# Petition — Conference of State Bank Supervisors v. Conover

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1984
- **Citation:** 466 U.S. 927

## Text

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.
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 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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0740%3A1. Public record. Not legal advice.