carefully conservatively run, interests' whole. 9913 statement Bank Manhattan Co.). regard, focus accounts beside point. true, asserts cause short-term like longer doing, hoped liquidity protect solvency. former places lender. latter banker, Act.11 Note, Conduct-Oriented Approach Yale L.J. (1981); Comment, J.Corp.L. 321 (1984). 37 comfort investors. Once again, leaves room analysis. knowledgeable naive. operations threatened "financial confidant mentor" poor widow" corporation." Even purchaser-sophistication relevant denominations, Hicks, Commercial Paper: An Exempted Security Under 3(a)(3) UCLA L.Rev. 227, 234, (1976), sophisticated Sanders John Nuveen & 524 1064 (CA7 1975), vacated remanded, 425 929, 96 1659, 172 (1976). 38 certainly placement passage prior well documented; evidently, occasionally dealt overwhelmingly discounter rather dealer. R. Foulke, Paper Market 108 (1931); Greef, House 403-405 (1938). Since enactment participation market offered explanation why past ventured test behavior far conclusive, banking," regulated universally underwriting12 side line. IV 39 foregoing reversed, remanded proceedings opinion. 40 ordered. 41 O'CONNOR, whom BRENNAN STEVENS join, dissenting. 42 question erroneous law of, 184, 189, amended, area arises specialized technical world governs, easy interpret. accordingly construction. complicated law, administering laws, sustained unreasonable. 158; 626-627, 1097-1098, Chevron U.S.A., Natural Resources Defense Council, Inc., 467 837, 844-845, 2778, 2782-2783, 81 694 (1984); 56-58, 981-982, 39, 43 Analysis examination usual sources interpretation—primarily language—to determine one, one. departed approval kinds thought addressed 36-37, 136, 151-152 Solicitor General, though actually similarly devoted significant brief elaborating limitation, position, due. experience, expertise, require "considerable statute." Mitchell, 445 535, 100 1349, 1357, 63 607 (1980) (WHITE, J., dissenting).1 44 careful thorough I believe, amply demonstrates reasonableness—perhaps inevitability—of critical language. Moreover, objections unpersuasive. defer uphold ruling. respectfully dissent. 45 considering bank2 threshold sections. supra, 634-635, 1100-1101. If instrument, transactions stock."3 Nor (Emphasis added.)4 "other" implies 46 Despite differences language, coextensive banks' problem directions: broadly speaking, tells firms activities; 62-63, 984-985. proviso [does] conducting permitted 16." V. DiLorenzo, W. Schlichting, T. Rice, J. Cooper, Law 96.02[2], 96-15 (footnote omitted). H.R.Rep. 742, (1935) (hereinafter 742); S.Rep. 1007, 1007).5 Indeed, concede proscribe Petitioner 24; 12. reason, examined 47 "plain meaning" key forecloses nowhere defined, generally legal art, included meaning. particular, reveals refers written instruments evidencing or, alternatively, capital-raising instruments, opposed fund current expenses. rest likewise meanings. often generically refer promise pay sum demand Uniform Code 3-104, U.L.A. (1977); Black's Dictionary 956 (5th ed. 1979); G. Munn Garcia, Encyclopedia Finance 724-725 (8th 1983), used, narrowly, distributed indenture agreement, bonds maturity, 725 ("The applied ."); Dewing, Financial Policy Corporations 178 1953).6 "prime quality, negotiable, usually organizations needs," Pet. Cert. 65a omitted), come interpretations alone, Not read isolation, admit interpretation, whole lend strong, decisive, view. treats 'security,' violence pin entire statutory-language contention generic sense, comprising promises time. Aside absence affirmative favoring reasons think erroneous. mention debentures—both date, 169, 226—would redundant sweeping important, certificates deposit, business, bankers' acceptances, participations. 102, 118-119, nn. 126-129 Yet render urge anything legitimate "unlawful [f]or [certificates deposit acceptances] whatever ." 378(a)(1).7 short, nonsense correct. alternative petitioners', gains conclusion. 50 reasonableness characterizable debentures. 158 (1984), rely "familiar principle grouped given related meaning,' reasonably construed "public sale" 377, surround it." 218, 3010, (quoting Third Impac, Ltd., 432 312, 322, 97 2307, 2313, 368 (1977)). That purchased purposes. specifically, listing three (as "stock") named ambiguity resolved, done, character good items 51 16. bear Any deems laden contradictions. 52 flatly forbids stock" 3, supra.8 undisputed accounts.9 Hence, point order, security," all: otherwise, acknowledge buy accounts. "security," 69a-74a, security; indeed, Tr. Oral Arg. 7. briefly summarized. mean "marketable obligations, indebtedness person, copartnership, corporation and/or prescribed Currency." never designated security. 1971 Comptroller's Chief Counsel constitute 73a. regulators, including Comptroller, always treated loan: federally required reports, views individual borrowers, 84, distinct holding CFR 7.1180 72a-73a. 54 History supports originated McFadden 1927, (part 2) 1224, purport alter phrase. affirmed deal restrictions: express authorization longstanding bonds. 83, 69th 3-4 (1926). Congressman McFadden, floor debate bill regarded loans, restrictions 3232 statement, disputed anyone accurately long understood making investment.10 pointed out, "historical studies (and served dealers) pursuant functions expanding after Civil War, restricted six years Act." 72a; 72a, (citing, supra 6-7, 15-18, 403-405; 108). treated, Given follows 55 Having established original purchasing account "issue Currency.11 version 1935 altered stocks accounts." 18. change nonequity unaltered lends 56 reason broader amendment substituted suggesting being way expanded. 5, along insofar "dealing in, purchasing, selling"; yet conceded, (amendment "does private [§ 16]"); "should prohibiting bankers, institutions 16]"). stock";12 provision, concede, "state banks" Company, 2; 3. All enactments presuppose 57 confirms akin comports Glass-Steagall. leading attention distinguished worried about. 77, 8, 4, 9; 9904, 9909, 9910, (1932).13 although dominant buyers brought shows, adverted contributing difficulties 75a-76a. contends, 58 strongly suggested accommodated impossible argue something compelled "a 3009. 59 advance arguments effort unavailing. worth noting outset quarrel discussion Ante, None discussion, speaks negative answer mandated contradicted came intention 60 (containing exclusion 882, 78c(a)(10)), contemporaneous accepting premise, merits position. 61 determining factor consider, utterly irrelevant cases. need frequently thing abstract, offer otherwise. laws' definitions acceptances 2(1) 77b(1), bought proper banking, having determined 1934 81a.14 62 meanings laws quite different. depositors. 61, 984; 9913-9914 investors public. Housing Foundation, Forman, 421 849, 95 2051, 2059, 621 (1975). demonstration accommodate outlawing concededly lawful Most observe, negotiate 1864, 101, currently codified Seventh, immediately "[t]o exercise board directors duly officers agents, incidental powers carry banking; discounting negotiating drafts, bills exchange, debt; deposits; coin, bullion; loaning personal obtaining, circulating chapter." 64 separate authorizations reinforces attribute remain force, conclusions possible. Either one; resolved implicitly repealing overriding another. last resort, avoided merely real. shown law: construes accordance referring paper; "promissory notes" "discounting negotiating" contradictions creates conclude, 74a-75a, fashion set 65 elapsed fact, course, undermine—it address otherwise unanswered significance. later abandoned agency. Until ruled Bankers' matter, applicability asked take question, count much. number reasons—for economic (comparative unattractiveness sociological (conservativism banks)—to until late 1970's. clarity prohibition, 66 investment, listed takes starting argument, mistakenly hand, "bonds" "debentures," other, class. establishes distinguishes classes—"securities," (though necessarily all) debentures; "stock," assimilate stock, canon placed together 166-167. reads agreements, that. decries transforming prohibitory delegating sure, distinguishing represent bank-loan transactions. cluster possessed paper—for short secondary bearing "market" "credit" issuer's freedom availability purchasers small 68 bit unusual defining concept. taken gives specifying "factors" conditions checked off. instances approach, intrinsic complexity untidiness concepts apply. hardly law's describe world, intricacies bewildering nominally substantively (if identical) 69 escaping worlds cases, chief aim 165-169, petitioners: distinguish notes," "purchasing" make. hard drawn "functional" difference worlds. allegation, vest amount discretion. case-by-case judgments based instrument's declined conduct presented 83a. unlike Appeals, inapplicable ibid. statute; restrain unsafe practices, 259, 261, 248 321; 879, 1818(b), permit. employed lay down reasoned demonstrated Critical rise contradiction interpreted embrace rooted long-standing lawfulness dispute. Nothing extends already lawfully reasoning words, few implications applications 72 generality policies. translation legislation, necessity taking potentially competing overlapping task interpret Careful complex likely nonspecialist judiciary discern perspective. 73 proposed wholly singularly inappropriate explanation. oversight applying arcane body governs unjustified. 74 construction, affirm reverses declaring unlawful. "Commercial paper" unsecured, entities. payable bearer date. Maturities vary considerably, typically nine months. Hurley, Market, Fed.Res.Bull. 525 Acts, U.Chi.L.Rev. 362, 363-364 (1972). conclusion, problems avoid, "guidelines" imposing Fed.Reg. 29333 259 §§248, 321-338, 202 Supervisory 1966, 1046, 1818(b). Several Members charters operated operated. 9887-9888 Glass); 9911 failure attributed numerous Operation Systems: Hearings S.Res. Subcommittee Senate Committee Currency, 71st 3d pts. pp. 116-117, 1017, 1068 (1931) (1931 Hearings). 19-22 (testimony Pole, Currency); 191-192 Wiggin, chairman, Chase Bank); 238-241 B. Trafford, vice First Boston); 301-304, 318 C. City York); 356, 364-365 O. Young, General Electric Co.); 539 Pope, executive president, Old Colony Corp.). recognize, safekeeping customers, safely engage. prohibition. 77c(a)(3) "note[s]" maturities months 1933); 78c(a)(10) 1934); 79i(c)(3) "commercial Commission restriction acquisition "securities"). Act: S.875 73d 98, 120 (1933); H.R.4314 Interstate Foreign Commerce, 180-181 (1933). "note," indicating purchases 1938 report committee allowed "underwrite participate new issues [they] account." H.R.9441, 1(b), 75th Sess. altogether, permits "purchase [their] account" argues classified account, assumed run afoul reconciled deemed 17-18, 26-30. correct decide, rests faulty premise process acquiring dealing" sentence 106, 101. grants "all banking" enumerates five constituent One acquire grounded notes. 18, 25. subsequent "[t]he authority; "discounting" free "underwriting" distributing" matters, decided remand. petitioner says, "[i]t post-hoc rationalization counsel, judged." Reply 5. 11, chartered virtue 165, 335. 12, infra. reads, part: "The [a bank] recourse, solely upon [national stock: Provided, prescribe. 'investment securities' earn marketable "[I]t firm, trust, organization, distributing, wholesale retail, syndicate participation, deposits check repayment passbook, certificate debt, depositor: paragraph State (whether System) issuing associations 16]." permitted" edition Dewing's classic work, (3d rev. 1934). H. Moulton, Organization Society 111-118 (2d 1925); E. Mead, Corporation 301 (rev. 1919). conceded oral term. 14. specific bank-issued money, (1977). means except proviso, them. 158-159. petitioners, proposition ban proviso. 17; 18; 96-16 separate. ante, treatment purchase, different, link concerned, indissoluble. 74a, 17. 95-96 (1938); 65-74 (1931). No litigation anywhere else "purchase" histories see, 292-325, 335-346; 65-98, too 39; 28; eligible "be permanent kind, land, buildings, machinery, purpose" "for purely character" States." Consistent "in producing, carrying, goods," "meeting operating expenses," "carrying 196 1983). [bank] securities; 184. provides: "State S.4115 72d 66-67, 146 (1932); App., 1006-1019 review passbook participations, exchange. 81a-82a.

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