Amicus Curiae Brief — NationsBank of North Carolina, N. A. v. Variable Annuity Life Insurance
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Bupreme Court, U.S. |
TITLED
Nos. 93-1612, 93-1613
aera e- 1994
IN THE
Supreme Court of the United States
OCTOBER TERM, 1994
NATIONSBANK OF NORTH CAROLINA, N.A. and
NATIONSBANC SECURITIES, INC..,
Petitioners,
Vv.
VARIABLE ANNUITY LIFE INSURANCE Co.,
Respondent.
On Writ of Certiorari to the
United States Court of Appeals
for the Fifth Circuit
BRIEF OF
CONFERENCE OF STATE BANK SUPERVISORS,
COMMUNITY BANKERS ASSOCIATION
OF NEW YORK STATE,
FLORIDA BANKERS ASSOCIATION,
INDEPENDENT BANKERS ASSOCIATION
OF AMERICA,
INDEPENDENT BANKERS ASSOCIATION OF TEXAS,
KENTUCKY BANKERS ASSOCIATION,
MISSISSIPPI BANKERS ASSOCIATION,
SAVINGS & COMMUNITY BANKERS OF AMERICA,
TEXAS BANKERS ASSOCIATION,
and WESTERN INDEPENDENT BANKERS
AS AMICI CURIAE IN SUPPORT OF PETITIONERS
DAVID W. RODERER *
Eric L. HIRSCHHORN
DONN C. MEINDERTSMA
WILLIAM B. F. STEINMAN
WINSTON & STRAWN
1400 L Street, N.W.
Washington, D.C. 20005-3502
(202) 371-5700
Counsel for Amici Curiae
* Counsel of Record
(Additional Counsel Listed on Inside Cover)
WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
DOYLE C. BARTLETT
CONFERENCE OF STATE BANK
SUPERVISORS
1015 18th St., N.W., Suite 1100
Washington, D.C. 20036
ROBERT O. LEHRMAN
COMMUNITY BANKERS
ASSOCIATION OF
NEW YORK STATE
200 Park Avenue
6th Floor West
New York, New York 10166
J. THOMAS CARDWELL
ACKERMAN, SENTERFITT &
EIDSON, P.A.
255 South Orange Avenue
Orlando, Florida 32802
Attorney for Florida Bankers
Association
LEONARD J. RUBIN
BRACEWELL & PATTERSON
2000 K Street, N.W.
Washington, D.C. 20006
Attorney for Independent
Bankers Association of
America
KAREN NEELEY
INDEPENDENT BANKERS
ASSOCIATION OF TEXAS
408 West 14th Street
Austin, Texas 78701
M. Brooks SEN
KENTUCKY BANKERS
ASSOCIATION
One Riverfron Plaza
Suite 500
Louisville, Ke: ‘ucky 40202
McKINLEY DE..VER
CLINT GARDNER
Mississippi BANKERS
ASSOCIATION
640 North Street
Jackson, Missi. sippi 39205
PHILIP GA-TEYER
SAVINGS & ('02! MUNITY
BANKER- OF AMERICA
900 19th Street, N.W.
Washington, D.C. 20006
KELLY RODGERS
GAYLE VICKERS
TFXAS BANKELrs ASSOCIATION
202 West 10th Street
Austin, Texas 78701
DAVID B. JACO"SOHN
VERNER, LIPF:RT, BERNHARD,
McPHERSON & HAND
901 15th Street, N.W.
Washington, D.C. 20005
Attorney for Western
Independent Bankers
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .......................................... ii
INTEREST OF THE AMICI CURIAE ..........__. 3
SUMMARY OF THE ARGUMENT ................ 6
EE ae 7
I. SECTION 24 SEVENTH AUTHORIZES NA-
TIONAL BANKS TO SELL ANNUITIES AS
PART OF AND INCIDENTAL TO THE BUSI-
NESS OF BANKING ......................................... 7
A. The Sale of Annuities Is Part of and Inci-
dental to the Business of Banking 9
B. The Court of Appeals Should Have Deferred
to the Comptroller’s Expert Determination on
National Bank Authority to Sell Annuities... 14
IJ. SECTION 92 DOES NOT IMPLIEDLY LIMIT
NATIONAL BANKS’ AUTHORITY TO MAR-
ee 16
A. Section 92 Has No Bearing on National
Bank Annuity Sales Because Annuities Are
Not “Insurance” Within the Meaning of
a 16
B. Section 92 Does Not Limit the Business of
SE GR 23
CONCLUSION ........0.0.....0......... inseeieneiassteeiusiiiiatinessianiapssennnsiies 28
ii
TABLE OF AUTHORITIES
CASES Page
American Ins. Ass’n v. Clarke, 865 F.2d 278 (D.C.
NN FLA Ree by een eine 14
Arnold Tours, Inc. v. Camp, 472 F.2d 427 (1st Cir
EE aeere ree ee Ne Ae 14
Board of Governors of Fed. Reserve Sys. v. Invest-
ment Co. Inst., 450 U.S. 46 (1981) 23, 26
Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984) 15
Clarke v. Securities Indus. Ass’n, 479 U.S. 288
(1987) ....... prindiniicniepennaiinia ianpailatiahiaa chinchilla 14,15
Commissioner v. First Sec. Bank, 405 U.S. 394
STITT ecoveissnshnvenilintensieiaiisenmhindieieinsatsi tat baa 27
Curtis v. Leavitt, 15 N.Y. 9 (1857)... 12
Dyer v. Broadway Cent. Bank, 252 N.Y. 430
REE A se 12
First Nat’l Bank of E. Ark. v. Taylor, 907 F.2d 775
(8th Cir.), cert. denied, 498 U.S. 972 (1990)...... 14
Franklin Nat’l Bank v. New York, 347 U.S. 373
ST SE NA RAI no NA 8, To 10
Independent Bankers Ass’n v. Heimann, 613 F.2d
1164 (D.C. Cir. 1979), cert. denied, 449 U.S. 823
ET RE Ne al PRS cre natn Temes 15, 17, 27
Independent Ins. Agents v. Board of Governors of
the Fed. Reserve Sys., 736 F.2d 468 (8th Cir.
PUI silkoitidibcennsensidiitnszesipeenithdinainsaiiniasniigaeiadn aetna ete 27
Independent Ins. Agents v. Ludwig, 997 F.2d 958
— *§ { eRe ees sr ie 19
Investment Co. Inst. v. Camp, 401 U.S. 617
Ree ee eee EYES 15, 25, 26, 28
Investment Co. Inst. v. Conover, 790 F.2d 925
(D.C. Cir.), cert. denied, 479 U.S. 939 (1986)... 15
John Hancock Mut. Life Ins. Co. v. Harris Trust
& Sav. Bank, 114 S. Ct. 517 (1993) 21
M & M Leasing Corp. v. Seattle First Nat’l Bank,
563 F.2d 1377 (9th Cir. 1977), cert. denied, 436
ON NY | ii 10, 12, 14
New York State Ass’n of Life Underwriters v.
New York State Banking Dep’t, 83 N.Y.2d 353
RRS eL WE NINE ie ee, SRAM Ae ay LOE Sg 12
iii
TABLE OF AUTHORITIES—Continued
: Page
New York State Ass’n of Life Underwriters v.
New York State Banking Dep’t, 598 N.Y.S.2d
824 (App. Div. 1993), aff'd, 88 N.Y.2d 353
ea ee ee ae hee 10, 11, 12
In re Newman, 993 F.2d 90 (5th Cir. 1993) .......... 20
SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65
OR ee ee. AUER ae eee 20, 21, 22
Saron v. Georgia Ass’n of Indep. Ins. Agents, Inc.,
399 F.2d 1010 (5th Cir. 1968) 13, 17, 25
Securities Indus. Ass’n v. Clarke, 885 F.2d 1034
(2d Cir. 1989), cert. denied, 493 U.S. 1070
EE ee Ee RA PNET Pe TP 14
United States v. Price, 361 U.S. 304 (1960) _... om 25
Variable Annuity Life Ins. Co. v. Clarke, 786 F.
Supp. 639 (S.D. Tex. 1991) 2
STATUTES
12 U.S.C. § 24 Seventh siitenlasaeiiiabaietineni cia ial il passim
12 U.S.C. § 25a(a)......... Pena e OS am ae 26
a ee en ae | 15
ES Uae © Oe .........-.... sicleaade snatiniieeiiaiiaie tits dictihndia atin passim
ee eee 26
I 15
12 U.S.C. § $71 ............... ialiliidlaliiiiini tli 10
SEINE reer arm Se 15, 23
Act of Sept. 7, 1916, c. 461,39 Stat.753 ... 24
National Bank Act of 1864, c. 106, 3 Stat. 100. _. 24
New York Free Banking Law of 1838 (now codi-
fied in relevant part at N.Y. Banking Law
§ 96(1) (McKinney 1993)) 11
MISCELLANEOUS
1 John A. Appleman, Insurance Law and Practice
EE eS Se. a eee 10, 20
Association of Banks-In-Insurance, Fact Book
SERS ISTE ace he ee poe 8
Joseph W. Bartlett, Variable Annuities: Evolution
and Analysis, 19 Stan. L. Rev. 150 (1966)... 20
Bray Hammond, Banks and Politics in America
from the Revolution to the Civil War (1957)... 11
iv
TABLE OF AUTHORITIES—Continued
John J. Knox, A History of Banking in the United
oleracea en bey
Note, Redefining Insurance: Distinguishing Be-
tween Life Insurance and Investment Under
Volatile Inflation, 91 Yale L.J. 1659 (1982)...
OCC, Interpretive Letter No. 331 [1985-87 Trans-
fer Binder] Fed. Banking L. Rep. (CCH)
I a8 aa
Ross M. Robertson, The Comptroller and Bank
Supervision: A Historical Appraisal (1968) ......
Ellen E. Schultz, Variable Annuities Provide the
Choices of Mutual Funds, Plus Some Taz
Breaks, Wall St. J., Oct. 14, 1998 .........0000 oo.
S. Rep. No. 727, 90th Cong., Ist Sess. (1967),
reprinted in 1967 U.S.C.C.A.N. 2228 000000000.
2B Norman J. Singer, Sutherland Statutes and
Statutory Construction §§ 51.01, 51.06 (5th ed.
a
Edward L. Symons, Jr., The “Business of Bank-
ing” in Historical Perspective, 51 Geo. Wash. L.
| I ER A I Sie SD
Page
11
20
4, 23
24
10
26
11
IN THE
Siypwenwe Cart of the United States
OCTOBER TERM, 1994
Nos. 93-1612, 93-1613
NATIONSBANK OF NORTH CAROLINA, N.A. and
NATIONSBANC SECURITIES, INC.,
. Petitioners,
VARIABLE ANNUITY LIFE INSURANCE Co.,
Respondent.
On Writ of Certiorari to the
United States Court of Appeals
for the Fifth Circuit
BRIEF OF
CONFERENCE OF STATE BANK SUPERVISORS,
COMMUNITY BANKERS ASSOCIATION
OF NEW YORK STATE,
FLORIDA BANKERS ASSOCIATION,
INDEPENDENT BANKERS ASSOCIATION
OF AMERICA,
INDEPENDENT BANKERS ASSOCIATION OF TEXAS,
KENTUCKY BANKERS ASSOCIATION,
MISSISSIPPI BANKERS ASSOCIATION,
SAVINGS & COMMUNITY BANKERS OF AMERICA,
TEXAS BANKERS ASSOCIATION,
and WESTERN INDEPENDENT BANKERS
AS AMICI CURIAE IN SUPPORT OF PETITIONERS
Discharging his statutory authority to administer the
federal banking laws, the Comptroller of the Currency
ruled that petitioner NationsBank may sell annuities
2
through its subsidiary. Respondent VALIC, a competing
annuities distributor, challenged the Comptroller’s deter-
mination. The district court properly deferred to and up-
held the Comptroller's ruling. Variable Annuity Life Ins.
Co. v. Clarke, 786 F. Supp. 639 (S.D. Tex. 1991); re-
printed at App. 29a.’ According no deference to the
Comptroller’s reasoned interpretation of the National Bank
Act, the Court of Appeals for the Fifth Circuit thereafter
reversed, ruling that 12 U.S.C. § 92 (Supp. V 1993)—
which expressly authorizes banks located in small towns
to “act as the agent for any fire, life, or other insurance
company”—impliedly precludes national banks located
outside small towns from selling annuities, notwithstand-
ing any authorization that national banks might have to
do so under 12 U.S.C. § 24 Seventh (1988 & Supp. V
1993). App. la. In the absence of an express statu-
tory prohibition on the sale of annuities by national
banks, the appellate panel improperly undertook a de
novo review of the law and its sparse legislative history
and reversed the district court judgment. Four judges
strenuously dissented from the court’s subsequent refusal
to rehear the case en banc, stating that the panel had im-
properly substituted its own view of the Act for the
Comptroller’s and moreover had “badly erred” in its in-
terpretation of the statutes. App. 20a, 22a.
This case involves the interpretation of a statute—the
National Bank Act (the “Act”)—that is more than 130
years old, together with an early twentieth century
‘The petitioners in these consolidated cases are NationsBank
of North Carolina, N.A. and NationsBanc Securities, Inc., here-
after collectively referred to as NationsBank, and the United
States and the Comptroller of the Currency. Citations to the
appendices to the petition of NationsBank in No. 93-1612 are
denoted by “App.” No joint appendix has been filed in this case.
Pursuant to Supreme Court Rule 37.3, amici have requested and
received consent to file this brief from counsel for petitioners and
from counsel for respondent Variable Annuity Life Insurance Co.
The original letters of consent to the filing of this brief have been
filed with the Clerk of this Court.
3
amendment, and their application to contemporary finan-
cial products. The court of appeals refused to recognize
that Congress has provided a flexible scheme that allows
the business of banking to evolve to meet the changing
needs of the marketplace. Fixing instead upon a single
provision of the Act that grants additional powers to cer-
tain banks (i.e., those that are located in communities
with populations less than 5000), 12 U.S.C. § 92, the
court of appeals would impose restrictions that are not ex-
pressed in the Act on all national banks in all other loca-
tions. The court of appeals accorded no deference to
the Comptroller’s expert analyses under Sections 24
Seventh and 92, ignoring the design and objectives of the
Act as well as the fundamental role of the Comptroller
in administering the Act.
Amici support the petitioners in urging this Court to
reverse the judgment below.
INTEREST OF THE AMICI CURIAE
Amici include the national association of state bank-
ing regulators—the Conference of State Bank Supervisors
—and national, regional, and state trade associations for
the financial services industry representing financial insti-
tutions of all sizes and types. The member institutions of
amici associations are located in every state and the Dis-
trict of Columbia, and in major financial centers as well
as in small communities and rural areas.
The Conference of State Bank Supervisors (CSBS) is
the professional association of state government officials
responsible for chartering and regulating more than 8000
state-chartered banking institutions in the fifty states and
in Guam, Puerto Rico, and the Virgin Islands. CSBS
joins this brief out of specific concern about the impor-
tant policy consequences of the court of appeals’ decision.
In particular, the court of appeals’ decision would have
an indirect effect on the financial strength and competi-
4
tiveness of state-chartered banks, because many such
banks operate under state laws (so-called wild card
statutes) that grant state banks the same powers as are
held by national banks. The court of appeals’ decision
in this respect affects the supervisory authority of bank
regulators over state-chartered banks.
The remaining amici are associations representing
many financial institutions that sell annuities. These
amici and their members are directly and adversely af-
fected by the court of appeals’ decision. If allowed to
stand, the decision will have an immediate and destruc-
tive effect upon the substantial busines of bank sales of
annuities. Some institutions represented by amici have
been marketing annuities for nearly a decade, in accord-
ance with long-standing decisions of the Comptroller.
See, e.g., OCC, Interpretive Letter No. 331 [1985-87
Transfer Binder] Fed. Banking L. Rep. (CCH) 4 85,501
(1985). Amici include the following national and state
associations whose members have an interest in the out-
come of this case:
The Community Bankers Association of New York
State is the principal trade association for savings institu-
tions in New York. Its 129 members represent $126
billion in assets and include federal and state-chartered
savings banks and savings and loan associations, and
mutual and stock-owned savings and banking institutions.
The Florida Bankers Association (FBA) is the prin-
cipal organization representing commercial banks in
Florida. FBA’s 321 members comprise 88% of the banks
in the state, and these member banks hold 96% of the
state’s bank deposits.
The Independent Bankers Association of America
(IBAA) is the only national trade association that exclu-
sively represents the interests of the nation’s community
banks. The 5800 member institutions of IBAA serve a
varicty of communities—cities, suburbs, and rural areas
—in all fifty states and the District of Columbia.
5
The Independent Bankers Association of Texas
(IBAT) is a trade association representing approximately
800 independently owned or community banks domiciled
in the State of Texas. The IBAT membership includes
both national and state-chartered institutions.
The Kentucky Bankers Association is a trade associa-
tion of 300 national and state banks representing over
95% of the banking industry in Kentucky.
The Mississippi Bankers Association (MBA) (for-
mally known as the Mississippi Association of Financial
Institutions of Deposit, Inc.) is a trade association rep-
resenting commercial banks in Mississippi. MBA com-
prises 114 commercial banks, which hold over 99% of
the state’s commercial banking assets.
Savings & Community Bankers of America is the na-
tional trade organization for the savings industry. Its
1900 members include federal and state-chartered institu-
itons, stockholder or mutually-owned, throughout the
United States.
The Texas Bankers Association (TBA) is the prin-
cipal trade association for the commercial banking indus-
try in Texas. TBA’s members include over 900 federal
and state-chartered banks within the state. The members
include banks of all sizes located throughout Texas, in-
cluding independent banks as well as members of multi-
state holding companies. TBA members account for ap-
proximately 95% of the deposits in Texas’ commercial
banking system.
Western Independent Bankers (WIB) is the only re-
gional multistate banking association in the United States.
Its members consist of 250 independent community banks
located in Alaska, Arizona, California, Hawaii, Idaho,
Montana, Nevada, Oregon, Washington, Utah and Wyo-
ming, as well as American Samoa and Guam. WIB’s
members account for more than $34 billion in banking
assets.
6
SUMMARY OF THE ARGUMENT
At issue in this case is the ability of national banks to
market annuities as selling agents of other, third-party
issuers. Because banks act as intermediaries in the issu-
ance of annuity contracts, such annuity sales by national
banks pose no risk to the financial safety and soundness
of the banks themselves. At the same time, bank annuity
sales benefit the public, which understandably expects
banks to offer a wide range of financial products and
services. Sales of investment products, including mutual
funds and annuities, provide banks with an important
and growing source of revenue.
The Comptroller—who is charged with the responsibil-
ity to ensure the soundness of national banks—correctly
determined that fixed and variable annuities are financial
investment products that fall within the business of bank-
ing, and that the sale of such products by national banks
accordingly is authorized under 12 U.S.C. § 24 Seventh.
The court of appeals erred both in refusing to recognize
the congressionally-designed flexibility of national banks
to sell innovative financial products, and in failing to
accord appropriate deference to the Comptroller’s reason-
able interpretation of the Act.
The Comptroller also properly determined that annui-
ties are not “insurance” within the meaning of 12 U.S.C.
§ 92 and that Section 92 does not impliedly limit bank
sales of annuities. Variable and fixed annuities are rec-
ognized by the great weight of authority to be invest-
ments, and thus are appropriate elements of the business
of banking regardless of whether certain types of annui-
ties bear some “insurance” or risk-shifting characteristics
The court of appeals improperly failed to accord any def-
erence to the Comptroller’s determination that annuities
are not “insurance” within the meaning of Section 92.
The court of appeals also erred in reading Section 92
as an implied limitation on the authority of national
banks to sell annuities as a financial product within the
7
parameters of the business of banking. Section 92 does
not by its terms limit bank sales of annuities or insurance,
nor does the affirmative authorization in Section 92 for
banks located in small towns to act as general insurance
agents in the sale of a wide range of insurance policies
negate other banks’ ability to market specific types of
investment products such as the annuities at issue in this
case. Congress did not attempt in Section 92 to define
fully the powers of national banks to engage in the sale
of all types of insurance-related products.
ARGUMENT
Section 24 Seventh was reasonably interpreted by the
Comptroller to authorize NationsBank to sell annuities
because that activity is within banks’ power to broker
financial investment instruments. App. 37a-41a.? Section
24 Seventh does not enumerate the specific types of finan-
cial products and services that national banks may mar-
ket. Instead the statute provides substantial flexibility to
allow for the development of financial products to meet
the changing needs and expectations of consumers. More-
over, Section 92 was reasonably found by the Comptroller
not to .mit the authority of national banks to market
specific types of investment products such as annuities,
regardless of whether such products are deemed to be
“insurance” for purposes of that law.
I. SECTION 24 SEVENTH AUTHORIZES NATIONAL
BANKS TO SELL ANNUITIES AS PART OF AND
INCIDENTAL TO THE BUSINESS OF BANKING.
Banks have played a historic role in our national com-
merce as financial intermediaries. In furtherance of this
role, banks have long offered annuity contracts as part of
2 The Comptroller also noted that to the extent the annuity con-
tracts at issue in this case might be considered “securities” under
the Glass-Steagall Act, they would fall within national banks’
express securities brokerage authority, which appears elsewhere in
Section 24 Seventh. App. 37a.
8
the diverse menu of financial investments made available
to bank customers.
The Comptroller’s ruling allowing the sale of both fixed
and variable annuities by national banks is _ pro-
competitive. In particular, consumers find in banks a
convenient and ready provider of these types of financial
products. As the Comptroller noted in his opinion: “Cus-
tomers will benefit from the increased range of products
made available to them by [petitioner NationsBank].”
App. 48a. Bank customers are the primary beneficiaries
of bank annuity sales because the distribution of annuities
by and through banks provides a convenient and competi-
tive means for consumers to purchase such investment
products. Indeed, between 75% and 90% of those
purchasing annuities from banks in 1993 were first-
time buyers of these products. Association of Banks-
In-Insurance, Fact Book 7 (1993). Annuity issuers also
benefit from banks’ ability to serve as a popular “retail”
outlet for their annuity products. The court of appeals’
attempted revocation of banks’ ability to sell annuities
would leave consumers with little choice but to purchase
annuities through fewer and less conveniently available
sources, such as insurance agents and other non-bank dis-
tributors like respondent VALIC. In short, by foreclosing
bank annuity sales and thus constricting the consumer’s
opportunity to purchase annuities, the decision below
would make the public the victim of its error.
Banks’ ability to market annuities and similar invest-
ment products also benefits the banking system. Fees gen-
erated by bank brokerage of annuities represent an in-
creasingly important source of revenue for banks. Banks’
financial positions are strengthened by these fees. Recent
Statistics provided by Kenneth Kehrer and Associates
demonstrate that financial institutions more than tripled
their annual annuity sales between 1987 and 1993. By
1993 annual annuity sales by financial institutions in the
United States totalled $/3.5 billion. In 1993 banks and
thrifts accounted for 21.3% of individual annuity sales.
9
At the same time, the sale of annuities by banks poses no
risk to the financial security of banks, for at issue here
is solely their ability to act as agents for non-bank issuers
of the annuity contracts. For the same reason, such bank
sales of annuities pose no risk to the federal deposit
insurance funds.
A. The Sale of Annuities Is Part of and Incidental to
the Business of Banking.
Under the Act, Congress empowered national banks to
engage in the business of banking. In Section 24 Con-
gress set forth the basic elements of national bank powers.
Congress did not in that Section or elsewhere exhaus-
tively delineate the parameters of banking functions, nor
does the Act enumerate all the financial products and
services that national banks may offer their customers.
Rather, Congress in Section 24 Seventh imbued national
banks with “all such incidental powers as shall be neces-
sary to carry on the business of banking.” 12 U.S.C. § 24
Seventh.
Consistent with their charter to carry out the business
of banking and pursuant to the “incidental powers” clause
of Section 24 Seventh, national banks traditionally have
provided a wide and increasingly diverse range of finan-
cial products and services to the public. Annuities are
within the scope of the types of financial services that
national banks have long provided to their customers.
Annuities, like such other familiar investment products as
certificates of deposit and mutul funds, offer consumers
a convenient way to obtain a return on their assets and
to augment their savings. The tax-deferred feature of an-
nuities, similar to individual retirement accounts (IRAs),
makes annuities particularly appealing as investments for
retirement. The Comptroller recognized this function of
annuities: “Most commonly, annuities are marketed as
a tax-sheltered means of saving for retirement.” App. 38a.
Annuities are widely recognized as essentially investment
products, and the Comptroller’s reasoned determination
10
that annuities are financial investment products, within the
power of national banks to market is reasonably founded
both in the law and the perceptions of the marketplace.
E.g., New York State Ass'n of Life Underwriters v. New
York State Banking Dep't, 598 N.Y.S.2d 824, 828 (App.
Div. 1993) (upholding power of New York-chartered
banks to market annuities: “[T]he great weight of author-
ity in this country views an annuity as an investment and
not a contract of insurance.”), aff'd, 83 N.Y.2d 353
(1994) (“Life Underwriters”). “Annuity contracts must
. . . be recognized as investments, rather than insurance.”
| John A. Appleman, Insurance Law and Practice § 84,
at 295 & n.3 (1981) (collecting cases).*
While Section 24 Seventh does not expressly mention
“annuities”—just as it does not mention IRAs or, for ex-
ample, certificates of deposit—the investment characteris-
tics of annuities make them financial investment products
that fit comfortably within the contemporary business of
banking. “[T]he National Bank Act did not freeze the
practices of national banks in their nineteenth century
forms.” M & M Leasing Corp. v. Seattle First Nat'l
Bank, 563 F.2d 1377, 1382 (9th Cir. 1977), cert. denied,
436 U.S. 956 (1978). Rather, “the powers of national
banks must be construed so as to permit the use of new
ways of conducting the very old business of banking.”
Id. Indeed, as this Court has instructed in interpreting
the statutory powers of national banks, “[w]e do not think
the . . . Act should be construed to freeze individual
banks . . . to the customs and practices preceding the
statute.” Franklin Nat'l Bank v. New York, 347 US.
373, 377 (1954) (holding that national banks may use
the term “savings” in advertising the availability of de-
posit accounts ) .*
* See also Ellen E. Schultz, Variable Annuities Provide the
Choices of Mutual Funds, Plus Some Tax Breaks, Wall St. J.,
Oct. 14, 1993, at Cl (describing variable annuities as investment
contracts).
*The provision at issue in that case—enacted as part of the
Federal Reserve Act and previously codified at 12 U.S.C. § 371
11
Judicial interpretations of Section 24 Seventh’s specific
state law predecessor reinforce the intent of the federal
incidental powers clause to provide for the full participa-
tion of banks in the evolving business of banking. Section
18 of the New York Free Banking Act of 1838 (now
codified in relevant part at N.Y. Banking Law § 96(1)
(McKinney 1993)) (“Section 96(1)”), which contains
language identical to that of Section 24 Seventh, is ac-
knowledged to be the progenitor of the incidental powers
clause of Section 24 Seventh. Edward L. Symons, Jr.,
The “Business of Banking” in Historical Perspective, 51
Geo. Wash. L. Rev. 676, 698-99 (1983).° The principal
drafter of the legislation that would become the Act, Rep-
resentative Elbridge G. Spaulding, was a New York law-
yer and banker. John J. Knox, A History of Banking in
the United States 221, 294 (1901). He was undoubtedly
well aware of the purpose of New York’s incidental
powers clause when he included identical language in the
federal statute. Indeed, in his remarks to the House of
Representatives, Representative Spaulding stated that “the
[federal] bill in all its essential features is like the free
banking law of the State of New York.” Symons, supra,
at 699. Hence, Section 96(1) is instructive as to the
meaning of—and the congressional intent underlying—the
federal provision.°
New York courts, in holding that the sale of annuities
by banks is permissible under Section 96(1), have recog-
nized that “the ‘incidental powers’ clause has as its pur-
pose events in futuro.” Life Underwriters, 598 N.Y.S.2d
at 827, 829 (App. Div. 1993), aff'd, 83 N.Y.2d 353
(1994). The New York Court of Appeals affirmed the
(1952)—dealt with the authority of national banks to accept and
pay interest on time and savings deposits. 347 U.S. at 375-76.
5 See Bray Hammond, Banks and Politics in America From the
Revolution to the Civil War 727 (1957); John J. Knox, A History
of Banking in the United States 221-22 (1901).
® See 2B Norman J. Singer, Sutherland Statutes and Statutory
Construction §§ 51.01, 51.06 (5th ed. 1992) (state and federal
statutes in pari materia are to be construed together).
12
appellate division’s decision in Life Underwriters earlier
this year and emphasized that “the business of banking is
not static but rather must adjust to meet the needs of the
customers to whom banking organizations provide a val-
uable service.” 83 N.Y.2d at 361.
This interpretation of New York’s incidental powers
clause is of long standing. The decisions in Life Under-
writers were based on Curtis v. Leavitt, 15 N.Y. 9
(1857), handed down seven years before Congress en-
acted the National Bank Act. In Curtis, the New York
Court of Appeals held that banks may borrow money—
though not expressly empowered to do so by statute—as
a power incidental to the business of banking. /d. at 54-
59.
In Dyer v. Broadway Central Bank, 252 N.Y. 430
(1930), the New York Court of Appeals reaffirmed the
essential flexibility of the state’s incidental powers clause.
The court there recognized that “[b]Janks ex necessitate
have been required to extend their functions and perform
services formerly foreign to the banking business.” /d. at
433. Indeed, the court in Dyer cautioned that “care
should be exercised not to cripple [banks] and break
down their usefulness by a narrow and unreasonable con-
struction of the [banking] statutes which will result in un-
wisely limiting their usefulness in the transaction of busi-
ness under modern conditions.” Jd. at 434.
Like its New York counterpart, the incidental powers
provision of Section 24 Seventh does not “freeze” the
business of banking in time. M & M Leasing Corp., 563
F.2d at 1382. Rather the incidental powers clause should,
like its New York predecessor, “be construed as an inde-
pendent, express grant of power, intended to reflect the
ever-changing demands of the banking business.” Life
Underwriters, 83 N.Y.2d at 363. The proper inquiry
under Section 24 Seventh is not whether the sale of an-
nuities was incidental to the business of banking 130 or
even 80 years ago, but whether the sale of such products
is incidental to the banking business today.
13
The court of appeals, however, overturned the reasoned
conclusion of the Comptroller that national bank sales of
annuities are part of the business of banking and are
authorized by the Act. The holding of the court of ap-
peals fundamentally misconstrues the well-established
function of the incidental powers clause and unduly con-
strains the flexible statutory scheme crafted by Congress
to govern national banks. The court of appeals wrongly
looked to the embryonic business of banking as it then
existed in 1864 (when the Act was enacted) and in 1916
(when Section 92 was added to the Act) to determine
whether the sale of annuities is incident to that business
today. App. 17a. This retrospective analysis ignores the
purpose of Section 24 Seventh—to allow the business of
banking to evolve to meet changing market and consumer
demands."
Rather than address the well-established purpose of the
incidental powers clause or its import to national bank
sales of annuities, the court of appeals stated summarily
that “[e]ven conceding arguendo that the power to sell
annuities would be one incidental to banking, by no
stretch of the imagination can that power be deemed
‘necessary. ” App. 15a (emphasis added). Thus, in addi-
tion to ignoring the flexibility of the incidental powers
clause, the court of appeals also erroneously relied upon
an overly restrictive and judicially discredited test in re-
viewing the bank’s activities. Federal courts consistently
have rejected this restrictive construction of the incidental
powers clause for at least two decades.* Instead, the
™ The court of appeals repeated the error it had made in Saxon
v. Georgia Ass’n of Independent Insurance Agents, Inc., 399 F.2d
1010, 1013 (5th Cir. 1968). There the court of appeals similarly
looked to the business of banking as it existed in 1916 to deter-
mine whether a national bank could operate an insurance agency
under the incidental powers clause of Section 24 Seventh.
8 As noted above, the New York state courts have rejected this
crabbed interpretation of the incidental powers clause for over a
century: “It is plain that [banking] corporations, in executing
their express powers, are not confined to means of such indispensa-
14
courts generally construe an activity to be a permissible
form of the business of banking under Section 24 Seventh
if the activity is “convenient or useful in connection with
the performance of one of the bank’s established activities
pursuant to its express powers under the National Bank
Act.” Arnold Tours, Inc. v. Camp, 472 F.2d 427, 432
(1st Cir. 1972) (emphasis added); accord M & M Leas-
ing Corp., 563 F.2d at 1382; Securities Indus. Ass'n v.
Clarke, 885 F.2d 1034, 1049 (2d Cir. 1989), cert. de-
nied, 493 U.S. 1070 (1990); First Nat'l Bank of E. Ark.
v. Taylor, 907 F.2d 775, 778 (8th Cir.), cert. denied,
498 U.S. 972 (1990). Cf. American Ins. Ass'n v Clarke,
865 F.2d 278 (D.C. Cir. 1988) (finding even the “con-
venient and useful” test of Arnold Tours to be unduly
restrictive ).
B. The Court of Appeals Should Have Deferred to the
Comptroller's Expert Determination on National
Bank Authority to Sell Annuities.
The Comptroller's determination that national banks
are authorized to sell annuities is consistent with his
responsibility to administer the Act so as to ensure the
safety and soundness of banks. Congress created the Of-
fice of the Comptroller of the Currency to oversee na-
tional banks and administer the national banking laws.
For over a century the Comptroller has been expert in
this complex area of law, regulation, and business:
[C]ourts should give great weight to any reasonable
construction of a regulatory statute adopted by the
agency charged with the enforcement of that statute.
The Comptroller of the Currency is charged with the
enforcement of banking laws to an extent that war-
rants the invocation of this principle with respect to
his deliberative conclusions as to the meaning of
these laws.
ble necessity that without them there could be no execution at all.”
Curtis, 15 N.Y. at 64-65.
15
Clarke v. Securities Indus. Ass'n, 479 U.S. 388, 403-04
(1987) (“Clarke v. SIA”) (quoting Investment Co. Inst.
v. Camp, 401 U.S. 617, 626-27 (1971)); see also 12
U.S.C. §§ 26 (1988) (Comptroller's chartering author-
ity), 211(a) (1988 & Supp. V 1993) (rulemaking au-
thority), 1818 (1988 & Supp. V 1993) (enforcement
authority). The financial services industry is complex,
ever-changing, and heavily regulated. Independent Bank-
ers Ass'n v. Heimann, 613 F.2d 1164, 1168 (D.C. Cir.
1979), cert. denied, 449 U.S. 823 (1980). This regula-
tory and competitive environment is particularly suited to
the expert judgment of the regulators that deal with the
industry on a day-to-day basis.
While Congress allowed for the activities of national
banks to evolve over time, that evolution was made sub-
ject to the supervision of the Comptroller. Congress em-
powered the Comptroller to ensure the orderly develop-
ment of the national banking system consistent with safe
and sound banking standards. It is this regulatory au-
thority that has allowed the business of banking to evolve
and meet the challenges of the ever-changing financial
services market, though the structure of the Act has re-
mained essentially unchanged for well over a century.
Whether the sale of annuities is an “incidental power”
under Section 24 Seventh is in the first instance for the
Comptroller to determine. See Chevron U.S.A., Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837,
843-45 (1984); Clarke v. SIA, 479 US. at 403-04:
Investment Co. Inst. v. Conover, 790 F.2d 925, 931-32
(D.C. Cir.) (upholding decision of Comptroller authoriz-
ing national bank to establish and market a collective
investment trust for assets of IRAs), cert. denied, 479
U.S. 939 (1986). His determination should control so
long as it represents a reasonable construction of the Act.
Ignoring this fundamental principle of administrative law,
the panel instead rendered its own interpretation, com-
pounding its error by looking backward in time instead of
forward. By substituting its own construction of the stat-
16
ute for that of the Comptroller, the court of appeals ig-
nored the regulatory scheme established by Congress, in
derogation of the instructions of this Court in Chevron
and Clarke v. SIA, and improperly constructed anticom-
petitive barriers that prevent banks from participating
fully in the rapidly changing financial services market-
place.
II. SECTION 92 DOES NOT IMPLIEDLY LIMIT
NATIONAL BANKS’ AUTHORITY TO MARKET
ANNUITIES.
The court of appeals did not—and could not—rely
upon any express statutory restriction on bank sales of
annuities because none is to be found. Instead the court
of appeals engaged in an indirect, two-step inquiry: The
panel first determined that Section 92 impliedly precludes
banks located outside small towns from selling insur-
ance because Section 92 affirmatively authorizes banks in
small towns to act as insurance agents. The court of
appeals then found that annuities are insurance. This
analysis begged the fundamental question in this case—
whether the federal banking laws, particularly Section 92,
evidence a congressional intent to preclude national bank
sales of annuities.
When he examined the issue, the Comptroller correctly
found that Section 92 does not expressly or impliedly limit
the authority of national banks to market annuities and
that in any event, annuities are not insurance within the
meaning of Section 92. The Comptroller’s reasoned deter-
mination should be upheld, and the contrary ruling of the
court of appeals should be reversed.
A. Section 92 Has No Bearing on National Bank
Annuity Sales Because Annuities Are Not “Insur-
ance” Within the Meaning of That Section.
Section 92 addresses only the solicitation and sale of
insurance policies, and therefore sheds no light on
whether national banks may market annuities. Both as
17
a matter of congressional intent and from a contempo-
rary perspective, the full range of annuities at issue in
this case are not “insurance” within the meaning of Sec-
tion 92. Accordingly, Section 92 is not pertinent to the
case at hand.
As an initial matter, the court of appeals erroneously
relied on its prior decision interpreting Section 92, Saxon
v. Georgia Ass'n of Independent Insurance Agents, Inc.,
399 F.2d 1010 (Sth Cir. 1968). Saxon was an “insur-
ance” case that entailed no question as to the status of
the product under the Act. There, the bank had received
approval to sell “broad forms of automobile, home, cas-
ualty and liability insurance” as agent for insurance com-
panies. /d. at 1012. The Saxon court read Section 92
impliedly to limit the scope of national bank authority,
invoking the interpretive maxim, expressio unius est ex-
clusio alterius. See App. 6a. Considering that “Congress
dealt specifically with the insurance agency power in
Section 92,” the Saxon court found that “the expressio
unius rule negates the existence of any other power to
act as an insurance agent under the general provisions of
Section 24(7).” 399 F.2d at 1014. Here, what is at
issue is the sale of annuities issued by third parties by
national banks, and the decision in Saxon regarding
broad insurance powers is inapposite. Other courts have
similarly distinguished Saxon in cases involving particular
bank products or services. See Independent Bankers
Ass'n v. Heimann, 613 F.2d 1164, 1170 (D.C. Cir. 1979)
(authorizing national bank sales of credit life insurance,
and distinguishing Saxon as involving “banks’ authority
to sell broad forms of automobile, home, casualty and
liability insurance”), cert. denied, 449 U.S. 823 (1980).
Because this case involves only the sale of annuities,
the expressio unius rationale embraced by Saxon has no
utility here: it is a non sequitur to argue that Section
92’s enabling provisions as to “insurance agency powers,”
399 F.2d at 1014, foreclose national banks from selling
annuities. The conclusions the Saxon court gleaned from
18
Section 92 about national banks’ insurance agency power
to sell “insurance . . . policies,” 12 U.S.C. § 92, shed no
light on such banks’ incidental power to market annuities
and other subsequently developed products about which
Section 92 is necessarily silent. In short, even were the
Saxon exegesis sound, Congress’ decision in 1916 to grant
power to banks located in small communities to “solicit[]
and sell[] insurance . . . policies,” 12 U.S.C. § 92, evinces
no intent to circumscribe national banks’ authority to
market other products, whether they be annuities, IRAs,
money market funds, or _ yet-to-emerge investment
arrangements.
Neither the text nor the purpose of Section 92 sup-
ports the court of appeals’ conclusion that Congress in-
tended by Section 92 to limit annuity sales by national
banks on a geographic basis. As to text, a plain reading
of the provision gives rise to a fair inference that Con-
gress did not intend to address annuity sales at all, since
Congress did not use the word “annuities.” Equally as
plausible as the court of appeals’ conclusion that Section
92 impliedly restricts national bank sales of annuities,
then, is the conclusion that Congress did not speak to
annuities at all in that provision.
Nor does Section 92 exhibit any public policy basis
on which Congress would restrict national bank sales of
annuities. By blindly applying the expressio unius rule,
the court of appeals could draw only one conclusion as
to Section 92’s purpose: that by granting to national
banks in small towns the authority to act as general in-
surance agents Congress intended to preclude banks in
other locals from doing so. But the court retreated from
any attempt to explain why Congress would have in-
tended this conclusion.’ Further, the court offered no ex-
*® Searching for a rationale to support its conclusion, the court
cited only the sparse legislative history of Section 92—a letter by
then-Comptroller Williams to the Chairman of the Senate Banking
and Currency Committee. App. 7a-8a. In the Comptroller’s view,
19
planation why Congress, even if its intent in Section 92
were to limit national banks from acting as insurance
agents in the sale of broad forms of insurance, would
have also intended to restrict national bank sales of an-
nuities. In short, the court of appeals went far beyond
the text and design of the statute when it purported to
divine in Section 92 a congressional intent to foreclose
national banks from selling annuities. Congress simply
did not speak to that issue in Section 92.
The court of appeals cited no evidence that when Con-
gress enacted Section 92 in 1916 it deemed the annuities
at issue in this case to be a type of “insurance . . . pol-
ic{y].” *° Particularly with respect to variable annuities,
Section 92’s references to “insurance compan{ies]” and
“insurance . . . policies” cannot be read to encompass the
financial products at issue in this case. Variable annui-
ties were not originally the domain of insurance com-
panies, having first been introduced in the early 1950s
by a non-insurance organization, the College Retirement
Equities Fund. Not until the late 1950s did insurance
companies begin to imitate this product in an effort to
counter the declining popularity of traditional insurance
Section 92 was desirable because, in small towns, the amount of
insurance policies written would not be sufficient to “take up the
entire time of an insurance broker.” App. 8a. Public policy sup-
ported bank sales of insurance, then, to fill a void (servicing cus-
tomers in small towns) that insurance agents might not fill.
The Comptroller’s only rationale for distinguishing between
banks located in small towns and those located elsewhere is that
because smal] towns might not be serviced by independent insur-
ance agents, banks there would “not [be] likely to transgress upon
outside business naturally belonging to others.” Jd. The court of
appeals embraced this anticompetitive rationale without hesitation.
Such an anticompetitive intent, however, should not so readily be
attributed to Congress. Cf. Independent Ins. Agents v. Ludwig, 997
F.2d 958, 961 (D.C. Cir. 1993) (“[Wle cannot assume that Mr.
Williams’ letter was read, much less relied upon, by the majorities
in Congress who enacted section 92.’’).
10The federal banking laws do not define “insurance.” As of
1916 the term “annuity” did not appear in the federal banking laws.
20
products. Note, Redefining Insurance: Distinguishing Be-
tween Life Insurance and Investment Under Volatile In-
flation, 91 Yale L.J. 1659, 1664-65 (1982) (citing
Joseph W. Bartlett, Variable Annuities: Evolution and
Analysis, 19 Stan. L. Rev. 150, 150-52 (1966)); see
SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65, 69
& n.9 (1959) (“SEC v. VALIC”). Indeed, a wide range
of annuity products exists today, some not involving mor-
tality risks or actuarial calculations. See App. 27a
(Smith, J., dissenting from denial of rehearing en banc).
The court of appeals’ conclusion that Section 92 prohibits
national banks from marketing any annuities is not sup-
ported by the text or purpose of that provision.
By authorizing banks in small towns to sell “insurance”
policies, Section 92 does not forbid banks elsewhere from
selling annuities because annuities are not “insurance.”
“Ordinarily, it is recognized, even by laymen, that con-
tracts of life insurance and of annuity are distinctly dif-
ferent.” 1 John A. Appleman, /nsurance Law and Prac-
tice § 84, at 295 (1981); see App. 24a-25a (Smith, J.,
dissenting from denial of rehearing en banc) (citing au-
thorities).'’ This Court has squarely so held. SEC v.
VALIC, 359 U.S. at 65. There VALIC, the respondent
in this case, argued that a variable annuity product was
an “insurance” contract and therefore was exempt from
securities registration requirements. This Court disagreed,
emphasizing that the “concept of ‘insurance’ involves
some investment risk-taking on the part of the company.”
Id. at 71. Finding that variable annuities placed the in-
vestment risk on the policy holder, not the issuing com-
11 The court of appeals relied substantially on state laws that
characterize annuities as insurance. App. lla & n.2. In doing so,
the court ignored its own ruling that recognized annuities are not
always treated as contracts of insurance under state law. In Jn re
Newman, 993 F.2d 90 (5th Cir. 1993), the court of appeals held
that annuities are “general intangibles” under the Texas Uniform
Commercial Code (“UCC”). Significantly, the UCC expressly ex-
cludes insurance contracts from the category of “general intangi-
bles.” Jd. at 93-95.
21
pany, the Court ruled that variable annuities are not
“insurance” exempt from the Securities Act of 1933 and
Section 2(b) of the McCarran-Ferguson Act. Jd. at
66-73. Concurring, Justice Brennan found that while the
contracts contained “insurance features,” they nonetheless
to a substantial degree contained elements of investment
contracts and thus did not constitute “insurance.” /d.
at 91.
This Court reaffirmed the vitality of SEC v. VALIC
only last December. John Hancock Mut. Life Ins. Co. v.
Harris Trust & Sav. Bank, 114 S. Ct. 517 (1993). In
analyzing whether the contract at issue in John Hancock
was a “guaranteed benefit policy’ exempt from certain
aspects of the Employee Retirement Income Security Act,
the Court looked to its “decisions construing the insur-
ance policy exemption [of] the Securities Act of 1933.”
Id. at 527. In conducting this analysis the Court ex-
amined each component of the contract to determine
whether that component allocated risk to the insurer.
While not directly addressed by the decisions in SEC
v. VALIC or John Hancock, fixed annuities also are not
appropriately deemed to be “insurance” for purposes of
Section 92. As the Comptroller noted, fixed annuities
“are primarily financial investments” because their pur-
chasers “are not seeking to pool a catastrophic risk such
as death, injury, or property damage, but are instead
seeking a guaranteed, long-term return on their assets.”
App. 38a. Also, there is a “close functional resemblance
between fixed annuity contracts and other financial in-
vestment instruments that banks may sell as agent.”
App. 39a.
SEC v. VALIC and John Hancock provide persuasive
support for the Comptroller’s determination that annuities
are not “insurance” for purposes of Section 92, in that
neither fixed nor variable annuities bear the under-
writing risk hallmark of an insurance product. Beyond
that, however, the proper focus for purposes of the federal
22
banking laws, and in reviewing the Comptroller’s determi-
nations, is whether the particular activity at issue (here
the sale of annuities) bears a reasonable relationship to
the business of banking, not whether the product happens
to evidence some insurance characteristics. That a prod-
uct may have some insurance or risk-shifting attributes
does not disqualify it from the business of banking, for
there is no evidence that in enacting Section 92 Congress
drew any distinction between products that shift the risk
of loss from the policy holder to the policy issuer and
products that lack such a feature—a distinction this Court
found important in interpreting federal securities laws.”
At issue in this case is the authority of national banks to
act as intermediary between the policy holder and policy
issuer in the sale of a product with investment characteris-
tics. The locus of the risk has little bearing on that issue;
indeed, selling banks bear no such risk. Bank facilitation
of annuity sales is consistent with banks’ mission as finan-
cial services providers and with the sound business of
banking.
The Comptroller found that annuities are not “insur-
ance” within the meaning of Section 92. The court of
appeals did not even discuss whether deference to that
determination was warranted. Under the court of appeals’
“no-deference” standard, the judiciary would bear the de
novo responsibility for classifying each new financial in-
12 Cf. SEC v. VALIC, 359 U.S. at 80 (Brennan, J., concurring) :
“Much bewilderment could be engendered by this case if the issue
were whether the contracts in question were ‘really’ insurance or
‘really’ securities—one or the other. It is rather meaningless to
view the problem as one of pigeonholing these contracts in one
category or the other.”
For purposes of federal banking laws, a financial product that
bears investment characteristics should be presumed to fall within
the business of banking, even if the product also contains insurance
characteristics. In this way, Section 92, even if read as a limitation
on bank insurance powers, can be reconciled with Section 24 Sev-
enth’s authorization for national banks to carry out the business
of banking.
23
novation as “insurance” or “investment.” Congress has
provided a judicially more economical and competitively
better way—deferring to the expert judgment of the Comp-
troller as the primary interpreter of what constitutes the
business of banking.”
The statutory scheme does not give unrestricted power
to the banks. The Comptroller retains authority to limit
any activity that deviates from the authorization the Comp-
troller has given NationsBank. While this case does not
pose the question, the Comptroller can approve (or dis-
approve) and thereafter regulate national banks sales of
financial products and services, including insurance, that
are determined by him to be incidental to the business of
banking. The Comptroller may deny a request by a na-
tional bank to engage in such activity, or may take
enforcement action against an entity that does so. 12
U.S.C. § 1818 (1988 & Supp. V 1993). In short, the
Comptroller retains pervasive authority to make particu-
larized determinations to guard against compromise of the
letter or design of the federal banking laws. See Board of
Governors of Fed. Reserve Sys. v. Investment Co. Inst.,
450 U.S. 46, 57 (1981) (finding deference to Board par-
ticularly appropriate where procedures ensured that Board
would have “opportunity to ensure that no bank holding
company exceeds the bounds of a bank’s traditional fiduci-
ary function of managing customers’ accounts”).
B. Section 92 Does Not Limit the Business of Banking.
The premise of the court of appeals below and in its
prior decision in Saxon was that Section 92 poses a “spe-
131f it were Congress’ intent that national banks not market
annuities, Congress presumably would have said so by now. The
Comptroller first expressly authorized national banks to market
some forms of annuities a decade ago. See, e.g., OCC, Interpretive
Letter No. 331 [1985-87 Transfer Binder] Fed. Banking L. Rep.
(CCH) {| 85,501 (1985). In the intervening years Congress has
not enacted legislation depriving the Comptroller of the authority
to permit national bank sales of annuities.
24
cific limitation,” App. 3a; see App. 15a-16a, on the power
of national banks in places with more than 5000 residents
to sell insurance policies, and that this limitation super-
sedes any previous congressionally fashioned grant of gen-
eral authority for national banks to engage in the business
of banking under Section 24 Seventh. This premise and
the court’s conclusion that Congress in Section 92 fully
defined the scope of national bank powers to market
insurance-related products are incorrect.
As enacted in 1864, the Act did not limit the authority
of national banks to engage in insurance activities. Na-
tional Bank Act of 1864, c. 106, 13 Stat. 100; Ross M.
Robertson, The Comptroller and Bank Supervision: A
Historical Appraisal app. at 195-214 (1968). Not until
1916, more than a half century later, did Congress enact
Section 92—the provision the court of appeals found dis-
positive of this case. Act of Sept. 7, 1916, c. 461, 39
Stat. 753. Like the original Act, Section 92 did not l.mit
bank powers to market insurance products. Instead, Sec-
tion 92 expressly grants power “[iJn addition” to the
other powers of national banks.
Congress’ purpose in enacting Section 92 is made plain
by the provision’s text: banks in small towns are author-
ized to act as general insurance agents by soliciting and
selling a wide range of insurance policies on behalf of any
state-authorized “fire, life, or other insurance company”:
In addition to the powers now vested by law in na-
tional banking associations organized under the laws
of the United States any such association located and
doing business in any place the population of which
does not exceed five thousand inhabitants . . . may,
under such rules and regulations as may be pre-
scribed by the Comptroller of the Currency, act as
the agent for any fire, life, or other insurance com-
pany . . . by soliciting and selling insurance and col-
lecting premiums on policies issued by such com-
pany....
25
12 U.S.C. § 92. The court of appeals’ conclusion—that
Congress intended Section 92 to be the sole source of
authority for and definition of all bank insurance powers
—places on that provision far more significance than its
words can bear. Whatever its rationale, Congress did not
in Section 92 fully define the power of national banks to
participate in insurance-related functions.
Beyond the fact that the explicit wording of Section 92
makes plain that Congress did not intend that provision
to “occupy the field” of national bank marketing of
insurance-related products, Section 92 also gives no
indication that Congress impliedly attempted to restrict
the general bank powers set out in Section 24 Seventh.
In deciding this case, however, the court of appeals
“largely follow[ed]” its prior decision in Saxon. App.
17a. There, the court found that Section 92 placed spe-
cific limits on banks powers, even those that may have
been granted under the provisions of Section 24 Seventh.
By attempting to impose a limiting intent on the powers
of Section 24 Seventh, the court of appeals ignored this
Court’s oft-repeated admonition that “the views of a sub-
sequent Congress form a hazardous basis for inferring the
intent of an earlier one.” United States v. Price, 361 U.S.
304, 313 (1960). The court of appeals erred in viewing
the enabling legislation of 1916 as a provision intended
forever to foreclose national banks from marketing any
insurance-related financial investment products.
If Congress had intended to limit bank insurance activ-
ity, it knew how to say so. For example, Section 16 of the
Glass-Steagall Act expressly amended Section 24 Seventh
to limit banks’ authority to deal in securities and stocks,
and expressly stated that a national bank was not author-
ized to purchase stock for its own account. In 1971 this
Court examined whether the Comptroller properly could
authorize national banks to sell shares in a stock fund
created and maintained by the bank. Jnvestment Co. Inst.
v. Camp, 401 U.S. 617, 621 (1971). The Court noted
26
that “$$ 16 and 21 of the Glass-Steagall Act appear
clearly to prohibit this activity by national banks.” /d. at
625. Indeed, “[t}he literal terms of that Act clearly pre-
vent{[ed] what the Comptroller ha[d] sought to authorize.”
Id. at 639 (emphasis added). But even while yielding to
this clear statutory command, the Court emphasized that
courts “cannot come lightly to the conclusion that the
Comptroller has authorized activity that violates the bank-
ing laws.” Id. at 626."
Thus, when Congress wanted to draw a clear line de-
fining and limiting bank functions, it knew how to do so.
Just as it has defined the securities brokerage authority of
national banks, Congress has authoritatively defined the
trust powers of national banks. 12 U.S.C. § 92a (1988).
As another example, a national bank may not deal in lot-
tery tickets because Congress expressly has so stated. 12
U.S.C. § 25a(a) (1988). Section 92, in contrast, neither
purports fully to define national banks’ ability to market
specific insurance-related products, nor expressly forbids
national banks from doing so.
The Comptroller’s view that Section 92 is an enabling
provision and not a limiting one is further strengthened by
the absence from the 1916 legislative record of evidence
that national banks located outside small towns were
engaged in insurance activity, that such activity was
viewed as abusive, or that Section 92 was designed to stop
such a practice. By contrast, Congress banned national
bank dealing in lottery tickets in response to the fact that
banks in New York were doing just that. S. Rep. No.
14The Court was unwilling to defer to the Comptroller in the
Camp case because the Comptroller had not issued a written posi-
tion on the impact of the banking laws in promulgating the regula-
tion at issue. 401 U.S. at 627-28. Here, by contrast, the Comp-
troller made a reasoned determination that the banking laws per-
mit the activity he has authorized. See Board of Governors, 450
U.S. at 68 (adhering to the obligation to afford deference to Comp-
troller who—in contrast to the situation in Camp—had provided
his expert opinion on the issue at hand).
27
727, 90th Cong., Ist Sess. (1967), reprinted in 1967
U.S.C.C.A.N. 2228, 2229, 2231.
The text of Section 92 tells us only that Congress
thought that it should be statutorily explicit that banks
located in small towns may act as general insurance
agents. To read into Section 92 a negative (and anticom-
petitive) intent to define restrictively all national bank
activities regarding insurance, let alone regarding all in-
vestment products that may have some attributes in com-
mon with insurance, is to ascribe to that provision far
more than is warranted by the text. The court of appeals
erred in interpreting Section 92 to be dispositive of all
types of bank insurance-related sales activities.
Other courts of appeals have agreed: “There is a
strong argument that Saxon was wrongly decided. The
legislative history indicates that Congress was concerned
only with providing small-town banks with an additional
profit source, not with prohibiting city banks from selling
insurance.” Independent Ins. Agents v. Board of Gov-
ernors of the Fed. Reserve Sys., 736 F.2d 468, 477 n.6
(8th Cir. 1984). “By its own terms, the statute does not
address the authority of national banks in larger towns or
cities to act as agents for life insurance companies.” IJn-
dependent Bankers Ass'n v. Heimann, 613 F.2d 1164,
1170 n.18 (D.C. Cir. 1979) (authorizing sale of credit
life insurance), cert. denied, 449 U.S. 873 (1980). Cf.
Commissioner v. First Sec. Bank, 405 U.S. 394, 403 n.16
(1972) (“The making of credit insurance available to
customers was and is a common practice in the banking
business”; noting but not ruling on Saxon’s reading of
Section 92).
The proper approach to interpreting Section 92 is to
accept that provision for what it says—not, as did the
court of appeals, to draw expansive conclusions from
what it leaves unsaid. Section 92 lacks the clear, express
commands that would evidence congressional intent
wholly to define this field. If Congress perceives abuses
28
in Comptroller-sanctioned activities by banks in the in-
surance or investment product fields, Congress easily can,
as it has done elsewhere, limit the scope of that activity.’°
In this circumstance the judiciary should tread lightly,
taking care to avoid leaping from a narrowly stated posi-
tive addition to general banking powers to a sweeping
negation of all that is unstated, particularly where there
exists in pari materia a provision such as the incidental
powers clause. Absent “literal” legislative terms that
“clearly prevent” particular bank activity, JC] v. Camp,
401 U.S. at 639, the court of appeals should not have
overturned the studied determination of the Comptroller.
The court of appeals misinterpreted Section 92, and its
judgment should be reversed.
CONCLUSION
For the foregoing reasons, amici urge the Court to
reverse the judgment of the court of appeals.
Respectfully submitted,
DAVID W. RODERER *
Eric L. HIRSCHHORN
DONN C. MEINDERTSMA
WILLIAM B. F. STEINMAN
WINSTON & STRAWN
1400 L Street, N.W.
Washington, D.C. 20005-3502
(202) 371-5700
Counsel for Amici Curiae
* Counsel of Record
(Additional Counsel Listed on Inside Cover)
15 See ICI v. Camp, 401 U.S. at 644 (Blackmun, J., dissenting) :
I am not convinced that the Congress, by [the Glass-Steagall ]
Act or otherwise, as yet has proscribed the banking endeavors
under challenge here by competitors in a highly competitive
field . . . . I would leave to Congress the privilege of now
prohibiting such national bank activity if that is its intent
and desire.
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