Petition — Conference of State Bank Supervisors v. Conover

83-954

In Tue

Supreme Court of the Gnited

Ocroser Term, 1983

= ———————————————

CONFERENCE OF STATE BANK SUPERVISORS, PEOPLE

OF THE STATE OF ILLINOIS, ex rel. WILLIAM C. HARRIS,

Commissioner of Banks and Trust Companies,

Petitioners,

vs.

C. T. CONOVER, Comptroller of the Currency

of the United States,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIROUIT

NEIL F. HARTIGAN

Attorney General, State of Illinois

160 North LaSalle Street, Suite 900

Chicago, Illinois 60601

(312) 793-3500

Attorney for Petitioner,

People of the State of Illinois,

ex rel. William C. Harris

PATRICIA ROSEN *

Assistant Attorney General

188 West Randolph Street, Suite 2200

Chicago, Illinois 60601

(312) 793-2570

JAMES F. BELL

ARTHUR E. WILMARTH, JR.

JONES, DAY, ao a ‘POGUE

1735 Eye Street, N

Washington, D.C. "So00s

Attorneys for Petitioner,

Conference of

* Counsel of Record State Bank Supervisors

———— — ——e

Printed by Authority of the State of Illincis (P.O. 32100—60—12-2-83)

i

QUESTION PRESENTED

Did the Court of Appeals err when it adopted the

interpretation of the International Banking Act of 1978

advanced by the Comptroller of the Currency when that

interpretation circumscribed the states’ rights and effec-

tively invalidated state legislation regulating foreign bank

activities, notwithstanding the express language of that

Act, which provides that the Comptroller (a) may author-

ize a foreign bank to establish a home state federal branch

or agency only in a state where such establishment “is

not prohibited by state law,” and (b) may allow a foreign

bank to establish and operate an interstate federal branch

or agency only in a state where such establishment and

operation “is expressly permitted by the state in which

it is to be operated?”

ii

PARTIES INVOLVED

Petitioner William C. Harris, is the Commissioner of

Banks and Trust Companies in Illinois. Commissioner

Harris is charged with the duty of applying and carry-

ing out the provisions of Illinois’ Financial Institutions

Code. Ill. Rev. Stat., 1981, Ch. 17, 4456.

Petitioner Conference of State Bank Supervisors is an

association composed of the state government officials

responsible for regulating state-chartered banking institu-

tions in the fifty states and their counterparts in Guam,

Puerto Rico, and the Virgin Islands. In 1958, the Con-

ference invited state-chartered commercial banks and

mutual savings banks to become “associate members,” and

there are currently about 5,000 such associate members.

Associate members, however, may not vote at meetings

of the Conference and therefore do not vote on Con-

ference decisions or policies.

TABLE OF CONTENTS

PaGE(s)

QUESTION PRESENTED ................... i

EE DONWON Us Ub Ss cnvovnscovceeuna ii

TABLE OF AUTHORITIES ................. iv

SE PEPE Fw Vie nsadvecesesceve 2

ini cbs edn ek use ced venoe bes 2

BEMEWE BIUVORVEED os cccccccccccccscccs 3

STATEMENT OF THE CASE ............... 3

ARGUMENT:

THE DECISION OF THE COURT OF AP-

PEALS WHICH UPHELD THE COMP-

TROLLER OF THE CURRENCY’S INTER-

PRETATION OF THE INTERNATIONAL

BANKING ACT OF 1978 AS PREEMPTING

ALL STATE LAWS REGULATING THE

OPERATION OF FOREIGN BANKS BY THE

STATES ULD BE REVIEWED BY THIS

COURT SINCE IT PRESENTS SIGNIFICANT

ISSUES AS TO THE AUTHORITY OF THE

STATES TO MAINTAIN CONTROL OVER

THE OPERATIONS OF FOREIGN BANKS

WITHIN THEIR JURISDICTIONS AND

BECAUSE THIS DECISION HAS A SIGNIFI-

CANT IMPACT ON THE DUAL BANKING

GEE. Cth ce basdaptctversodshersenaksbac 4

CONCLUSION .......... paukstveasteeibedebe 13

iv

APPENDIX

A. Opinion of the United States Court of Appeals

for the District of Columbia Circuit ......

B. Judgment of the United States District Court

for the listrict of Columbia ..............

C. State laws which limit foreign bank entry or

regulate foreign bank operations ..........

D. Pertinent statutes and regulations ........

TABLE OF AUTHORITIES

Cases Cited

First National Bank in Plant City v. Dickinson,

Se TBE Ce erie cabanas Shee sccnce,

First NationaleBank of Logan v. Walker Bank &

Trust Co., 385 U.S. 252 (1966) ............

Florida Lime & Avocado Growers, Inc. v. Paul,

mS ek ery pean

Iowa Independent Bankers v. Board of Governors

of Federal Reserve System, 511 F.2d 1288 (D.C.

Cir.), cert. den., 423 U.S. 875 (1975) .......

NLRB v. Brown, 380 U.S. 278 (1965) .........

Ray v. Atlantic Richfield Co., 485 U.S. 151 (1978) .

la

© © 0

Statutes Cited

FEDERAL:

Nee dd ou weeww een 9,11

ee i cid cone twue cewes 10

a RIED i oc Sa ccceccccecdecea’ i)

Ne wc eelnkene 8

12 U.S.C. § 3102(a) [§ 4(a) of IBA] ........... passim

12 U.S.C. § 31038(a) [§ Ka) of IBA] ........... passim

a ee ke ew aleee eee 4

STATE:

Il. Rev. Stat., 1981, Ch. 17, 2706 ........... 3

Ill. Rev. Stat., 1981, Ch. 17, 92710 ........... 3

Other Authorities Cited

S. Rep. No. 95-1073, 95th Cong., 2d Sess ..... 7,11

Foreign Bank Act of 1975: Hearings Before the

Subcommittee on Financial Institutions of the

Senate Committee on Banking, Housing and

Urban Affairs, 94th Cong., 2d Sess. ....... 9

Klopstock, Foreign Banks in the United States:

Scope and Growth of Operations, 55 Fed. Res.

Bank of N.Y. Monthly Rev. 140 (1973) ..... 10

Department of the Treasury, Report to Congress

on Foreign Government Treatment of U.S.

Commercial Banking Organizations, (1979) . 10

Is Tas

Supreme Court of the United States

Ocroszr Txrm, 1983

CONFERENCE OF STATE BANK SUPERVISORS, PEOPLE

OF THE STATE OF ILLINOIS, ex rel. WILLIAM C. HARRIS,

Commissioner of Banks and Trust Companies,

Petitioners,

vs.

C. T. CONOVER, Comptroller of the Currency

of the United States,

PETITION FOR A WEIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIROUIT

Petitioners respectfully pray that a writ of certiorari

issue to review the judgment and opinion of the United

States Court of Appeals for the District of Columbia Cir-

cuit entered in this proceeding on August 9, 1983, which

permitted the Comptroller of the Currency to charter

federal branches and agencies of foreign banks in states

where those banks would not be eligible for a state charter.

lie

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the District of Columbia Circuit was entered on August

9, 1983, is reported at 715 F.2d 604 (D.C. Cir. 1983), and

is appended to this petition as Appendix A. The judgment

of the District Court was entered on September 30, 1981,

is not reported, and is appended to this petition as Ap-

pendix B.

JURISDICTION

The opinion and judgment of the Court of Appeals were

entered on August 9, 1983. An extension of time to file

this petition was allowed until December 7, 1983. This

Court’s jurisdiction to review a judgment of the Court

of Appeals by a writ of certiorari is therefore invoked

pursuant to 28 U.S.C. § 1254(1). .

- =

STATUTES INVOLVED

The pertinent provisions of the International Banking

Act of 1978 are set forth in Appendix D.

STATEMENT OF THE CASE

By this petition, the State of Illinois and the Conference

of State Bank Supervisors seek to uphold the right of

states to regulate the establishment and operation of

foreign banks within their borders. Illinois law, for ex-

ample, limits foreign banks to opening a single branch,

which must be located in the “central business district

of Chicago.” Ill. Rev. Stat., 1981, Ch. 17, 42706. Further-

more, Illinois law will not allow a foreign bank to open

a branch here unless reciprocity is extended by the foreign

bank’s home country. ill. Rev. Stat., 1981, Ch. 17, 42710.

The Comptroller refuses to recognize the validity of these

and similar state laws under his interpretation of sections

4a) and Ka) of the International Banking Act of 1978. The

validity of the Comptroller’s regulations and his author-

ity to disregard such state law enactments are the sub-

ject of the instant petition.

a

ARGUMENT

THE DECISION OF THE COURT OF APPEALS WHICH

UPHELD THE COMPTROLLER OF THE CURRENCY’S

INTERPRETATION OF THE INTERNATIONAL BANKING

ACT OF 1978 AS PREEMPTING ALL STATE LAWS

REGULATING THE ESTABLISHMENT AND OPERATION

OF FEDERAL BRANCHES AND AGENCIES OF FOR-

EIGN BANKS BY THE STATES SHOULD BE REVIEWED

BY THIS COURT SINCE IT PRESENTS SIGNIFICANT

ISSUES AS TO THE AUTHORITY OF THE STATES TO

MAINTAIN CONTROL OVER THE OPERATIONS OF

FOREIGN BANKS WITHIN THEIR JURISDICTIONS AND

BECAUSE THIS DECISION HAS A SIGNIFICANT IM-

PACT ON THE DUAL BANKING SYSTEM.

This Petition presents substantial questions of first im-

pression which are of national import regarding the ability

of the several states to determine the scope of permissi-

ble foreign bank activities within their respective borders

under the International Banking Act of 1978 (IBA), Pub.

L. No. 95-369, 92 Stat. 607 (codified in scattered sections

of 12 U.S.C.) Prior to the enactment of the IBA, the

states were free to decide whether to permit foreign bank

entry and also to determine the extent to which foreign

banks would be authorized to transact business, since

foreign bank activities were regulated almost exclusively

by the states.

In adopting the IBA, Congress continued to defer to

state policy determinations on the questions of foreign

bank entry and operations under sections 4(a) and (a) of

the Act. Section 4(a) provides that a foreign bank may

open a home state federal branch or agency only where

the establishment of such an office “is not prohibited by

state law.” 12 U.S.C. § 3102(a). Section Ka) provides that

an interstate federal branch or agency may be established

==

or operated by a foreign bank only where its operation

“is expressly permitted in the State in which it is to be

operated.” 12 U.S.C. § 3103(a). Thus, under these sections

of the IBA, state prohibitions on foreign bank entry and

state limitations on foreign bank operations determine the

extent of the federal charter option which is available to

foreign banks.

Notwithstanding the clear language of these provisions,

the Comptroller of the Currency (Comptroller) refuses to

give effect to state laws imposing restrictions on foreign

bank activities, contending that this language of the IBA

only authorizes states to permit or prohibit entry by

foreign banks generally, it does not authorize the states

to place limitations upon such entry. Thus, the Comp-

troller claims that if a state permits entry by any foreign

bank, he may allow entry by all foreign banks under

federal charter, notwithstanding specific state prohibitions

such as reciprocity requirements. Accordingly, the Comp-

troller has allowed Australian banks to establish federal

branches in Illinois and New York despite state statutes

prohibiting entry by such banks because Australia does

not permit reciprocal entry by U.S. banks.

The Comptroller’s interpretation, which was adopted

by the Court of Appeals for the District of Columbia

Circuit, must be overturned for two reasons. First, it

improperly preempts state authority to make policy

determinations concerning fiscal matters. Second, it

frustrates one of the major congressional objectives in

enacting the [BA—the removal of certain competitive ad-

vantages formerly enjoyed by foreign banks. The Comp-

troller’s interpretation perpetuates these former inequities

while simultaneously stripping the states of their ability

to regulate their own financial affairs. In providing a

unilateral federal charter option for foreign banks which

salen

would not qualify for a state charter, the Comptroller has

upset the delicate balance of power between federal and

state authorities which is at the heart of our dual bank-

ing system.

By expressly deferring to the states in sections 4(a) and

5(a) of the IBA, Congress has preserved for the states

their power to assess their economic priorities and to

determine not only whether to permit foreign banking

within their borders, but also the extent to which such

banking should be allowed. For example, if a state’s finan-

cial needs do not justify full-scale competition by foreign

banks, then that state would still be free to authorize

foreign bank entry with limitations upon the types of

banking activity in which such banks might engage, or

with limitations upon the number and location of offices

which a foreign bank might open.

Additionally, the extent to which a state’s laws require

reciprocity as a condition for entry of a foreign bank

reflects the degree to which that state’s desires for the

expansion of its own banks’ international business out-

weighs its interest in the economic benefits of foreign

banking. Prior to the adoption of the IBA, several states,

including Illinois, had enacted laws restricting foreign bank

operations in one or more of these ways. See: Appendix

C. In enacting the IBA, Congress could have preempted

such laws and required uniform national treatment if such

action were required to achieve an overriding federal pur-

pose. Congress chose not to preempt state laws in this

area because preemption was not required to achieve the

goal of the legislation, which was approximate competitive

equality between domestic national banks and foreign banks.

Since state restrictions upon foreign bank operations were

based upon calculations of each state’s peculiar needs and

circumstances, Congress refrained from imposing a uni-

olin

formity which would achieve absolute equality, but which

would also override important state interests and disrupt

the efficient allocation of state resources.

Accordingly, sections 4(a) and K(a) expressly defer to

state laws regarding the question of the authorization of

foreign banks’ activities within each of the states. Thus,

the states retain the authority to evaluate their financial

needs and determine the blend of opportunities which they

will make available to foreign banks. In interpreting the

IBA to remove the states’ ability to regulate foreign bank-

ing, the Comptroller has put the states to the Hobson’s

choice of either completely prohibiting foreign banking or

having no control whatsoever over the extent of foreign

banking within their borders, contrary to the intent of

Congress.

The legislative history of the IBA confirms that Con-

gress never meant to preempt state authority in this area.

For example, in the 1978 Senate Report, S. Rep. No.

95-1073 95th Cong., 2d Sess. it explains that section Ka)

“* * * leaves each State free to decide whether and to

what extent it wishes to permit foreign banks . . .” to

operate. Id. at 12. Therefore, tne Comptroller’s interpreta-

tion of this language, which strips the states of their au-

thority to determine the scope of foreign banking they

wish to permit, is plainly erroneous. Indeed, this inter-

pretation is strikingly similar to one which the Comp-

troller adopted concerning the interstate branching restric-

tions of the McFadden Act, and which this Court struck

down as unlawful.

The McFadden Act provides that a national bank may

establish only such branches as are specifically authorized

to state banks in the state where the national bank is

located. When the Comptroller argued (in a manner

similar to his “all or nothing” argument here) that he

~

could authorize all national banks in a state to establish

branches by every means if that state permitted any state

bank to do so by any means, this Court decisively rejected

his argument. Instead, this Court held that a national

bank may establish a branch only if a state bank could

open the same type of branch under the same cir-

cumstances. First National Bank in Plant City v. Dickin-

son, 396 U.S. 122, 130-31 (1969) (“{A national bank]

‘branch’ may be established only when, where and how

state law would authorize a state bank to establish and

operate such a branch”); First National Bank of Logan

v. Walker Bank & Trust Co., 385 U.S. 252, 258-62 (1966).

Similarly, in Iowa Independent Bankers v. Bd. of Gover-

nors of Federal Reserve System, 511 F.2d 1288, 1296-97

(D.C. Cir.), cert. den., 423 U.S. 875 (1975) the Court of

Appeals held that the Douglas Amendment (section 3(d)

of the Bank Holding Company Act of 1956, 12 U.S.C.

§ 1842(d)) authorized Iowa to permit one out-of-state bank

holding company (BHC) to acquire an in-state bank

without being required to permit all out-of-state BHC’s

to do so. Thus, the Comptroller’s “all or nothing’’ inter-

pretation of sections 4(a) and 5(a) of the IBA flies in the

face of prior judicial recognition of congressional defer-

ence to state policy determinations under our dual bank-

ing system.

The Comptroller’s refusal to recognize valid state

laws regulating foreign bank operations amounts to

no less than a declaration that those laws are invalid

under the Supremacy Clause because they have been

preempted by the IBA. Clearly, the Comptroller bears

a heavy burden of justification for this position in light

of the express language of the IBA deferring to state

laws. Plant City, 396 U.S. at 138 (“{Tyhe congressional

policy of competitive equality with its deference to state

olin

standards [is not] open to modification by the Comptroller

of the Currency.” See also: Ray v. Atlantic Richfield Co.,

435 U.S. 151, 157-58 (1978); Florida Lime & Avocado

Growers, Inc. v. Paul, 373 U.S. 182 (1963). The Comp-

troller has not justified his position in this case and,

therefore, it was error for the Court of Appeals to adopt

his interpretation and nullify valid state laws.

Furthermore, the Comptroller’s interpretation conflicts

with a major purpose of the IBA. One of the primary con-

gressional objectives in enacting the IBA was the eradi-

cation of the “illogical differences in the regulatory treat-

ment of domestic and foreign banks.”’ Foreign Bank Act

of 1975: Hearings Before the Subcommittee on Financial

Institutions of the Senate Committee on Banking, Hous-

ing and Urban Affairs, 94th Cong., 2d Sess. 26 at 39

(statement of George W. Mitchell, Vice Chairman, Federal

Reserve Board).

Prior to the IBA, foreign banks enjoyed a number of

substantial competitive advantages over domestic banks.

The Bank Holding Company Act of 1956 (BHCA), 12

U.S.C. §§ 1841-1850 (1956); 26 U.S.C. §§ 1101-1103 (1976)

precluded all domestic bank holding companies from en-

gaging in interstate banking acquisitions and certain

nonbanking activities effectively prohibiting multistate con-

glomerate banking. Additionally, the McFadden Act pro-

scribed branching across state lines. 12 U.S.C. § 36.

However, these provisions did not apply to the branches

and agencies of foreign banks because these entities were

not “banks” within the meaning of section 2 of the

BHCA. 12 U.S.C. § 1841(c). As a result, foreign banks

were able to escape a broad spectrum of federal regula-

tions and restrictions which applied to domestic banking

organizations, perhaps the most important of which was

the prohibition on interstate branch banking imposed by

~~

the McFadden Act, supra, and the Federal Reserve Act,

12 U.S.C. § 321.

Since foreign banks were not subject to these federal

restrictions, multistate branch banking became common-

place among foreign banking institutions operating

branches and agencies in the United States. Klopstock,

Foreign Banks in the United States: Scope and Growth

of Operations, 55 Fed. Res. Bank of N.Y. Monthly Rev.

140, 141-43 (1973). The language of section K(a) of the IBA

was clearly intended to remove this competitive advan-

tage formerly enjoyed by foreign banks and subject those

banks to the same restrictions on interstate branching im-

posed upon domestic banks.

The Comptroller’s interpretation frustrates this objective

by permitting foreign banks to open interstate branches

contrary to the provisions of applicable state law, thus

perpetuating the very inequities which the IBA was de-

signed to eliminate. Since domestic national banks are sub-

ject to state restrictions on interstate branching, foreign

banks should also be subject to the same restrictions.

Banking is universally recognized as an area which is

sensitive and important to the national interest. For

example, at least twenty-four countries either totally ex-

clude foreign banking or severely limit entry of foreign

banks by barring all but representative offices. Depurt-

ment of Treasury, Report to Congress on Foreign Govern-

ment Treatment of U.S. Commercial Banking Organiza-

tions, 79-81, 147 (1979). In contrast, in this country, prior

to the adoption of the IBA, foreign banks enjoyed a

significant number of regulatory advantages which far

outweighed the restrictions placed upon them. The IBA

removed the restrictions by offering foreign banks a

realistic state-federal charter option and also removed the

«itive

advantages by subjecting foreign banks to the same restric-

tions applied to domestic national banks. See: S. Rep. No.

95-1073, supra, at 6-12. If foreign banks are allowed to

open home state federal branches in states where such

branches are not permitted to establish state-chartered

branches, and if foreign banks are allowed to establish

interstate branches in states which would not permit such

banks to establish interstate branches under state charter,

then a major congressional objective will be circumvented.

Therefore, the Comptroller’s interpretation of the IBA

should be overturned.

The Court of Appeals recognized that the “overriding

objective” of Congress in enacting the IBA was to ac-

cord foreign banks “national treatment” in the sense of

treating foreign banks as “competitive equals with their

domestic counterparts.” Appendix A at 23a, 715 F.2d at

606, quoting S. Rep. No. 95-1073, supra, at 2. However,

the Court of Appeals erroneously failed to follow the

policy of national treatment and competitive equality in

its interpretation of Section Ka) of the IBA. The Court

acknowledged that, in view of the McFadden Act, 12

U.S.C. § 36, “the Comptroller cannot license interstate

branches for domestic national banks.” Appendix A at 39a,

n. 5, 715 F.2d at 608 n. 5. Similarly, a domestic bank

holding company may not make an interstate acquisition

of a bank under the Douglas Amendment to the BHCA,

12 U.S.C. § 184(d), without specific state authorization.

Thus, as the Court conceded, the Comptroller’s interpre-

tation of Section 5(a)}—-which permits foreign banks to

establish interstate federal branches and agencies with-

out express state permission and, indeed, contrary to ex-

press state prohibitions—“has no domestic counterpart.”

Appendix A at 39a, n. 18, 715 F.2d at 623 n. 18. The

Court of Appeals did not, however, make the logical and

a

correct determination that the Comptroller’s interpreta-

tion, by creating an important competitive advantage for

foreign banks over domestic banks, is contrary to the con-

gressional policy of national treatment as well as the plain

meaning and intent of Section Ka). Instead, Court errone-

ously concluded that it would be “inappropriate” to judge

the Comptroller’s interpretation on the basis of national

treatment. Jd.

In fact, the Court of Appeals upheld the Comptroller’s

interpretation of Section Ka) solely on the basis of judicial

deference to administrative action. Appendix A at 39a,

715 F.2d at 623. However, as the Court of Appeals recog-

nized elsewhere in its opinion when it struck down the

Comptroller’s construction of Section 4(d) of the IBA, no

defererice is due to the Comptroller when, as here, he

promulgates regulations that are “inconsistent with a

statutory mandate or that frustrate the congressional

policy underlying a statute.” Appendix A at 45a, 23, 715

F.2d at 626, n. 23, quoting NLRB v. Brown, 380 U.S. 278,

291 (1965).

The Comptroller’s interpretation of Section 5({a) of the

IBA is contrary to the congressional policy of national

treatment as well as the express language and manifest

intent of the statute. Similarly, the Comptroller’s inter-

pretation of Section 4(a) imposes an “‘all or nothing” choice

upon the states which plainly violates the objective of

Congress to preserve to the states their authority to

regulate the extent of foreign bank activities within their

borders. Accordingly, Court of Appeals clearly erred when

it upheld the Comptroller’s regulatory constructions of

Sections 4(a) and 5(a) of the IBA.

="

CONCLUSION

For the above stated reasons, it is respectfully sub-

mitted that this petition for a writ of certiorari to the

United States Court of Appeals for the District of Colum-

bia Circuit should be granted.

Respectfully submitted,

NEIL F. HARTIGAN

Attorney for Petitioner,

People of the State of [inois,

ex rel. William C. Harris

PATRICIA ROSEN *

Assistant Attorney General

188 West Randolph Street, Suite 2200

Chicago, Illinois 60601

(312) 793-2570

JAMES F. BELL

* Counsel of Record State Bank Supervisors

—ja—

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 81-2256

CONFERENCE OF STATE BANK SUPERVISORS,

ROBERT ABRAMS, ATTORNEY GENERAL OF THE

STATE OF NEW YORK, ET AL., APPELLANTS

V.

C.T. CONOVER, COMPTROLLER OF THE CURRENCY

OF THE UNITED STATES

Appeal from the United States District Court

for the District of Columbia

(D.C. Civil Action No. 80-08284)

Argued June 2, 1982

Decided August 9, 1983

Arthur E. Wilmarth, Jr., with whom James F. Bell for

Conference of State Bank rvisors, Corinne J. Gieseke,

Special Assistant Attorney General, State of Illinois, for

People of the State of Illinois ex rel. William C. Harris,

Howard L. Zwickel, Assistant Attorney General, State of

New York, for Robert Abrams, Attorney General of the

pres of New York, egg ae L. ~ iams, —

ttorney General, State ashington, for State

ington ex rel. Michael D. Edwards, were on the brief for

appellants.

—2a—

R. Craig Lawrence, Assistant United States Attorney,

with whom Stanley S. Harris, United States Attorney,

Royce C. Lamberth and Whitney Adams, Assistant United

States Attorneys, and Ronald R. Glancz, and L. Robert

Griffin, Attorneys, Office of the Comptroller of the Cur-

rency, were on the brief for appellee.

Leonard J. Theberge for Chi Association of Com-

merce and Industry, [llinois ers Association, Inde-

ndent Community Banks in Illinois, and Mid-America

Foundation, were on the brief for amici curiae,

urging reversal.

Before: TamM, Circuit Judge, Ross, Senior Circuit

Judge, and FAIRCHILD,* Senior Circuit Judge,

United States Court of Appeals for the Seventh

Circuit.

<a for the Court filed by Senior Circuit Judge

BB

Ross, Senior Circuit Judge: The appellants! are state

officials responsible for regulation of state-licensed bank-

ing institutions. As plaintiffs in the District Court they

sued for tory and injunctive relief, challe

regulations 12 C.F. R §§ 28.1), 28.3, & 28.4 (1980)

a portion of an accompanying interpretative statement (44

Fed. . 65381-87 (1979) ) adopted by the Comptroller

of the urrency pursuant to the International i

Act of 1978 (IBA). 12 U.S.C. $§ 3101-3108 (Supp. V 1981).

Appellants contended that the tions and statement

conflicted with the IBA because they permitted a foreign

bank to establish and operate offices where prohibited by

state law. In an unreported opinion the District Court

ee § 294(d) (Supp.

1 Conference of State Bank S ; Robert Abrams, At-

State of ew York; ot batten Reon

uf

ip

Ht

td

i

:

a

_— summary judgment in favor of the Comptroller.

onference vA State Bank Su } v. Heimann, No.

a (D. D.C. Sept. 30, 1981); Joint Appendix (J.A.)

109.

I.

To engage in the banking business in the United States,

a domestic bank may be chartered under state law, sub-

ject to the exclusive tion of the state, or it can

operate under a federal subject to federal law that

in part defers to state law.? Prior to the adoption of the

IBA a bank organized under the laws of a foreign coun-

try could obtain a charter from a state authority only;

the federal government did not charter a banks.

H.R. Rep. No. 910, 95th Cong., 2d Sess. 5 (1978) [herein-

after cited as 1978 Howse Report]. The absence of federal

involvement caused treatment of foreign banks in the

United States to differ from state to state. Commenting

on this pre-IBA treatment of foreign banks, the Senate

— on Banking, Housing and Urban Affiars, noted

in ;

There is, at this time, no uniform national policy con-

cerning foreign banking operations in this country.

As a result, foreign banks enjoy many competitive

advantages over our domestic Rai is bill estab-

lishes the pi of parity of treatment between

foreign and domestic banks in like circumstances.

S. ro No. 1073, 95th Cong., 2d Sess. 2 (1978), L

in 1978 U.S. Code Cong. & Ad. News 1421, 1422 [herein-

after cited as 1978 Senate Report].

The IBA sought to neg foreign banks with “national

treatment” under which “foreign enterprises ... are

2 See 12 U.S.C. $§ 21 et seg. (1976 and Supp. V 1981). To receive

deposits in the United States, a bank must be chartered or be

= issi Og ete ap alae tracan rs

—da—

treated as competitive equals with their domestic counter-

parts.” 1978 te Report, supra, at 2. See also Inter-

national Banking Act of 1978: Hearings on H.R. 10899

before the Subcomm. on Financial Institutions of the

Senate Comm. on Banking, Housing and Urban irs,

95th Cong., 2d Sess. 64 (1978); 1978 Senate Report, —

at 18; 1978 House Report, supra, at 5, 7, 8; 124 Cong. ,

26733 (1978) (remarks of Congressman Reuss). In other

words, the IBA “establishes the principle of parity of

treatment between foreign and domestic in like cir-

cumstances.” 1978 Senate Report, supra, at 2. In general

the IBA provides that “with the approval of the Comp-

troller” a foreign bank may establish a branch or agency

in a state, 12 U.S.C. §3102(a) (Supp. V 1981) and that

[e]xcept as otherwise specifically provided in this

chapter or in rules, tions, or orders adopted

by the Comptroller under this section, operations of

a foreign bank at a Federal branch or agency shall

be conducted with the same rights and privileges as

a national bank at the same location and shall be sub-

a to all the same duties, restrictions, penalties,

iabilities, conditions, and limitations that would apply

under the National Bank Act to a national bank do-

ing business at the same location... .

IBA, § 4(b), 12 U.S.C. §3102(b) (Supp. V 1981).

In this case the controversy centers on the Comp-

troller’s a of certain provisions of sections 4

and 5 of the IBA. Section 4(a), 12 U.S.C. § 3102(a) (Supp.

V 1981), provides that the Comptroller may approve es-

tablishment of a foreign bank’s federal branch or agency

if “establishment of a branch or agency, as the case ma

be, by a foreign bank is not prohibited by State law.”

Section 4(d), 12 U.S.C. $ 31024) (Supp. V 1981), reads:

“Notwithstanding any other provision of this section, a

foreign bank uct receive detail. . . ay Pea

agency.” When a foreign bank opens a federally-chartered

a

branch or agency outside of its home state,* section KaX1),

12 U.S.C. § 3103(aX1) (Supp. V 1981), provides that wich

certain — tions “‘no foreign bank may directly or in-

one, establish bee SY a Federal branch outside

its home State unless its operation is expressly per-

mitted by 8 age Poy, gaa ot cdl soage

Section 5(aX3), 12 U.S.C. §3103(aX3) Cxpp. v" igaip,

likewise forbids a foreign bank to establish and operate

a federal agency outside of its home state “unless its oper-

ation is ve al = by the State in which it is

to be operated .

Section 1(b) of the IBA sets out the definition of terms

used in the statute. So far as pertinent here, they are:

(1) “agency” means any office or any of busi-

ness of a foreign bank located in any State of the

United States at which credit balances are maintained

incidental to or arising out of the exercise of bank-

ing powers, checks are paid, or money is lent but at

which deposits may not be accepted from citizens or

residents of the United States;

* * * *&

(3) “branch” means any office or any place of busi-

ness of a foreign bank located in any State of the

United States at which deposits are received;

* * * *

(5) “Federal age means an agency of a foreign

rom — fend o perating under section [4] of

ct

—ba—

(6) “Federal branch” means a branch of a foreign

bank established and operating under section [4] of

this [Act])....

12 U.S.C. §3101(1), (8), (5), (6) (Supp. V 1981).

The appellants complain that the Comptroller erred in

interpreting these provisions of the IBA. They say that

the troller violated section 4(a) by approving the ap-

lications of five Australian banks to convert their state-

icensed agencies in New York to home state federal

branches although New York law prohibits such banks

a Se Ley —— say _ — Comp-

troller vio section Ka approvi e applications

of two of the Australian bales to pvcting, Fmd federal

branches in Illinois in contravention of Illinois law. In the

appellants’ view, the Comptroller also violated section (a)

by authorizing a British bank’s interstate federal branch

located in the State of Washington to conduct busi-

ness operations that are not permitted to foreign bank

branches under Washington law. Finally, the appellants

aver that the Comptroller incorrectly interpreted sections

1(bX5) and 4(d) - a a agencies <a

banks to accept deposits if t itors are neither citi-

zens nor residents of the United States.

II

In discussing to the public comments regarding 12

C.F.R. pt. 28 (1980), promulgated pursuant to sections 4

and 13(a) of the IBA, 12 U.S.C. §§ 3102, 3108(a) (Supp.

V 1981), the Comptroller noted “that in some states a

foreign bank which applies for a state branch or agency

must be able to demonstrate that the country under

whose laws it was 0: i permits free or at least

re access to U.S. banks.” 44 Fed. Reg. 65382

(1979). The Comptroller concluded however that “such a

a approach” is not “b upon the Comp-

s Office because it is with the national

treatment theme of the IBA, and, further, it is in the

nature of a condition or limitation rather than a pro-

—1a—

hibition on foreign entry.” Jd. The Comptroller bases this

interpretation on his construction of the language of sec-

tion 4(a) of the IBA, 12 U.S.C. §3102(a) (Supp. V 1981),

which provides:

Except as provided in section [5] of this [Act], a

foreign bak which engages directly in a i

business outside the United States may, with the ap-

—— of the Comptroller, establish one or more

ederal branches or agencies in any State in which

(1) it is not operating a branch or agency pursuant

to State law and (2) the establishment of a branch

or agency, as the case may be, by a foreign bank is

not prohibited by State law.

The Comptroller reasons that the words “a foreign bank”

in subsection (2) are nomous with “any foreign bank”

so that the Comptroller can license a foreign bank to

operate a federal branch in a particular state unless that

state prohibits all foreign banks from establishing state

chartered branches. Likewise, the Comptroller contends

he can license a foreign bank to operate a federal agen-

cy in a particular state unless that state prohibits all

foreign banks from establishing state-chartered agencies.

See 44 Fed. Reg. 65382 (1979); Brief for Appellee at 11.

The appellants complain that b applying this construc-

tion of section 4(a) the Comptroller approved the ap-

lications of five Australian banks to convert their state-

icensed ncies in New York te home state federal

branches alth New York’s bank reciprocity law* pro-

hibits such from opening branches. Brief of Ap-

pellants at 21 & n.25; J.A. 13, 15 (Complaint); id. 72 (Plain-

tiff's Amended Statement of Material Facts as to Which

There Is No Genuine Issue). The appellants assert that

the Comptroller erred in gg | these a ——

fir argue that Co in the IBA allowed Comp-

troller to charter a foreign bank’s office only in a state

“ N.Y. Banking Law § 202-a(2) (McKinney 1982).

—8a—

where that particular foreign bank is not prohibited from

establishing state-chartered offices under state law. Brief

of Appellants at 11.

The District Court with the Comptroller’s inter-

pretation of section 4a). The court said:

A principal purpose of the 1978 Act was to give

foreign banks “an important new option’’ in doi

business in the United States; Congress Bre

that the federal chartering option might give over-

seas banks “opportunities which they do not now

oa even though it would also place new

urdens of federal regulation on them. See Remarks

of Mr. St. Germain, 122 Cong. Rec. 24403 (July 29,

1976). Plaintiffs’ view of the omptroller’s authority

would in effect nullify the federal option. A foreign

bank, under plaintiffs’ interpretation, would have a

choice between compliance with State regulations

under a State charter, and compliance with State and

federal rules under a federal charter.

J.A. 100.5

5 Appellants argue that the District Court misunderstood their

ee eee The , ts contend here, as they did before the

under the dual banking embodied in

the ic heder beck one obtain a fed charter only if it

could have obtained a state sete tentan, They submit, however, that,

cor. to the District Court’s 5 analyeie, do not seek ‘to re-

quire Comptroller to observe a state’s charter-

ing criteria. Rather, they contend only that the Comptroller must

observe and general s on fo bank

— ge ot state laws saul Wor ceaee ata

oreign banks and which the affected banks have no power

to cure by their own efforts. State capital adequary re

quirements and similar “chartering standards,” w f

banks can take action to satisfy, ( ¢.g., by raising more

are not “prohibitions” within the meaning of Sections 4

pra ntnk ree in . The Comp-

section 4(c), 12 U.S.C. § 3102(c) (Supp. V 1981)

(Footnote continued on following page)

ia.

A

In support of their construction of the statute the ap-

pellants refer us to the legislative background of section

4a). They direct our attention first to S. 958, 94th Cong.,

lst Sess., 121 Cong. Rec. 5280 (1975), a bill the Federal

Reserve Board submitted to the 94th Congress. This bill,

introduced March 5, 1975, provided for f regulation

of foreign bank entry and operation in the United States.

Section 18(b) of the bill provided in part:

Notwithstanding the laws of any State, any foreign

bank may, upon receipt of a certificate of authority

from the Comptroller . . « establish and operate one

or more branches in any State . :

Identical language appeared in H.R. 5617, ‘oath Cong., 1st

Sess. (1975) introduced March 26, 1975. Testifying i in sup-

~ 5 continued

(see infra note 15), contains the exclusive chartering requirements

for foreign banks seeking to establish a federal branch or agency

under section 4a), and that state reciprocity laws are not “pro-

hibitions” under section 4(aX2). Brief for Appellee at 14-15.

We believe the District Court understood appellants’ interpreta-

tion and merely extended that interpretation to to its logical conclu-

sion. Section 4a) allows the Comp p Fomcngg Sepewse Fancy

branch or oe Ae unless, among other the estab

of a foreign “is prohibited by state law.” A state

low hat here ths on lishruent of a foreign branch or agency

would seem a “state prohibition” whether law was grounded

rept pe infin vad nalemn base standards or on the failure

to meet state jseguremenca Tn either cae, the tate

it” the bank from opening a state-

chartered o and under the appellants’ view of section 4(a),

i tion to seek a federal

with the District Court that it would be incon-

charter.

sistent with IBA’s dual comply wth m concepts to

federal

bistary Comp-

bisbery sesaain me ovitanes Gat Congress tetended te O; ‘the

affected banks have no power to cure by their own efforts.”

—10a—

port of the S. 958 before the Subcommittee on Financial

Institutions of the Senate Committee on Banking, Hous-

ing, and Urban Affairs, Vice Chairman Mitchell of the

Board of Governors of the Federal Reserve System said:

The current pattern of State regulation may...

in some cases, lead to anticompetitive and other

results not in the national interest. For example, a

foreign bank may not be able to enter a U.S. bank-

ing market because of State law restrictions. This

situation could in some cases prevent a domestic bank

from that State from entering a foreign bank’s home

country if the home country imposes a reciprocity re-

quirement. . . . Clearly, a national policy and national

regulatory system are needed so questions of reci-

procity, as well as other matters of national interest,

can be judged on a national, not local level.

Foreign Bank Act of 1975: Hearings on S. 958 Before the

Subcomm. on Financial Institutions of the Senate Comm.

on Banking, Housing, and Urban Affairs, 94th Cong., 2d

Sess. 45-46 (1976). A representative of the Conference of

State Bank Supervisors (CSBS), an appellant in this case,

expressed a contrary view:

CSBS opposes ———_ in S. 958 which would per-

mit a federally licensed foreign facility to operate in

: —. regardless of whether this might contravene

tate law.

It is the position of CSBS that a State should have

the authority to structure the finanical institutions

within its borders in a manner which it believes best

serves the needs and interests of its residents, and

that in the absence of some compelling national inter-

est—which we do not believe present in this situa-

tion—the Federal Government should not preempt

State statutes or regulations in this area.

Id. at 345. S. 958 and H.R. 5617 both died in committee.

—lla—

Next, the appellants cite H.R. 12103, 94th Cong., 2d

Sess. (1976), introduced February 25, 1976 and entitled

“International Banking Act of 1976.” H.R. 12103 in sec-

tion 104(a) provided tha* “a foreign bank may, with the

approval of the Comptroller, establish a Federal branch

in any State in which (1) it is not operating a branch pur-

suant to State law and (2) the establishment of a branch

by a foreign bank is not prohibited by State law.” This

bill died in committee.

A provision similar to section 4a) of the International

Banking Act of 1978 first appeared as section 4(a) of H.R.

13876, 94th Cong., 2d Sess. (1976), introduced May 18,

1976. H.R. 13876 passed the House July 29, 1976 but died

in committee in the Senate. The House report on the bill,

H.R. Rep. No. 1193, 94th Cong., 2d Sess. 12 (1976), states:

Section 4. Federal branches and agencies

Subsection (a) provides that the Comptroller is

authorized to approve the establishment of a Federal

branch or agency by a foreign bank in a state where

it is not already operating a branch or agency under

state law and where state law does not prohibit the

establishment of a foreign branch or agency.

The language of section 4a) of H.R. 13876

in H.R. 7325, 95th Cong., 1st Sess. (1977), introduced

23, 1977. The appellants cite a comment by Chairman Ar-

thur Burns of the Federal Reserve System in a letter to

Congressman St. Germain, who introduced the bill:

[W]e do not believe that the States should have the

authority in section 4 of the IBA to veto the entry

of a Federal branch or agency. Such a State veto is

not permitted in the case of establishment of na-

tional banks or Edge Corporations, or even under the

Bank Holding Act, and would thus represent a clear

from the traditional operation of our dual-

banking system. It may also serve to restrict both

the development of and competition in new interna-

tional banking markets in this country. We recom-

—)2a—

mend therefore that State bank authorities instead

be given a consultative role on Federal branch or

agency entrance into their State.

International Banking Act of 1977: Hearings on H.R.

7825 before the Subcomm. on Financial Institutions Su-

pervision, ion and Insurance of the House Comm.

on Banking, Finance, and Urban Affairs, 95th Cong., lst

Sess. 107 (1977). The appellants also point to the testimony

of Governor Gardner of the Federal Reserve System at

the hearings:

Mr. Annunzio. Can you explain if any of our na-

tional objections [sic objectives?] have been impeded

by State or city of [sic] foreign banking activity?

Governor Gardner. You ask me a very sensitive

question. New York has a reciprocity law and in that

reciprocity law the State Legislature of New York

decided a y Boney ago that dh tal a

can’t accept its in a country , the forei

banks from that country can’t continue branch 9

ing operations in New York. That is part of the law

of New York State.

Let me just say this: I don’t think the United

States should have international rg oy tl banking

policies in 50 different State capitals. It doesn’t really

make much sense. I don’t object to New York’s law,

but I point it out as something unusual.

Id. at 146. At these hearings on H.R. 7325, a represen-

tative of Appellant CSBS reaffirmed that organization’s

opposition to the federal chartering of foreign bank of-

ces in contravention of state law. Jd. at 310. H.R. 7325

was never reported out of committee.

Finally, appellants turn to H.R. 10899, 95th Cong., 2d

Sess. (1978), introduced February 9, 1978. This bill became

the International Banking Act of 1978. The appellants cite

the comment on section 4 of the Act that a in a

letter from Chairman Miller of the Board of Governors

of the Federal Reserve System to Senator Proxmire,

—13a—

Chairman of the Senate Committee on Banking, Housing,

and Urban Affairs, as follows:

Federal branches and agencies would only be per-

mitted in a State in which the foreign bank does not

operate a State branch or agency and which does not

by law prohibit the establishment of branches and

agencies of foreign banks. In effect, this provision

permits States to veto the establishment of federally-

sanctioned banking offices. This result is a clear

departure from the dual ae stem. The Board

recommends that States be afforded a consultative

role on” the establishment of Federal branches and

agencies but that the States not be placed in a posi-

tion of vetoing such offices.

International Banking Act of 1978: Hearings on H.R.

10899 Before the Subcomm. on Financial Institutions of

the Senate Comm. on Banking, Housing, and Urban Af-

fairs, 95th Cong., 2d Sess. 391 (1978) (Letter dated June

1, 1978 from Chairman G. William Miller to Senator Prox-

mire) (emphasis in original). Appeilants also direct us to

portions of the House and Senate committee reports that

accompanied the IBA. The Senate report stated:

Section 4 provides that, subject to the approval of

the Comptroller of the Currency, a foreign bank may

establish a Federal branch or agency in any State

where it does not already operate a State-licensed

branch or agency, and in which the establishment of

a branch or agency is not prohibited by State law.

This insures that in States where foreign banks are

welcome, they will have a State-Federal option.

1978 Senate Report, supra, at 6. The House committee

report likewise stated: ‘While izing that current

regulation of foreign banks is in the hands of the States,

and providing a framework which will allow this to con-

tinue, the bill also provides the option of Federal charter-

ing.” 1978 House Report, supra, at 5.

Appellants argue that Congress rejected S. 958 in

response to the testimony of state banking regulators

—l4a—

ae to preserve state reciprocity requirements. Thus,

llants’ view, rejection of S. 958 evidences Congres-

support for state reci ey laws. In addition, they

note that while the IBA its forerunners were in com-

mittee, the Federal Reserve Board objected to any state

veto power over the entry of federally-chartered foreign

banks. Congress, however, did not change the bills in

response {6 these objections. Appellants argue that Con-

gress’ ee ee Oe ee eee

that Congress in accord with appellants’ testi-

mony that the the ‘Onna er be required to observe state

reciprocity laws. oo, therefore, contend that sec-

tion 4(a) requires Comptroller to observe these laws.

The Comptroller counters by pointing to an amendment

to the IBA proposed by Representative Grassley of Iowa.

That amendment caused an earlier version of section Xa)

to read in part as follows:

The Secretary of the Treasury in issui —

under this section, and the Dutdnd-uiieee

cies in the administration of this Act, shall see to

achieve a parity wel treatment foreign banks,

branches, agencies, commercial lencing companies

relative to thele Gumedile eoumheaniete. Ik la the oer

pose of this Act to establish a basic .tatutory frame-

work which, given due consideration to the structure

of our domestic monetary mechanisms and our na-

tional interests will, to the extent practical, allow

foreign banking institutions to have same rights,

duties, Sualaaians sighititen, a smdiiaas ak tar Geasal

(and dred 1 ike take into account the

foreign governments of financial institu-

tions sean doomed in the United States which do

business in their respective countries.

See International Banking Act of 1978: Hearings on H.R.

10899 before the Subcomm. on Financial Institutions of

the Senate Comm. on Banking, Housing, and Urban Af-

—15a—

fairs, 95th Cong., 2d Sess. 341-42 (1978) (House-passed ver-

sion of section 9 with emphasis added to show Grassley

Amendment); 1978 House su at 4 (Grassley

Amendment); 124 Cong. Rec. (1978) (remarks of Con-

— Grassley). The House Committee on Banking,

inance, and Urban Affairs adopted this amendment,

believing that “the principle of reciprocity should . . . be

taken into account,” 1978 House Report, supra, at 13, -ad

the full House d this version. See 124 Cong. hec.

at 9103 (1978). The Senate, however, passed a substan-

tially revised version of section 9, deleting the Grassley

Amendment. See 124 Cong. Rec. at 26128 (1978). Neither

the report from the Senate Committee on Banking, Hous-

ing, and Urban Affairs, (1978 Senate Report, supra) nor

the legislative debate in the Senate explain dele-

tion. The House concurred in the Senate version. See 124

Cong Rec. at 26726-34 (1978). The Comptroller contends

that rejection of the Grassley Amendment signalled Con-

ange ee rejection of reciprocity as a chartering standard

or federal offices of foreign banks.

With respect to the parties’ ents concerning the

legislative history, the District Court stated:

Because Congress intended to accord national treat-

ment to foreign banks that sought the benefits and

burdens of federal control, it was proper for the

ge cage to deem the proviso of section 4(a) only

to allow States to permit or to veto federally-char-

tered offices, and not to condition their entry. As the

1978 Senate Report observed, section 4 “insures that

in States where foreign banks are welcome, they will

have a State-Federal option.”’ Jd. Section 4 thus ex-

tended the federal option to those States, in the

Report’s words, “where foreign banks are welcome,”

not where particular banks, or where banks from par-

ticular countries, are welcome.

Revisions in the text of the Act prior to final _

sage in 1978, said by both parties to support thei

own views of section 4a), are treacherous guides for

a

interpretation of the Act. The fact that Congress re-

jected a 1975 version of the Act, S. 958, that would

ve wholly denied the States the veto power that

section 4(a) grants them does not, in itself, demon-

strate that section 4(a) granted the States something

other than the veto power the Comptroller concedes.

Similarly, the opposition of federal banking authorities

to any provision that would make state reciprocity re-

quirements a part of the new international banking law,

voiced at hearings on H.R. 7325 in 1977, cannot pro-

vide proof that they assumed that section 4(a) would

have such a feature. See International Banking Act

of 1977: Hearings on H.R. 7325 Before the Subcomm.

on Financial Institutions Supervision, ion,

and Insurance of the House Comm. on Banking,

Housing, and Urban Affairs, 95th Cong., Ist Sess.

(1977) 39-41 (remarks of Federal Reserve Board Gov-

ernor Gardner). Defendant, on the other hand, at-

tempts to rely upon the rejection of the so-called

“Grassley amendment” in 1978, which would have

authorized federal officials to consider treatment of

American financial institutions in the home country

of a foreign bank in deciding whether to charter that

bank in the United States. It is arguable, as defen-

dant , that Rep. Grassley would not have

pro such a program for federal enforcement of

national reciprocity if he thought State reciprocity

was already a part of the Act. But, as an expres-

sion of the intent of Congress as a whole, the final

terms of section 4 and the broad design of the Act

appearing elsewhere in the legislative history provide

a more substantial basis for the Comptroller’s rejec-

tion of plaintiffs’ argument.

J.A. 100-01.

Appellants also contend that Congress intended section

4a) to maintain “the states’ preexisting power to deter-

mine the structure of cae y ——- institutions within

their borders .. . .” Brief of Appellants at 27. In the

appellants’ view, in passing section 4(a) Congress “con-

—17a—

sciously followed” the policies of a dual banking system

found in the Dou Amendment to the Bank Holding

Company Act of 1956, 12 U.S.C. § 1842(d) (Supp. V 1981),

and in the McFadden Act, 12 U.S.C. § 36 (1976). Brief

of Appellants at 27. The Douglas Amendment provides:

Notwithstanding any other provision of this section,

no application sg an application filed as a result

of a transaction authorized under section 13(f) of the

Federal Deposit Insurance Act) shall be approved un-

der this section which will permit any bank holding

company or any subsidiary thereof to acquire, directly

or indirectly, any voting shares of, interest in, or all

or substantially all of the assets of any additional

bank located outside the State in which the opera-

tions of such bank holding company’s banking sub-

sidiaries were principally conducted on July 1, 1966,

or the date on which such company became a bank

holding company, whichever is later, unless the ac-

quisition of such shares or assets of a State bank by

an out-of-State bank holding company is specificall

authorized by the statute laws of the State in whic

such bank is located, by la to that effect and

not merely by implication. For the purposes of this

section, the State i in which the operations of a —

holding company’s subsidiaries are sanay sy Mer

ducted is that State in which total deposits of

banking subsidiaries are largest.

12 U.S.C. § 1842(d) (Supp. V 1981).

Appellants argue that the Douglas Amendment and sec-

tion 4(a) reflect similar policies; both grant a state the

power to control which banking institutions organized out-

mre Bangg! yen egy ty: ven P gy Doan doe

attention to 0 ndment

which states that the Board of Governors of the Federal

Reserve System shall not Taates tie ea a bank holding com-

Oe aie tees shares or substan-

Sar cenetal off w bao te outside the state

in which the operations of the bank holding company are

—18a—

principally conducted “unless the acquisition of such shares

or assets of a State bank by an out-of-State bank holding

company is specifically authorized by the statute laws of

the State in which such bank is located... .” 12 U.S.C.

§ 1842(d) ae > 1981) (emphasis added). Appellants note

the similarity between the quoted language in the Douglas

Amendment and the analogous proviso in section 4(aX2).

See 12 U.S.C. § 3102(aX2) (Supp. V 1981) (“the establish-

ment of a branch or agency . . . by a foreign bank is not

prohibited by State law’’). They then refer us to Jowa

I Bankers v. Board of Governors of the Fed-

eral Reserve System, 167 U.S. App. D.C. 286, 511 F.2d

1288, cert. denied, 423 U.S. 875 (1975), a case involving

the Douglas Amendment in which this court rejected —

ments similar to those the Comptroller has made in thi

case to support his interpretation of section 4(a). In the

Iowa Independent Bankers case, an organization of Iowa

bankers argued that the Douglas Amendment did not per-

mit the states to discriminate among out-of-state bank

holding companies when peor, Sea + bank prem. com-

panies could enter that state. bankers that

the states could prohibit all out-of-state bank holding com-

panies from entering or it could prohibit none. Jd. at 294;

511 F.2d at 1296. This court rejected that argument, rul-

ing that the Douglas Amendment a states to

discriminate among out-of-state bank holding companies

when deciding which could enter. Jd. at 295, 511 F.2d at

1297. Appellants argue that section 4(a) uses the same

“statutory formulation” as the Douglas Amendment and

should be interpreted similarly. See Reply Brief of Ap-

pellants at 10. The District Court did not address this

argument.

Appellants also argue that in enacting the IBA, Con-

gress sought to apply the policies of the McFadden Act,

12 U.S.C. § 36(c) (1976), to the entry of a federally-

® 12 U.S.C. § 36(c) (1976) provides:

A national ing association may, with the approval of

the Comptroller of the Currency, establish and operate new

(Footnote continued on following page)

—19a—

chartered foreign bank into its home state. The McFad-

den Act provides that the Comptroller may approve a na-

tional bank’s application to establish 27 additional branch

office in the state of its principal office only if that state’s

laws would authorize a state-chartered bank to open such

an additional branch office. See First National Bank of

Logan v. Walker Bank & Trust Co., 385 U.S. 252, 258-62

(1966).

® continued

branches: (1) Within the limits of the city, town or village in

which said association is situated, if such establishment and

operation are at the time expressly authorized to State banks

by the law of the State in question; and (2) at any point within

the State in which said association is situated, if such establish-

seston tee

statute law o tate in question by spe-

cifically granting such authority affirmatively and not merely

by implication or a and subject to the restrictions

as to location imposed by the law of the State on State banks.

In any State in which banks are permitted by statute

eel Ny cree poor pw mh onc then np Mg ge Bh phon

bank is located and doing business in the place where the pro-

posed agency is to be located, any national banking associa-

tion situated in such State may, with the approval of the

Comptroller of the Currency, establish and operate, without

regard to the capital requirements of this section, a seasonal

in any resort community within the limits of the

i

in which the main yal stcne as dain hea

| metiontaan ger hy business incident thereto: Pro-

\ Lyalie: Beane Se under this sentence shall be

pret tg Mev rege Sack pment mere te mediate. preceaing

community. Ex as i

sentence, no aay Seoedetion chal establish a outside

of the city, town, or village in which it is situated unless it

TEER EE Foe 3s

amount ,

the law of the tate in such ion bs cltunted Se

Sor af sadn ke Sopenes out’ = mapas aged oes Ee

w of s only a um

ths cotsbitshanent of caaiy brenches lar teane unless such

|

E

S

e

:

—2a—

The district court rejected this argument, stating:

The McFadden Act itself is irrelevant to the Congres-

sional design in section 4a), which only governs entry

of foreign into the United States market under

federal charter; in furtherance of its ord ete.

parity for foreign and domestic banks holding fed

charters, Congress elsewhere expressly adopted Mc-

Fadden Act principles by providing in section 4(h) of

the 1978 Act that intrastate branching by federally-

chartered foreign banks should occur under the same

rules as those applicable to domestic national banks.

or thus ears to have well understood the

of the McFadden Act, and to have chosen in

the 1978 Act to limit the McFadden Act’s force to

intrastate branching.

J.A. 102.

B

The lan of section 4(a) does not preclude either

of the proffered interpretations. Moreover, we believe the

legislative history of the IBA does not offer clear guidance

n the meaning of section 4a). Admittedly, S. 958, which

aheded a state no control over a federally-chartered for-

eign bank’s entry, died in committee, and section 4(a),

which allowed a state some control over entry was en-

acted. As the District Court correctly noted, facts

alone do not establish that section 4(a) granted the states

a veto power greater than the veto power, conceded by

the Comptroller, to prohibit the entry of aii foreign banks.

We are hesitant to accord weight to Congress’ unex-

plained inaction on S. 958. See generally Red Lion Broad-

casting Co. v. FCC, 395 U.S. 367, 381 n.11 (1969); FTC v.

Dean Foods Co., 334 Pus 597, 609-10 (1966). Similarly,

Federal Reserve Board Chairman Burns’ letter and Board

Governor Gardner’s testimony, included in the H.R. 7325

hearings, and Board Chairman Miller’s letter, submitted

during the H.R. 10899 hearings, do not conclusively

demonstrate that the Board believed section 4(a) granted

—2la—

the states more veto Fm er than the Comptroller con-

cedes. Moreover, ts do not refer us to any other

= the IBA’s Retalaties history where the Federal

e Board’s objection is more conclusively explained,

or even mentioned. Even if the Board interpreted sec-

tion 4{a) as appellants now do, this single reference hardly

provides substantial evidence that Congress adopted this

interpretation “‘since the views expressed by witnesses

at congressional hearings are not necessarily the same as

those of the legislators ultimately voting on the bill.”

Austasia Intermodal Lines, Ltd. v. FMC, 188 U.S. App.

D.C. 379, 382, 580 F.2d 642, 645 (1978) (citations omit

The House and Senate committee reports cited by appel-

lants likewise do not clearly support one interpretation

over the other. The Senate report states that “where for-

eign banks are welcome, they will have a State-Federal

option.” 1978 Senate Report, supra, at 6 (emphasis added).

ntrary to the appellants’ view, this seems to

indicate that the availability of a forei ’s “federal

option” will be predicated on a state’s ein to welcome

foreign banks generally, and not on a state’s decision to

welcome a particular foreign bank. The House report cited

by appellants states only that the IBA will allow the

states to continue their regulation of foreign banks. 1978

House supra, at 5. There is no dispute, however,

that the IBA ends the states’ exclusive Pr. gee . for-

eign banking, and yet, the cited portion 1978 House

pa offers no view as to what state regulatory power

over foreign banks survives the IBA’s + oe

Genes’ te failure to adopt the Grassley nt pro-

vides little insight in analyzing section 4(a). The Comp-

troller may be correct that Congress rejected the Grassley

p posse wei because it rejected reciprocity as a federal

chartering criterion; however, as ants i a Con-

atoning | have rejected the Gra Amendment simply

it preferred the column of state reciprocity

requirements already incorporated in section 4({a) to the

een C0 eee fee ee

In sum, we find unconvincing both ts’ and ap-

pellee’s arguments based on the legislative background

—22a—

of the IBA, and decline to rest our resolution of the sec-

tion 4(a) issue on such meager grounds.

The District Court did not address appellants’ argument

with respect to the Douglas Amendment, but we find it

without merit. We believe Jowa Independent Bankers is

distinguishable from this case. The court there suggested

several reasons for its refusal to adopt an all-or-nothing

interpretation of a state’ s veto power over an out-of-state

bank holding company’s decision to acquire an in-state

bank. First, the court noted “that nothing in the language

of section 1842(d) points to this [all-or-nothing interpreta-

tion]... .” 167 U.S. App. D.C. at 294, 511 F.2d at 1296.

Here, however, the language of section 4(a) at least sug-

gests that states were not given the power to discriminate

in allowing foreign banks to enter. Section 4(a) provides:

a . wth age my in section [5] of this [Act], a

oreign w engages directly in a Sentiton

business outside the United States may, with the ap-

- roval of the Comptroller, establish one or more

ederal branches or agencies in any State in which

(1) it is not operating a branch or agency pursuant

to State law and (2) the establishment of a branch

or agency, as the case may be, by a foreign bank is

not prohibited by State law.

12 U.S.C. § 3102(a) (Supp. V 1981). Congress begins this

section by referring generally to a “foreign bank.” In

subsection (1), it narrows the focus to a particular bank:

“{A] foreign bank . . . may . . . establish one or more

Federal branches or agencies in any State in which (1)

it is not operating a branch or ursuant to State

law ... .” Id. (emphasis added). In subsection (2),

however, Congress refers simply to “a foreign bank”

again; it does not follow thro = Ay c

reference contained in subsection (1

Wat beadhiee i des teen Gata ener

pretation.

The second reason given in Jowa Independent Bankers

was that an all-or-nothing interpretation of the Douglas

—23a—

—e conflicted with section 7 of the Bank Holding

ge! Act, 12 U.S.C. § 1846 (1976). 167 U.S. App.D.C.

511 F.2d at 1296. That section provides:

The enactment by the Congress of this chapter shall

not be construed as preventing any State from ex-

ercising such powers and jurisdiction which it now

has or may hereafter have with respect to banks,

bank holding companies, and subsidiaries thereof.

We find no comparable section in the IBA. Lastly, the

court found that the legislative history demonstrated that

Congress intended to allow a state to discriminate in ad-

mitting bank holding companies. 167 U.S. App.D.C. at

294-95, 511 F.2d at 1296-97. As discussed above, however,

the legislative history of the IBA does not provide ex-

plicit support for a similar interpretation of section 4(a).

In short, we find two arguably correct interpretations

of an ambiguous statutory provision. The relevant legis-

lative history contains-no explicit support for either in-

terpretation. Under these circumstances, we believe sec-

tion 4(a) can only be interpreted in the light of Co

overriding objective in enacting the IBA. We find the

legislative history replete with references to Congress’ in-

tent to accord foreign banks national treatment, under

which “foreign enterprises . . . are treated as competitive

equals with their domestic counterparts.” 1978 Senate

7. o supra, at 2. The House Report accompanying

0899 stated:

The bill incorporates two principal policy objectives.

The first objective is to provide a system of Federal

regulation of foreign g activities. . . . The sec-

ond objective is to provide to the extent possible or

appropriate equal treatment for foreign and domestic

banks operating in the United States.

1978 House Report, supra, at 5.

(TJhe objectives of this legislation are to provide

Federal regulation of foreign banks and to insure

equal treatment for foreign and domestic banks op-

Pie.

erating in the United States. But there is recogni-

tion of the fact that the same regulatory structure

for foreign and domestic banks will not result in equal

treatment and that discretion is needed to devise a

regulatory framework which is appropriate to the ac-

tual operations and status of foreign banking institu-

tions. The intent of the bill is to ensure that foreign

banking activities in the United States conform more

closely to activities permissible for domestic banks

without dismantling or mpeg, | existing operations

tt

more than necessary to meet the objective.

Id. at 8.

The Senate Report echoes a similar theme: “The general

policy of the United States with to foreign enter-

prises doing business in the United States has been one

of national treatment.” 1978 Senate Report, supra, at 2.

“The committee thus believes national treatment is the

most appropriate policy to adopt with respect to foreign

banks in the United States... .” Id. at 9. We conclude

from these passages that the IBA seeks to treat federally-

chartered foreign and domestic banks as similarly as pos-

sible under the Act.

Thus, turning to section 4a), we believe Congress

sought to treat the establishment of a foreign bank’s

federally-chartered offices similarly to the establishment

—25a—

ditional branches or agencies in the State in which

such branch or agency is located on the same terms

and conditions and subject to the same limitations and

restrictions as are applicable to the establishment of

branches by a national bank if the principal office of

such national bank were located at the same place

as the initial branch or agency in such State of such

foreign bank and (2) change the designation of its in-

itial branch or agency to any other branch or agency

subject to the same limitations and restrictions as are

applicable to a change in the designation of the prin-

cipal office of a national bank if such principal office

were located at the same place as such initial branch

or agency.

12 U.S.C. § 3102(h) (Supp. V 1981). Thus, for purposes

of establishing additional offices in the home state, a for-

eign bank’s initial home state is equated with a domestic

national bank’s principal office. This comports with the

IBA’s objective of national treatment by allowing foreign

banks to open additional home state offices on the same

terms as could federally-chartered domestic banks under

the McFadden Act.” Second, for — of changing the

designation of the initial office, a foreign bank’s initial

home state office is again equated with a domestic na-

tional bank’s principal office.

The House report provides further evidence that estab-

lishment of the initial home state office is analogous to

establishment of a national bank. “For purposes of the

McFadden Act and Federal preres be in ,” the

[

would be treated as if they are national banks or branches

thereof.” 1978 House supra, at 12 (

added). We believe that most reasonable c

to draw from this language

District

—

4(h) is that establishment of a foreign bank’s initial home

state office is analogous to establishment of a domestic

bank’s principal office. Co ss’ intent to distinguish

establishment of the initial office from the establishment

of additional home state offices is evidenced in section 4(h).

Moreover, the Committee’s statement that for purposes

of the McFadden Act a branch could be treated as “‘a na-

tioral bank” or “branch thereof’ would be redundant

unless “national bank” and “branch thereof” differed con-

ceptually.

Having decided that the establishment of a foreign

bank’s federally-chartered bank’s initial home state office

is analogous to the establishment of a domestic bank’s

federally-chartered principal office, we note that a state

cannot prohibit establishment of a federally-chartered

domestic bank’s principal office. See Pineland State Bank

v. Proposed First National Bank of Bricktown, 335 F.

Supp. 1376, 1879 (D. N.J. 1971). See generally 12 U.S.C.

$$ 26, 27 (Supp. V 1981). Section 4(a) of the IBA, how-

ever, grants a state some control over establishment of

a federally-chartered foreign bank’s initial office. By treat-

ing a foreign bank different! y from a domestic bank, sec-

tion 4(a) departs from the IBA’s theme of national treat-

ment. However, we believe that where, as here, a provi-

sion of the IBA is unclear, it should be construed to

minimize any departure from the IBA’s overriding objec-

tive of national treatment. National treatment would

reclude any state regulation of a federally-chartered

oreign bank's initial home state office. We find that the

Comptroller’s interpretation of section 4(a), approved 7

the Court, permits as little state

ho cautatiaaen offen aie oot enmibinaee WE too

terms of section 4(a). Accordingly, we affirm the Comp-

troller’s interpretation of section 4(a).®

* illinois Bankers Association, Independent Community Banks

in Illinois, Mid-American Foundation, and the

Association of Commerce and , a8 amici curiae,

(Footnote continued on followirg page)

—27a—

Ill

Turning now to the second issue in this appeal, we must

address the extent to which the Comptro er must defer

to state law in licensing a foreign bank’s federal interstate

office.* We also must consider whether the IBA requires

a federal interstate office to comply with the limitations

on bank operations imposed by the receiving state.

A

Section 4(a), 12 U.S.C. § 3102(a) (Supp. V 1981), provides

the general framework for chartering any federal branch

or agency.'° That section, however, begins “(e]xcept as

® continued

brief in support of the appellants. They argue that requiring the

Comptroller to defer to state reciprocity requirements would not

conflict with the IBA and that those requirements, therefore,

should not be held to be preempted. For the reasons stated in

text, we believe the IBA’s theme of national treatment for forei

banks ey an interpretation of section 4(a) that grants

states as li

ttle control over the entry of f -chartered ——

banks as is consistent with the statutory and

app.

v. Conover, No. 82-1308 (D.C. Cir. June 30, 1983) (affirming Comp-

troller’s ions preempting inconsistent state law restrictions

on eat le rate mortgages offered or purchased by national

. § 3101(5) Si . V_ 1981), defines

& foreign bank established and oper

established and

ating under section 4. , section 1(bX6), id. § 310106)

defines a federal branch as a branch of a foreign bank established

and operating under section 4.

—28a—

provided in section [5],”’ and section 5, id. § 3103, sets out

additional requirements for establishing and operating a

federal interstate branch or agency. Section Ka) provides

in part:

(a) Except as provided by subsection (b) of this sec-

tion,

(1) no foreign bank may directly or indirectly

establish and operate a Federal branch out-

side of its home State unless

(2)

(A)

(B)

its operation is expressly permitted b

te hate in wilde B te to bo epuentod

an

the foreign bank shall enter an agree-

ment or undertaking with the Board

to receive only such deposits at the

— of operation of such Federal

ranch as would be permissible for a

corporation organized under section

2a) of the Federal Reserve Act [12

U.S.C. 611 et seq.] under rules and

regulations chatalanered by the

no foreign bank may directly or indirectly

establish and operate a State branch outside

of its home State unless

(A)

(B)

it is approved by the bank regulato

authority of the State in which su

branch is to be operated, and

the foreign bank shall enter an agree-

ment or with the Board

to receive such deposits at the

place of of such State branch

as would be permissible for a

tion o ized under section 25(a) of

the F ral Reserve Act under rules

—29a—

(3) no foreign bank may directly or indirectly

establish and operate a Federal agency out-

side of its home State unless its operation

is expressly permitted by the State in which

it is to be operated;

(4) no foreign bank may directly or indirectly

establish and operate a State ncy or

commercial lending company subsidiary out-

side of its home State, unless its establish-

ment and operation is approved by the bank

atory authority of the State in which

it is to be operated....

12 U.S.C. § 3103 (Supp. V 1981) (indentation added).

Pursuant to his authority under section 18, id. § 310&(a),

the Comptroller adopted the following definitions and

interpretation:

A “Federal branch’’ is an office or _— of business,

licensed by the Comptroller and operated by a

foreign in any State of the United States, which

can engage in the business of banking, including the

exercise of fiduciary powers and the acceptance of

— from citizens and residents of the United

tates.

12 C.F.R. § 28.2(c) (1980).

A “Limited Federal branch” is a Federal branch

licensed by the may segeia which, pursuant to an

ment between the parent foreign bank and the

ederal Reserve Board, can receive only such

deposits as would be permissible for an E Cor-

— organized under section 25(a) of the Federal

rve Act (12 U.S.C. 611). Except for this restric-

tion, a Limited Federal branch can exercise the full

range of powers available to any Federal branch."

1 An E Act corporation can “receive only such

within the United States as may be incidental to or for the

Se ee countries or

cies or possessions of the U States... .” 12 U.S.C.

§ 615(a) (Supp. V 1981). See also 12 C.F.R. § 211.4 (1983).

—30a—

12 C.F.R. § 28.2(d) (1980). See also infra note 19 (text of

2 C.F.R. § 28.2(b) (1980), defining “Federal agency”).

Limited Federal branches can ry only such types

of deposits as are permissible to Edge bo rations

pursuant to 12 U.S.C. 615 and 12 C.F.R. Part 211.

Apart from these exemptions or qualifications, Fed-

eral branches and ncies can engage in the same

type of business and exercise the same powers as a

national bank, subject to the conditions and require-

ments contained in the statutes and any implement-

ing rules and regulations promulgated by the federal

banking authorities.

12 C.F.R. § 28.101.3 (1980).

In his discussion of the public comments to these regu-

lations, the Comptroller rejected the application of

state reciprocity laws to the federal chartering of foreign

os branches and agencies. See 44 Fed. Reg. 65382

1979).

Appellants contend that the Comptroller’s interpreta-

tion of section 5, as reflected in the above quoted provi-

sions, violates section 5 in two ways. First, the Comp-

troller’s Smee goer enables him to license a foreign

bank’s federal interstate office in a receiving state that

does not expressly permit that particular foreign bank to

establish a state-chartered interstate office. Second, even

if the receiving state permitted a D age sew ae bank

to establish an interstate office, the Comptroller’s inter-

retation does not require that the bank operations of the

ederal interstate office be “expressly permitted” by the

poorer Beery tag allan ts at 44-45. Appellants

complain that the Comptroller has approved two applica-

tions by Australian to establish an interstate federal

branch in Illinois in violation of Illinois’ i iproci-

ty law. Brief of Appellants at 62 n.76; J.A. 78-74 (Plain.

tiffs Amended Statement of Material Facts as to Which

There Is No Genuine Issue). See Ill. Rev. Stat. ch. 17

§ 2710 (1981). Appellants also complain that the Comp-

troller has approved an application by a British bank to

—3la—

establish an interstate federal branch in Washington State

without requiring that branch to comply with lending

restrictions and other operational limitations imposed on

a foreign bank’s branches by Washington law. J.A. 13,

15 (Complaint); id. 72-73 (Plaintiff's Amended Statement

of Material Facts as to Which There Is No Genuine

Issue). See Wash. Rev. Code § 30.42.110 (repealed 1982);

see also Wash. Rev. Code § 30.42.105 (Supp. 1982) (foreign

bank branches: Power to make loans and to guarantee

obligations); id. § 30.42.155 (foreign bank branches: Powers

and activities).

The Comptroller contends that a state has essentially

the same power to veto the entry of a federal interstate

office under section K(a) as it has to veto the entry of a

federal home state office under section 4(a).!2 Thus, the

Comptroller contends that he can license a foreign bank’s

interstate branch unless the receiving state permits no

foreign bank to operate a state-chartered branch.'*

Similarly, he can license a foreign bank’s interstate federal

agency unless the receiving state permits no foreign bank

to — a state-chartered agency. Brief for Appellee

at 19.

In support of his interpretation of the statute the Comp-

troller compares sections 5(aX1XA) and K(aX3) with sec-

tions KaX2XA) and 5(aX4). Under sections KaX1XA) and

5(aX3), no foreign bank can establish or operate a federal

interstate office unless that office’s operation is “express-

12 In the Comptroller’s view, section a) expands the states’ sec-

state’s law is silent as to whether foreign banks in general coul

establish a state chartered branch or . Letter from R. Craig

Oe ee ee artis a tore ae

also comply with sections 5(aX1XB) or 5(aX2XB), neither of which

are at issue here.

—32a—

ly permitted” by the receiving state. Under sections

S(aX2XA) and &(aX4), on the other hand, no foreign bank

can establish or operate a state-chartered interstate of-

fice unless that office is “approved” by the receiving state.

The Comptroller contends that the approval required in

sections (aX2XA) and aXe oy the receiving state

to approve each application. He concludes: “Thus, the

structure of § (a) makes it clear that ‘approval’ (for state-

chartered offices) means specific resolution of the par.

ticular application involved, whereas ‘express permission’

(for federall -chartered offices) means a general peed

ization for the kind of office (i.e., branch or on ke

sed.” Memorandum in Support of Defendant’s Motion

or Summary Judgment at 13 (record document 4) (em-

phasis in original).

The Comptroller further contends that section Ka) does

not subject a federal interstate office to limitations on

business operations that the receiving state’s law impo3es

on a foreign bank’s state-chartered interstate office. The

Comptroller says that section 4(b), which provides in part

that “‘operations of a foreign bank at a Federal branch

ncy shall be conducted with the same rights and

privileges as a national bank in the same location,” sets

out the operating limitations of every federal branch or

agency.'4 He reasons that the word “operation”’ in sec-

tions KaX1XA) and 5(aX3), therefore, refers to the fact of

operation and not to the ific operational activities of

an interstate office. If section (a) subjected a federal in-

terstate office to state law restrictions on its operation,

the Comptroller maintains, then that office would not have

Madtenaie he aaatie Wak sendin aaaenuaae

he asserts that llants

would deny frelon banke “the eptiens tubevent th

as otherwise spectically provided” in the IBA, the Comptroller

—33a--

dual banking system,” which options he describes as

“{tlwo separate sets of regulatory and operating (as well

as chartering) criteria.” Jd. at 36, 41. The Comptroller

therefore maintains that section Ka) is not an exception

to section 4(b), and that section 4(c),45 which makes no

mention of state law requirements, provides the criteria

for chartering home state and interstate federal offices.

Lastly, the Comptroller contends that if federal interstate

offices were subject to the same limitations as state-

chartered offices of foreign banks, “({tJhere would never

be any reason for a foreign bank to apply for a federal

license outside its home state.’’ Brief for Appellee at 43.

Appellants maintain that section a) prohibits a foreign

from establishing or operating a federal interstate

branch or agency unless both the establishment and busi-

ness operations of that office are expressly permitted by

the receiving state. Appellants direct our attention to Con-

gress’ use of the terms “its” and “it” throughout section

5(a), arguing that this lan demonstrates that the

Comptroller cannot license a foreign bank’s federal in-

terstate office unless “‘the creation and activities of each

interstate federal branch or agency . . . [are] ‘expressly

permitted’ by the relevant state.” Brief of Appellants at

44. The use of “expressly permitted” in sections KaX1XA)

and 5(aX3) and “approved” in sections (aX2XA) and 5(aX4)

was necessary, appellants contend, because federal and

state offices of foreign banks are chartered by different

authorities. Under section 4a), a foreign bank seeking a

federal branch or agency must secure the Comptroller’s

approval. Likewise, a foreign bank seeking to establish

% Section 4c), 12 U.S.C. § 3102(c) (Supp. V 1981), provides:

—fig—

a state-chartered branch or agency must secure that

state’s approval. Appellants argue that since Congress had

already stated in section 4(a) that a foreign bank seeking

to establish a federal branch or agency had to secure the

Comptroller’s approval, there was no need to restate this

in section (a). ion Ka), however, permits the Comp-

troller to approve an application only if the business

operations of that foreign bank’s branch or agency are

— permitted by the receiving state. Brief of Ap-

pellants at 45-46.

With respect to the operations of a foreign bank’s inter-

state office, appellants note that section 4(b) states: “Ex-

cept as otherwise specifically provided in this [Act]’”; they

contend that Congress provided “otherwise” in section

Sa). Appellants also point to the difference between sec-

tion 4(a), which refers to the establishment of a forei

bank office, and section Ka), which refers both to the

establishment and the operation of a foreign bank office.

They conclude that: “The terms ‘operate’ and ‘operation’

clearly show the izitent of Congress to require express

state permission for the business functions of interstate

federal branches and agencies.”’ Reply Brief of Appellants

av 21. F< som mee also contend that foreign banks would

have a federal option as well as a state option under their

interpretation of section Ka) because appellants seek to

im on federal interstate offices only state laws that

“the permissible business functions of foreign: bank

branches and agencies,” and not “state capital adequacy

and other ‘safety and oor Reviy B yop teow —

supervisory procedures.” y Brief of Appellants at

( i 4 igi Thus, appellants contend, the Comp-

focien banks eagle sly cane ts -

to ts in

area of discretionary supervisory aa

In support of their construction of the statute, appellants

turn to the legislative history. The Senate committee

report stated:

—35a—

Under Section Ka) foreign banks, as now, and as

under the House-passed bill, would be able to estab-

lish branch or agency offices in any State where this

is permissible. The decision to attract foreign bank

entry is, as now, left to the individual States.

1978 Senate Report, supra, at 10.

The section thus affirms in Federal law the right

of States to attract foreign banks and foreign invest-

ment by allowing foreign bank branches and agencies

to be established in any State where permissible. .. .

[FJoreign bank branches and agencies would be able,

with appropriate State approval where necessary, to

make both domestic and international commercial [sic]

loans at locations throughout the country.

Id. at 11.

[Section 5] leaves each State free to decide whether

and to what extent it wishes to permit foreign banks

and limits only the single activity—deposit-taking—

that produces competitive disparities in the national

marketplace ....

Id. at 12.16

18 Appellants also note the comments b Annunzio,

Pepper, and Fascell during the House trey emg the IBA.

and agencies. However, the Congressmen were speaking in op-

pees eS aa Se eee ee ee

y the House (see id. at 9100), that would have required a receiv-

ing state to permit the pene eng nergy J

state-chartered domestic banks of a home state

the receiving state permitted the t of interstate

branches by the state-chartered fo banks of that home state.

See id. at 9090. In each instance the "s remarks were

(Footnote continued on following page)

—3a—

po aaa Court upheld the Comptroller’s regulations.

it said:

Notwithstanding plaintiffs’ suggestion that the differ-

ence between the language in sections a1) and (3)

and that in section a2) is only semantic, the Court

cannot ignore as explicit a distinction as that which

the draftsmen drew here. A federal branch or agen-

cy will not be allowed unless “its operation is ex-

aimee egy by the State in which it is to be

operated;” a State branch will not be permitted

unless “it is approved by the bank regulatory au-

16 continued

ts also direct our attention to a question Senator Steven-

son asked Robert H. Mundheim, the General Counsel to the

Department of the Treasury, during Senate hearings on the IBA.

Senator Stevenson asked:

Well, you’re getting a little ahead of me. I was going to ask

you what the basis was for distinguishing between agencies

and branches and, sharing your views about the desirability

of parity between foreign and domestic institutions, ask if the

Treasury would have objections to permitting agencies

See ee ee ee ee oe

are willing to permit, except that their deposit taking ac-

tivities, outside of their home State, would be limited to

of Edge Act corporations.

International Banking Act of 1978: Hearings on H.R. 10899

the Subcomm. on Financial Institutions of the Senate Comm.

"y

:

:

?

=

2

be

5

Y

H

¥E

i}

4

FEE

office is to be located.” of Appellants at 51. We are not con-

Senator Stevenson’s words, however, we find this part of the

a cas history inconclusive in determining the

—$7a—

thority of the State in which such branch is to be

operated.”” See Pub. L. No. 95-369 § Ka), 92 Stat. 613.

In light of the system for dual entry into the United

States market, through either State chartering or the

federal provisions of section 4(a) of the Act, the con-

clusion that Congress intended not to subject federal

interstate offices to the particular requirements of

State law is inescapable. As the 1978 Senate Report

observed, section Ka) “affirms in Federal law the

right of the States to attract foreign banks and

foreign investment by allowing foreign bank branches

and agencies to be established in any State where

permissible. . . . The section leaves each State free

to decide whether and to what extent it wishes to

permit ag banks [. . .].” 1978 Senate Report at

10-12. The States were left free by section (a) to

allow agencies, branches, both agencies and branches,

or neither. And nothing in the Comptroller’s regu-

lations would deny them that power: States may veto

any foreign bank entry into their territories and may

limit operations to branch or agency activities. Sec-

tion a), and the Comptroller’s regulations, only leave

federal authorities free to grant charters in those

States where the type of operation the foreign appli-

cant seeks is not itself prohibited.

J.A. 104 (unbracketed ellipsis in original).

B

We agree with the District Court’s conclusion on this

issue. After closely revi the and legislative

history of section K(a) in the light of ts’ arguments,

we cannot say that there are “compe indications” that

the Comptroller’s interpretation of section 5(a) is wrong.17

17 We also reject appellants’ argument grounded on similarities

between the Amendment, see supra, py fe and the

IBA’s section 5. We are not willing to Comptroller’s

view of section 5 based on an unrelated,

though similarly worded statute when has chosen

—38a—

See Red Lion Broadcasting Co. v. FCC, 395 U.S. 367,

381 (1969). Thus, we are obliged to defer to the Comp-

troller’s interpretation of the IBA because “the interpre-

tation of an agency charged with the administration of

a statute is entitled to substantial deference.” Blum v.

Bacon, 457 U.S. 132, 141 (1982). See also FEC v. Demo-

cratic Senatorial Campaign Committee, 454 U.S. 27, 37

(1981); Udall v. Tallman, 380 U.S. 1, 16 (1965).

Section 5(a) provides in relevant part that “no foreign

bank may . . . establish and operate a Federal branch

{or agency] outside of its home State unless (A) its oper-

ation is expressly permitted by the State in which it is

to be operated... .” 12 U.S.C. § 3103(aX1), (3) (Supp.

V 1981). The dispute in interpreting this section focuses

on the words “its ration.” The appellants conclude that

PB eration” refers to the operation of a particular

interstate office. Thus, in appellants’ view, section

5a would prohibit the Comptroller from licensing a

federal interstate office if, due to limitations on banking

operations or due to banking reciprocity requirements, the

receiving state did not expressly permit the “operation”

of that federal interstate office. the other hand, the

Comptroller concludes that “its operation” refers only to

the interstate office’s operation as a branch or as an agen-

cy. The Comptroller says that section 5(a) prohibits him

from licensing an interstate branch (or agency) unless the

receiving state expressly ges foreign banks to operate

branches (or agencies). believe that the language of

section (a) reasonably supports either party’s interpreta-

tion of the words “its operation.” In addition, unlike the

District Court, we do not believe that the precise differ:

ence between “expressly y permitted” in saslibas 5(aX 1A)

and &(aX3) and “approved” in sections aX2XA) and 5(aX4)

is evident in the of the statute.

Faced with two arguably reasonable interpretations of

an ee ee ee ae e history

for guidance. Unfortunately, the relevant legislative his-

tory does not favor one interpretation over the other. The

Senate Report says a foreign bank could “establish branch

—39a—

or agency offices in any State where this is permissible,”

and “foreign bank branches and agencies would be able,

ne ee ee eee to make

both domestic and international commercial [sic] loans at

locations throughout the country,” and that section 5

allows states “to decide whether and to what extent it

wishes to permit foreign banks.” 1978 Senate Report,

supra, at 10-12 (emphasis added). These general state-

ments are consistent with the interpretation of either par-

ty in this appeal.

In short, we do not discern from the language of legis-

lative history of section a) any basis for saying/that the

Comptroller’s interpretation is contrary to law.'® In so

doing, we bear in mind that our task is not to mterpret

the statute as we think best but rather to de

whether the a interpretation was “ ‘sufficient-

ly reasonable’ presacral Betis og by a reviewing court.” FEC

Campaign Committee, 454 U.S.

27 “2 Us8l). (1981). “To satisfy this standard it is not neces-

sary for a court to find that the agency’s construction was

the only reasonable one or even the reading the court

would have reached if the question initially had arisen in

a judicial proceeding.” Jd. See also Udall v. Tallman, 380

U.S. 1, 16 (1965). We hold, therefore, that the Comptroller

can license a foreign bank’s federal interstate branch in

a receiving state if that state permits foreign banks to

establish state-chartered interstate branches. ise, he

can license a foreign bank’s federal interstate agency in

a receiving state if that state permits foreign banks to

establish state-chartered interstate agencies. We also

agree with the Comptroller that section Ka) does not re-

quire federal interstate offices to comply with limitations

on bank operations imposed by the receiving state

18 It would be propriate to resolve this dispute over sec-

tion Sa) by reference to the IBA's general thme of national

treatment because the Comptroller cannot license interstate

Seundhes for Ganustie wsblaeel teniee aud. Canaan section Ka)’s

authorization of federal interstate offices for foreign banks has no

domestic counterpart.

_—o

IV

We how turn to the question whether a federal agency

of a foreign bank can accept deposits from a person who

is neither a citizen nor a resident of the United States.

The Comptroller promulgated a regulation which stated

that a federal agency could not accept deposits from

citizens or residents of the United States. See 12 C.F.R.

§ 28.2(b) (1980).4° However, in responding to public com-

ments on this regulation, the Comptroller stated that

“foreign-source deposits may be accepted by Federal agen-

cies.” 44 Fed. Reg. 65382 (1979). Appellants challenge this

interpretation of the IBA.

A

Under the IBA, an “agency” is defined in section 1(bX1)

as:

any office or any place of business of a foreign bank

located in any State of the United States at which

credit balances are maintained incidental to or aris-

ing out of the exercise of banking powers, checks are

aap or money is lent but at which deposits may not

accepted from citizens or residents of the United

MD oc

19 12 C.F.R. § 28.2(b) (1980) provides:

S en te, Cas <Spnae, ae

y r operated a foreign bank in any

- . reg oe

This definition is not in dispute in this case.

—4la—

12 U.S.C. §3101(1) (Supp. V 1981). Section 1(b\5),

however, defines ‘Federal agency’’ as “an agency of a

foreign bank established and operating under section [4]

of this [Act]’’, id. § 3101(5), and section 4(d)*! states that

Pon earn ape tr any other — of this section, a

foreign bank shall not receive pect . at any Federal

agency.” Id. § 3102(d).

Appellants contend that regulation 28.2(b) violates sec-

tion 4(d) of the IBA because, as indicated by the Comp-

troller’s response to the applicable public comments,

regulation 28.2(b) allows a federal agency to accept

deposits. They argue that section 10X11) is is only a general

definition of “agency” and that section 1(bX5) subjects a

federal agency to the additional limitations of section 4(d).

Brief of Appellants at 59-60.

The Comptroller says that the validity of regulation

28.2(b) must be decided in the light of all the IBA provi-

sions that are relevant to federal agency depository

wers; section 4(d), he says, should not be considered

in isolation. Following this approach, the Comptroller

asserts that the “key distinction” between “branches” in

section 1(bX3)?? and agencies” in section 1(bX1) is that

branches can accept any deposits and agencies cannot ac-

cept deposits from United States citizens or residents. In

the Comptroller’s view, this distinction applies through-

out the IBA and should be effected in interpreting sec-

21 Section 4(d), 12 U.S.C. § 3102(d) (Supp. V 1981), provides:

Notwithstanding any other provision of this section, a foreign

bank shall not soceive deptaita or enareice Gdualary power

at any Federal agency. A foreign bank may, however, main-

tain at a Federal agency for the account of others credit bel-

ances incidental to, or arising out of, the exercise of is lawful

powers.

22 Section 1(bX3), 12 U.S.C. § 3101(3) (Supp. V 1981), provides:

Ne ere ny eae aay ee ee oe

peda igangtin dl mA lis United States at

deposits are received .

—42a—

tion 4(d). Brief for Appellee at 47-48. See 44 Fed. Reg.

65382 (1979). The Comptroller next observes that section

4b), 12 U.S.C. § 31050) (Supp. V 1981), grants to a

foreign bank’s federal branches and agencies the same

rights and privileges as a national bank doing business

at the same location. In the Comptroller’s view, Congress

included the section 4(d) limitation on a federal agency’s

deposit taking power to make clear that section 4d) did

not empower federal agencies to receive domestic de-

posits. In particular, he notes that section 4(d) begins

“Notwithstanding any other provision of this section ....”

(i.e., section 4 and not the entire Act), and concludes from

this language that section 4(d) was not intended to limit

section 1(bX1). Brief for Appellee at 48-49. Thus, the

Comptroller would have us read section 4(d)’s prohibition

against federal agencies accepting “deposits” as a prohibi-

tion against federal agencies accepting ‘‘domestic-source

deposits.” Finally, the Comptroller e hasizes that as the

official charged with administration of the federal branch

and agency provisions of the IBA, his interpretation of

the IBA is entitled to great deference by the courts.

The Comptroller contends that the legislative history

of the IBA rts his interpretation of sections 1 and

4. He first points to a May 29, 1975 press release from

Congressman Rees, who introduced H.R. 12103, supra.

That bill was the first foreign banking bill to define “agen-

cy.” Rees stated that the “key difference

between foreign [bank] branches and agencies currently

deposits from U.S. residents

—43a—

that the Senate Report accompanying H.R. 10899, which

became the IBA, stated simply that “agencies cannot ac-

cept deposits.” 1978 Senate supra, at 3. But he

argues that Co ss, in considering H.R. 10899, was

greatly concerned with the extent to which a foreign

bank’s interstate branches could accept domestic deposits

under section 5. The Comptroller asserts that due to this

emphasis on domestic deposits, “{elventually, the Congress

came to view the acceptance by agencies of non-U.S.

deposits as synonymous with the acceptance of no deposits

for purposes of the Act.” Brief for Appellee at 51. The

Comptroller concludes from this legislative history that

Congress intended one crucial difference between branches

and agencies—a branch, unlike an agency, can accept do-

mestic deposits. The Comptroller also argues that the

gp and objectives of the IBA support his conclusion.

e says that denying federal agencies the power to ac-

cept foreign source deposits would diminish the intended

parity of treatment between foreign and domestic banks,

would eliminate a benefit intended to offset the detriment

to foreign banks of other IBA provisions, and would cur-

tail the influx of foreign funds into this country.

Brief of at 31 note that H.R.

the first Ell imroduced ter wocld stethegeedies be ge

to charter federal bank agencies, pro-

in its section 4(d), that “a bank shal] not

engage in the business of receiving deposits at any

Federal agency.” oe Sam, 2 aoe 2 Oe

oe ene be to federal agen-

date and Gaasuse Gnade Go aie in

—44a—

section 4(d) of the IBA. To support their view of H.R.

13876, they point to the committee report accompanying

that bill and submit that the report indicates that a

federal agency could not accept any deposits under that

bill. The report, also cited by the Comptroller, stated:

The home state of a foreign bank is defined as the

state in which it accepts deposits. If it does not ac-

cept deposits, that is, if it has no branches or bank-

ing subsidiary and its activities are limited to oper-

ations permissible for agencies and commercial lend-

ing companies, then it may choose its home state

from among those in which it conducts such opera-

tions. The intent is to restrict the acceptance of

deposits to one state.

H.R. Rep. No. 1193, supra, at 4. The appellants say that

we should not accord any importance to Congressman St.

Germain’s statement during the debate on H.R. 13876,

because during the debate on the IBA, Congressman St.

Germain stated without qualification that an agency could

not accept deposits. 124 Cong. Rec. 9097 & 9098 (1978).

The District Court upheld the Comptroller’s regulation.

It found:

Given the ambiguity of the statute and the confused

and scant legislative history, the Comptroller’s view

of section 4(d) seems not unreasonable. Section 4(b),

it should be noted, flatly granted federal agencies and

branches of foreign banks “the same rights and privi-

leges as a national bank’’ in the home State, with

some exceptions. It is clear that the Act’s sponsors

did not intend to permit acceptance of domestic de-

its by federal agencies as well as by federal

ranches. It may well be that the only function of

the controv language of section 4(d) was thus

to withdraw whatever authority the Comptroller

i eee oe Sete fee Sener Sain: SP) te

ce of domestic deposits at federal

Such a view is the first words

eka WR aah Go Giant’ aontlan 4(d) has

—45a—

effect “([njotwithstanding any other provision of this

section [i.e., section 4].” If plaintiffs were correct in

their view, then careful ing of section 4(d) would

have extended the “notwithstanding” preface in sec-

tion 4 (d) not just to section 4 itself but to the whole

Act, to avoid the confusion created if the definition

in section 1(bX1) were read with section 4(d). The

Court therefore concludes that the Comptroller prop-

erly read sections 1(bX1) and 4(d) ther when he

promulgated regulations that permit federal agencies

to one foreign-source deposits. 12 C.F.R. § 28.2(b)

i. aa

Moreover, absent “compelling indications” that the

Comptroller’s interpretation is wrong, the Court is

obliged not to overturn it. . . . And the Court can-

not say, based upon the terms of sections 1(bX1),

1(bX5) and 4(d), and the legislative history, that the

statute specifically precludes the Comptroller’s inter-

—s or that there is no basis in the legislative

istory for what he has done.

J.A. 107-08 (citations omitted).

B

We believe the District Court deferred to the Comp-

troller when no deference was due.?* The language of sec- «

23 In Volkswagenwerk Aktiengesellschaft v. FMC, 390 U.S. 261

(1968), the Supreme Court stated:

—46a—

tion 4(d) is not ambiguous. In section 1(bX1) Co pro-

vided that no agency of a foreign bank, whether oper-

ating under a federal or state charter, could accept

deposits from citizens or residents of the United States.

Section 1(bX5), however, requires a federal agency be

established under section 4, and in section 4(d), Congress

prohibited federal agencies from accepting any deposits.

The legislative history supports this plain meaning inter-

pretation of the statute. For example, the Housing Report

accompanying the IBA stated, in commenting on section

4: “Agencies ... could perform all the ctions of

branches except for the receipt of deposits and the exercise

of fiduciary ers.” 1978 House Report, supra, at 12.

= Senate Report states flatly, “Federal agencies can-

Prone ene ” 1978 Senate Report, supra, at

at 10. This clear statutory mandate can-

oa + overcome by generalized policy nts or scat-

tered citations to the legislative history of unenacted bills.

We therefore reject the Comptroller’s interpretation of

sections 1 and 4.

Despite the Comptroller’s assertion to the contrary, sec-

tion 4(d)’s prohibition against federal agencies’ accepting

deposits was not necessary in order to prevent a possi-

ble inference that section 4(b) granted federal agencies the

= to accept deposits on the same terms as national

By its own terms, Section 4(b) only applies “(e}x-

cept as otherwise specifically provided” in the IBA. If sec-

tion 1(bX1) controls ge cael cecal powers, as the

Comptroller maintains, the a in section 4(b)

would invoke section 1(bX1) and d prevent section 4(b)

from granting federal

agencies deposit-taking powers equal

to those of national banks. Thus, adoption of the Comp-

tree's Ssterqectieies wate Ste ee oe

tion against federal ncies’ eg 1g Sige rae aye

surplus language in ee statute = eS a

statute, we “are obliged to e effect, if possible, to

every word wea” Metor 0 Senstoms

US. 330, 339, 99 S.Ct. 2826, 2831, 60 L.Ed.2d 981 (1979)

See also Symons v. Chrysler Corp. Loan Guarantee

—47a—

Board, 216 U.S.App.D.C. 80, 83-84, 670 F.2d 238, 241-42

(1981). By following the plain meaning of sections 1 and

4 we fulfill our obligation to give effect to each relevant

provision of the IBA.

Thus, we reverse the District Court’s approval of regu-

lation 28.2(b), and conclude that the plain of sec-

tions 1 and 4(d) prohibits a foreign bank’s federally-

chartered agency from receiving deposits from any source.

V

We affirm the District Court as to the Comptroller’s

interpretations of sections 4(a) and 5(a) of the IBA. How-

ever, the District Court erred in approving the Comp-

troller’s interpretation of sections 1 and 4(d) and, to that

extent, we reverse.

So ordered.

—48a—

APPENDIX B

UNITED STATES DISTRICT COURT

For THE Districr Or COLUMBIA

CONFERENCE OF STATE BANK SUPERVISORS, et al.,

Plaintiffs,

Vv.

JOHN G. HEIMANN, COMPTROLLER OF THE CURRENCY,

Defendant.

Civil Action No. 80-3284

MEMORANDUM

Plaintiffs, who are State officials responsible for regula-

tion of State-licensed banking institutions, brought this ac-

tion for declaratory and injunctive relief to challenge

regulations and an a interpretive statement

adopted by the Comptroller of the Currency under the

International Banking Act of 1978, Pub. L. No. 95-369,

92 Stat. 607 (“the Act’’).! The action presents several

novel questions concerning the Act’s provisions for federal

1 Plaintiffs complain not only of the 8 regulations and

mrp emasithe wood hme BF a =e a

to approve sev oreign banks under

federal in various States. See Plaintiffs’ tement of

—49a—

licensing of foreign banking operations in the United

States. The matter is now before the Court on cross-

motions for summary judgment.

Prior to passage of the Act, all foreign banks operating

branches or agencies in the United States did so under

State authority. The sections of the Act that are the sub-

ject of this action were intended to give foreign banks

pre to comply with various provisions of the Act the

option of establishing offices in the United States under

federal charter. The so-called “federal” branches and

cies of foreign banks would be governed by a “comp

sive regulatory and supervisory framew

es the Comptroller, = was to promulgate tions

n the Act. S. Rep. No. 1073, 95th Cong., 2d

— (1978) (hereinafter cited as “1978 Senate Report”’]

7. In general, the federally-chartered offices of foreign

banks are to enjoy the same privileges and meet the same

obligations as national banks operating in a given State.

As ion 4(b) of the Act provides:

Except as otherwise specifically provided in this Act

* in oo 7 aes or orders mney Ate the

mptro section, operations of a foreign

bank at a Federal branch Begle eon shall be con-

ducted with the same rivil as a na-

tional Ieastic an Gin seumn feaesien 00 be subject

to all the same duties, restrictions, penalties, liabil-

ities, conditions, and limitations that would ly

under the National Bank Act to a national bank

business at the same location... .

Pub. L. No. 95-369 § 4(b), 92 Stat. 610. The Act also

brought under federal control the operation of offices by

foreign banks in more than one State, by requiring any

foreign bank with offices in the United States to selec

a “home State” and then conform its deposit-taking ac-

‘ivilied ta other Stakes 06 Chess sienel allowed corporations

organized under Section 25(a) of the Federal Reserve Act,

12 U.S.C. $§ 611 et seg., so-called “Edge Act” corpora-

tions. “Edge Act” corporations are strictly limited in their

—50a—

ability to accept deposits in the United States. See 12

U.S.C. § 615; 12 C.F.R. § 211.4 (1981). The Comptroller

issued the final regulations and interpretive statement

challenged by plaintiffs on November 13, 1979. See 12

C.F.R. § 28 (1981); 44 Fed. Reg. 65,381-87 (1979).

Plaintiffs’ attack on the Comptroller’s regulations has

several a First, plaintiffs assert that the Comp-

troller e in claiming authority to the charter foreign

banking offices without regard to the specific re ions

that States impose on foreign banks when they them

to do business in their jurisdictions under State charters.

Plaintiffs also argue that the Comptroller’s regulations ig-

nore a requirement in the Act that State agencies approve

the interstate expansion of federally-chartered branches

and agencies. Finally, plaintiffs assert that the Comp-

troller has no authority to permit the new federal “agen-

cies,” as opposed to federal “branches,” to accept deposits

from overseas customers, and that his regulations author-

izing such activity are invalid.

Defendant denies that he has exceeded his authority

under the Act, and claims that his interpretation of argu-

ably ambiguous age in the Act is, in any case, en-

titled to substantial deference by the Court. For the

I

“e & om - ticability 2 St io eanion

ispute ut applicability tate ions

Poe see ye ne A foreign bank offices under the Co

troller’s supervision. Section 4(a) governs the first en

of a foreign bank into the United States market

federal authority. It provides that “a foreign bank

with the approval of the Comptroller, establish

more Federal branches or agencies in any i i

. . . the establishment of a branch or agency, as

may be, by a foreign bank is not prohibited by State la

ee

4

es

be

=

=

—5la—

See Pub. L. No. 95-369 § 4(a), 92 Stat. 610. Section 4(b)

provides that “{e]xcept as otherwise specifically provided

in this Act” or veadatiens of the Comptroller pursuant

: it, “operations of a foreign bank at a Federal branch

ncy shall be conducted with the same rights and

seiclaies as a national bank at the same location,” with

ett. i aoaniatioes. Pub. L. No. 95-369 § 4(b), 92 Stat. 610.

In the challenged regulations and interpretive statement,

‘he Comptroller has taken the position that sections 4(a)

and 4(b) provide that, unless a State would not permit the

establishment of any forei banking office in its territory,

he can grant a federal r for operation in a State

to a foreign bank meeting his own criteria for charter-

ing. Whether the particular bank seeking a federal charter

for operations in i teste State could itself qualify for a State

charter is, in the Comptroller’s view, irrelevant under sec-

tion 4a): the Act’s requirement that establishment of a

foreign bank be “not prohibited” is simply intended to

permit States that themselves refuse to charter any for-

eign bank also to exclude federally-chartered offices from

their territory. Thus, the ee ime a con-

o> cainotion ieee: rerogative is to itti

stance, sania teks cour eeetuine te (oan ae agree-

ing to conform to federal regulations similar to

plicable to national banks operating in the State.

Plaintiffs argue that the statuto ; requirement that

“establishment of a branch or ’ be “not prohibited

by State law” means that the Comptroller must require

each Soaeaide teens Shate wold totpeee t tas ow.

tions rep ake ws aetietdon, plcia

pliant squght a State charter In particular.

assert, a fi applicant could not be licensed in han

State if the government of its home nation had not com-

with whatever reciprocity requirement the State

a foreign bank from the same nation. Those reciprocity

—52a—

requirements, intended to ensure that American banks

from particular States receive opportunities for overseas

equal to privileges granted foreign banks in the

same , are, according to plaintiffs, important in their

state regulatory schemes. See, e.g., N.Y. Banking Law

§ 202-a(2) (McKinney Interim Anno. Serv., June 1981); Ill.

Rev. Stat. ch. 16% ¢ 503 (State Bar Ass’n Ed. 1975). And,

although the y carey! of those State re re, poor A re-

quirements to foreign bank entry under federal authority

is the most hotly contested question concerning the Act’s

provisions in section 4, plaintiffs indicate that the Comp-

troller’s regulations would also ignore other requirements

of State law. On that basis, they seek a declaration that

the regulations violate the Act.

The terms of section 4 and the larger design of the Act,

however, support the Comptroller’s view of his authority,

and there is nothing in the legislative history of the Act

that would forbid his interpretation. Section 4(a) simply

authorizes federal chartering in a State where establish-

ment of a foreign banking office is not prohibited by State

law. Only by taking section 4(a) out of its context is it

poste me that the contested proviso subjects federally-

chartered offices to all the regulations imposed on State-

chartered institutions. A principal purpose of the 1978 Act

was to give foreign banks “an important new option” in

Sa Pelee oe ee eee Congress understood

that the federal charterin —_ might give overseas

banks “opportunities whic y do not now possess,”

even though it would also place new burdens of federal

on them. See Seuake of Mr. St. Germain, 122

Cong. Rec. 24403 (July 29, 1976). Plaintiffs’ view of the

Ce ns ee ee

option. oreign under p ’ inte ‘

would have a choice between with mgt

lations under a State charter, compliance with State

and federal rules under a federal charter. Without

creation if ra peti peo aa

of a by “co on” was one

purpose of the Act, see senda In Support Of

—53a—

Defendant’s Motion For Summary Judgment at 16-19, it

is improbable that Congress conceived of its “federal op-

tion” in plaintiffs’ terms. See 1978 Senate Report at 6.

Moreover, plaintiffs’ argument does not ly explain

the provision in 4(b) that establishes for federally-

chartered foreign banks the powers and operational au-

thority in their home State possessed by “a national bank

at the same location,” with certain exceptions. Because

Congress intended to accord national treatment to foreign

banks that sought the benefits and burdens of federal con-

trol, it was proper for the Comptroller to deem the pro-

viso of section 4a) — to allow States to permit or to

veto federally-chartered offices, and not to condition their

entry. As the 1978 Senate rt observed, section 4 “‘in-

sures that in States where foreign banks are welcome,

they will have a State-Federal option.” Jd. Section 4 thus

extended the federal y cove to those States, in the

Report’s words, “where foreign banks are welcome,” not

where particular banks, or where banks from particular

countries, are welcome.

Revisions in the text of the Act prior to final passage

in 1978, said by both parties to rt their own views

of section 4(a), are treacherous guides for interpretation

of the Act. The fact that Congress rejected a 1975 ver-

sion of the Act, S. 958, that would have wholly denied

the States the veto power that section 4(a) grants them

does not, in itself, demonstrate that section 4(a) granted

the States something other than the veto power the

Comptroller concedes. Similarly, the opposition of federal

banking authorities to any provision that would make

state a er a part pi ——.

tional banking law, voiced at hearings on H.R. in

1977, cannot provide proof that they assumed that sec-

tion 4a) would have such a feature. See International

Banking Act of 1977: Hearings on H.R. 7825 Before the

Subcomm. on Fi } ist

Institutions Supervision,

tion, and Insurance of the House Comm. on ing,

Housing, and Urban irs, 95th Cong., Ist Sess. (

39-41 (remarks of Federal Reserve Board Governor Gard-

wile

ner). Defendant, on the other hand, attempts to rely n

the rejection of the so-called “Grassley amendment” in

1978, which would have authorized federal officials to con-

sider treatment of American financial institutions in the

home country of a foreign bank in deciding whether to

charter that bank in the United States. It is arguable,

as defendant suggests, that Rep. Grassley would not have

proposed such a program for federal enforcement of na-

tional reciprocity if he thought State reciprocity was

already a of the Act. But, as an expression of the

intent of Congress as a whole, the final terms of section

4 and the broad design of the Act appearing elsewhere

in the legislative history provide a more substantial basis

for the Comptroller’s rejection of plaintiffs’ argument.

Plaintiffs compare the provisions of section 4({a) to the

McFadden Act of 1927, as amended, 12 U.S.C. § 360),

which limits the ability of national banks to operate intra-

state branches. The McFadden Act was held in First Nat'l

Bank of mv. Walker Bank & Trust Co., 385 U.S.

252, 261 (1966), to deny the Comptroller power to author-

ize intrastate branching by a national if the pro-

branching technique was not specifically allowed to

tate banks by State law. According to plaintiffs, section

4(a) of the Act, like the McFadden Act as it was authorita-

tively construed in Walker Bank, substantially incor-

porates State-law standards for determining whether the

Comptroller may authorize particular banking operations

by foreign banks entering the United States. The rule in

alker Bank, in plaintiffs’ view, established that the

McFadden Act did not allow the Comptroller to authorize

national-bank branching by any means simply because a

age authorized on oe 1 - means.

analogy, plaintiffs argue, section 4a ct should

pete ne baat Taree igh me te Ar

power over foreign bank entry: Comptroller cannot,

according to plai , authorize any ign bank to enter

a State simply because that State would itself authorize

some foreign bank to do so.

v

—55a—

It would be pointless to question plaintiffs’ reg of

the McFadden Act and the Walker Bank decision. Their

argument based upon the McFadden Act and Walker

Bank avails them nothing here because their analogy to

section 4(a) cannot be maintained, either as a means of

discovering Co ional intent in section 4(a), or as an

applicable model for judicial construction of the banking

laws. The McFadden Act itself is irrelevant to the Con-

gressional design in section 4(a), which only governs entry

of foreign banks into the United States market under

federal charter; in furtherance of its policy favoring parity

for foreign and domestic banks holding federal c rs,

Congress elsewhere expressly adopted McFadden Act

principles by providing in section 4(h) of the 1978 Act that

intrastate branching by federally-chartered foreign banks

should occur under the same rules as those applicable to

domestic national banks. Congress thus appears to have

well understood the reach of the McFadden Act, and to

have chosen in the 1978 Act to limit the McFadden Act’s

force to intrastate branching. This Court will not attribute

to og any broader effort to incorporate the spirit

of the McFadden Act, or the plaintiffs’ version of the rule

in Walker Bank, than that rted by the terms of sec-

tion 4(h) and the legislative history of section 4. The

Walker Bank decision itself, carefully limited as it was

to the specific problem of statutory construction existing

under 12 U.S.C. § 36(c), involved language and inter-

pretive difficulties not present in the wholly different,

and relatively simple, language of section 4{a). Compare

Pub. L. No. §§ 4(a), Ka), 92 Stat. 610, 612-13 and

12 U.S.C. § 36(cX2). The assumed parallelism between the

McFadden Act and section 4a) simply does not exist.

II.

Section (a) of the Act, in establishing the conditions

under which foreign banks operating in the United States

may maintain offices outside their home States, regulates

the interstate expansion of most State-chartered branches

—56a—

and federally-chartered branches and agencies. Section

&(aX1) provides that a foreign bank may establish an in-

terstate federal branch only if “its operation is expressly

ring gy ng By Fagg gg ad gt ng

. L. No. 95-369 § aX1), 92 Stat. 613. Section KaX3)

places the same limitation on establishment of an in-

terstate federal agency. Section KaX2), employing different

language, declares inter alia that a foreign bank may

establish an interstate State branch only if “it is approved

by the Bank regulatory authority in which such branch

is to be operated.” Pub. L. No. § K(aX2), 92 Stat.

ction between the interstate licensing requirements

for State and for federal offices. Defendant’s position is

that sections KaX1) and 5(aX3) simply preserve the veto

power given the States in section 4(a), and thus make it

ible for a State to exclude interstate offices only if

it totally bars foreign banking offices from its territory.

The has correctly interpreted the

of section 5(a). Notwithstanding plaintiffs’ that

the difference between the in sections KaX1) and

(3) and that in section K(aX2) is only semantic, the Court

re. A federal branch or agency will

allowed unless “‘its operation is Fe soa

hy ice ay

—57a—

613. In light of the system for dual entry into the United

States market, through either State chartering or the

federal provisions of section 4{a) of the Act, the conclu-

sion that Congress intended not to subject federal in-

terstate offices to the particular requirements of State law

is inescapable. As the 1978 Senate Report observed, sec-

tion 5(a) “affirms in Federal law the ight of the States

to attract foreign banks and foreign investment by allow-

ing foreign bank branches and agencies to be established

in any State where permissible. . . . The section leaves

each State free to decide whether and to what extent it

wishes to permit foreign banks.” 1978 Senate Report at

10-12. The States were left free by section Ka) to allow

agencies, branches, both agencies and branches, or neither.

And nothing in the Comptroller’s regulations would deny

them that power: States may veto any foreign bank en

into their territories and may limit operations to bran

ney activities. Section Ka), and the Comptroller’s

tions, only leave federal authorities free to grant

charters in those States where the type of operation the

foreign applicant seeks is not itself prohibited.

The historic context of section Ka) in the Ninety-Fourth

and Ninety-Fifth Congresses confirms the Comptroller’s

a Congress had been concerned by the abilit . a

ign banks under State authority to

deposits at branch locations in two or more States. Such

a capacity gave foreign banks a competitive advantage

over many domestic institutions. See 1978 Senate Re ~

at 8-10. Accordingly, early versions of section 5(a)

tively prevented establishment of any interstate ates

be foreign banks under federal or State charter. See, ¢.9.,

6 § 5(a), reprinted in the International

Act of 1978 Hearings on H.R. 13876 Before the Subcomm.

on Financial Institutions of the Senate Comm. on Bank-

ing, Housing, and Urban Affairs, 94th Cong., 2d Sess.

101-02 (1976). On the other hand, Congress was reluctant

to foreclose the ability of States currently lacking major

ing centers to attract foreign banks into their local

markets. See 1978 Senate Report at 7-10. The final form

il

of section 5(a) reflected a compromise achieved on the

House floor on April 6, 1978, when the | eager

of the earlier bills was deleted and a version

that gave the States the kind of veto power they enjoy

under section 4(a) was put in its place. See H.R. 10899

at § Ka), reprinted in I } Banking Act of 1978:

Hearings on H.R. 10899 Before the Subcomm. on Finan-

cial Institutions, Supervision, Regulation and Insurance

of the House Comm. on Banking, Housing, and Urban

irs, 95th Cong., 2d Sess. 315 (1978). During the April

6 House floor debate, members appear to have been chief-

ly concerned with the questions of whether Congress

rcaget ne a or allow, the States to license branch of-

fices of foreign banks that had home States elsewhere,

ee ook os and licensing sys-

tem should provide such an option. version of sec-

tion 5(a) adopted in the House and later approved in the

Senate allowed interstate branching, but restricted the

State and federal interstate offices to acceptance of so-

called “Edge Act”’ — It is significant, in light of

plaintiffs’ ee re, that there is no substantial

evidence within the important House debate on April 6

that members believed section Ka) would have the effect

of mys woe ge | into the Act State ions for inter-

state federal offices of foreign banks. 124 Cong. Rec.

9080-9104 (Apr. 6, 1978).

Ili.

The Comptroller claims authority under the Act to au-

thorize establishment of foreign bank agencies that would

accept deposits from persons who are not citizens or resi-

dents of the United States. See 12

at

—59a—

Notwithstanding any other provision of this sec-

tion, a foreign bank shall not receive deposits or

exercise fiduciary powers at any Federal agency. A

foreign bank may, however, maintain at a Federal

agency for the account of others credit balances in-

cidental to, or arising out of, the exercise of its lawful

powers.

Pub. L. No. 95-369 § 4(d), 92 Stat. 611. The Comptroller

insists, however, that the definition of “agency” in sec-

tion 1 of the Act supports his rule. Section 1 provides

in pertinent part as follows:

(b) For the purpose of this Act—

(1) “Agency” means any office or any — of busi-

ness of a foreign bank located in any State of the

United States at which credit balances are maintained

incidental to or arising out of the exercise of bank-

ing powers, checks are paid, or money is lent, but

at which deposits may not be accepted from citizens

or residents of the United States;

(5) “Federal agency” means an agency of a foreign

bank established and operating under section 4 of this

Act.

—60a—

tion For Summary Judgment at 26. The definition of the

term “agency” in the Rees Bill was, as defendant

observes, carried forward to the final Act substantial-

ly unchanged. Defendant also notes Mr. St. Germain’s

during the House debates on July 29, 1976, in

which he noted that the Act would “allow foreign banks

to establish agencies in more than one state since —

cies cannot accept domestic deposits.”’ 123 Cong. 7

24403 (July 29, 1976). That is, however, en defen-

dant’s argument based upon the legislative history. And,

on the other hand, plaintiffs can point to submissions to

a Senate committee in 1976 tending to assume that sec-

tion 4(d) should not permit acceptance of yet of any

kind by federal agencies. See International Banking Act

of 1976: Hearings on H.R. 13876 Before the Subcomm.

on Financial Institutions of the Senate Comm. on Bank-

ing, Housing, and Urban airs, 94th Cong., 2d Sess.

354-55 (1976) (comments of the Institute of Foreign

Bankers). The rest of the evidence of Congressional in-

tent offered by both parties on this point is even less

instructive.

Given the a of the statute and the confused and

scant legislative history, the Comptroller’s view of sec-

tion 4(d) seems not unreasonable. Section 4(b), it should

is clear that the Act’s sponsors did not intend to permit

of domestic deposits by federal agencies as well

as by federal branches. It may well be that the only func-

tion of the controverted language of section 4(d) was thus

|

|

|

i

nt

‘ E

FA

it

ie

—6§la—

ing” preface in section 4(d) not just to section 4 itself but

to the whole Act, to avoid the confusion created if the

definition in section 1(bX1) were read with section 4(d).

The Court therefore concludes that the Comptroller prop-

erly read sections 1(bX1) and 4(d) together when he pro-

mulgated regulations that permit federal ncies to

accept foreign-source deposits. 12 C.F.R. § 28.2(b) (1981).

It is fundamental that “‘a section of a®statute should not

be read in isolation” from the rest of the Act. Richards

v. United States, 369 U.S. 1, 11 (1962); cf Philbrook v.

Glodgett, 421 U.S. 707, 713-14 (1975). Particularly is this

so when, as here, the statute is susceptible to varying

— retations. NLRB v. Lion Oil Co., 352 U.S. 282, 288

1957).

Moreover, absent “compelling indications” that the Comp-

troller’s interpretation is wrong, the Court is obliged not

to overturn it. Red Lion Broadcasting v. FCC, 395 U.S.

367, 381 (1969); Haviland v. Butz, 177 U.S. App. D.C. 22,

27, 548 F.2d 169, 174 (1976). The deference owed an in-

—6§2a—

sation Com’n v. Aragan, 329 U.S 148, 153-54 (1946). His

interpretation of the ambiguous foreign-source deposits

provision of the Act therefore will be affirmed.

An appropriate order accompanies this memorandum.

UNITES STATES DISTRICT JU

Da*e: September 30, 1981

—§3a—

UNITED STATES DISTRICT COURT

For THE District OF COLUMBIA

CONFERENCE OF STATE BANK SUPERVISORS, et al.,

Plaintiffs,

v.

JOHN G. HEIMANN, COMPTROLLER OF THE CURRENCY,

Defendant.

Civil Action No. 80-3284

ORDER

For the reasons stated in the accompanying memoran-

dum, it is this 30th day of September, 1981 hereby

ORDERED: That defendant’s motion for summary judg-

ment is granted; and it is*

FURTHER ORDERED: That plaintiffs’ motion for sum-

mary judgment is denied.

it A D J

—64a—

APPENDIX C

A SURVEY OF STATE REGULATION

OF FOREIGN BANKS

1. States Whose Statutes Prohibit Foreign Banks from

Establishing Branches or Agencies

Arizona (Ariz. Rev. Stat. Ann. §§ 6-201, 6-204, 6-391).

Arkansas (Ark. Stat. Ann. § 67-701).

Colorado (Colo. Rev. Stat. §§ 11-1-102(2), 11-3-101,

11-11-101).

Delaware (Del. Code Ann. Title 8, $§ 371(a), 379).

Idaho (Idaho Code § 26-202).

Iowa (Iowa Code Ann. §§ 524.107, 524.1603).

Kansas (Kan. Stat. Ann. §§ 9-701(a), 9-702, 9-703, 9-801,

9-2011).

Maine (Me. Rev. Stat. Ann. § 9-B-131).

Michigan (Mich. Stat. Ann. § 23.710(51)).

Minnesota (Minn. Stat. § 303.04).

Missouri (Mo. Rev. Stat. § 362.420).

Nebraska (Neb. Rev. Stat. § 8114).

Nevada (Nev. Rev. Stat. § 659.115).

New Hampshire (N.H. Rev. Stat. Ann. § 384:24).

New Jersey (N.J. Stat. Ann. §§ 17:9A-316, 17:9A-331).

New Mexico (N. Mex. Stat. Ann. §§ 38-1-18, 58-1-76).

North Carolina (N.C. Gen. Stat. §§ 53-2, 53-127).

North Dakota (N.D. Cent. Code § 6-02-01).

Oklahoma (Okla. Stat. §§ 6-102, 6-305, 6-1401).

Rhode Island (R.I. Gen. Laws § 19-5-10).

South Dakota (S.D. Comp. Laws Ann. § 51-18-2).

—65a—

States Whose Statutes Prohibit Foreign Banks from

Establishing Branches or Agencies (cont.)

Tennessee (Tenn. Code Ann. § 45-2-1701).

Texas (Tex. Rev. Civ Stat. Art. 342-902 (Vernon)).

Vermont (Vt. Stat. Ann. Title 8, § 558).

Virginia (Va. Code § 6.1-5).

Wyoming (Wyo. Stat. §§ 13-1-101, 13-1-201, 13-10-108).

. States Which Prohibit Branches and Agencies of Foreign

. \nks by Construction of State Law

‘yonnecticut (see Conn. Gen. Stat. § 36-5a).

Indiana (see Ind. Code Ann. §§ 28-1-22-1 and 28-1-22-28

(Burns)).

Kentucky (see Ky. Rev. Stat. §§ 287.030, 287.670).

Ohio (see Ohio Rev. Code Ann. §§ 1101.04 and 1101.05

(Page)).

Utah (see Utah Code Ann. §§ 7-1-704; 7-3-2-).

West Virginia (see W. Va. Code § 31A-2-11).

Wisconsin (see Wis. Stat. Ann. §§ 221.01, 221.49).

. States Which Permit Foreign Banks To Establish Agen-

cies Only

Alabama (see Ala. Code § 5-1A-4 and Comment to

§ 5-3A-5).

Florida (Fla. Stat. ch. 663 and Fla. Admin. Code, Rule

3C-15.08)—a foreign bank may establish one agency

and may also open a second agency office.

Georgia (Ga. Code Ann. §§ 41A-3301 - 41A-3311)—a

foreign bank may establish a single agency only

(§ 41A-3307).

Hawaii (Hawaii Rev. Stat. § 403-16).

Louisiana (La. Rev. Stat. Ann. § 6:80).

—6a—

States Which Permit Foreign Banks To Establish Agen-

cies Only (cont.)

Maryland (Md. Fin. Inst. Code Ann. §§ 12-201 -

12-211).

Mississippi (Miss. Code Ann. § 81-5-40).

Montana (Mont. Rev. Code Ann. § 32-1-103).

None of the above states permits foreign bank agen-

cies to accept deposits.

. States Which Permit Foreign Banks To Establish

Branches Only

Illinois (Ill. Stat. (S.H.A.) ch. 17)—a foreign bank may

yg a single branch only, which must be located in

e “central business district of Chicago” as defined

in ch, 17, 2706.

Massachusetts (Mass. Gen. Laws Ann. ch. 167, § 37).

Oregon (Ore. Rev. Stat. $§ 713.010 - 713.110).

. States Which Permit Foreign Banks to Establish Either

Branches of Agencies

Alaska (Alaska Stat. § 06.05.367).

California (Cal. Fin. Code §§ 1756, 1756.1, 1756.2

po )) (§ 1755 authorizes “depository agencies” to

eposits from foreign nations and domiciliaries

of f Eee nations).

New York (N.Y. Law § 202-a (McKinney))

(General Banking Board Regulation Part 81 permits

agencies to accept oniy deposits from corporations,

rships, trusts or associations in the amount of

100,000 or more).

Pennsylvania (Pa. Stat. Ann. Title 7, § 105&b. a (Pur-

don))—a foreign bank may open only a single branch

or agency. Paar nad nat ceca a

of $100,000 or more upon agreement

the Federal Reserve Board).

—67a—

States Which Permit Foreign Banks to Establish Either

Branches or Agencies (cont.)

South Carolina (S.C. Code § 34-3-100).

fy eg (Wash. Rev. Code §§ 30.42.010 - 30.42.900)—

a foreign bank may open only a single branch or agency

(§ 30.42.040).

Except as otherwise noted, none of the above states

permits foreign bank agencies to accept deposits.

. States Which Impose Reciprocity Requirements With

Respect to Foreign Bank Entry

California—Cal. Fin. Code § 1756(c) provides:

A foreign corporation organized under the laws

of a foreign country may transact in this state the

business of accepting deposits if under the laws

of such foreign country a hank or trust company

(organized under the laws of the United States

or a state thereof) may be authorized to maintain

either a branch or agency or may be authorized

to own all the shares (except for directors’ quali-

fying shares) of a banking organization organized

under the laws of such foreign country and if it

has complied with all of the requirements of Sec-

tions 1751 and 1756.1. In this subdivision “foreign

country” includes, but is not limited to, any ter-

ritory of the United States, Puerto Rico, Guam,

and the Virgin Islands.

Florida—Fla. Stat. § 663-04 provides:

(1) No international banking corporation shall

transact a banking business, or maintain in this

state any office for carrying on such business, or

_ part thereof, unless such corporation shall

oer

(e) Received a license duly issued to it by

the department.

—§8a—

States Which Impose Reciprocity Requirements With

Respect to Foreign Bank Entry (cont.)

(2) The department shall not issue a license to

an international banking corporation unless it is

chartered in a country which permits any bank

— = place of business in this state

Mecities therein or exercise

similar powers.

Georgia—Ga. Code Ann. § 41A-3304 provides:

(a) No international banking corporation shall

transact a banking business, or maintain in this

State any office for carrying on such business, or

“nd part thereof, unless such corporation shall

- ee

(5) received a license duly issued to it by’

the department.

(b) The department shall not issue a license to

an international banking corporation unless it is

chartered in a Country which its banks

chartered in the United States of ica or any

of its States to establish similar facilities therein.

Illinois—Ill. Stat. (S.H.A.) ch. 17. ¢ 2710 provides:

3. A foreign ing corporation upon receipt

of a certificate of aut from the Commis-

sioner, may establish and maintain a bank-

ing office > the — ee of

cago and may conduct a gene banking

business. ee a ee

however, entitled to a certificate i

—69a—

States Which Impose Reciprocity Requirements With

Respect to Foreign Bank Entry (cont.)

Upon receipt of a certificate of authority under

this Act, a foreign banking corporation may con-

duct its banking business in this State with the

same, but no greater, rights and privileges as a

State bank, and pg as otherwise provided in

this Act, subj ect to the same duties, restrictions,

penalties and liabilities now or hereafter im

under the Illinois Banking Act upon a State

Any such banking office shall be maintained sub-

ject to supervision and examination by the Com-

missioner and such reports and examinations as

are required of State banks under the [Illinois

Banking Act applicable to such banking office.

New York—New York Banking Law § 202-a provides:

2. A foreign banking corporation under the laws

of a foreign country or of Puerto Rico may be

licensed pursuant to article two of this chapter

to maintain a branch or branches in this state and

may engage in the business of receiving deposits

in this state, if under the laws of such foreign

country or of Puerto Rico, a bank or trust com-

ee may be authorized to maintain either a

ranch or agency or may be authorized to own

all the shares (except for directors’ qualifying

shares) of a banking organization organized under

ry laws of such foreign country or Puerto per

oreign banking corporation so = an

so licensed to maintain a branch or branches in

this state may be authorized to exercise in this

state the fiduci wers specified in section two

hundred one-b of this chapter, if under the laws

of such foreign country or of Puerto Rico, a trust

company may be or gre exercise similar

ew powers through a branch or agency or

may be authorized to own all the shares (except

for directors’ shares) of a

quuiiiiin a caie mal

—NWa—

States Which Impose Reciprocity Requirements With

Respect to Foreign Bank Entry (cont.)

under the laws of such foreign country or of Puer-

uy sauen: ike taakiaen eae tain oad

ciary powers. ve power

to prescribe, by specific or general regulation, the

cola to which, and the conditions, in addition

to those prescribed in this article, upon which, the

fiduciary powers specified in section two hundred

one-b of this chapter may be exercised, and de-

posits in the branches in this state of banking cor-

porations organized under the laws of forei

countries or Puerto Rico, and credit balances

this state of banking corporations organized under

the laws of any other state or country (includi

Puerto Rico), may be established, maintained

paid out.

mya Stat. Ann. Title 7, § 105(b.1) pro-

vides:

Offices of Bagg organizations—An organization

. the banking business under the laws

of foreign nation Sp sy toa is a may be

engage in business of recei

stharied engage inthe business of eng

an office for that purpose in this Commonwealth

by written permission of the department, subject

to the provisions of this subsection.

In determining whether to grant such permis-

ee t shall consider the extent of

reciprocity for banks from the United States to

own interests in or banking businesses in

te a apie epee 2 Hong

organization may deny permission in

absence of substantial reciprocity.

Washington—Wash. Rev. Code § 30.42.090 provides:

« The supervisor shall not grant an application for

an office of an alien bank unless the law of the

—Tla—

States Which Impose Reciprocity Requirements With

Respect to Foreign Bank Entry (cont.)

foreign country under which laws the alien bank

is organized permits a bank with its principal

lace of business in this state to establish in that

oreign country a branch, agency or similar op-

eration.

. Examples of States Which Place Limitations on the Op-

erations of Branches or Agencies of Foreign Banks

Illinois—a foreign bank branch may not exercise

fiduciary powers (Op. Ill. Atty. Gen. S-1487, 1980).

Mississippi—under Miss. Code Ann. § 81-5-40, a foreign

bank agency may engage in only such transactions as

are related to international or foreign business or com-

merce.

Oregon—under Ore. Rev. Stat. § 713.012, a foreign

bank branch may not exercise fiduciary powers unless

it was lawfully established and e in the trust

business prior to January 1, 1965.

Washi n—under Wash. Rev. Code § 30.42.110, a

foreign bank branch (a) must accept at least 80% of

its deposits from persons who are non-resident foreign

nationals, foreign governments, out-of-state corpora-

tions not qualified to do business in Washington, other

banks, or other persons engaged in foreign commerce,

(b) may make loans only to such persons (except that

loans may not be made to other banks or foreign gov-

ernments), and (c) may not exercise fiduciary powers.

Under Wash. Rev. Code § 30.42.180, a foreign bank

agency may make loans only for the purpose of financ-

ing international commercial activities.

As noted above, Florida permits foreign banks to open

not more than one agency, with a secondary _

office; Georgia permits only a single agency; Illinois

allows only a single branch; and Pennsylvania and

Washington allow only a single branch or agency.

—72a—

APPENDIX D

APPENDIX OF PERTINENT STATUTES

AND REGULATIONS

Statutes

Section 1(bX1) of the International Banking Act of 1978

(the “Act’”), - U.S.C. §3101(1) provides:

“Agency” means “ee Ase office or any place of business

of a ietign bank located in any State of the United

States at which credit balances are maintained inci-

dental to or arising out of the exercise of banking

powers, checks are paid, or money is lent but at

which deposits may not be accepted from citizens or

residents of the United States;

Section 1(bX5) of the Act, 12 U.S.C. § 3101(5), provides:

“Federal agency” means an agency of a foreign bank

— and operating under [section 4 of this

ct

Section 4(a) of the Act, 12 U.S.C. §3102(a), prevides:

Except as provided in [Section 5], a foreign bank

which directly in a banking business out-

side the United States may, with the of the

Se kan ct branches

or agencies in any State in which it is not oper-

rig Bf tals. ger meer liatranegpch

establishment of a branch or , as the

oe re 2 eee ee Oe by

Section 4(b) of the Act, 12 U.S.C. §3102(b), provides:

~ ee | ree py

agency, @

regulations, Comptroller considers

—T3a—

game to carry out this section, which shall in-

ude provisions for service of process and main-

tenance of branch and agency accounts separate from

ae chotad ts tas tha ce es ee se,

rovided in this [Act] or in rules, regulations,

oy +4 adopted by the Comptroller under this sec-

tion, operations of a foreign bank at a Federal branch

or agency shall be conducted with the same rights

and privil as a national bank at the same loca-

tion and s be subject to all the same duties,

restrictions, penalties, liabilities, conditions, and

limitations that would apply under the National Bank

Act to a national bank doing business at the same

location, except that (1) the requirements of section

481 of this title shall be met with to a Fed-

eral branch or agency if it is examined at least once

in each calendar year; (2) any limitation or restric-

tion based on the capital stock and surplus of a na-

tional bank shall be deemed to refer, as applied to

a Federal branch or agency, to the dollar equivalent

of the capital stock and surplus of the foreign bank,

and if the foreign bank has more than one Federal

branch or agency the business transacted by all such

branches or agencies shall be aggregated in deter-

compliance with the limitation; (3) a Federal

ncy shall not be required to become a

a hae os ces term is in section 221

of this ~ Byny and (4) a Federal agency shall not be

ys any to become an insured bank as that term is

ed in section 1813(h) of this title.

Section 4(d) of the Act, 12 U.S.C. §3102(d), provides:

Notwithstanding any other provision of this section,

for the account of others credit tal

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Section 4(h) of the Act, 12 U.S.C. §3102(h), provides:

A foreign bank with a Federal branch or agency

operating in any State may (1) with prior approval

of the Comptroller establish and operate additional

branches or agencies in the State in which such

branch or agency is located on the same terms and

conditions and subject to the same limitations and

restrictions as are applicable to the establishment of

branches by a national bank if the principal office of

such national bank were located at the same place

S the initial bey or — © such soph such

oreign bank change designation of its ini-

tial branch or agency to any other branch or agency

subject to the same limitations and restrictions as are

applicable to a change in the designation of the prin-

cipal office of a national bank if such Pg orniny office

were located at the same place as such initial branch

or agency.

Section 5(a) of the Act, 12 U.S.C. § 3103(a), provides:

7 t a by subsection (b) of this sec-

tion, (1) no foreign may directly or indirectly

establish and a Federal b outside of its

home State unless (A) its operation is expressly per-

—Tha—

missible for a corporation organized under section

25(a) of the Federal Reserve Act under rules and

eg cay administered by the Board; (3) no Sreign

directly or indirectly establish and o

= a Fe eral agency outside of i its home State

its operation is expressly permitted by the State in in

which it is to be operated; (4) no foreign bank may

directly or in y establish and operate a State

agency or peccmsan. lending company subsidiary

— of its home State, unless its gees oem

and operation is approved by the bank

authority of the State in which it is to be pero

and (5) no foreign bank ma eal dete or indirectly ac-

quire any voting shares of, interest in, or substan-

tially all of the assets of a bank located outside of

its home State if such acquisition would be prohibited

under comes Bt of this = if the han —_

were a bank company operations of w

subsidiaries were principally conducted in the

foreign bank’s home State. Notwithstanding any

other provisions of Federal or State law, deposits

received by any Federal or State branch subject to to

the limitations of an agreement or un

posed under this subsection shall not be alias te to

any requirement of mandatory insurance by the Fed-

eral Deposit Insurance Corporation.

Section 5(b) of the Act, 12 U.S.C. § 3103(b), provides:

Unless its authority to do so is lawfully revoked

ee go than pursuant to this section, a foreign

bank, notwithstanding any restriction or limitation im-

posed under subsection (a) of this section, may estab

and operate, outside of its home State, any State

branch, State : cy, or bank or commercial

company which commenced lawful opera-

tion or for which an application to commence busi-

—T6a—

Sections 36(c) and (f) of the McFadden Act, 12 U.S.C.

§§ 36(c) and (f), provide:

(c) A national ing association may, with the

approval of the Comptroller of the Currency, estab-

lish and operate new branches: (1) Within the limits

of the city, town or village in which said association

is situated, if such establishment and operation are

at the time expressly authorized to State banks by

the law of the State in question; and (2) at any point

within the State in which said association is situated,

if such establishment and operation are at the time

— to a banks by the — law of the

tate in question Bw ig ich ag y granti

such authority affirmatively and not merely by imple

cation or recognition, and subject to the restrictions

as to location imposed by the law of the State on

State banks. In any State in which State banks are

permitted by statute law to maintain branches within

county or greater limits, if no bank is located and

doing business in the place where the proposed agen-

cy is to be located, any national banking association

situated in such State may, with the approval of the

Comptroller of the Currency, establish and operate,

without regard to the capital requirements of this sec-

tion, a seasonal agency in any resort communi

within the limits of the county in which the main of-

receiving and paying out deposits, issuing and cashing

checks and , and doing business incident

thereto: Provided, That any permit issued under this

sentence shall be revoked upon the opening of a State

or national bank in such community. Except as pro-

preceding

—7T7a—

branches by State banks, or, if the law of such State

requires only a minimum capital stock for the estab-

pcre wah eafrerr eiee: Prageenaa ores phe cin dg

association has not less t an equal amount of

capital stock.

(f) The term “branch” as used in this section shall

be held to include any branch bank, branch office,

branch agency, additional office, or any branch

of business located in any State or Territory of the

United States or in the District of Columbia at which

deposits are received, or checks paid, or money lent.

Section 3(d) of the Bank Holding Company Act (the

“Douglas Amendment”), 12 U.S.C. § 1842(d), provides:

Notwi ing any other provision of this section,

plication be roved under this section

which will permit any holding company or any

subsidiary thereof to acquire, directly or indirectly,

voting shares of, interest in, or all or substan-

all of the assets of any additional bank located

cutee of the tate ts ealen ee cane of such

bank holding company’s banking subsidiaries were

principally conducted on July 1, 1966, or he date on

which such company became a bank holding company,

whichever is later, unless the acquisition of such

shares or assets of a State bank by an out-of-State

bank holding is specifically authorized by the

statute laws of on a ct oe ee

cated, by to that effeet and not merely by

implication. For the purposes of this section, the

State in which the operations of a bank holding com-

on dalegge agate gh conducted is that

tate in which total deposits of all banking sub-

sidiaries are largest.

Il.

—T8a—

Regulations

12 C.F.R. § 28.2(b) provides:

A “Federal agency” is an office or _ of business,

licensed by the Comptroller an iS. eee by a

foreign in any State of the Uni » whi

can in the business of banking but cannot ex-

ercise fiduciary powers or accept deposits from citi-

zens or residents of the United States. A Federal

agency may, however, maintain credit balances.

12 C.F.R. § 28.2(c) provides:

Seusetl ie Gea Cosetedioe unk sneenek bp mile

lice: y the Comptroller and ya

eign bank in any State of the United States, which

can engage in the business of banking, including the

exercise of fiduciary powers and the acceptance of

— from citizens and residents of the United

tes.

12 C.F.R. § 28.2(d) provides:

range of powers available to any Federal branch.

12 C.F.R. § 28.3 provides:

(a) ns. A foreign bank desiring

to establish a F branch or agency, to convert

any state branch or or commercial

—7T9a—

Organization and Structure Division, 490 L’Enfant

Plaza, S.W., Washington, D.C. 20219 in accordance

with 12 C.F.R. 5.

(b) yy pee to Exercise Fiduciary Powers. A

foreign bank shall not exercise fiduciary powers at

a Federal branch unless it obtains approval of the

Comptroller of the Currency in accordance with 12

C.F.R. 5. An application to exercise fiduciary powers

may be submitted by a foreign bank at the time of

filing for a Federal branch license or at any subse-

quent date.

(c) Application to establish a Limited Federal

branch. Before submitting to the Comptroller an ap-

lication to establish a Limited Federal branch, a

oreign bank shall enter into an agreement with the

Federal Reserve Board to receive at such branch

only those — of deposits that would be permiss-

ible for an Edge Corporation organized under sec-

tion 25(a) of the Federal Reserve Act (12 U.S.C. 611).

12 C.F.R. § 28.4 provides:

Except as otherwise provided by the International

Banking Act, other federal laws or regulations, or any

rules or orders of the Comptroller, operations of a

foreign bank at a Federal branch or pee | shall be

conducted with the same rights and privileges and

shall be subject to the same duties, restrictions,

penalties, liabilities, conditions, and limitations that

would apply to a national bank at the same location.