# Petition — Alabama Ass'n of Insurance Agents, Inc. v. Board of Governors of Federal Reserve System > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_0026%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1978 - **Citation:** 435 U.S. 904 ## Text Supreme Court, U. &. FILEQ 977 IN THE Supreme Court of the vines al \ OCTOBER TERM, 1977 “ 77-668 ALABAMA ASSOCIATION OF INSURANCE AGENTS, INC., et al., Petitioners, V. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT HERBERT E. MARKS 1735 New York Avenue, N.W. Washington, D.C. 20006 (202) 833-9800 Counsel for Petitioners Of Counsel: WILKINSON, CRAGUN & BARKER THOMAS E. WILSON November 10, 1977 ae ee WILSON - EPES PRINTING Co., INC. - RE 7-6002 - WASHINGTON. D.C. 20001 INDEX i iacineeibianniaabatennetnannielantiin EEE ea a I a encaninaeaiies I sear ianatila eee LIE SIE TERE I aT ee Reasons for Granting the Writ .......................................... A. These Cases Are Cases of First Impression for RE LEE Reterier hacen none Seen RON B. The Decision of the Court of Appeals Regarding the “Closely Related” Test Is in Conflict with a Prior Decision of the Court of Appeals of FEE EES eae nn SOC C RC OO C. The Decision of the Court of Appeals Regarding the Application of the “Public Benefits” Test Is in Conflict with Prior Decisions of the Courts of po nee D. The Decision of the Court of Appeals Interprets the “Public Benefits” Out of Existence _.............. a eee 12 14 16 21 ii TABLE OF AUTHORITIES Cases: American Bancorporation, Inc. Vv. Board of Gov- ernors of the Federal Reserve System, 509 F.2d FX Fr Eee ea Arnold Tours, Inc. Vv. Camp, 472 F.2d 427 (1st Cir. SIE PE EERE SES Ay ano Os Ee RRS A Oe Independent Bankers Association of Georgia V. Board of Governors of the Federal Reserve Sys- tem, 516 F.2d 1206 (D.C. Cir. 1975) 2.000000. Investment Company Institute v. Camp, 401 U.S. gf RRIEISE ESEETSA, “saRCSIRI noc Oin O Tr National Courier Association Vv. Board of Govern- ors of the Federal Reserve System, 516 F.2d 1229 I a edeceeninleis NLRB vy. Columbian Enameling & Stamping Co., fe RTA Se wae Seon Oe Port of New York Authority v. Baker, Watts & Co., $92 F.2d 497 (D.C. Cir. 1968) .............................. Saxon V. Georgia Association of Independent In- surance Agents, 399 F.2d 1010 (5th Cir. 1968) .. SEC v. Chenery Corp., 318 U.S. 80 (1943) _......... : Service V. Dulles, 354 U.S. 363 (1957) —....0000000. United States v. Nixon, 418 U.S. 683 (1974) _........ United States v. Philadelphia National Bank, 374 RES RAEP EERs eLS i SCe United States v. Third National Bank, 390 U.S. RN SS SIS REFERS PO Universal Camera Corp. Vv. NLRB, 340 U.S. 474 ERE Ses See as Sen Whitney National Bank v. Bank of New Orleans & Trust Co., 379 U.S. 411 (1965) 000. 544 F.2d 1245 (Editor’s Note) 2.00.00... Administrative Decisions: Application of Alabama Financial Group, Inc., 39 Fed. Reg. 25,548 (1974) (FRB Docket No. IA- TUTTE scltusnisciestisitesenttbtannteminiannnsscininiammetematlinianiniimeaeninines Page nN Ne iii TABLE OF AUTHORITIES—Continued Page Application of Barnett Banks of Florida, Inc., etc., 40 Fed. Reg. 44,620, 44,624, 44,630 (1975) (FRB Docket Nos. IA-6, 7, 3, 12 & 13) ..........................-. 11 Application of First National Holding Corp., 39 Fed Reg. 33,411 (1974) (FRB Docket No. IA- OO sheila ciate dati haneitanmeneianinemneneinnnnts x Application of Southeast Banking Corporation, 40 fe \f FS 7 es, CD DD... cs sesemrenboseeninbennneenes 17 I I CI nccnamnesncnetennantininetinonintinn 6 RG SS ae 7 Statutes and Regulations: aus. 60) Goan Te .................... Q Bank Holding Company Act of 1956, as amended, 12 U.S.C. §§ 1841-50, 1871-78 (1970) __............. 4 I a eeteaesncindinine 5 ge | een passim SSSI SRE ESE ee 16, 17 I lca ia ae I ticinlatinioes 17 OR 2 Bank Holding Company Act of 1956, as amended, 12 U.S.C. § 1843(c) (8) (Supp. III 1964) —.......... 5 National Bank Act, ch. 106, § 8, 13 Stat. 101 (1864) (current version at 12 U.S.C. §24 (Supp. V SUED: scncsdcseasiiiceaspbendceeuanubenssanesniunianbapenisneenatneesiandtomess 5 Board of Governors of the Federal Reserve Sys- tem, Regulation Y, 12 C.F.R. § 225.4(a) ESSE Sy PESO Aca a ON aD 9,10, 11 Be ey ND CO cnsceteccccttenesicccensnsnsennsencs passim 18 US.C. § 225.4(a) (10) a. 8 ......................... 17, 18 Miscellaneous: Annual Statistical Digest, 1971-75, Federal Reserve OR I ee 9 iv TABLE OF AUTHORITIES—Continued Page Hearings on S. 1754 Before the Subcomm. on Fi- nancial Institutions of the Senate Banking and Currency Comm., 91st Cong., 1st Sess. 163 CRED ~esssncnssnniiieneimeeaee 10 H.R. Rep. No. 387, 91st Cong., Ist Sess. (1969) .... 10 H.R. Rep. No 1747, 91st Cong., 2d Sess. (Con- ference Report), reprinted in [1970] U.S. Code Cong. & Ad. News 5561 .222..2.......2222220.20--ceeecececeeeeee 2,3,14 S. Rep. No. 1095, 84th Cong., Ist Sess. (1955) -..... 5 S. Rep. No. 1084, 91st Cong., 2d Sess., reprinted in [1970] U.S. Cong. Code & Ad. News 5519 ...... 5 Talley, “Bank Hol ling Company Financing,” Con- ference on Bank Structure and Competition (Federal Reserve Bank of Chicago) (1975) ....... 11 v LIST OF APPENDICES Opinion of the United States Court of Appeals for a csssemennivensenies First Rehearing Decision of the United States Court of Appeals for the Fifth Circuit —................. Second Rehearing Decision of the United States Court of Appeals for the Fifth Circuit Judgment of the United States Court of Appeals a eessnnesisasionas Order of the Board of Governors of the Federal Reserve System, FRB Docket IA-10 (Southern ES Order of the Board of Governors of the Federal Reserve System, FRB Docket IA-8 (First National EE Recommended Decision of the Administrative Law Judge, FRB Docket IA-10 (Southern Bancorpora- NE EEE AA AAA Recommended Decision of the Administrative Law Judge, FRB Docket IA-8 (First National Holding I aiscnretememnepneetonemmmnrensons 8la IN THE Supreme Court of the Auited States OCTOBER TERM, 1977 No. ALABAMA ASSOCIATION OF INSURANCE AGENTS, INC., et-ad., Petitioners, Vv. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT Petitioners, the Independent Insurance Agents of Amer- ica, Inc., its constituent state associations and various in- dividual member agencies in the States of Alabama and Georgia, request that a writ of certiorari issue to review the judgment of the United States Court of Appeals for the Fifth Circuit in these cases.* 1 Petitioners herein were petitioners in the cases designated by the court of appeals as Docket Nos. 74-2981, 74-3544 and 74-3843. In those cases, the two bank holding company applicants and a com- mittee of lender organizations intervened in support of the re- spondent Board of Governors of the Federal Reserve System. 2 OPINIONS BELOW The court of appeals issued its first decision in these cases on June 10, 1976. That opinion is reported at 533 F.2d 224 (5th Cir. 1976), and appears at Appendix A hereof. On January 10, 1977, the court of appeals issued a second decision which in part granted and in part denied petitions for rehearing filed by both sets of parties. That opinion was initially reported at 544 F.2d 1245 (5th Cir. 1977) (advance sheets), but was deleted from the bound volume of the Federal Register at the instruction of the court of appeals.’ Finally, on September 1, 1977, the court of appeals rendered a second rehearing decision granting the respond- ent’s petition for further rehearing. That opinion is re- ported at 558 F.2d 729 (5th Cir. 1977), and appears at Appendix D hereof. The judgment of the court of appeals appears at Ap- pendix D hereof. JURISDICTION The jurisdiction of the court is invoked under 28 U.S.C. § 1254(1). QUESTIONS PRESENTED Historically, there has existed in this country a rigid separation between banking and other forms of commerce. Such separation arises out of a concern on the part of Con- gress that the viability of banking organizations be care- fully protected* and a recognition by Congress that the 2 See 544 F.2d 1245 (Editor’s Note). * See, e.g., H.R. Rep. No. 1747, 91st Cong., 2d Sess. 11-12 (quot- ing the President) (Conference Report), reprinted in [1970] U.S. Code Cong. & Ad. News 5561, 5562. , in 3 power of banking organizations to control credit transac- tions provides them with a unique opportunity to influence borrowers in connection with purchases of nonbanking services.* The principal statutory exception which permits bank- ing organizations to participate in limited forms of com- merce is Section 4(c) (8) of the Bank Holding Company Act of 1956, as amended (“Act”). The manner in which this section is applied will determine whether the histori- cal separation between banking and commerce will be preserved.° The instant cases involve approval by the Board of Governors of the Federal Reserve System (‘Board’), under Section 4(c) (8), of certain bank holding company applications for authority to act as agents and brokers in the sale of property and casualty insurance. In affirming the Board’s orders, the court of appeals applied the statu- tory tests of Section 4(c) (8) in a manner which (i) con- flicts with the holdings of the courts of appeals of other circuits, and (ii) contravenes the standards established by Congress to keep banking separate from other forms of commercial activity. The resolution of the issues pre- sented by these cases will determine the future relation- ship between banking and commerce in the economy of this nation. As such, those issues deserve to be settled by this Court. The questions presented are: 1. Whether the “closely related” to banking test set forth in Section 4(c) (8) of the Act is so broad as to per- * See id. at 18, [1970] U.S. Code Cong. & Ad. News 5569. 5 This and other courts, on numerous occasions, have been called upon to restrain the administrative largesse of bank regulatory agen- cies in order to preserve the historical separation between banking and commerce. See, e.g., Investment Co. Inst. v. Camp, 401 U.S. 617 (1971); Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir. 1972); Sazon Vv. Georgia Ass'n of Independent Ins. Agents, 399 F.2d 1010 (5th Cir. 1968) ; Port of New York Auth. v. Baker, Watts & Co., 392 F.2d 497 (D.C. Cir. 1968). 4 mit bank holding companies to engage in any nonbanking activity where there exists “any type connection between banking and the nonbanking activity in question which makes it rational to consider the proposed activity an ‘incident’ to banking” *‘—a standard which would permit the Board to add to its list of permissible nonbanking activities almost without limitation. 2. Whether the “public benefits” test set forth in Sec- tion 4(c) (8) of the Act is so devoid of substance as to permit approval of applications where (i) an applicant failed to make clear the procedures by which the non- banking activity would be conducted; * (ii) the Board vio- lated its own regulation making the price at which insur- ance is offered to the consumer an overriding consideration in property and casualty insurance agency applications; (iii) the Board “apparently assumed” that an applicant would operate the proposed nonbanking activity “not pre- cisely as its witnesses suggeésted, but in a manner that will comply with [state] law”;* and (iv) the Board ignored evidence in the record that approval of the applications would result in most of the adverse effects enumerated in the Act, including the tying of sale of insurance to exten- sions of credit.° STATUTE INVOLVED The statute involved in these proceedings is the Bank Holding Company Act of 1956, as amended, 12 U.S.C. $$ 1841-50, 1871-78 (1970), and principally Section 4(c) (8) thereof, 12 U.S.C. § 1843(¢) (8) (1970). The admin- istrative regulation principally involved is Section 225.4 (a) (9) of the Board’s Regulation Y, 12 C.F.R. § 225.4 ®° Appendix A, at 3la (533 F.2d 224, 244). * Appendix A, at 49a (533 F.2d at 253). * Appendix A, at 49a, 5la (533 F.2d at 252, 253). ® See Appendix G, at 113a; Appendix H, at 138a. 5 (a) (9) (1977). Section 4(c) (8) of the Act and Section 225.4(a) (9) of the Board’s Regulation Y appear at Ap- pendix I hereof. STATEMENT OF THE CASE The bank regulatory legislation of this nation has long maintained a separation between banking and other forms of commerce. Since the establishment of the national banking system, Congress has prohibited federal banking associations from engaging in any activity which was not banking or an incidental power of banks.** When Con- gress enacted the Bank Holding Company Act and the 1970 amendments thereto, it continued and extended this principle." Consequently, the Act generally prohibits bank holding companies from owning the shares of any com- pany which is not a bank.** The limited exceptions to this prohibition are set out in Section 4 of the Act, with the principal exception contained in subsection (c) (8). Sec- tion 4(c) (8) essentially provides that a bank holding company may engage in a nonbanking activity if, and 10 See National Bank Act, ch. 106, § 8, 13 Stat. 101 (1864) (cur- rent version at 12 U.S.C. § 24 (Supp. V 1975) ). 1 §. Rep. No. 1084, 91st Cong., 2d Sess. 2-3, reprinted in [1970] U.S. Code Cong. & Ad. News 5520-21; S. Rep. No. 1095, 84th Cong., Ist Sess. 11-14 (1955). 12 12 U.S.C. § 1843(a) (1970). The 1970 amendments changed the law in several important ways. Most significantly, the Act for the first time applied to one-bank holding companies, whereas, prior to 1970, its application had been limited to multiple-bank holding com- panies. See S. Rep. No. 1084, 91st Cong., 2d Sess. 2, reprinted in [1970] U.S. Code Cong. & Ad. News, 5520-21. In addition, Section 4(c)(8) of the Act was modified essentially (i) to permit approvals of bank holding company applications without a formal hearing in certain instances not germane here, and (ii) to establish criteria for determining whether a particular activity is a “proper incident” to banking or managing or controlling banks. Compare 12 U.S.C. § 1843 (c)(8) (1970) with 12 U.S.C. § 1843(c) (8) (Supp. ITI 1964). 18 Appendix I (12 U.S.C. § 1843(c)(8) (1970)). 6 only tf, it can make an affirmative showing that (i) the particular activity in which it wishes to,participate is “closely related” to banking, and (ii) its participation in the activity can reasonably be expected to result in bene- fits to the publie that outweigh possible adverse effects.” In 1971, the Board promulgated Section 225.4(a) (9) of its Regulation Y, 12 C.F.R. § 225.4(a)(9) (1977), which purported to enumerate certain types of insurance agency activities it considered to be “closely related” to banking within the meaning of Section 4(c) (8) of the Act. The Independent Insurance Agents of America, Inc. (“ITAA”) and various of its state and local associa- tions (collectively hereinafter referred to as the “IIAA parties”) opposed certain bank holding company applica- tions for insurance agency authority under the Board’s regulation and requested that the applications be set for hearings. In opposing the applications, the IIAA parties argued that Section 225.4(a) (9) failed to enumerate the precise activities which were allegedly “closely related” to bank- ing or to explain why the Board determined that the neces- sary close relationship between such insurance activities and banking existed. The IIAA parties also argued that, even if the lines of insurance for which authority was be- ing sought were “closely related” to banking, approval of the bank holding company applications could not reason- ably be expected to result in benefits to the public that outweighed possible adverse effects. Eventually, the Board announced that hearings would be held on 22 of the then pending applications designated FRB Docket Nos. IA-1 through IA-22." The applications 16 Td. 8 See id. (12 C.F.R § 225.4(a)(9) (1977)). *® See 38 Fed. Reg. 6,441 (1978). 7 of Southern Bancorporation (“Southern”) and First Na- tional Holding Corp. (“First National”) to which the instant cases relate were among the applications set for hearing. In all, four separate hearings involving eight bank hold- ing company insurance agency applications were held in the FRB Docket IA series of cases. The remainder of the 22 original applications were either withdrawn, settled by pretrial agreements among the parties that the results of the cases litigated would be binding on all parties, or delayed pending the final outcome of the cases which were tried.” The Administrative Law Judge issued separate recom- mended decisions concerning the Southern and First Na- tional applications.“ In those decisions, he determined that approval of the applications could not reasonably be expected to result in public benefits (such as greater con- venience, gains in efficiency and increased competition). To the contrary, he found that approval of the applica- tions would be more likely to produce decreased competi- tion and the tying of insurance sales to extensions of 17 In addition to the two cases at bar, five cases were tried in one consolidated hearing in the State of Florida. Since that trial, one of those applications has been rendered moot by the distress merger of the applicant (Palmer Bank Corporation) with Southeast Banking Corporation. See 40 Fed. Reg. 34,645 (1975). Other Docket IA cases which have not been withdrawn involve bank holding companies from Arizona, California, Missouri, Virginia and Washington. Further, during the pendency of the instant cases, additional applications have been filed with the Board by bank hold- ing companies from California, Colorado and Pennsylvania. The applicants in those cases have agreed with the Board that the applications not be processed pending final disposition of the instant cases. 18 The Administrative Law Judge recommended decisions appear at Appendix G and Appendix H hereof. 8 credit, particularly in times of tight money.'’ Despite these findings, the Administrative Law Judge did recom- mend limited approvals of the applications.” The Board reversed the factual determinations made by the Administrative Law Judge (in most instances with no reference to his contrary findings) and approved the applications in virtually all respects.» The IIAA parties filed petitions for review of the Board’s orders with the United States Court of Appeals for the Fifth Circuit. In each case, the jurisdiction of that court rested upon Sec- tion 9 of the Act, 12 U.S.C. § 1848 (1970).” The two cases were briefed separately, but were con- solidated for argument. The court of appeals issued a single opinion on June 10, 1976. Petitions for rehearing were filed both by the IIAA parties and by the Board. The court issued its first rehearing decision on Janu- ary 10, 1977. That decision in part vacated, in part modi- fied, and in part affirmed the court’s earlier decision. Thereafter, the Board petitioned the court for further re- hearing. On September 1, 1977, the court issued its sec- ond rehearing decision, wherein it partly vacated its first rehearing dezision, essentially returning the cases to the posture they had been in after the court’s original June 10, 1976 decision.” 18 See Appendix G, at 113a; Appendix H, at 138a. 20 The Administrative Law Judge essentially recommended that the applications be approved only with respect to those markets where the applicants’ banking subsidiaries controlled 15 percent or less of total bank deposits. See Appendix G, at 114a; Appendix H, at 140a. 21 The orders of the Board appear at Appendix E and Appendix F hereof. Such orders were originally reported at 39 Fed. Reg. 25,548 (1974) and 39 Fed. Reg. 33,411 (1974). 22 See Appendix I hereof. 28 See note 2 and accompanying text supra. 9 REASONS FOR GRANTING THE WRIT A. These Cases Are Cases of First Impression for this Court Banking institutions are economically unique organiza- tions since they alone are permitted to accept demand deposits.* Bank holding companies are the largest and most formidable of banking organizations in that they alone are able to gather together under single ownership and control most of the diverse components of the finan- cial industry.” Furthermore, the capital resources of bank holding companies are enormous—far greater than any of the nonbanking industries they have been permitted to enter under Section 4(c) (8) of the Act.” The banks of this nation are the principal source of commercial credit and, as such, they are an essential com- ponent of the process of capital formation.” Their domi- nance of such a vital element of the economic process provides them with a unique opportunity to control where borrowers purchase nonbanking services sold in connection ** See 12 U.S.C. §24 (Supp. V 1975). *° For a list of the activities which, in the Board’s view, are per- missible nonbanking activities for bank holding companies, see Section 225.4(a) of Regulation Y, 12 C.F.R. § 225.4(a) (1977). 2° For example, at the end of 1975, the 1,821 bank holding com- panies in the nation controlled 3,674 banks with commercial bank deposits ($527.5 billion) representing 67.1 percent of total bank de- posits. Further, the total assets of those companies ($661.3 billion) represented 68.1 percent of total commercial bank assets. Annual Statistical Digest, 1971-75, Federal Reserve Board, Tables 89A at 277, 89B at 279. The foregoing figures represent a dramatic in- crease in bank holding company power since 1971 when holding companies controlled only 2,420 banks whose total deposits ($297 billion) represented 55.3 percent of total bank deposits and whose assets ($362.3 billion) represented 56.7 percent of total commercial bank assets. /Jd., Table 89B at 279. 2? See United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 326- 27 (1963). 10 with extensions of credit.** Thus, partly out of a recogni- tion of the enormous resources of banking organizations, and partly out of a perception of the ability of banking organizations to control credit transactions, Congress has historically prohibited banking organizations from engag- ing in other forms of commerce.” Section 4(c) (8) of the Act is the principal exception to the general prohibition against bank participation in nonbanking activities. For this reason, if the “closely related” to banking standard is interpreted broadly, bank holding companies could receive authority to engage in nonbanking activities almost without limitation.” Simi- 28 Congress has demonstrated great sensitivity to the ability bank- ing organizations have to “tie” the sale of nonbanking services to extensions of credit. For example, the Conference Report associated the 1970 amendments to the Act states: Tie-ins occur where a customer is forced or induced to accept other products and services along with that product which he seeks. Such tie-ins may result from actual coercion by a seller or from a customer’s realization that he stands a better chance of securing a scarce and important commodity (such as credit) by “volunteering” to accept other products or services rather than seeking them in the competitive market place. In either case, competition is adversely affected, as customers no longer purchase a product or service on its own economic merits. H.R. Rep. No. 1747, 91st Cong., 2d Sess. 18 (Conference Report), reprinted in [1970] U.S. Code Cong. Ad. News 5569. The Board has itself previously stated : [Blecause of the inferior bargaining position of the debtor, he may be suscepitble to the loan officer’s “suggestions” concerning choice of coverage, premium rates, insurer and agent. As 4 result, the debtor easily may receive the impression that his loan application may be more favorably considered if he follows such suggestions. Hearings on S. 1754 Before the Subcomm. on Financial Institutions of the Senate Banking and Currency Comm., 91st Cong., ist Sess. 163 (1969). 2° See, e.g., H.R. Rep. No. 387, 91st Cong., Ist Sess. 2 (1969). 3° Bank holding companies have already been permitted to enter a substantial number of nonbanking activities, and the effect has been 11 larly, if the “public benefits” standard of Section 4(c) (8) is interpreted expansively, bank holding companies could receive authorizations to engage in nonbanking activities even though, as in the instant cases, they fail even to enumerate the procedures by which the nonbanking activ- ity will be conducted.** Only if the “closely related” and “public benefit” standards of Section 4(c) (8) are inter- preted with the precision and care contemplated by the Act can the separation between banking and commerce be preserved. Similarly, only if the standards set forth in Section 4(c) (8) are interpreted in a way which makes them truly meaningful will the adverse effects upon the public recognized by Congress be avoided. In its decision, the court of appeals articulated a stand- ard for “closely related” activities that would permit the Board to expand its list of permissible nonbanking activi- ties almost without limitations.“ Furthermore, with re- gard to the “public benefits” test, the court sanctioned the dramatic. See 12 C.F.R. § 225.4(a) (1977). For example, bank hold- ing companies now control 34 of the 100 largest mortgage companies, 27 of the largest 86 noncaptive finance companies and 13 of the largest factoring companies in the country. See Talley, “Bank Holding Company Financing,” Conference on Bank Structurc and Competition (Federal Reserve Bank of Chicago), at 128 (1975). In fact, bank holding company penetration into the mortgage insurance industry has been so complete that a bank witness in these cases characterized the independent mortgage company as a “dead duck.” See Transcript, vol. 3, at 423, Application of Barnett Banks of Florida, Inc., etce., 40 Fed. Reg. 44,620, 44,624, 44,630 (1975) (FRB Docket Nos. IA 6, 7, 3, 12 & 13). *! See notes 43-44 infra and accompanying text. %2 See notes 35-38 infra and accompanying text. In this connec- tion, it should be noted that currently there are 12 activities the Board has declared to be “closely related” activities. See 12 C.F.R. § 225.4(a) (1977). Bank holding companies may, however, file appli- cations for authorization to engage in eny activity which in their view is “closely related” to banking, whether or not the activity appears on the Board’s current list of permissible activities. ; 12 Board’s approval of future Section 4‘c) (8) applications, even though the applicants have not committed themselves to “one or another mode of operation.” * Consequently, these cases have significance well beyond the parties im- mediately involved—indeed, well beyond the property and casualty insurance industry as a whole. They represent precedent with respect to all nonbanking activities bank holding companies from time to time may seek to enter in the future. Since this Court has heretofore never passed upon the meaning of the standards set forth in Section 4 (ec) (8), this Court should intervene in these cases (i) to resolve the conflict that currently exists between the deci- sion in these cases and previous decisions of other courts of appeals,“ and (ii) to provide guidance as to the mean- ing of the “closely related” to banking and the “public benefits” standards of Section 4(c) (8) of the Act. B. The Decision of the Court of Appeals Regarding the “Closely Related” Test Is in Conflict with a Prior Deci- sion of the Court of Appeals of Another Circuit The meaning of the “closely related” test was considered by the United States Court of Appeals for the District of Columbia Circuit in National Courier Association Vv. Board of Governors of the Federal Reserve System, 516 F.2d 1229 (D.C. Cir. 1975). At issue in that case was the validity of a Board regulation permitting bank holding companies to engage in certain courier services. In assess- ing the regulation, the court determined that at least the following relationships qualify as “closely related” under Section 4(c) (8): 83 Appendix A, at 50a (533 F.2d at 253). For a discussion of the significance of these and other relevant holdings of the court of appeals, see notes 39-44 infra and accompanying text. 34 See notes 36-45 infra and accompanying text. 13 1. Banks generally have in fact provided the pro- posed services. 2. Banks generally provide services that are opera- tionally or functionally so similar to the proposed services as to equip them particularly well to provide the proposed service. 3. Banks generally provide services that are so in- tegrally related to the proposed services as to re- quire their provision in a specialized form.*° The court of appeals in the instant’ cases specifically applied the National Courier test to the Board’s regula- tion permitting the sale of property and casualty insur- ance and determined that such activity did not qualify as an activity which is “closely related” to banking under the National Courier standard.” Instead of determining that the sale of property and casualty insurance is there- fore not “closely related” to banking, the court declared that it was “willing . . . to consider broader types of relationships.” ** Ultimately, the court stated that the Board should be upheld “when it articulates any type con- nection between banking and the nonbanking activity in question which makes it rational to consider the proposed activity an ‘incident’ to banking.” * This interpretation of the “closely related” standard is in clear conflict with the construction adopted by the Court of Appeals of the District of Columbia Circuit in the National Courier case. 35 516 F.2d at 1237. 5° Appendix A, at 23a-24a (533 F.2d 224, 241). 3? Appendix A, at 24a (id.). 38 Appendix A, at 3la (533 F.2d at 244) (emphasis added). 14 C. The Decision of the Court of Appeals Regarding the Application of the “Public Benefits” Test Is in Conflict with Prior Decisions of the Courts of Appeals of Other Circuits Section 4(c) (8) of the Act states that, in determining whether a particular activity is a “proper incident” to banking, the Board shall consider whether the perform- ance of the activity by the applicant can reasonably be expected to result in benefits to the public that outweigh possible adverse effects.” The proper application of the “public benefits” test was considered by the United States Court of Appeals for the Eighth Circuit in American Bancorporation, Inc. v. Board of Governors of the Federal Reserve System, 509 F.2d 29 (8th Cir. 1974), and the United States Court of Appeals in the District of Columbia Circuit in Independent Bank- ers Association of Georgia v. Board of Governors of the Federal Reserve System, 516 F.2d 1206 (D.C. Cir. 1975) .* In American Bancorporation, the court stated that Sec- tion 4/¢) (8) requires the Board to scrutinize bank holding 3° There can be no doubt that Congress viewed the careful applica- tion of the “public benefits” test as a crucial element of the imple- mentation of Section 4(c) (8) as amended in 1970. In promulgating the test, Congress made clear that a bank holding company seeking to engage in a nonbanking activity “must bear the burden of proof in showing that its carrying on of a particular nonbank activity would produce benefits to the public that outweigh any adverse effects.” H.R. Rep. No. 1747, 91st Cong., 2d Sess. 19 (Conference Re- port), reprinted in [1970] U.S. Code Cong. & Ad. News 5570. In this connection, the Board is required to carefully scrutinize Sec- tion 4(c)(8) applications to assure that the entry into the activity “in a given manner would be in the public interest.” Jd. (quoting the Assistant Attorney General, Antitrust Division) (emphasis added). «© In both cases, the question before the courts was whether, under the facts presented, the Board was required by Section 4(c)(8) to hold adversary proceedings to determine whether approval of the applications would result in benefits to the public that outweighed possible adverse effects. 15 company applications “with great care” in order to deter- mine the manner in which the applicant intends “to oper- ate, control, and benefit from its prospective subsidiary.” * The court in Independent Bankers held that the purpose of the hearing required by Section 4(c) (8) of the Act is “to discover exact!y what the specific facts of this particu- lar proposal are.” “ In contrast, the court of appeals in the instant cases found that one of the applications could be approved even though the record ‘made clear that the precise procedures by which insurance would be placed and applied for had not been clearly established by [the applicant].”* In- credibly, the court went on to issue a generalized invita- tion to future Section 4(c) (8) applicants, as a matter of policy, not to commit themselves during the application process to “one or another mode of operation.” * The generalized invitation by the court for Section 4 (ec) (8) applicants not to commit themselves during the application process to “one or another mode of operation” is in conflict with the holdings of the Court of Appeals for both the Eighth and District of Columbia Circuits and abrogates the Board’s responsibility under the Act to pro- tect the public interest. *. 509 F.2d at 38 (emphasis added). *? 516 F.2d at 1222 (emphasis added). The court in Independent Bankers also said that “(t]he question of ‘public benefits,’ like th more common administrative standard of ‘public convenience and necessity,’ can be answered only by weighing all the facts.” 516 F.2d at 1226 (emphasis in original). *s Appendix A, at 49a (533 F.2d at 253). ** Appendix A, at 50a (533 F.2d at 253) (emphasis added). Spe- cifically, the court said: Indeed, in view of the difficult adjustments involved in entering a new business .. . it may be the wisest policy [for Section 4 (c) (8) applicants] to resist an early total commitment to one or another mode of operation. 16 D. The Decision of the Court of Appeals Interprets the “Public Benefits” Test Out of Existence 1. Arrogation of Decision Making. Section 4(c) (8) requires bank holding company applicants to show that approval of their applications can reasonably be expected to result in benefits to the public, such as greater con- venience, gains in efficiency and increased competition, that outweigh possible adverse effects.** In the instant cases, the Board determined that approval of the appli- cations would result in all three of the foregoing public benefits. The court, however, disagreed with the Board, striking down the Board’s findings regarding both greater convenience and gains in efficiency.” In so doing, the court noted that the evidence suggested that the applicants’ proposals might well result in less convenience and re- duced efficiency.** Having determined that the Board erred in assessing the impact of the applications with regard to two out of three of the public benefits factors making up the overall public interest test, the court should have remanded the cases to the Board so that the Board could perform again the balancing process mandated by the Act.” 2. Violation of State Law. Section 7 of the Act, 12 U.S.C. § 1846 (1970), prohibits the Board from approv- *S See Appendix I (12 U.S.C. § 1843(c)(8) (1970)). *© See Appendix E, at 74a-75a and Appendix F, at 91la-93a. ** Appendix A, at 37a-4la (533 F.2d at 247-49). 48 Jd. Throughout these proceedings, the IIAA parties argued that any gains in efficiencies the applicants may have been able to show (and there were none) had no relevance as far as Section 4(c) (8) was concerned unless it could be shown that the fruits of such effi- ciencies could be passed on to consumers in the form of lower prices or improved services. Astonishingly, the court found that, under the Act, gains in efficiencies were relevant even though they resulted only in “better salaries or benefits to the provider’s employees, or the availability of greater capital for expansion of the business.” Appendix A, at 39a-40a n.21 (533 F.2d at 248 n.21). 4° SEC v. Chenery Corp., 318 U.S. 80, 88 (1943); ef. United States v. Third National Bank, 390 U.S. 171, 183-84 (1968). 17 ing any bank holding company application which would transgress state law.” The court in the instant cases conceded that a “strong argument” could be made that one of the insurance agency proposals would violate state insurance licensing statutes.*? The court then found that the Board had ignored the state law issue entirely by mak- ing a factual determination regarding how the applicant would operate its insurance agency “which seems to have little support from [the applicant’s] own witnesses.” Despite this glaring deficiency in the Board’s decision, the court upheld the Board in its “apparent assumption that {the applicant] will operate not precisely as its witnesses suggested, but in a manner that will comply with [state] law.” * Such a holding constitutes clear reversible error.™ 3. The Board Violated Its Own Regulation. When the Board announced the promulgation of Section 225.4(a) (9), it made the price at which insurance is offered under the regulation an overriding consideration in determining whether approval of an application will be in the public interest. Specifically, the Board “(e]xpressed the expectation that any holding com- pany or subsidiary that acts as an insurance agency on the basis of the new regulatory provision will ex- ercise a fiduciary responsibility—that is, by making its best efforts to obtain the insurance at the lowest practicable cost to the customer.” *° © See Appendix I; Whitney Nat'l Bank v. Bank of New Orleans & Trust Co., 379 U.S. 411, 424-25 (1965). 51 Appendix A, at 49a (533 F.2d at 252). 52 Appendix A, at 49a (id. at 253). 53 Appendix A, at 5la (id.) (emphasis added). 54 Universal Camera Corp. Vv. NLRB, 340 U.S. 474, 488 (1951): 12 U.S.C. §$§ 1843(c)(8), 1848 (1970); see NLRB v. Columbian Enameling & Stamping Co., 306 U.S. 292, 299-300 (1939): 12 U.S.C. § 1850 (1970). 55 36 Fed. Reg. 15,525, 15,526 (1971) (emphasis added). It should be noted that in this respect Section 225.5(a) (9) is consistent with 18 In the instant cases, it was established that “direct billed” insurance policies carry a lower price to consumers than identical policies where the billing is performed by insurance agents.” Neither of the applicants stated that it would offer “direct billed’ insurance policies. Since (i) the Board’s regulation makes the price at which in- surance is offered to the consumer an overriding consider- ation in property and casualty insurance agency applica- tions, and (ii) the applicants in the instant cases did not intend to offer insurance “at the lowest practicable cost to [their] customer[s],” the approval of both applications was in violation of Section 225.4(a)(9).* For this rea- son, the court of appeals should have reversed the Board’s orders and its failure to do so constitutes reversible error.” 4. The Court Ignored the Record. As noted previously, the court struck down the Board’s findings regarding the greater convenience and gains in efficiency factors of the “nublic benefits” test. The court took such action, at least in part, because the Board had failed to recognize that the Administrative Law Judge had arrived at exactly opposite Section 225.4(a)(10) of the Board’s Regulation Y wherein the pro- jection of reduced rates is enumerated as a key factor in determining whether approval of bank holding company applications to under- write credit life and credit disability insurance will be in the public interest. See 12 C.F.R. § 225.4(a)(10) n.8 (1977). °6 See Appendix A, at 39a (533 F.2d at 248). “Direct billed” poli- cies are personal lines insurance policies which are issued, billed and renewed by the insurance companies rather than retail insurance agents. Since insurance agents are required to perform fewer ad- ministrative tasks with respect to these policies, such agents receive lower commissions and the policies can be offered at lower premiums to consumers. 5? Td. 5§ The practical effect of the applicants’ proposals is that consum- ers who purchase insurance from the applicants will pay higher prices than are otherwise available through nonaffiliated insurance agencies. 5° United Stateay, Nixon, 418 U.S. 683, 696 (1974); Service Vv. Dulles, 354 U.S. 368, 388-89 (1957). 19 conclusions from its own and because the Board had made no effort to explain its departure from the Administrative Law Judge’s findings.” Regarding the increased competi- tion factor of the test, the court stated that there existed “no unexplained conflict” between the decisions of the Board and those of the Administrative Law Judge.“ Such conclusion simply is not supported by the record. In one case the Administrative Law Judge found that, in locations where the applicant’s banking subsidiaries controlled substantial deposits, independent insurance agents would be subjected to “destructive competition.” @ He also found that, where large banking institutions are permitted to compete against “mostly small [insurance agents] . . . it is possible, even probable, that the Mom and Pop agency will be driven into merger or out of busi- ness entirely ....”® In the other case, the Administra- tive Law Judge found that, in markets where insurance agents are forced to compete with “double-barrelled fi- nancial conglomerate[s] . . . the independent agents would have difficulty surviving.” “* He also found that “the clientele [of large bank holding companies] that could possibly be subtly influenced to divert [insurance business away] from Atlanta independent agents is so large that many of the latter could be driven out of busi- ness or forced to merge into larger units resulting in decreased competitions.” * *° See Appendix A, at 38a-39a, 40a-4la (533 F.2d at 248, 249). ®t Appendix A, at 4la (id. at 249). 62 Appendix G, at 113a. *s Jd. In the instant cases, it was not disputed that, “in general, {the insurance agency business is] quite inconcentrated and one in which entry barriers are low.” Appendix A, at 47a (533 F.2d at 251). ** Appendix H, at 138a-39a. *5 Jd. at 138a. It is important to emphasize that, in both of the instant cases, the Administrative Law Judge found that at least “voluntary” tying of sales of insurance to extensions of credit would be a likely result of approval of the applications. See Appendix G, 20 Consequently, as in the case of the greater convenience and gains in efficiency factors of the test, there does exist an “unexplained conflict” between the findings of the Board and the finding of the Administrative Law Judge regarding increased competition. For that reason, as in the case of the other two factors, the court should have rejected the Board’s findings concerning increased com- petition and reversed the Board’s orders approving the applications. Its failure to do so constitutes reversible error. 5. The Board's Decisions Were Not Supported By Sub- stantial Evidence. Section 9 of the Act requires that the evidentiary findings of the Board in Section (4) (c) (8) proceedings be supported by “substantial evidence.” “ As previously noted, the court invalidated the Board’s find- ings regarding greater convenience and gains in efficiency on the grounds that they were not supported by substan- tial evidence. Regarding the only remaining public bene- fits factor, increased competition, the court stated that, “while the evidence [supporting the Board’s conclusion] on this issue certainly can be described as vague, ... it is enough.” * This holding squarely presents the question of whether evidence which is merely “vague” can ever afford ‘a substantial basis of fact from which the fact in issue can be reasonably inferred.”’* The IIAA parties submit that it cannot. at 113a; Appendix H, at 137a-38a. The Board’s rejection of those findings must be considered suspect in light of its previous acknowl- edgement that the “inferior bargaining . »sition of the debtor” may “easily” permit him to “receive the impression that his loan applica- tion may be more favorably considered if he follows [the loan offi- cer’s] suggestions.”” See note 28 supra. * See Appendix I (12 U.S.C. § 1848 (1970)). st Appendix A, at 4la-42a (533 F.2d at 249) (emphasis added). ** NLRB vy. Columbian Enameling & Stamping Co., 306 U.S. 292, 299 (1939). 21 CONCLUSION For the foregoing reasons, the petition for writ of cer- tiorari should be granted. Respectfully submitted, HERBERT E. MARKS 1735 New York Avenue, N.W. Washington, D.C. 20006 (202) 833-9800 Counsel for Petitioners Of Counsel: WILKINSON, CRAGUN & BARKER THOMAS E. WILSON November 10, 1977 Appendices la APPENDIX A Opinion of the United States Court of Appeals for the Fifth Circuit UNITED STATES COURT OF APPEALS FIFTH CIRCUIT Nos. 74-2981, 74-3544 and 74-3843 ALABAMA ASSOCIATION OF INSURANCE AGENTS, et al., Petitioners, Vv. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent. GEORGIA ASSOCIATION OF INDEPENDENT INSURANCE AGENTS, et al., Petitioners, Vv. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, R-spondent. NATIONAL ASSOCIATION OF INSURANCE AGENTS, INC., Petitioner, Vv. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Respondent. June 10, 1976 2a Petitions for Review of Orders of the Board of Gov- ernors of the Federal Reserve System (Alabama, Georgia and Georgia Cases respectively). Before TUTTLE, THORNBERRY and CLARK, Cir- cuit Judges. THORNBERRY, Circuit Judge: These consolidated petitions for review of orders by the Board of Governors of the Federal Reserve System rep- resent the culmination of a four year campaign by South- ern Bancorporation (Southern) of Birmingham, Ala- bama, and First National Holding Corporation (First National) of Atlanta, Georgia, to gain entry into certain aspects of the insurance agency business. From a broader perspective, they represent only one of many episodes in a huge commercial tug-of-war between the bank hold- ing company industry on one hand and independent in- surance agents and other insurance industry groups on the other. This struggle has taken place not only in the courts, but in the Congress and before the Federal Reserve System Board of Governors as well. After care- fully considering the efforts and accomplishments of the contending parties before those bodies and the arguments advanced by the able counsel in this case, we find that substantial ground has been gained by the bank holding companies. We uphold for the most part the Board of Governors’ action in granting Southern and First Na- tional permission to act as agent with respect to specified types of insurance and leave further struggle between insurance agen holding companies in the i eas to the marketplace." ‘We note, however, that the legislative struggle continues even in the matters involved in this case. The “Competition in Banking Act of 1975”, (S. 2721) presently pending in Congress, would impose greater restrictions on bank holding company activities in non-banking areas than presently apply. See BNA Antitrust & Trade Reg. Rep. No. 754, at A-14 (Mar. 9, 1976)- I. Legislative and Procedural Background While recognizing that the protection of savings and the extension of credit are useful and even essential to our economic wellbeing, we as a nation have often been distrustful of the concentrated economic power that may accrue to the organizations that provide those services. This feeling has not been left at large in the streets, the factories, and the small businesses of the land, but has been written into the law by Congiess; the Bank Holding Company Act, 12 U.S.C. § 1841 et seg. is an expression of that sentiment.* In passing the Act in 1956, Congress sought both to limit the concentration of banking resources and to implement a policy that “bank holding companies ought not to manage or control non- banking assets having no close relationship to banking.” Sen.Rep. No. 84-1095, 84th Cong., 1st Sess. (1956), 1956 U.S.Code & Adm.News at p. 2482. In furtherance of the latter objective, acquisition by holding companies of non-banking enterprises was prospectively forbidden. 12 U.S.C. § 1843(a) (1970). But a very important ex- ception to the general prohibition was included: it re- mained acceptable to acquire companies “of a financial, fiduciary, or insurance nature . . . which the [Federal Reserve] Board . . . has determined to be so closely re- lated to the business of banking or of managing or con- trolling banks as to be a proper incident thereto .. .” §4(c) (8) of the Bank Holding Company Act of 1956, 12 U.S.C. § 1843(c) (8) (1970).* 2? Having had experience with holding companies in other areas of commerce, Congress knew of the potential of such entities to multiply by many times the degree of concentration within an industry and to introduce unhealthy competitive practices in differ- ent but related industries. See, e.g., 15 U.S.C. §79 et seg. (1970) (Public Utility Holding Company Act). ’ The statutory provision referred to was §4(c) (6) of the Act as passed in 1956. A 1966 amendment resulted in its renumbering. da Pursuant to this provision, the Federal Reserve Sys- tem Board of Governors (hereinafter the Board) in the late 1950’s and 1960’s granted many individual applica- tions by holding companies to engage in nonbanking ac- tivities, including the sale of insurance. And when amendments to the Act were discussed in the late 1960's, there was significant sentiment for broadening the Board’s discretion in the area. Whether the proponents of liberalization succeeded will be dealt with hereinafter; but it is clear that the Holding Company Act Amend- ments passed in 1970 contained several changes of sig- nificance in this case. First, Congress permitted the Board to make the determination whether particular lines of business were closely related to banking and thus within the § 4(c) (8) exception by general regulation, as well as by order in individual cases. Second, the limita- tion of such activities to those “of a financial, fiduciary, or insurance nature” was deleted. Third, Congress mani- fested unhappiness with the language requiring $ 4(c) (8) activities to be “closely related to the business of banking’; it required in 1970 only that the business be “closely related to banking’. Fourth, the Board was permitted to “differentiate between activities commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concern.” Finally, and most significantly, a “public benefits test” was added to the criteria under § 4(c) (8) ; it provides that: [I]n determining whether a particular activity is a proper incident to banking or managing or control- nks the mam shall consider{ Whether its per- of a Holding company can reasonably be nal to produce benefits to the public, such as greater convenience, increased com- petition, or gains in efficiency, that outweigh pos- sible adverse effects, such as undue concentration of | resources, decreased or unfair competition, conflicts \ of interest, or unsound banking practices. ——— See cs eae ae 5a The Federal Reserve Board was not slow to use its new power to issue § 4(c)(8) regulations. After rule- making proceedings in 1971, in which petitioner Na- tional Association of Insurance Agents (NAIA) par- ticipated, the Board promulgated § 225.4(a) of Regula- tion Y, which lists several nonbanking activities deemed sufficiently related to banking to satisfy the requirements of § 4(c)(8). Those relating to the insurance industry and to this appeal are set out in § 225.4(a) (9): (a) ... The following activities have been deter- mined by the Board to be so closely related to bank- ing or managing or controlling banks as to be a proper incident thereto: ... (9) acting as insurance agent or broker in of- fices at which the holding company or its sub- sidiaries are otherwise engaged in business (or in an office adjacent thereto) with respect to the following types of insurance: (i) Any insurance for the holding company and its subsidiaries; (ii) Any insurance that (a) is directly related to an extension of credit by a bank or a bank- related firm of the kind described in this regula- tion, or (6) is directly related to the provision of other financial services by a bank or such a bank-related firm, or (c) is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within this subdivision (ii)(c) does not constitute a significant portion of the aggregate insurance premium income of the holding company from insurance sold pursuant to this subdivision (ii) ; (iii) Any insurance sold in a community that (a) has a population not exceeding 5,000, or 6a (6) the holding company demonstrates has in- adequate insurance agency facilities. 12 C.F.R. § 225.4(a) (9) (1976). No judicial review of this regulation was immediately sought. On September 6, 1972, the Board issued a regu- lation indicating its views as to the operative meaning of § 225.4(a)(9) in several particulars. § 225.228 of Regulation Y, 12 C.F.R. § 225.228 (1976). NAIA sought review of that reguiation in the Court of Appeals for the District of Columbia Circuit, but that court dismissed the petition, holding that the regulation was merely in- terpretive and did not have the force of law. Because the issues thereby raised could be litigated in connection with specific applications under the Act, the court found the petition premature. National Ass’n of Ins. Agents, Inc. V. Board of Governors of Federal Reserve System, 160 U.S.App.D.C. 144, 489 F.2d 1268 (1974). Among the flurry of applications for permission to en- gage in nonbanking activities which followed the adoption of § 225.4(a) of Regulation Y were those of Southern Bancorporation and First National Holding Corporation. They were submitted separately in February of 1972, but sought authority to sell, through subsidiaries, many of the same types of insurance. Some of the lines, such as credit life, credit health and accident insurance, and mort- gage redemption insurance are not in issue here. The applications to sell other types of insurance were and are hotly contested. In this category are property damage insurance on assets being financed by banks owned by the holding company, liability insurance for borrowers from such banks, and “convenience” insurance as defined in Regulation Y. The insurance industry parties in this case immediately expressed their opposition to the Southern and First Na- 7a tional applications. After more than a year of prepara- tion and preliminary skirmishing, the applications were considered consecutively at hearings before Administra- tive Law Judge Paul N. Pfeiffer in June, 1973. In early 1974, Judge Pfeiffer announced his findings and recom- mended decision: although the insurance activities pro- posed by Southern and First National were wit*in the “closely related” standard of § 4(c) (8), as reasor. iy in- terpreted by the Board in its regulation, the holding com- panies had failed to meet the “public benefits” test added to the Act in 1970 (as to all but proprietary insurance for the holding company and its subsidiaries, and credit life, credit health and accident, and mortgage redemption insurance). In particular, the Administrative Law Judge found that there did not appear to be a reasonable ex- pectation of substantial increased convenience to the pub- lic, that there was no basis for an expectation of operating economies which might be passed on to the consumer, that there were possibilities of unfair competition in the sale of insurance through “voluntary tying” of insurance pur- chases to bank loans; that the market power of each hold- ing company was such that it could divert certain captive clientele of the banks from existing independent insur- ance agencies; and that sales of surety bonds could involve the holding companies in conflicts of interest. The holding companies were down, but by no means out. They pressed their claims vigorously before the Fed- eral Reserve Board and, in July and September of 1974, the Board responded favorably. In its orders, the Board noted its previous determination in § 225.4(a) (9) that certain insurance activities were permissible within the meaning of § 4(c) (8) of the Bank Holding Company Act. It adhered to that determination and found that, with minor exceptions,‘ the applications by Southern and First *The Board excluded authorization for the sale of use and occu- pancy insurance, and business interruption and fidelity insurance EO 8a National were within the regulation. The Board generally accepted the basic factual findings of the Administrative Law Judge, but drew almost directly opposite conclusions from them. It concluded that it was reasonable to expect that the proposed activities would likely produce benefits to the public in convenience, efficiency, and increased com- petition, and that there was no danger of undue concen- tration of resources, no likelihood of conflicts of interest, and no evidence that there would be unfair competition in the form of coercive or voluntary tying of loans and in- surance purchases. Accordingly, both Southern and First National were given permission to act as broker with re- spect to all of the lines of insurance presently in dispute. II. Parties The petition for review in No. 74-2981 was brought by the National Association of Insurance Agents, the Ala- bama Association of Insurance Agents, the Birmingham Association of Insurance Agents, and several individual insurance agencies. NAIA also is a petitioner in No. 74- 3544, along with the Georgia Association of Independent Insurance Agents and several individual agencies. To- gether the 74-2981 and 74-3544 petitioners shall be re- ferred to hereinafter as “the NAIA parties’. All peti- tioners are or represent individual insurance agencies which are primarily small businesses selling insurance policies issued by more than one underwriter. Southern Bancorporation (formerly known as The Ala- bama Financial Group, Inc.) is a bank holding company headquartered in Birmingham, Alabama. Its primary business is banking and it has subsidiaries in that busi- ness operating in twelve Alabama cities. Several of these subsidiaries have more than one banking office; the Bir- mingham Trust National Bank has over twenty. Southern because of lack of evidence. After a petition for review was filed in the Alabama case, the Board rescinded its authorization of the sale of mortgage guaranty insurance without Southern’s objection. 9a also has three nonbanking subsidiaries: AFG Data Serv- ices, Inc., Alabama Financial Leasing, Inc., and Southern State Life Insurance Co. Southern is the third largest bank holding company in Alabama, controlling approximately ten per cent of all com- mercial bank deposits in the state. It controls about twenty-two per cent of bank deposits in the Birmingham metropolitan area and nearly half of deposits in the Do- than metropolitan area and in Marion County. With the other four largest bank holding companies in Alabama, Southern controls approximately seventy-five per cent of commercial bank deposits in the state. First National Holding Corporation, unlike Southern, is a one-bank holding company.’ Its banking subsidiary, First National Bank of Atlanta, has over forty offices in two counties of the Atlanta metropolitan area. It is the second largest bank in the area, with about twenty-five per cent of all bank deposits. The holding company also has 162 subsidiaries engaged in various business and fi- nancial endeavors in Georgia and neighboring states. The most important of these for our purposes is Tharpe & Brooks, Inc., a whally owned subsidiary which is in the mortgage banking business. Unlike Southern, which pro- poses to establisl. a new insurance agency to carry on the activities, First National plans to conduct its insurance activities through First South Insurance Agency, a Tharpe & Brooks subsidiary. A. Jurisdiction to Review The jurisdiction of this court derives from 12 U.S.C. §$ 1848, which authorizes review of a Federal Reserve Board “order” at the instance of a person thereby ag- grieved. On the basis of the wording of this provision, 5 As such, First National was not subject to the Bank Holding J Company Act until the passage of the 1970 Amendments. -* oa 10a the Board asserts that we lack power to review § 225.4 (a) (9) of Regulation Y, which was promulgated in 1971 and not challenged at that time. The Board correctly notes that there are significant legal differences between orders and regulations, and argues that the finality of a great number of Board orders under the regulation would be cast in doubt if review of the regulation were per- mitted at this time. We disagree with the Board and find that it is our duty to review not only these orders, but the regulations upon which they are partially based. For one thing, the courts have held that a statutory provision for review of orders permits review of regulations, even standing alone, where the issues are primarily legal rather than factual, and there is an adequate record for review. See Deutsche Luft- hansa Aktiengesellischaft v. CAB, 156 U.S.App.D.C. 191, 479 F.2d 912 (1973); City of Chicago v. FPC, 147 USS. App.D.C. 312, 458 F.2d 731 (1971), cert. denied, 405 U.S. 1074, 92 S.Ct. 1495, 31 L.Ed.2d 808 (1972). See also Pa- cific Gas & Elec. Co. vV. FPC, 164 U.S.App.D.C. 371, 506 F.2d 33, 47-48 (1974). This principle was-illustrated in the recent decision in National Courier Ass’n Vv. Board of Governors of Federal Reserve System, 170 U.S.App.D.C. 301, 516 F.2d 1229 (1975) (Couriers), in which the court reviewed amendments to § 225.4(a) of Regulation Y un- der the jurisdictional provision for review of “orders” invoked here. The case before us arguably fulfills the applicable criteria, since the issues are primarily legal— whether the activities listed in the regulation meet the statutory “closely related” test—and there is factual ma- terial concerning the relationship of these activities to banking in the voluminous record compiled in these pro- ceedings. More importantly, we believe that even belated review of these regulations should not be foreclosed in the cir- cumstances of this case. We deal here with orders that lla involve two basic issues concerning the holding company applications: whether they meet the “closely related” test and whether they meet the “public benefits” test. The latter, by its nature, may be conclusively resolved only in the context of specific applications,* Independent Bankers Ass’n of Georgia v. Board of Governors of Federal Re- serve System, 170 U.S.App.D.C. 278, 516 F.2d 1206, 1215- 16 (1975) ; American Bancorp., Inc. v. Board of Governors of Federal Reserve System, 509 F.2d 29, 38-39 (8 Cir. 1974), while the former can be resolved either on an indi- vidual basis or by regulation. See 12 U.S.C. § 1843(c) (8). ®* The Board of Governors, in the Georgia case, stated that “in adopting the Insurance Regulation, [it had] found that the per- formance by bank holding companies of those activities authorized by such Regulation satisfied, in general, this. public benefits test.” IV Consolidated Joint Appendix 736 (hereinafter “App.”). The NAIA parties argue that this indicates that the Board shifted the burden on the issue of net public benefits from the proposed activi- ties from the applicant to the petitioners. We agree that such a shift in the burden of proof by the Board would be error. See Conf. Rep. No. 91-1747, 91st Cong., 2d Sess., (1970) (Statement of the Managers on the Part of the House, here- inafter referred to as “Conference Report”), 1970 U.S.Code Cong. & Adm.News at p. 5570. The variables which Congress named as relevant to the public benefits determination are necessarily de- pendent upon local industry and market structures, upon the par- ticular applications, and upon other factors which will vary widely in individual instances. While it may or may not be true that the Board makes a “general” public benefits determination in promul- gating regulations on the “closely related” issue, see note 19 infra, any such determination should have no effect on the individualized inquiry which the Board must make in ruling on specific applica- tions. We find no indication, however, that the Board did shift the burden of proof to petitioners. Instead, the Board recognized that the public benefits determination required in connection with the specific applications was in addition to any general determination. IV App. 736. There is nothing in either of the Board’s orders that has been cited to us or that we have found which indicates that the Board did not act on its apparent belief that the individual public benefits determinations were to be additional to and separate from the generalized findings embodied in § 225.4(a) (9). 12a Although the Board’s decision to proceed by regulation was clearly proper, we note that its effect is not merely to narrow the area of contention between the parties on the “closely related” question, but in some respects to conclude that question in favor of the applicants.’ In light of the determinative effect of the regulation on some issues involved in the promulgation of these orders, it would be an “empty and useless thing” to review them without scrutiny of the regulation as well. Doe v. CAB, 356 F.2d 699, 701 (10 Cir. 1966), quoted in International Harvester Co. v. Ruckelshaus, 155 U.S.App.D.C. 411, 478 F.2d 615 (1973). We would partially abdicate our judi- cial duty if we were to allow the time limit for direct re- view to insulate forever this regulation, which has never been judicially tested, from scrutiny as to its consistency with Congressional mandate, all the while “reviewing” orders based, in significant part, wholly and directly upon it. Perhaps more importantly, that course would be unjust to many of the petitioning parties. It may be fair to say that NAIA, which participated in the rulemaking proceed- ings in 1971, had a chance to challenge this regulation within thirty days of its promulgation.* But is it fair to * This is true, for example, of the “convenience” insurance author- ized by § 225.4(a)(9)(ii)(c). Since the applications virtually track the language of this rather vague authorization, refusal to review the regulation would be tantamount to approval of the application on this point. *It also may not be fair, in view of the fact that NAIA sought to raise many of these issues promptly upon the promulgation in September, 1972, of a regulation interpreting § 225.4(a)(9) of Regulation Y, 12 C.F.R. § 225.228. The Board in response strenu- ously and successfully argued that review of those regulations was at that time premature, since the issues could be raised in pro- ceedings like this one! ational Ass'n of Ins. Agents, Inc. v. Board of Governors of Federal Reserve System, 160 U.S.App.D.C. 144, 489 F.2d 1268 (1974). We note also that considerations of concreteness and ripeness counsel that organizations like NAIA be permitted to wait until 18a say the same thing of petitioner, R. A. Brown Insurance Agency, Inc., in Alabama, or Morris-Fallaize Insurance, Inc., in Georgia, which may bear the economic detriments potentially arising from these applications? We believe not and find that, considerations of finality notwithstand- ing, our duty to see that the Congressional mandate in §$4(c) (8) is carried out in the individual cases which come before us requires review of § 225.4(a) (9) of Regu- lation Y. See Oljato Chapter of Navajo Tribe v. Train, 169 U.S.App.D.C. 195, 515 F.2d 654, 659 & n. 6 (1975); Functional Music Inc. v. FCC, 107 U.S.App.D.C. 34, 274 F.2d 543 (1958), cert. denied, 361 U.S. 813, 80 S.Ct. 50, 4 L.Ed.2d 81 (1959). B. Procedural Validity We pass then to the question of whether the regulation complied with the requirement of the Administrative Pro- cedure Act that the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose. 5 U.S.C. §553(c) (1970). In this case, the regulation contained nothing that might be thought to respond to this statutory command other than the statement that {t]he following activities have been determined by the Board to be so closely related to banking or man- aging or controlling banks as to be a proper incident thereto. This statement does no more than conclusorily announce the import of the regulation. It does nothing to illuminate specific cases applying regulations arise before seeking review. In that way, courts like this one are presented with a more adequate record and more information as to the full ramifications of the regulations, and with argument by adversary parties other than the promulgating agency. All of these factors aid the court in reaching an informed decision. See K. Davis, Administrative Law Treatise § 21.01 (1958). l4a the process by which the Board arrived at the regulation and accordingly is of little use in fulfilling the purposes of the statute, the facilitation of judicial review. See Amoco Oil Co. v. EPA, 163 U.S.App.D.C. 162, 501 F.2d 722 (1974); Automotive Parts & Accessories Ass’n V. Boyd, 132 U.S.App.D.C. 200, 407 F.2d 330 (1968); Na- tional Resources Defense Council, Inc. v. SEC, 389 F.Supp. 689 (D.D.C. 1974). The APA provision “does not require the agency to supply specific and detailed findings and conclusions of the kina customarily associated with formal proceedings”, but this limitation “does not lessen or excuse the agency’s obligation to publish a statement of reasons that will be sufficiently detailed to permit judicial review.” National Nutritional Foods Ass’n v. Weinberger, 512 F.2d 688, 701 (2 Cir. 1975). This statutory requirement, however, has not been en- forced with the vigor that would, at first blush, seem indi- cated. Statements with no more informative content than the one before us have been held to pass muster. Auto- motive Parts & Accessories Ass’n-V. Boyd, supra; New York Freight Forw’rs & Brokers Ass’n Vv. Federal Mari- time Comm’n, 337 F.2d 289 (2 Cir. 1964), cert. denied, 380 U.S. 910, 85 S.Ct. 893, 13 L.Ed.2d 797 (1965). And regulations with no statement of basis and purpose at all have been upheld where the court deemed the basis and purpose obvious. Hoving Corp. v. FTC, 290 F.2d 803 (2 Cir. 1961). The rationale of these decisions is not difficult to ascer- tain. Courts must have an adequate basis to engage in judicial review, but, as partners with the agencies in the effectuation of Congressional will through the administra- tive process, they do not function to strike down agency action because of merely formal or technical flaws. Greater Boston Tel. Corp. v. FCC, 143 U.S.App.D.C. 383, 444 F.2d 841, 851 (1970), cert. denied, 403 U.S. 923, 9i S.Ct. 2229, 29 L.Ed.2d 701 (1971); Braniff Airways v. CAB, 126 15a U.S.App.D.C. 399, 379 F.2d 453, 465-68 (1967). For this reason, a court must not only examine whether an agen- cy’s promulgation of a challenged regulation complies with the procedural requirement; it must also determine wheth- er, in light of the nature and content of the regulation and of the underlying legislation, the extraneous material which may be available to explain the basis and purpose of the agency action, and the quantum of action taken in reliance on the regulation, any procedural flaw so subverts the process of judicial review that invalidation of the regulation is warranted. We find that this case is one in which we can “discern the path” of the Board with sufficient confidence. See Environmental Defense Fund, Inc. v. EPA, 167 U.S.App. D.C. 71, 510 F.2d 1292, 1804 (1975), quoting Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 444 F.2d 841, 851 (1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). The regulation at issue is not one which purports to carry out a vague statu- tory command through prescription of detailed standards of conduct, or sets out a complex method of proceeding in order to receive some type of agency approval. Cf. Na- tional Ornament & Elec. Light Christmas Ass’n, Inc. V. Consumer Product Safety Comm., 526 F.2d 1368, 1371-72 (2 Cir. 1975). To the contrary, the regulation makes a single and limited factual and legal determination: that certain insurance activities are so “closely related” to banking as to be proper incidents thereto. For this rea- son, it is not necessary for the agency to explain what the purpose of the regulation is; it obviously is intended to facilitate the process of applying for holding company authority to engage in nonbanking activities while au- thorizing only such activities as are permissible under the “closely related” standard. The basis for the agency’s designation of these particu- lar activities as permissible is less clear. But to aid us 16a in divining it we have not only the detailed briefs of the several parties and amici, the pre-1970 decisions of the Board on applications to engage in insurance activities,” and the legislative history of the 1956 Act and the 1970 Amendments, but also the extensive record in the hearings before the Administrative Law Judge in these cases. Cf. Automobile Parts & Accessories Ass’n V. Boyd, supra at 338 (court may consider statement of agency in denying rehearing) ; Environmental Defense Fund v. EPA, 167 U.S.App.D.C. 71, 510 F.2d 1292, 1304 & n. 40 (1975) (resort to detailed factual record is permissible in lieu of complete findings in hearing contest). Admittedly, much of the record is not relevant to the Board’s reasoning on the “closely related” issue and that portion which is rele- vant is “after the fact” explication of which we have every right to be suspicious. See Rodway v. Department of Agri- culture, 168 U.S.App.D.C. 387, 514 F.2d 809, 816-17 (1975). But we find that there is enough here, in light of the limited nature of the regulation and the impact of its wholesale invalidation for non-substantive flaws, that we can “see whether the agency, given an essentially leg- islative task to perform, has carried it out in a manner calculated to negate the dangers of arbitrariness and ir- rationality.” Automotive Parts & Accessories Ass’n V. Boyd, supra at 338. C. Substantive Challenges The NAIA parties generally argue that the activities listed in § 225.4(a) (9) of Regulation Y violate § 4(c) (8) of the Bank Holding Company Act in that they are not sufficiently “closely related to banking.” Although their efforts are directed most vigorously toward the portion of the regulation which the Board has relied upon in authorizing the sale of property and liability insurance ®* The Board ruled on 27 applications to engage in insurance ac- tivities during this period. 17a in these orders, we find that the very general language of the regulation on that subject is permissible. Other portions, however, authorize the sale of insurance that is so clearly unrelated to banking that they must fall. As the Board recognizes, the “closely related” standard imposes definite limits upon its discretion to permit non- banking activities by bank holding companies. Accord- ingly, the Board rejected applications to engage in some insurance activities, even before the 1970 Amendments." However, the great majority of pre-1970 insurance appli- cations were approved by the Board, and these constituted most of the nonbanking activities authorized under § 4(c) (8) prior to 1970. Among the specific types of activities authorized were insurance for the holding company and its employees, comprehensive property insurance, and re- newal of insurance covering collateral on a loan after it had been repaid. It was against this backdrop that Congress acted in 1970. Both the Senate and House of Representatives passed legislation which was intended in part to give the Board greater discretion in administering the Act." 10 See, e.g., General Contract Corp., 1959 Fed.Res.Bull. 260, Trans- america Corp., 1957 Fed.Res.Bull. 1014 (involving insurance under- writing rather than agency). 11 Sen.Rep. No. 91-1084, 91st Cong., 2d Sess. 12 (1970), 1970 U.S. Code Cong. & Adm.News at p. 5530 (hereinafter referred to as “Senate Report”), provides: First, the language of the act will be amended to allow the Federal Reserve Board greater flexibility in determining what nonbanking activities and acquisitions are to be permitted bank holding companies. The House Report, H.R.Rep. No. 91-387, 91st Cong., 2d Sess. 14 (1970) (hereinafter referred to as “House Report”), similarly states: The committee amendment gives the Federal Reserve Board added flexibility in administering the Act in terms Chairman Martin himself has suggested. 18a In particular, both houses approved a change of the “closely related” language of the 1956 Act to a require- ment that nonbanking activities need be only “func- tionally related’’ to banking.** The two bills did not completely agree, however; the House of Representatives included a provision specifically prohibiting holding com- panies from engaging in six nonbanking activities, in- cluding insurance agency activities other than those re- lating to credit life, and credit health and accident in- surance. The conflict between the “functionally related” lan- guage, which clearly was intended to broaden to some degree the Board’s discretion in approving nonbanking activities, and the specific prohibitions in the House bill made for a difficult Conference Committee session. Ulti- mately, the list of prohibited activities was deleted from the Act, apparently in return for a retention of the pre- 1970 ‘“‘closely related’ language. Four of the seven House conferees ** emerged to argue that the resulting legislation should “be construed to mean that the Con- gress was not convinced that such expansion and liberali- zation was justified.” Conference Report, 1970 U.S.Code Cong. & Adm.News at p. 5572. See also 116 Cong.Rec. 41952, 41961 (1970) (remarks of Rep. Patman). The Senate conferees and the minority House conferees, how- ever, argued that even the compromise bill which sur- 2 This language was inserted at the request of the then-Chairman of the Federal Reserve Board, William McChesney Martin. See Conference Report, 1970 U.S.Code Cong. & Adm.News p. 5566; Senate Report, 1970 U.S.Code Cong. & Adm.News p. 5531. ‘S Those members of the Conference Committee signing the Con- ference Report were Rep. Wright Patman (D-Tex.), Chairman of the House Banking and Currency Committee, Rep. William A. Barrett (D-Pa.), Rep. Leonor K. Sullivan (D-Mo.), and Rep. Henry Reuss (D-Wis.). The Congressional practice in 1970 was that only House members would write a “statement of managers” accom- panying Conference Reports. See 116 Cong.Rec. 42422 (1970). 19a vived the Conference represented a liberalization of the law." Certainly some other changes in the Act represent a modest broadening of the Board’s discretion. The deletion of the requirement that the nonbanking activity be of a “financial, fiduciary, or insurance nature” and that it relate to the “business of banking” are examples.** And it can be argued that the belief of the majority of the entire Conference Committee should be given precedence over that of the slim majority of the House conferees. Nevertheless, on balance we cannot concur in the District of Columbia Court of Appeal’s conclusion that “it is plain that Congress intended to expand [the Board’s] latitude in substantial degree”. 516 F.2d at 1236. Any liberaliza- tion of the standards effected by these minor wording changes was largely if not wholly offset by the Con- ference Committee’s rejection of the “functionally related standard” and the addition of the public benefits test. The purpose and effect of the 1972 Amendments in this particular was quite ambiguous, and we find that no significant change in the general range of the Board’s discretion was effected by them. Despite petitioners’ earnest efforts to persuade us to this conclusion, however, we find that it avails them little. One reason for this is that the pre-1970 law simply #116 Cong.Rec. 41952-53 (remarks of Rep. Widnall); id. 42422, 42424 (remarks of Sen. Sparkman); id. 42431 (remarks of Sen. Bennett). * The latter change in particular was sought by the Board to make it clear that nonbanking activities need not relate to the particular banking business of the applicant but to banking in general, thus permitting activities in areas geographically removed from the applicant’s bank operations. See Conference Report, 1970 U.S.Code Cong. & Adm.News pp. 5566-67. There is persuasive evi- dence that the insertion of the “functionally related” language was intended only to accomplish this, and not to effect a general broad- ening of permissible activities. See 116 Cong.Rec. 42434 (1970) (letter from Arthur F. Burns, Chairman of the Federal Reserve Board). me | 20a was not very restrictive in the insurance area. Peti- tioners correctly note that approval of many pre-1970 insurance applications was grounded in part on long es- tablished bank practices in the local area involved and the existence of bank competitors already carrying on insurance activities."* But, even so, the fact remains that the Board between 1956 and 1970 rejected the first two applications to engage in insurance activities and there- after granted all twenty-five applications which came before it, many without reference to local practices; this hardly bespeaks a highly restrictive policy. Petitioners have been able to cite nothing in the legis- lative history to indicate disapproval of the Board’s pre- - 1970 decisions. To the contrary, the Senate Report stated that the deletion of [the restriction to “financial, fiduc- iary, or insurance” activities] shall not be construed as indicating the committee’s intent that these ac- tivities be no longer permitted. To the contrary, these activities are “functionally related to bank- ing’ and are included under the new provision adopted by the committee to the full extent they were permitted under the existing act, and to such addi- tional extent as the Board may find it desirable un- der the new criteria established. Senate Report, 1970 U.S.Code Cong. & Adm.News at p. 5533 (emphasis supplied). Of course, the “functionally related” language disappeared in conference, but even the House members who held the more restrictive view of the resulting legislation quoted the Senate Report’s language, emphasizing that “these... are included... to the full extent they were permitted undcr the existing act.”” Conference Report, 1970 U.S.Code Cong. & Adm. 1° E.g., Bank Shares, Inc., 45 Fed.Res.Bull. 954 (1959); First Bank Stock Corp., 45 Fed.Res.Bull. 917 (1959). 2la News at p. 5565. See also 116 Cong.Rec. 41963 (remarks of Rep. Reuss). We have, then, a series of interpretations of the “closely related” standard with respect to insurance activities, over a period of fourteen years, by the agency charged with setting the machinery of the Bank Holding Company Act in motion. See Chemehuevi Tribe of Indians V. FPC, 420 U.S. 395, 409-10, 95 S.Ct. 1066, 1075, 43 L.Ed. 2d 279, 290 (1975) ; Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 210, 93 S.Ct. 364, 367, 34 L.Ed.2d 415, 420 (1972); FDIC v. Summer Fin. Corp., 451 F.2d 898 (5 Cir. 1971). The “great respect” that is due such interpretations “is enhanced by the fact that Congress gave no indication of its dissatisfaction of the agency’s interpretation of the scope of its . . . jurisdiction when it amended the Act.” Chemehuevi Tribe of Indians, supra. See Saxbe v. Bustos, 419 U.S. 65, 95 S.Ct. 272, 42 L.Ed. 2d 231 (1974); Reeb v. Economic Opp’y Atlanta, Inc., 516 F.2d 924 (5 Cir. 1975). We must be most reluctant _then, to reach results which would repudiate pre-1970 Board decisions, particularly in view of the fact that the Board’s expertise in this area must be presumed to ex- ceed ours. See Brenan v. General Tel. Co., 488 F.2d 157, 160 (5 Cir. 1973). A second reason why petitioners have a difficult bur- den derives from our limited role in reviewing these regu- lations. Because this regulation does not involve findings “required by statute to be made on the record after op- portunity for an agency hearing,” see 5 U.S.C. §§ 553, 556-57 (1970) ; Couriers, 516 F.2d at 1235 n. 6, the “sub- stantial evidence” standard of review is not the proper one. See United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 749, 92 S.Ct. 1941, 1946-47, 32 L.Ed.2d 453, 460 (1972); Couriers, 516 F.2d at 1235 n. 7. In- stead, we need determine only whether the Board’s find- ings of fact are “arbitrary, capricious, an abuse of dis- 22a cretion, or otherwise not in accordance of law”, 5 U.S.C. $706 (1970), and determine questions of law for our- selves. Couriers, 516 F.2d at 1235-36. With these observations we turn to the portion of $ 225.4(a) (9) under primary attack. It provides that a holding company subsidiary may act as an insurance agent or broker with respect to: (ii) Any insurance that (a) is directly related to an extension of credit by a bank or a bank-related firm of the kind described in this regulation, or (b) is directly related to the provision of other financial services by a bank or such a bank-related firm... . The immediately apparent fact is that these sections rep- resent only slightly more narrow definitions than the “closely related” language itself. They state in essence that one type of “close” relation to banking exists when there is a “direct” relationship of the activity to an ex- tension of credit or other financial service. Since the es- sential function of banking is the provision of credit or other financial services, the primary result of the regula- tion itself is merely to shift the inquiry from the word “close’’ to “direct”. Such a minute change cannot be deemed outside the Board’s discretion; if there is in- validity in the Board’s action pursuant to this regulation, it must be in the application of the regulation to the particular activities authorized under it. Other parts of § 225.4(a)(9) represent more sub- stantial departures from the wording of the Act. The first example is subsection (i), which permits the sale of “any insurance for the holding company or its sub- 99 17 sidiaries”.‘’ Acting pursuant to this authorization, the ** Petitioners have not specificaliy attacked this portion of § 225.4(a) (9), but in view of their general contention that insurance agency activities other than the sale of credit life, and credit, health and accident insurance are not “closely related” to banking. Brief 23a Board approved applications by both Southern and First National and authorized the sale of any insurance with- in the terms of subsection (i). It is apparent that at least some of the insurance sales thereby permitted will relate only tangentially to the basic functions of banks: the protection of savings and the provision of financial services. For example, the regulation would authorize the sale of group health in- surance for janitorial and maintenance employees, and property insurance on the physical assets of banking subsidiaries, such as bank fixtures or real property owned by the bank. Moreover, sales of insurance to the holding company or to nonbanking subsidiaries would be per- mitted. In the case of First National, for instance, the insurance subsidiary could sell insurance to Gulf Finance Corporation of Mississippi or Woods-Tucker Leasing Company, which has offices in Mississippi and Louisiana. However, convenient to the holding company it is to elimi- nate the need to pay the commissions of an unrelated insurance broker for such insurance, the relationship of the brokering of such insurance to banking is difficult to discern. We do not seek to be restrictive in determining what types of relationships to banking are cognizable under the Act. As the Couriers court stated, activities meeting the following criteria seem permissible: 1. Banks generally have in fact provided the proposed services. 2. Banks generally provide services that are. opera- tionally or functionally so similar to the proposed services as to equip them particularly well to pro- vide the proposed service. for Petitioners at 45, 49, Alabama Ass'n of Ins. Agents, Inc. V. Board of Governors; Brief for Petitioners at 46, 51, Georgia Ass'n of Ind. Ins. Agents v. Board of Governors, it is our duty to deter- mine its validity. 24a 3. Banks generally provide services that are so in- tegrally related to the proposed services as to re- quire their provision in a specialized form. 516 F.2d at 1237. Clearly, however, brokering insurance for even those subsidiaries of a holding company which are banks does not come within these strictures. We have been apprised of no general practice on the part of banks (and certainly the Board has not articulated one) to broker the types of insurance that they need for their own account and we know of no evidence that they have provided “functionally” or “integrally” related insurance services. Certainly any past practice in which banks have engaged in this area does not cover “any” type of insurance which the banks or their subsidiaries might require. We are willing, however, to consider broader types of relationships. For example, it cannot be doubted that many types of insurance for banking subsidiaries are helpful, and perhaps essential, to the success of the enter- prise, and thus to the provision of financial services. Such insurance may protect the physical facilities which are necessary to banking, insure the fidelity of the employees who are intimately involved in banking operations, or insure the availability of necessary health care for the employees who directly or indirectly provide financial services. The relationship of such insurance to “bank- ing” is in some cases quite indirect; in many cases the bank’s need for it is no different than the need of any business enterprise. But in view of the limited role of this court in reviewing these regulations, we are unwill- ing to say that the Board was wrong in finding it suf- ficient. As noted above, however, even this rationale cannot justify the Board’s authorization of the holding com- panies to broker insurance for themselves or their non- 25a banking subsidiaries. Such insurance simply does not contribute to the operations of those subsidiaries actually engaged in the banking business. Perhaps it could be argued that uninsured losses of those businesses or of the holding company may. affect the availability of resources to the banking subsidiary or other policies of the di- rectors or shareholders of the holding company, who di- rectly or indirectly control the banking subsidiaries. But the Board has not, to our knowledge, articulated this rationale and, in j so attenuated .« as to even from the broad area of disc the Board is entitled. We therefore find that the portion of § 225.4(a) (9) (i) which authorizes the sale of insurance for bank holding companies and nonbank sub- sidiaries of holding companies must be invalidated, and the portions of the orders under review which authogj e sale of such insurance must also fall. e regulation is (ii) (c), which authorizes holding company subsidaries to act as agents with respect to insurance that is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within this subdivision (ii) (c) does not constitute a significant portion of the aggregate insurance pre- mium income of the holding company from insurance sold pursuant to this subdivision (ii).... The Board argues that this provision “permits the hold- ing company agency to round-out its insurance offer- ings” by, for example, permitting renewal of policies covering an automobile after a loan from a holding company bank on the automobile has been repaid. The Board stresses also that, in its interpretive regulation, 12 C.F.R. § 225.128(e), it limited premiums from sales of “convenience insurance” to less than five per cent of the aggregate premium income of the holding company agency, and stated specifically that this provision was 26a not designed to permit entry into a general insurance agency business. It further argues that, as the business of a holding company agency increases over time, a larger portion of its convenience insurance sales will be re- newals of insurance on property on which indebtedness has been fully repaid, until that is the only type of con- venience insurance sold. The Board may well be correct in its forecasts. And it may be correct in assuming that such renewal in- surance would be “closely related” to banking within the meaning of the Act. But the fact is that the regulation is not so restricted. It permits holding company affiliates to sell any type of insurance under any conditions as a “matter of convenience”, imposing no condition that the insurance relate in any way to banking. The court in the Couriers case was faced with a similar provision, which authorized holding company affiliates to furnish “courier services for non-financially-related ma- terial upon the specific, unsolicited request of a third party when courier services are not otherwise reasonably available.” 12 C.F.R. § 225.129 (1974). Although the court was willing to agree that an affiliate could engage in such incidental activities as were reasonably necessary to carrying out those that were closely related to bank- ing, it stated that: The justification for the “incidental” courier services at issue here is, however, quite different. It is not, as far as we can tell, that the carriage of non- financially related material is in any way necessary to the successful operation of the courier service af- filiates. Rather, it is that the provision of such serv- ice would “serve the convenience of the public”. 516 F.2d at 1240. The court then noted that the provision of such services might indeed be beneficial to the public, in view of the 27a fact that bank affiliates would not likely become deeply involved in providing such unsolicited services, and that no bank competitor would be injured since the services were required to be “otherwise unavailable’. The court then made a statement with which we fully agree: But Congress did uot instruct the Board to allow or disallow bank involvement in non-financial ac- tivities as may be required by the policies which counsel a separation of commerce and banking. Hav- ing heeded that counsel itself, it decreed the separa- tion, and instructed the Board to enforce it. 516 F.2d at 1241. Here, too, we believe the Board has misconstrued its role. The Board’s function is not to promote generally the public interest consistent with the policies of the Bank Holding Company Act, but to determine what ac- tivities are “closely related” to banking. While we might agree that the sale of certain types of convenience in- surance would help a holding company agency “round out” its offerings to the benefit of its clients, the agency, and the general public, the fact remains that the handling of convenience insurance simply is not, as broadly de- fined in the regulation, closely related or necessarily re- lated at all to banking. The Board, however, argues that the brokering of convenience insurance is “a necessary activity to the operation of an affiliated insurance agency”. To the ex- tent that this is an assertion that it is an incidental activity reasonably necessary to the carrying on of clearly permissible ones, we find that it is one that, if supported, would be legally sufficient. See 12 C.F.R. § 225.4(a) (1976) ; cf. 12 U.S.C. § 24 (1970) (authorizing national banks “to exercise . . . all such incidental powers as shall be necessary to carry on the business of banking”). But we see no possible argument that the regulation, as 28a written, meets this standard in view of its failure to restrict the types of insurance authorized. Moreover, as the Board itself argues, the provision would enable an agency to meet “peculiar additional insurance needs of a few of its customers”; it is difficult to see how such a power could be deemed “necessary” to the agency’s op- eration. Although the Board may redraft § 225.4(a) 1)(c) in a way that m standard, we must hold that provision as it stands in- valid and reverse those portions of the orders in ques- tion which authorize the sale of convenience insuran A final provision which must be examined is § 225.4 (a) (9) (iii) of Regulation Y, which permits a holding com- pany agency to sell: Any insurance sold in a community that (a) has a population not exceeding 5,000, or (6) the holding company demonstrates has inadequate insurance agency facilities. This provision, too, seems to authorize the handling of insurance for the benefit of the public, despite the absence of any discernible connection to “banking”. It is interest- ing to note, however, that Congress has since 1916 per- mitted national banks to engage in just such activity. 12 U.S.C. § 92 (1970). The question then arises whether the Congressional determination that such activity is permis- sible for national banks alone is sufficient to render it “closely related to banking” for purposes of the Bank Holding Company Act. The answer to this question can be found in the legisla- tive history of 12 U.S.C. § 92, which this court examined in Saxon Vv. Georgia Ass’n of Ind. Ins. Agents, Inc., 399 F.2d 1010 (5 Cir. 1968). In that case, we placed empha- sis on a letter from the Comptroller of the Currency to the Senate Banking and Currency Committee in 1916 29a which revealed that his primary purpose in proposing the legislation was to give small town banks, which had diffi- culty in deriving a sufficient profit from banking, an addi- tional source of revenue. The Comptroller stated that: This additional income will strengthen them and in- crease their ability to make a fair return to their shareholders, while the new business is not likely to assume such proportions as to distract the officers of the bank from the principal business of banking. 399 F.2d at 1015. It clearly appears, then, that 12 U.S.C. § 92 was enacted not out of a belief that there was any significant connection between banking and the sale of insurance in small communities, but merely because it was believed that banks needed an additional source of income to improve their stability and profitability. Congress thus did not indicate that the sale of insurance in small towns was part of “banking”, but rather that it was an unre- lated business which would provide a source of income that would then be available for use in the separate bank- ing activities of small town national banks. No one doubts that subsidiaries of holding companies which are national banks located in small towns have the authority to broker insurance. But to hold that other hold- ing company subsidiaries which are not banks have such authority as a result of 12 U.S.C. § 92 would not only violate the Bank Holding Company Act, but would warp the Congressional intention underlying the 1916 enact- ment as well. Whatever benefits in terms of convenience to the public or profit to holding companies may accrue as the result of granting affiliates power to sell insurance in small towns, it can hardly be argued that such authority is necessary to protect the stability of the banking (or other) subsidiaries of holding companies or to permit a fair rate of return to their shareholders. The purpose of Congress in enacting 12 U.S.C. § 92 simply does not apply 30a to the bank holding companies, and that provision cannot serve as the sole authorization for a determination that insurance sales in small towns are “closely related to banking”. This is made even more apparent by the fact that the Board regulation is not even restricted to holding com- pany subsidiaries which are /ocated in small communities. Unlike the national banks which were the object of the 1916 provision, the holding company affiliates which would 1 of these reasons, we must hold that § 225.4(a) (9) (iii) of Regulation Y is invalid and that the portions of the orders before us which are based upon it must also fall. III. Application of the Regulation We turn now to one of the most hotly contested aspects of this case: the Board’s authorization of holding com- pany sales of property damage and liability insurance. The “property damage” insurance referred to would pro- tect collateral for loans by holding company banks from damage caused by fires, storms, accidents, and other haz- ards. The liability insurance at issue would protect bor- rowers from liability resulting from injury or damage to the person or property of others in connection with prop- erty financed by holding company banks. Thus, for exam- ple, a bank financing and taking a security interest in an automobile might also sell the owner-borrower collision insurance and insurance against any liability arising from an accident in the automobile. The Board found that both property damage and liability insurance were “directly related to an extension of credit” and therefore within § 225.4(a) (9) (ii) (a) of Regulation Y. Petitioners argue primarily that the sale of physical damage insurance is unauthorized because it is neither 8la “functionally equivalent to an extension of credit” nor “operationally integrated into the lending transaction”. As noted earlier, we are not convinced that Congress in- tended to so limit the universe of relevant connections between banking and proposed nonbanking activities. To the contrary, we believe that the Board should be upheld when it articulates any type connection between banking and the nonbanking activity in question which makes it rational to consider the proposed activity an “incident” to banking. In approving the sale of property damage insurance, the Board stressed the fact that such insurance is “essential from the lender’s standpoint to assure that the value of the collateral will not be impaired by physical damage.” It App. 187; IV App. 732. The Board also noted that such insurance performs “an integral function for the borrower as well, since the presence or lack of insurance protecting loan collateral is an essential element of the credit evaluation.” II App. 187. Its decision, then, was based neither on any historical practice by banks, nor upon any process characteristic of lending transactions which would necessitate specialized forms of the activity at i The Board seems to have relied simply on the fact that, in lending transactions, banks have a legitimate need for physical damage insurance to protect the value of the collateral and that borrowers have need for the insurance to obtain credit. We hold that this is enough, particularly in view of the pre-1970 authorization of simi- lar insurance sales. See Citizens and Southern Holding Co., 1969 Fed.Res.Bull. 673; Otto Bremer Co., 1969 Fed. Res.Bull. 388; Otto Bremer Co., 1967 Fed.Res.Bull. 1555. Where a product or service is regularly desired by both parties and supports the transaction in some significant way, we cannot say that the Board acts irrationally or arbitrarily in deeming the furnishing of the product or service “closely related to banking” or “directly related to an extension of credit’’. 32a The case for liability insurance proceeds upon the same general lines but is significantly weaker. Liability in- surance protetts the borrower's ability to repay a loan, which could otherwise be destroyed by an accident or other catastrophe. It therefore fulfills a need of both the borrower and lender, particularly where the borrower is an individual or a small business with limited assets. Petitioners note, however, that liability insurance, unlike physical damage insurance, is not required of borrowers as a general banking practice. And the authorization at issue is in no way limited to cases where the borrower’s ability to repay could be significantly affected by an un- insured liability. This is not surprising in view of the fact that the Board’s orders in these cases relied on an entirely dif- ferent rationale. The Board stressed the insurance in- dustry practice of selling liability insurance in conjunc- tion with property damage insurance protecting an auto mobile or other property. It concluded that a “packaged” insurance policy, combining liability insurance with insurance relating to physical damage on property purchased from loan proceeds, fulfills a legitimate need of the lender and borrower alike at the time a loan is made. Moreover, in the case of homeowner’s insurance, it appears that it would not be economical for a borrower to procure separ- ately the various coverages customarily packaged in such a policy. II App. 188; see IV App. 733. The Board’s rationale therefore comes down to this: (1) borrowers, for con- venience and, in some cases, cost reasons, want liability insurance packaged with property damage insurance, which itself is incident to banking; (2) the need for liability insurance arises out of the lending transaction; 33a (3) liability insurance to some extent protects the bor- rower’s ability to repay the loan. We find that these form a sufficient basis for the brokering of liability insurance by bank holding com- panies. The evidence amply supports the conclusion that, from the consumer’s point of view, packaged property damage and liability policies are more desirable than the same policy separately sold. See II App. 273, 278, 309-10, 411-12; V App. 1228. To permit banks to sell only property damage insurance, then, could have the effect of substantially limiting the gains in convenience and in increased competition which Congress sought to promote. The sale of packaged liability insurance there- fore may be seen as an activity “incidental” to the sale of property damage insurance and necessary for the ef- fectuation of the Congressional purpose with respect to the latter activity. See 12 C.F.R. § 225.4(a) (1976); Couriers, 516 F.2d at 1240. _It cannot be said, moreover, that the relationship of banking to liability insurance itself is chimerical. Al- though banks do not customarily require it, liability in- surance does in a significant way “support the lending transaction”. Indeed, assurance of the borrower’s ability to repay the loan may be more important than protection of the collateral; repayment rather than repossession is the bank’s primary objective. And, too, the need for the insurance does arise directly from the purchase of prop- erty, which is the very purpose of the loan. In attempt- ing to answer the question whether these relationships are sufficient to establish the connection that Congress re- quired, we have been impressed by the pre-Amendment decisions of the Board. In two cases decided in the year prior to the passage in 1970 of the provision we are con- struing, the Board granted applications authorizing the sale of liability insurance by a bank holding company agency, without any requirement that it be packaged with 34a other insurance. United Virginia Bankshares, Inc., 1970 Fed.Res.Bull. 599, 600; First Security Corp., 1969 Fed. Res.Bull. 667, 668. Yet Congress made no substantial change in the language of the relevant provision and the legislative history is void of any suggestion that the pre- Amendment decisions were disapproved. In view of the familiar presumption that the legislature is aware of existing constructions of statutes which it reenacts,’* this court has every reason to believe that the more limited authorization of liability insurance in these cases was within the intent of Congress. -2 IV. The Calculus of Public Benefits The 1970 Holding Company Act Amendments trans- formed the general question of whether the proposed activity would be a “proper incident” to banking, in part at least,*® into the more particularized inquiry of whether 18 T.1.M.E., Inc. v. United States, 359 U.S. 464, 79 S.Ct. 904, 3 L.Ed.2d 952 (1959) ; Shapiro v. United States, 335 U.S. 1, 68 S.Ct. 1375, 92 L.Ed. 1787 (1948); United States v. Douglas Aircraft Co., 510 F.2d 1387 (Ct.Cust. & Pat. App. 1975); Kansas City v. Federal Pac. Elec. Co., 310 F.2d 271 (8 Cir. 1962), cert. denied, 371 U.S. 912, 83 S.Ct. 256, 9 L.Ed.2d 171 (1963). ‘* As noted earlier, the Board in its order in the Georgia case evidenced a belief that its determination in § 225.4(a) (9) that cer- tain insurance activities are closely related to banking also served as a determination that those activities “in general” satisfy the public benefits test. Without ruling on the correctness or incorrect- ness of this statement, we note that Chairman Burns of the Federal Reserve Board indicated in a letter to the Conference Committee his belief that the language of the statute should make clear that there are two tests to be satisfied in deciding whether nonbank subsidiaries of bank holding companies should be allowed to engage in a particular activity: (1) whether the activity is closely related to banking, and (2) whether it is a proper incident to banking, and that in applying the second test, the Board is to weigh the possible benefits to the public against the risks of adverse con- sequences. We believe that the language proposed by the House conferees might be misconstrued to apply three tests: (1) whether the activity is closely related, (2) whether it is a 35a the activity “can reasonably be expected to produce bene- fits to the public . . . that outweigh possible adverse effects”. 12 U.S.C. § 1843(c) (8) (1970). Nonexhaustive examples of such benefits (greater convenience, increased competition, and gains in efficiency) and adverse effects (undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices) were listed by Congress in the statute. In this case, the Federal Reserve Board made specific findings as to each of these factors and, overruling the Adminis- trative Law Judge, held that each of the possible benefits were likely to be realized if the applications were granted and that none of the possible adverse effects were likely to occur. The Board thus concluded that overall public benefits very clearly outweighed possible adverse effects. Congress in the 1956 Act clearly circumscribed our role in reviewing the Board’s findings: “[{t]he findings of the Board as to the facts, if supported by substantial evidence, shall be conclusive”. 12 U.S.C. §1848. If such support exists in the record, it is our duty to affirm even though we might come to a diametrically opposite con- clusion on our own. North Hills Bank v. Board of Gov- ernors of Federal Reserve System, 506 F.2d 623 (8 Cir. 1974) ; Comm’l Nat’l Bank of Little Rock v. Board of Governors of Federal Reserve System, 451 F.2d 86 (8 Cir. 1971); First Wisconsin Bankshares Corp. Vv. Board of Governors of Federal Reserve System, 325 F.2d 946 (7 Cir. 1963). This is particularly true with respect to matters relating to banking industry structure and op- erations, areas in which the Board may be presumed to have expertise. Commercial Nat’l Bank supra; North- proper incident to banking, and (3) whether the benefits out- weigh the risks. 116 Cong. Rec. 42434 (1970). The Chairman, whose suggestions on this matter were heeded by the Committee, thus seems to have regarded the “closely related” and “proper incident” determinations as wholly separate. 36a west Bancorporation v. Board of Governors of Federal Reserve System, 303 F.2d 832 (8 Cir. 1962). The reasons for deference to the Board’s reasoned judg- ment in the general run of cases are magnified in the con- text of the “public benefits” determination of § 4(c) (8). Congress required only that public benefits “reasonably” be expected to outweigh adverse effects. In so doing, it in- dicated recognition of the fact that the judgments required of the Board are necessarily imprecise and to some degree speculative. Not only do they relate to complex future events—often unprecedented ones—but they concern ag- gregate rather than discrete effects. Thus, the Board must determine not whether there will be one or more aspects of insurance agency activity by holding company affiliates that will tend to produce efficiency gains, but whether, overall, such aspects will outweigh possible sources of efficiency loss sufficiently to produce net gains. The latter determination is much more difficult than the former, and is one which is much less susceptible to de- tailed evidentiary support. Unless we are to impose in- surmountable barriers upon those who seek to take advantage of the $4(c)(8) authorization, which was reaffirmed by Congress in 1970, our review must be sen- sitive to these circumstances. See, e.g., Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 292-94, 95 S.Ct. 438, 446, 42 L.Ed.2d 447, 460 (1974). We note, however, that the Board’s rejection of the Administrative Law Judge’s conclusions cuts the other way. While the Board is in no way bound by those con- clusions, e.g., Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., supra, 419 U.S. at 297-98, 95 S.Ct. at 447-48, 42 L.Ed.2d at 462-63, “evidence supporting a conclusion may be less substantial when an impartial, experienced examiner who has observed the witnesses and lived with the case has drawn conclusions different from the Board’s than when he has reached the same con- 37a clusion”. Universal Camera v. NLRB, 340 U.S. 474, 496, 71 S.Ct. 456, 469, 95 L.Ed. 456, 472 (1947). Although we are inclined to uphold the Board where it clearly ex- plains its reasons for differing with the Administrative Law Judge (particularly on issues upon which it may be presumed to have particular expertise), its findings will be vulnerable where it merely announces an opposite con- clusion from the Administrative Law Judge without ex- planation. See Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 444 F.2d 841, 853 (1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). A. Greater Convenience The Administrative Law Judge found no likelihood of increased convenience in the Southern case and a likeli- hood of only “minimum” increased convenience in First National’s. The Board disagreed in both instances, rely- ing primarily on its belief that the “one-stop shopping” that would be made possible would save consumers an ex- tra trip to an insurance agent and would avoid the neces- sity of obtaining the same information from the consumer twice—once for the loan and once for insurance. It noted that “borrowers have often requested insurance from Ap- plicant’s banks in the past” in support of its contention that there is a demand for the postulated added con- venience. The Board now argues also that the consumer would thereby be assured that he has insurance coverage satisfactory to the lender and that insurance and loan payments could be combined in a single bill, resulting in further consumer convenience. As the NAIA parties argue, the Board’s conclusions on this issue are cast in doubt by the fact that the licensed insurance agents in both cases will be located at central offices in Birmingham or Atlanta. The result is that, al- though loan officers around the area or state can telephone 38a such agents to make insurance arrangements at the time loans are made, any dealings by borrower-insureds living outside those metropolitan areas with the agents there after will be on an impersonal and long-distance basis. Relationships with local independent agents, on the other hand, can be conducted on a more personal basis and face-to-face discussion of insurance matters will be much easier to arrange. The Board showed no recognition whatever of the resulting decrease in convenience. Moreover, the Board made no attempt to explain why non-affiliated insurance agents could not effect the same convenience through a one-stop shopping system. Loan officers could (and if there is a genuine bank need to in- sure that acceptable coverage be secured, they will) sug- gest to the prospective loan customer a reputable local agent; if the customer is willing, that agent could be tele- phoned and could perform the same functions as the pro- posed holding company affiliate agent. In its brief, First National suggests that a practice of recommending independent insurance agents to borrowers would not be “good business policy or good ethics’’.*° This may or may not be true, but what is clear is that the Board made no such argument and that we have been directed to no evidentiary support in the record for that conclusion. The same situation exists with respect to the claim of added billing convenience; it is one advanced post hoe by the Board with no evidentiary support which has been pointed out to us. See Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168-69, 83 S.Ct. 239, 246, 9 L.Ed.2d 207, 216 (1962) ; City of Lafayette v. SEC, 147 U.S.App.D.C. 98, 454 F.2d 941 (1971), aff'd sub nom. Gulf States Utilities Co. v. FPC, 411 U.S. 747, 93 S.Ct. 1870, 36 L.Ed.2d 635 (1973). Because of these 2° Southern, on the other hand, has referred customers to a num- ber of insurance agencies upon request. II App. 229. P| 39a deficiencies, and particularly because of the Board’s fail- ure to delineate clearly the sources of its disagreement with the conclusions of the Administrative Law Judge, we must find that its conclusion on this point is not sup- ported by substantial evidence. B. Greater Efficiency The dispute on this point centers around the insurance industry practice of “direct billing”, by which insurance underwriters, rather than agents, issue the policy to the customer and bill and collect the premiums. There was evidence that this practice results in lower commissions to the agent and lower premiums for the consumer. Be- cause both First National and Southern indicated that th 108a insurance activities as “so closely related to banking or managing or controlling banks as to be a proper incident thereto:” “(9) acting as insurance agent or broker in offices at which the holding company or its subsidiaries are otherwise engaged in business (or in an office adja- cent thereto) with respect to the following types of insurance: (i) Any insurance for the holding company and its subsidiaries; (ii) Any insurance that (a) is directly related to an extension of credit by a bank or a bank-related firm of the kind described in this regulation, or (b) is directly related to the provision of other financial services by a bank or such a bank-related firm, or (ec) is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within this subdivision (ii) (c) does not con- stitute a significant portion of the aggregate in- surance sold pursuant to this subdivision (ii) ; (iii) Any insurance sold in a community that (a) has a population not exceeding 5,000, or (b) the holding company demonstrates has inadequate in- surance agency facilities.” The above regulation was attacked on judicial review by the Agents who charged that the Board acted im- properly in adopting the regulation without notice and hearing, and without articulating adequate reasons based upon substantial record evidence. On January 9, 1974 the Court of Appeals, in dismissing the Agents’ appeal as premature, affirmed the Board’s action as an inter- pretative rule not requiring prior notice and hearing and pointed out that the Agents can oppose particular ap- 109a plications of the 1972 rules in proceedings such as the one at bar subject to later court review.’ V PRELIMINARY FINDINGS AND CO [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_0026%3A1. Public record. Not legal advice.