Legal Document

450 U.S. 46 101 Supreme Court Reporter 973 67 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 36 BOARD OF GOVERNORS the FEDERAL RESERVE SYSTEM, Petitioner,v.INVESTMENT COMPANY INSTITUTE. Number 79-927. Argued Oct. 15, 1980. Decided Feb. 24, 1981. Syllabus Section 4(c)(8) of Bank Holding Company Act authorizes Federal Reserve Board (Board) to allow bank holding companies acquire or retain ownership in whose activities are "so closely related banking managing controlling banks as be a proper incident thereto." In 1972, amended its Regulation Y, and issued an interpretive ruling connection therewith, enlarging category that it would regard "closely banking" under § by permitting their nonbanking subsidiaries act investment adviser closed-end company. 16 Banking 1933 (Glass-Steagall Act) prohibits from "underwriting" any issue security purchasing for own account, 21 organization "engaged business issuing, underwriting, selling, distributing" securities engaging banking. Respondent trade association open-end companies, proceedings before on direct review Appeals, challenged, basis Glass-Steagall Act, Board's authority determine services related" While rejecting respondent's argument amended, violated Appeals nevertheless held did not authorize regulation because permitted were consistent with congressional intent both these Acts effect complete separation possible between commercial businesses. Held : The amendment Y does exceed statutory authority. Pp. 55-78. (a) determination performed company . thereto" is supported only normal practice performing fiduciary functions various capacities but also reading language 4(c)(8). And what are"closely entitled greatest deference. 55-58. (b) Investment do necessarily violate either Act. here participating "sale distribution" of, purchasing, which acts adviser. Thus, if such restrictions followed, advisory services—even bank—would 16's requirements. management customer's portfolio kind selling activity contemplated prohibition 21, was intended require firms, underwriters brokerage houses, sever connections. event, even prohibit acting advisers, preclude determining permissible 58-64. (c) Since redeeming securities, avoids potential hazards involved affiliate Cf. Institute versus Camp, 401 617, 91 1091, 28 367. 64-68. (d) legislative history More specifically, indicates Congress intend limit discretion approve securities-related beyond prohibitions already contained 68-78. 196 U.S.App.D.C. 97, 606 Reporter, 2nd 1004, reversed. Stephen M. Shapiro, Washington, D. C., petitioner. G. Duane Vieth, respondent. Justice STEVENS delivered opinion Court. 1 1956 enacted control future expansion divestment interests.1 however, thereto."2 1972 itsregulations enlarge therefore subsidiaries. Specifically, determined may activity. question presented this case whether had make determination. 2 determination, implemented "Regulation Y," permits term defined 1940.3 Although definitionis detailed one,4 typical relationship can briefly described. pooling resources small investors guidance one manager, provide those diversification expert management.5 advisers generally organize manage pursuant contractual arrangement company.6 return fee, adviserselects company's supervises most aspects business.7 3 Y. That distinguished "open-end" (commonly referred "mutual funds") "closed-end" companies. explained "a mutual fund company, which, typically, continuously engaged issuance shares stands ready at time redeem issuer; typically after initial except infrequent intervals stand shares."8 Because will shares, they must constantly prevent shrinkage assets.9 contrast, capital structure similar other corporations; shareholders wish sell, so marketplace. Without obligation redeem, need seek new capital.10 4 board's expressed lawfully sponsor, organize, company,11 perceived no objection sponsorship provided certain observed.12 Among requirement primarily frequently engage issuance, sale, distribution securities; have interest extend credit it; underwrite otherwise participate sale securities.13 5 Institute, commenced litigation challenging excess Both proceeding District Columbia Circuit, respondent based challenge 1933, commonly known placed order protect depositors.14 6 rejected relying fact §§ ofthat Act15 apply rather than 1004. court concluded regulation. reasoned demonstrates restrict scope read indicate effort business, into believed challenged separation. 7 We granted certiorari importance holding. 444 1070, 100 1011, 62 750. persuadedthat well our interpretation 367 (1971), supports Board. Moreover, contrary view we persuaded statutes. 8 * significantly different traditional banks. principal advisee—to invest reinvest funds client. Banks sort decades.16 As executor, trustee, agent committed custody, regularly buys sells customers. trust departments employee benefits trusts, institutional corporate agency accounts, personal accounts.17 over 50 years tasks consisting commingled customers.18 These common administered regulated 1940 exempted Act's coverage.19 conclusion 4(c)(8).20 9 deference.21 Such deference particularly appropriate attack merely general satisfy imposed constitute thereto.22 specific preceded further expected public, opportunity ensure exceeds bounds bank's function customers' accounts.23 Thusunless requires conclusion, plain upheld. II 10 Respondent's proceeds premise bank, Act.24 argues never regarded "proper incident" could affiliate.25 reject argument. performance ofinvestment affiliates authorized prohibited themselves.26 11 It familiar depositors repetition widespread closings occurred during Great Depression.27 speculative activities, partially attributable banking, contributed rash failures.28 reveals firms affiliated hadengaged perilous underwriting operations, stock speculation, maintaining market stock, often resources.29 sought separate national banks, completely possible, activities.30 12 Sections approach goal separating directions. former places power transactions; latter firm business. expressly account. Code Regulations 225.125(h) (1980). 225.125(g).31 Therefore, requirements 16. 13 satisfied 21. contrast 16, kinds applies securities. same "to extent whatever inthe receiving deposits." portfolio—even when manager has sell owned customer—is If were, statute continuing accounts capacity individual. believe given 21.32 Rather, converse situation houses surely abandon accepted subjected 16.33 14 Even assume advisoryservices, follow perform services. itself indicated impermissible itself. entirely whereas 20 affiliation unless principally" underwriting.34 Further, 4(c)(7) purchase itself.35 Finally, inasmuch interests, exception unnecessary applied legally perform. Thus 15 all events, presently preliminary authorization services, approval relationship, speculation about conflicts plainly sufficient totally carefully considered III Our conclusions respect way altered consideration decision Invest mentment (1971). there Comptroller Currency purporting operate functional equivalent company.36 limited Camp clearly dispositive. argues, Court's reasoning description "more subtle hazards" created inconsistent action. disagree. 17 relied squarely literal After noting account corporation, corporations deposits distributing recognized redeemable transferable "units participation" operated bank. U.S., 634, S.Ct., 1100. underwriter fund's units participation within meaning 1940, id., 622-623, 1094-95, attempted avoid reach arguing "securities" led inexorably been violated. 18 This presents issue. No dispute But indicated, issued, sold, underwritten case, activity.37 19 enacting addition danger using assets imprudent investments.38 none present subject Those extending promotional pressures inherent business.39 unlike fund, search cover redemption stock. fee earned little incentive activities.40 accord provides added support emphasized proposed activity.41 Whereas deprived administrative "expertise enlighten rationalize Congress," 628, 1097, regulatory action addressed concerns enactment Contrary argument, affirmatively case. IV rested exceeded originally section banking." 1970, toextend coverage just words "business of" deleted 4(c)(8), thereby making refer not, place special reliance modest change. "divorc[e] 1970 alter Congress. U.S.App.D.C., 110, F.2d, 1017. 22 maintain strengthen Glass-Steagall's Part motivation underlying divest themselves interests desire measure missing Act.42 1956, provision 19(e) obtain permit entitling vote subsidiary agreed five formed purpose in, securities.43 largely ineffectual, becausebank divestiture long shares.44 able available themselves. inadequacy lay type ability simply voting shares. To strengthened closing loophole imposing affiliates.45 clear evidence acongressional remedy prohibiting being "engaged" activities; more accurately completing job severing "principally engaged" business.46 23 invalidate regulation, investments customer aspect take expansive banking.47 21.48 Nothing persuades us achieved unsuccessfully achieve 19(e).49 24 A Amendments strengthens conclusion.50 On face appear havebroadened sufficiently company.51 versions House Senate bills changed test "functionally test.52 Conference Committee's final version bill, retained Act.53 Whether difficult discern.54 For purposes neednot reconcile conflicting views expanded disputes least broad nothing should specifically Not evidence, affirmative contrary. 25 chairman Committee assured his fellow Senators conference bill neither nor containedin Act.55 Report refers declines state "bank sponsored funds."56 House's rigidlyconfined areas including "laundry list" approve. Included list acquisition "the issue, flotation, public distribution," "whether redeemable."57 list. deletion rejection restrictive favor Senate's flexible attitude toward exercise discretion.58 Thusas Amendments, Act.59 istherefore best resolved deferring expertise encompassed statute. 26 hold judgment 27 Reversed. STEWART REHNQUIST took part 29 POWELL stated "[t]o define expansion, interests." 70 Statutes-at-Large 133. statute, enacted, pertinent part: "(a) Except shall— "(1) date indirect "(c) shall apply— "(6) financial, fiduciary, insurance nature due notice hearing, record made thereto carry out ." 135-137. relevant exemption now found allows of: "(8) hearing (by regulation) thereto. particular consider reasonably produce greater convenience, increased competition, gains efficiency, outweigh adverse effects, undue concentration resources, decreased unfair unsound practices. orders regulations subsection, differentiate de novo acquisition, whole part, going concern." KF62 1843(c)(8). See Fed.Reg. 16695, 17514 (1971); 37 1463 (1972); 225.4(a)(5)(ii) following activities: "(ii) serving adviser, 2(a)(20) registered Act." definition (2)(a)(20) reads follows: "(20) 'Investment adviser' means (A) person (other bona fide officer, director, member board, such) who contract furnishes advice desirability investing property, empowered property purchased sold (B) described clause paragraph performs substantially duties undertaken said (A); include (i) furnished solely through uniform publications distributed subscribers thereto, (ii) statistical factual information, regarding economic factors trends, occasional transactions without furnishing recommendations (iii) cost financial institutions, (iv) person, character amount compensation approved court, (v) persons Commission rules definition." 80a-2(20). T. Frankel, Money Managers, I-A, 2, Page (1978). Id., I-B, 4, Pages 9-10; Wharton School Study Mutual Funds, H.R.Rep.No.2274, 87th Cong., Sess., 467-477 (1962) (hereinafter Study); Burks Lasker, 441 471, 480-481, 99 1831, 1838-1839, 60 404 (1979). Securities Exchange Public Policy Implications Growth, H.R.Rep.No.2337, 89th (1966). 225.125(c) Hearings S. 3580 Subcommittee Currency, 76th 3d 43 (1940) Hearings) (statement Robert E. Healy). SEC Growth funds: "Since always some want comply continuous demands cash stockholders. offset resulting outflow strong incentives growth industry, managers virtually vigorously promote sales times." supra, 42-43. 42. apparently decisions advisee. legality purely character. "(f) opinion, provisions, interpreted Court, forbid fund. However, securities." 225.125(f) Pertinent parts "In name to, variation "(g) exist, nonbank (1) adviser; (2) sole discretion, (including agent); (3) company; (4) accept collateral loan "(h) engage, directly indirectly Prospectuses literature offices addition, officers employees instructed express advisability Customers system request information unsolicited address names customers distributor. building likely identified public's mind company." 225.125(f), (g), (h) safer effective use regulate interbank control, diversion purposes." 48 162. "The dealing [a bank] recourse, upon order, customers, securities: Provided, limitations prescribe. 184. codified (Seventh). provides, unlawful "[f]or firm, association, trust, organization, distributing, wholesale retail, syndicate participation, stocks, bonds, debentures, notes, check repayment presentation passbook, certificate deposit, debt, depositor 189, 378. memorandum submitted behalf American Bankers Association states, "For century, every managed form estates accounts." App. 20. accuracy statement challenged. Institutional Investor Summary, H.R.Doc.No.92-64, pt. 8, 34-35 (1971): "National powers 1913. 11, 38 261. first organized 1927, F promulgated 1937. Commingled Common Trust Funds Administered Companies, H.R.Doc.No.476, 4-5 (1939). generation, therefore, reason doubt can, consistently laws, commingle hand, other. law suggests improper pool assets, individual customers." 624-625, 1095-96. Mullane Central Hanover & Co., 339 306, 307-308, 652, 653-54, 94 L.Ed. 865 (1950). 80a-3(c)(3). David Schenker, attorney SEC, Hearings: "We trustees participate, companies." Hearings, 181. takes additional significance light fact, real therein. Commenting Governors Agnew, 329 441, 411, 408 (1947), Rutledge observed: "Not system's operation hands, highly specialized technical one, requiring coordinated phases, N Dec. Immigration Nationality Decisions think conclusive matter like open reasonable difference opinion. Their experience gives them advantage judges cannot possibly have, problems raised working, ascertaining prescribing standards administer it. Accordingly matters overturned where sustain manner authority." 450, 415. First Lincolnwood Corp., 439 234, 248, 505, 513, 58 484 service end role. submit application each wishes then determines circumstances applicant serve interest. 225.4(a) (1980); H.R.Conf.Rep.No.91-1747, (1970), U.S.Code Cong. Admin.News 5519; NCNB Corporation Governors, 599 609, 610-611 (CA4 1979). related," publishes Register comment "public benefits" 225.4(b)(2) role 4(c)(8): "[T]here many careful examination carried your committee deems advisable forum concerning merits." S.Rep.No.1095, 84th 1st 1, (1955) 1955 Report). cut back afforded Senator Bennett, Committee, maintained "maximum flexibility 116 Cong.Rec. 42432 (1970). n. 58, infra. supra. agree deposits. receive deposits, organizations colloquy, cited Glass, cosponsor Robinson indicates, drafters construction: "Mr. GLASS Here [§ 21] large private chief deposit ROBINSON Arkansas. institutions purpose? GLASS. Yes." 77 3730 (1933). security, terms contended treated single entity applying flatly Organizations dealt sections 19(e), 188, repealed 80 242, divested importantly, members System owning affiliates, 2(b), 162, treat separately affiliates. urged render meaningless. advisers. operative company" includes "their subsidiaries." contends sponsor Brief 13-18. simple answer confer undertake stated: "[T]he adopted conducted furnish derive regulation; exist independently primary supervisory agency." Pet. Certiorari 61a. contains Ibid. imposition prevented evading allowing restricted activities. mistakenly permission enact note decision, represented prerequisite 107, 26, 1014, 26. although discussion reference addressing violates contention provide. "[N]o [national principally retail notes 377. "affiliate" 2(b) see 1966 bring 221a(b)(4). reflected word opposed less stringent standard Nevertheless, goes involvement distinction crucial. If, contends, corporations, point premise. premise, follows extent, infra subsume Representative Steagall, debate: legislation people right safe. They expect establishment maintenance citizens hard earnings expectation get again demand." 3837 major portion around debate Houses centered, creation Deposit Insurance Corporation. 168-180. S.Rep.No.77, 73d 6, (1933) Koppleman "One causes depression depositors' moneys markets Wall Street." 3907 3835 (remarks Rep. Steagall). Report, 10. Steagall); 4179, 4180 Sen. Bulkley). 30 31 13, 32 ."; hardly used describe Compare quoted 33 issuing Bulkley introduced striking "principally" "[i]t become apparent great forms one." institution focused discussing supply, "if confine unloaded millions dollars worthless country, deny conduct time, difficulty globe financing enterprise needs financed profit country." 4179 34 nn. 35 1843(c)(7). 4(a)(2) 1843(a)(2). "Under plan tenders $10,000 $500,000 together agent. written expresses 'units participation' proportionate assets. Units freely redeemable, anyone executed agreement 1940. 1094-95. critically comparable operator reviewed Camp. When makes change customer—not arguably associated mind, confidence might impaired poorly. lose money affiliate. pressure loss induce loans invested. result reputation prudence restraint attributed, justification, stocks Furthermore, considerations impair banker disinterested advice. 630-634, 1098-1100. 39 stray impartial promoting giving having name; prospectuses bank; locate fortunes obliterated, routinely published. Banker, Sept. 1980, 10, 1934 disclosure portfolios aggregate value $100 million. 78m(f); 240.13f-1 40 adviser's 1962 charged one-half percent Study, 484. increases increases. increase Special Markets, H.R.Doc.No.95, 88th 204-205, 96-99 (1963). paid scant risk unwise 41 articulated position level impact provisions affect funds." 627, 1097. 42 2. H.R.Rep.No.609, "Every shall, permit, show own, direction distribution, 'securities company'); period remains force ownership, thereof; if, filing owns, controls, will, application, cease thereof, thereafter, force, thereof 188. required "formed standard. All meet test. 44 2; S.Rep.No.1179, (1966), 1966, 2385 45 December 31, 1954, obtained estimated previously, engaged," applicable permissibility "engaged," 47 32, 33, accompanying text. 49 states "general 1933—to unduly extensive connections businesses." deficiency policies motivating Congress: "Whenever thus controls businesses, businesses occupy preferred competitors obtaining credit. critical times operates temptation cause though justified current standards. becomes involved." indicating "limited" exception. Control Companies: H.R. 2674 (1955); 880, 2350, 6277 76 (1955). sheds Congress' relied, indicative Report's omission listing falling exception, 1017, obviously approving 13; 23, repeal indication "serve[d] substantial purpose" passage 12. At well. 242. served successful attempt close left impose misperceived restrictions. S.Rep.No.91-1084, 5519 Report): pending modify H.R.Rep.No.91-387, (1969) 1969 51 "banking." eliminated actually engaged. Report); 42436 (1970) Bennett). 52 1; 25. 53 5. 54 signed four seven managers, liberal authorizing companies" retention "Congress convinced liberalization justified." shared Members however. Bennett criticized inaccurate conference's belief broaden 42432-42437 broader removal phrase "of nature" reflect discretion. 42432-42433. 42422 Sparkman). perceive Proxmire essentially existing 42427 55 During Williams concern Act: WILLIAMS New Jersey. ask committee. "Both contained, reiterating embodied essentially, conferees. wonder intention imply very forbidden bank-holding SPARKMAN. Senator's not. stands, broadly understand There exceptions, course, assure you mean here. subjects restatement unnecessary. complicated enough. short, amend modify, indirectly, longstanding, fundamental policy, legislation. hope longer misconception point. reassuring, indeed, know disturbed so." 42430. 15. By considering 56 state: inclusion prejudice rights particular, inhibit revenue bonds operating (bank funds) previously reported passed Senate, finally allowed amendments legislation, courts." passed, status bank-sponsored unsettled. Circuit's National Dealers 136 241, 420 83 (1969), funds, yet reversed 57 115 33133 (1969). Goodell "[t]he Senate-passed industry deal bank-related activities." 42429 Sparkman conference: reached thing ought flexible, lodged hands guidelines set." 59 colloquy Sparkman, 55, impression—admittedly incorrect—that 115, 1022. indications foreclose 56, text, lends theory misunderstood bill's referring 54, confused prevailed presume adopt rigid fixed construction prevailing guide disagree Appeals' frustrated 116, 1023. fear improperly subsidiary, adequately protected ruling. 38-44, second prevention centralization power, eliminating limiting 2-4;

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