Amicus Curiae Brief — Chase Manhattan Bank, N. A. v. American Land Title Ass'n

}

Nos. 92-482, 92-645: | PY Sy ,

IN THE ; WOV12 Bae

Supreme Court of the Gni Sites. ass

OCTOBER TERM, 1992 ~~

THE CHASE MANHATTAN BANK, N.A.,

Petitioner,

Vv.

AMERICAN LAND TITLE ASSOCIATION, et al

Respondents.

STEPHEN R. STEINBRINK, ACTING COMPTROLLER

OF THE CURRENCY, et al,

Petitioners,

Vv.

AMERICAN LAND TITLE ASSOCIATION, et al,

Respondents.

On Petitions for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

Brief of First Interstate Bancorp, First Union Corporation,

The Huntington National Bank, KeyCorp,

National City Corporation, and Wells Fargo Bank, N.A.

as Amici Curiae in Support of the Petitions

DONALD B. AYER

(Counsel of Record)

DAVID W. RODERER

STEVEN J. MINTZ

JONES, DAY, REAVIS

& POGUE

1450 G Street, N.W.

Washington, D.C. 20005-2088

(202) 879-3939

Counsel for Amici Curiae

QUESTION PRESENTED

Whether 12 U.S.C. § 24(Seventh) allows national banks, with

the approval of the Comptroller of the Currency, to conclude that

national banks may sell various forms of insurance as part of "the

business of banking," despite the existence of 12 U.S.C. § 92,

which grants national banks located in places of 5,000 or less

population the additional power to "act as the agent for any fire,

life, or other insurance company."

TABLE OF CONTENTS

Page

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

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

INTEREST OF THE AMICI CURIAE.............. 2

SUMMARY OF ARGUMENT .................. 2

REASONS FOR GRANTING THE PETITIONS ....__.. 3

THE SECOND CIRCUIT’S CONSTRUCTION OF

SECTION 24(SEVENTH) CRITICALLY THREATENS

THE DEVELOPMENT AND SURVIVAL OF THE

NATIONAL BANKING INDUSTRY ............ 3

A. Banks and The Comptroller Have

Developed "The Business Of Banking"

in an Evolutionary Fashion. ............... 4

1. “The Business of Banking" Has Evolved

Nae ge ky Sov ke kw cae, 4

2. The Comptroller Has Played a Pivotal

Role in Developing "The Business of

De 12

B. The Second Circuit Erred in Denying The

Comptroller Authority To Approve Certain

Insurance Activities as an Important

Element of The Modern Business of Banking .... 15

re 20

(ili)

(iv)

TABLE OF AUTHORITIES

Page

Cases

American Ins. Ass'n v. Clarke, 865 F.2d

ee a es Eo sc es oh a wy eee 13, 16

Baltimore & Ohio R.R. v. Smith, 56 F.2d

Fee SE es EE <a oe hos eb A ea a es 14

Baltimore Gas & Elec. Co. v. Natural Resources

Defense Council, Inc., 462 U.S. 87 (1983) ......... 13

Chevron, U.S.A., Inc. v. Natural Resources Defense

Council, 467 U.S. 837 (1984) ........20.000.0.. 18

Clarke v. Securities Indus. Ass’n, 479

Se EN Mo ee nay kde ah eg ces 13

Colorado Nat’l Bank v. Bedford, 310 U.S. 41 (1940) .. 14

Connecticut Nat’l Bank v. Germain, 112 S. Ct.

SI ee ye ae a aa eh ae ek ee a 17

Dole v. United Steelworkers of America,

bg a cg ep ak ea eA we 18

First Nat'l Bank v. Hartford, 273 U.S.

I Sonne a Riis ce Aa ace ek us oe aw a 14

First Nat’l Bank vy. Taylor, 907 F.2d 775 (8th Cir.),

Cert. @emies, 111 3. Cx. 442 CIRO)... ee ew ews 16

Franklin Nat’l Bank v. New York, 347 U.S.

i | EREENSA ARER gp ae dnp CEES eons: on a ar 14

Independent Bankers Ass’n v. Heimann, 613

F.2d 1164 (D.C. Cir. 1979), cert. denied,

od me oh RR ra ee 16

Independent Ins. Agents of Am. v. Clarke,

955 F.2d 731 (D.C. Cir. 1992), cert.

pending (Nos. 92-484 and 92-507) .............. 16

Inland Waterways Corp. v. Young, 309 U.S.

EW Ca. uty ears oe lace pia ee a 19

Investment Company Institute v. Camp, 401

ee OUND xe ge Cae he wee ee eee ke os 13

(v)

TABLE OF AUTHORITIES - Continued

Page

M & M Leasing Corp. v. Seattle First Nat’l

Bank, 563 F.2d 1377 (9th Cir. 1977),

cert. denied, 436 U.S. 956 (1978) ............. i, i3

Massachusetts v. Morash, 490 U.S. 107 (1989) ....... 18

Oklahoma ex rel. State Banking Bd. v. Bank of

Okla., 409 F. Supp. 71 (N.D. Okla. 1975) ......... 12

Payne v. Tennessee, 111 S. Ct. 2597 (1991) ......... 19

Saxon v. Georgia Ass’n of Independent Ins.

Agents, 399 F.2d 1010 (Sth Cir. 1968) ............ 17

Schreiber v. Burlington Northern, Inc.,

a ies t SOU ee eae ce ie eee 18

Securities Indus. Ass’n v. Board of Governors,

i SEs ee Ca ae ee ea ere 18

United States v. Philadelphia Nat’l Bank,

PPE eee CO er ieee a ee ee 9

Zenith Radio Corp. v. United States,

OSe TD. SG CIR oe as ee 19

Statutes

ce SP. eC a ee een a in eee 7

Le ho sas EO EE ck cate eae a ee eee 7

ie Ue. eee Gs ce ee ee ee eee 7

12 U.S.C. § 24(Seventh) (1988 & Supp. If 1990) ... . passim

Se Ol a ee ee ee ee ee eee passim

[2 ees (eee es ce A a ee 11

Glass-Steagall Act of 1933, ch. 89, 48 Stat. 162 ...... 5, 19

McFadden Act of 1927, ch. 191, 44 Stat. 1224 ........ 7

National Bank Act of 1864, ch. 106, 13 Stat. 99,

(codified #@ 12.U5.C. § Zl ef seg.) ... 2... we ees 2, 6

National Currency Act of 1863, ch. 58, 12 Stat. 665 ..... 6

(vi)

TABLE OF AUTHORITIES - Continued

Page

Administrative Decisions and Orders

Comptroller Interp. Letter No. 277

[1983-84 Transfer Binder} Fed. Banking

L. Rep. (CCH) 4 85,441 (Dec. 21, 1983) .._. cn ae

Comptroller Interp. Letter No. 338

[1985-87 Transfer Binder] Fed. Banking

L. Rep. (CCH) ¢ 85,508 (May 2, 1985) - tes

Comptroller Interp. Letter No. 345,

[1985-87 Transfer Binder] Fed. Banking

L. Rep. (CCH) 4 85,515 (July 9, 1985) . 15

Comptroller Interp. Letter No. 367,

[1985-87 Transfer Binder] Fed. Banking

L. Rep. (CCH) ¢ 85,537 (Aug. 19, 1986) . . rate 15

Comptroller Interp. Letter No. 369,

[1985-87 Transfer Binder] Fed. Banking

L. Rep. (CCH) 4 85,539 (Sept. 25, 1986) .......... 14

Comptroller Interp. Letter No. 381,

[1988-89 Transfer Binder] Fed. Banking

L. Rep. (CCH) 4 85,605 (May 5, 1987) ..... ree ~

Comptroller Interp. Letter No. 382,

[1988-89 Transfer Binder] Fed. Banking

L. Rep. (CCH) 4 85,606 (May 5, 1987) ......... 15

Comptroller Interp. Letter No. 389,

[1985-87 Transfer Binder] Fed. Banking

L. Rep. (CCH) 4 85,613 (July 7, 1987) ... , . 14

Comptroller Interp. Letter No. 467,

[1989-90 Transfer Binder] Fed. Banking

L. Rep. (CCH) ¢ 85,691 (Jan. 24, 1989) . . a. re

(vil)

TABLE OF AUTHORITIES - Continued

Rules and Regulations

12 C.F.R. § 2.6 (1992) .. ae dee eases

eo ee oe ee d,s ee

2C.F.R. § 7.7495 (1992) .....

Legislative Materials

53 Cong. Rec. 11,001 (1916)

Miscellaneous

1 Raymond Natter, et al., Banking Law

EE - 31. |) Gee erie re Gear a

48 Banking Rep. (BNA) 152 (Jan. 19, 1987)

Arthur F. Burns, The Ongoing Revolution in

American Banking (1988) ...........

Comment, /ndependent Bankers Association v.

Conover: Nonbanks Are Not In The Business

Of Banking, 35 Am. U. L.Rev. 429 (1986)

Comptroller of the Currency, Annual

ay «| rr

Donald C. Langevoort, Statutory Obsolescence

and the Judicial Process: The Revisionist

Role of the Courts in Federal Banking

Regulation, 85 Mich. L. Rev. 672 (1987)

Douglas H. Ginsburg, /nterstate Banking,

9 Hofstra L.Rev. 1133 (1981)

Page

16

14

16

(vill)

TABLE OF AUTHORITIES - Continued

Page

Edward L. Symons, Jr., The "Business of

Banking” In Historical Perspective, 5\

Geo. Wash. L. Rev. 676 (1983) ........ 4 5.6. 19

Martin Mayer, 7he Money Bazaars (1984) .. 4,9, 10, 11, 12

Michael Mussa, Competition, Efficiency, and

Fairness in the Financial Services Industry,

in Deregulating Financial Services: Public

a Policy in Flux 121 (George G. Kaufman &

Roger C. Kormendi eds., 1986) ..... 14

Richard M. Whiting, A Perspective On

Financial Services Restructuring, 37

Cath. U.L. Rev. 347 (1988) ..... 10

Robert C. Clark, The Soundness of Financial

Intermediaries, 86 Yale L. J. 1 (1976) .. . 14

Ross M. Robertson, The Comptroller and Bank

Supervision: A Historical Appraisal (1968) . . passim

Stephen K. Huber, /nsurance Powers of Banking

Organizations, 8 Ann. Rev. Banking L. 147 (1989) 16

The Recent Performance of the Commercial

Banking Industry, Fed. Reserve Bank of

N.Y.Q. Rev. 3 (Summer 1986) .. . pone 10

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1992

Nos. 92-482, 92-645

THE CHASE MANHATTAN BANK. N.A.,

Petitioner.

AMERICAN LAND TITLE ASSOCIATION, et al. ,

Respondents.

STEPHEN R. STEINBRINK, Acting Comptroller

of the Currency, et al.,

Petitioners,

AMERICAN LAND TITLE ASSOCIATION, ef al.,

Respondents.

On Petitions for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

Brief of First Interstate Bancorp, First Union Corporation,

The Huntington National Bank, KeyCorp, National City

Cerporation, and Wells Fargo Bank, N.A. as Amici Curiae

in Support of the Petitions

-

~

INTEREST OF THE AMICI CURIAE'

Amici are national banks and bank holding companies with

national bank subsidiaries engaged in the business of banking and

various other activities, including insurance and insurance-related

activities incidental thereto. Amici have a vital interest in legal

questions affecting the scope of 12 U.S.C. § 24(Seventh) (1988

& Supp. II 1990), which your amici believe allows for a flexible

and evolutionary conception of "the business of banking."

SUMMARY OF ARGUMENT

Since its enactment in 1864, the National Bank Act has

addressed itself to the regulation of “the business of banking,"

without ever defining the meaning of that term. This lack of

definition is critical to the long-term success of the statute,

because from the colonial era to the present, the banking industry

has traveled a path of evolution and change. That change has

been guided by the long-term vision and special expertise of the

chartering authority of national banks, the Comptroller of the

Currency, who has exercised the authority to determine what

activities are within, or "incidental to," “the business of banking."

He has interpreted the National Bank Act to authorize, inter alia,

certain insurance activities as a proper incident of “the business

of banking."

Congress, by leaving "the business of banking" undefined, has

left the evolution of the industry to be shaped by banks

themselves, under the supervisory authority of the Comptroller.

Congress has seen fit to intervene only when it has been necessary

to override the evolutionary process and positively establish an

activity as part of the business of banking vel non. The Court of

Appeals’ conclusion that the limited congressional grant of

insurance authority contained in 12 U.S.C. § 92 forecloses the

‘The parties’ letters of consent have been filed with the Clerk pursuant

to Rule 37.2 of this Court.

a

3

historical evolutionary process under the principle of expressio

unius est exclusio alterius, is a major step toward replacing the

proper regulatory role of the Comptroller with the inflexible and

static decisions of courts. If left unreviewed, the Second Circuit’s

decision could severely curtail the ability of the banking industry

to remain competitive by developing improved products and

services using changing communications and computer

technology. To preserve the existing statutory scheme of effective

national bank regulation, this Court should grant certiorari.

REASONS FOR GRANTING THE PETITIONS

THE SECOND CIRCUIT’S CONSTRUCTION OF

SECTION 24(SEVENTH) CRITICALLY THREATENS

THE DEVELOPMENT AND SURVIVAL OF THE

NATIONAL BANKING INDUSTRY.

The financial services industry is rapidly changing in response

to changes in technology and increasing competition between

banking and unregulated service providers. National banks look

to decisions of the Comptroller of the Currency to be able to

engage in the sale of newly-developed financial products,

including banking-related insurance products. The Second

Circuit's decision, however, threatens to handicap these banks by

impairing the essential flexibility of § 24(Seventh)’s incidental

powers clause. By denying the Comptroller the power to develop

"the business of banking" in response to the rapidly-changing

financial services marketplace, the Second Circuit’s decision, if

not reviewed, would effectively freeze the definition of "the

business of banking," at least with respect to insurance activities ”

im a manner which squares neither with the Comptroller’s

“Although the decision of the Court of Appeals applies only to title

insurance, its approach, of giving no deference to the Comptroller's

interpretation of a statute, could have the practical effect of supplanting

the Comptroller's broad chartering and guiding role with an inflexible

court-imposed definition of "the business of banking."

4

principal role in defining the contours of an evolving "business of

banking" nor with the survival of national banks in an intensely

competitive climate.

A. Banks and The Comptroller Have Developed "The

Business Of Banking" in an Evolutionary Fashion.

In today’s marketplace, national banks face substantial and

ever-increasing competition from state banks, savings and loan

associations, and non-bank financial institutions, including credit

unions, insurance companies, and even retail stores.’ Only

national banks, though, are subject to the strictures of the

National Bank Act. As we show below, the Second Circuit’s

interpretation of that Act threatens the development and provision

of improved financial products to bank customers, and places

national banks at a significant competitive disadvantage.

1. "The Business of Banking" Has Evolved Over

Time.

The history of the American banking business is a history of

change. Indeed, commercial banking was virtually unheard of in

colonial America, due principally to two factors: the opposition

of British merchants, and the colonists’ general lack of experience

with financial institutions. Ross M. Robertson, The Comptroller

and Bank Supervision: A Historical Appraisal 13 (1968). The

first commercial bank was not chartered in the United States until

1781, and by 1811, there were only 88 banks in the country. /d.

These banks received deposits and made loans, id.; see also

‘Conglomerate financial institutions, such as Sears, "can now take

deposits, cash checks, make loans, sell securities, sell insurance, and

offer real-estate brokerage services, all under one roof." Edward L.

Symons, Jr., The "Business of Banking” in Historical Perspective, 51

Geo. Wash. L. Rev. 676, 677 (1983). See also Martin Mayer, The

Money Bazaars 34-71 (1984) (outlining recent rise of “financial services

institutions").

5

Comment, /ndependent Bankers Association vy Conover:

Nonbank Banks Are Not In The Business Of Banking, 35 Am. U.

L.Rev. 429, 439 n.41 (1986), however, most lending was limited

to extremely short terms. Some banks limited their discounts to

30 days, others extended credit for as long as 60 days.

Robertson, supra, at 15. The "most important function" of banks

at that time, however, was the issuance of notes, which served as

money. Edward L. Symons, Jr., The “Business of Banking” In

Historical Perspective, 51 Geo. Wash. L. Rev. 676, 686 (1983).

Significantly, however, even during that early era, "the most

inventive bankers were forever experimenting with new types of

credit, finding new ways to earn profits for their stockholders

while protecting the solvency of their institutions." Robertson,

supra, at 15. The development of such new financial services

was effected without explicit Congressional (or judicial) direction.

Among other things, those institutions thought of as the

"sophisticated banks of the East" began practicing what is now

called "investment banking," including underwriting securities

issues and buying private and municipal bonds. /d; see also

Symons, supra, 51 Geo. Wash. L. Rev. at 687. The banking

franchise, largely embodied in § 24(Seventh) of the National Bank

Act, was widely recognized to accommodate such diverse

financial activities -- at least until Congress adopted § 16 of the

so-called Glass-Steagall Act, which, inter alia, explicitly amended

that provision to curtail certain securities activities in response to

the collapse of the Great Depression. Act of June 16, 1933, ch.

89, 48 Stat. 162, 184 (codified as part of 12 U.S.C. § 24

(Seventh)).

At the beginning of the nineteenth century, three new types of

financial institutions -- unincorporated banks, mutual savings

banks, and insurance companies -- began to emerge. The

unincorporated banks differed from chartered banks primarily by

the fact that the unincorporated banks did not issue notes. Mutual

savings banks and insurance companies, on the other hand,

amassed their capital through long-term credit activities such as

6

individual savings accounts and life insurance. Symons, supra,

51 Geo. Wash. L. Rev. at 688 & n.63.

Notwithstanding these changes, the United States did not have

a uniform currency at the time of the Civil War; "some 9,000

different kinds of paper bills were in circulation" by 1860.

Robertson, supra, at 29. So Congress, faced with a nation

divided by war and beset by desperate financial problems, passed

the National Currency Act of 1863, ch. 58, 12 Stat. 665, which

for the first time gave the country a national currency (national

banks nonetheless retained the privilege of issuing those notes).

That Act gave national banks certain enumerated powers, but also

bestowed upon national banks explicitly undelineated authority to

“exercis[e] such incidental powers as shall be necessary to carry

on the business of banking."* That Act also created the position

of Comptroller of the Currency, head of a separate bureau within

the Treasury, charged with the dual role of chartering and

supervising national banks. Congress clearly envisioned the

Comptroller to have a quasi-independent role as the overseer of

national banks: The Comptroller was to serve a term longer than

the President (five years), could only be removed (as well as

appointed) by the President with the advice and consent of the

Senate, and was annually required to report directly to Congress,

not through the Secretary of the Treasury.” "Congress ob-

‘Virtually the same language ("To exercise ... all such incidental

powers as shail be necessary to carry on the business of banking")

appears in the current version of the statute, 12 U.S.C. § 24(Seventh).

Neither the National Currency Act, nor its immediate successor, the

National Bank Act, nor any other act, has defined this term.

“When Congress passed the National Bank Act of 1864, ch. 106, 13

Stat. 99 (codified at 12 U.S.C. § 21 ef seq.), which replaced and

improved upon large parts of the previous year’s National Currency Act,

the removal provision was changed to “upon reasons to be

communicated by [the President] to the Senate." The five-year term and

the direct reporting to Congress, however, both remain to this day. See

7

viously considered the Comptroliership a major job.... The

obvious person for such a position would be a seasoned banker."

Robertson, supra, at 47. The Comptroller and his Office today

remain outside the fiscal purview of Congress, as funds for

maintaining the Office are obtained from assessments on national

banks, not from Congressional appropriations. 12 U.S.C. § 10

(1988); Robertson, supra, at 171.

The evolution of "the business of banking" continued

throughout the late nineteenth century under the largely unfettered

auspices of the Comptroller and his state bank counterparts.

While the issuance of notes provided banks an “undeniable

advantage" in 1865, it had become an "anachronism" by the early

1880s as banks expanded their retail and leasing functions.

Robertson, supra, at 62, 64. Expansions of some bank activities,

including, inter alia, branching, were effected by explicit

Statutory authorizations. By the end of the 19th century, national

banks were interested in opening branches in rural areas to meet

the needs of those communities. Recognizing that national banks

were compelled to compete with state institutions (which generally

operated under much more liberal banking laws), Comptroller

D.R. Crissinger recommended to Congress that national banks be

explicitly allowed to operate branch offices. Comptroller of the

Currency, Annual Report 2-3 (1922). Ultimately, Congress

passed the McFadden Act in 1927 to amend the National Bank

Act and specifically authorize limited branching of national

banks.° Act of Feb. 25, 1927, ch. 191, 44 Stat. 1224. A

number of pieces of Depression-era legislation expanded national

banks’ branching powers even more. See generally Douglas H.

Ginsburg, Interstate Banking, 9 Hofstra L.Rev. 1133, 1153-54

(1981).

12 U.S.C. §§ 2, 14 (1988).

“Despite providing definitions of terms such as “branch,” the McFadden

Act continued to leave "the business of banking” undefined.

8

In 1914, the Federal Reserve System was created. No longer

were banks responsible for issuing paper currency; the Federal

Reserve Banks assumed that task. National banks turned to

further developing the retail banking system -- developing and

providing many of the convenient financial products and services

enjoyed by individual customers today -- and expanding the

nation’s capital strength through the reinvestment of accumulated

consumer savings.

A watershed moment in the history of American banking was

the Great Depression: "[MJore than any other business, commer-

cial banking was especially hard hit." Robertson, supra, at 118.

As the economy ground to a halt, so did the business of

banking.’ In the words of one historian, the collapse of the

American banking system "had very nearly destroyed the edifice

of American capitalism." /d. at 125. To ensure that that edifice

remained intact, the Federal Deposit Insurance Corporation

(FDIC) was created. FDIC deposit insurance and the continued

growth of multi-branch and multi-unit banking led the way to the

banking system’s restored stability. See generally id.

The present era of remarkable metamorphosis began in the

1950s. Competition has been one factor in this acceleration of

change. Banks of the mid-1950s were "inclined toward more

aggressive competition than had been witnessed for a generation. "

Id. at 144. Also, among other factors, technology has become a

major driving force behind the sea change in the business of

’For four days in 1933, President Roosevelt declared a "bank holiday,"

and "the business of banking" was restricted to making change, cashing

government checks, and switching checks to drawers’ accounts so long

as no cash payment was required. Ross M. Robertson, The Comptroller

and Bank Supervision: A Historical Appraisal 122 (1968).

— eee

9

banking.“ Traditionally, people and businesses relied on bank

deposits to hold their savings;’ now, banks are no longer the only

institutions engaged in what used to be thought of as

"banking."'® More recently, the advent of improved telecom-

munications and computer technology, particularly the ability to

manipulate large volumes of data, has not only reshaped the

delivery system of banks but also remade the various types of

financial products available today, including deposit-like vehicles

such as money market funds and hybrid bank-investment and

insurance-related products. Significantly, such product develop-

ments as mutual funds result in bank-like liquidity offered by

*"Conceptually, what had made a bank unique was its ability to create

money. . . . Operationally, what had made a bank unique was that it

could handle the storage and payment of money, an immense job

requiring armies of tellers at windows and clerks with ledgers and

sorters who stood before honeycombs of pigeonholes to slot checks

. Then came the computer." Mayer, supra note 3, at 6, 7, 8.

‘Indeed, as recently as 1963, this Court embraced a traditional

borrowing-lending-depositing view of banking. See United States v.

Philadelphia Nat'l Bank, 374 U.S. 321, 326-27 n.5 (1963).

‘°By the late 1950's,

commercial banks were collectively under the pressure of competition

from a group of financial institutions known as_ nonbank

intermediaries. These institutions -- notably savings and loan

associations, life insurance companies, mutual savings banks, credit

unions, and uninsured pension funds -- were making inroads on

commercial-bank business before World War II, but it was not until

after the war that they seemed to pose a serious threat. In particular,

savings and loan associations waged vigorous campaigns to capture

both the savings and the customer loyalty of American households,

and the banking community became concerned that the S & Ls would

soon be given wider lending and investment privileges.

Robertson, supra note 7, at 144.

10

nonbanking competitors, indistinguishable for all important

purposes from "banking". Donald C. Langevoort, Statutory

Obsolescence and the Judicial Process: The Revisionist Role of

the Courts in Federal Banking Regulation, 85 Mich. L. Rev. 672,

677-78 (1987). See also Symons, supra, 51 Geo. Wash. L. Rev.

at 677. The money-market fund itself is a direct competitor to

banks’ traditional deposit business. Relying on the essential

statutory flexibility of 12 U.S.C. § 24 (Seventh), banks have

responded by developing similar highly-competitive products.

On the lending side, banks are no longer the only or principal

source of lending. Unregulated non-banks increasingly provide

financial products similar to those available from banks.

Richard M. Whiting, A Perspective On Financial Services

Restructuring, 37 Cath. U.L. Rev. 347, 361 (1988). See

generally Mayer, supra, at 34-71. Significantly, finance

companies and insurance companies have now displaced

commercial banks as the major providers of consumer installment

credit. The Recent Performance of the Commercial Banking

Industry, Fed. Reserve Bank of N.Y.Q. Rev. 3, 5-6 (Summer

1986). See generally Whiting, supra, 37 Cath. U. L. Rev. at

361-62. Trust departments, pension funds, and insurance

companies all loan money on a short-term basis, frequently

accepting rates of interest lower than those demanded by

commercial banks. Langevoort, supra, 85 Mich. L. Rev. at 679.

And "[t]hrough the so-called commercial-paper market,

high-quality corporate borrowers have tapped this demand [for

short-term loans], utilizing communications and record-keeping

technology that permits efficient matching and transactions

between themselves and their creditors. By issuing commercial

paper instead of borrowing from a bank, corporations effectively

eliminate the intermediary in their acquisition of capital." /d.

(footnote omitted).”

‘'By the spring of 1982, the quantity of commercial paper on the market

reached 80% of the quantity of commercial and industrial loans of the

entire American banking system. Mayer, supra note 3, at 26.

1]

Advances in technology and increased unregulated competition

have dramatically affected profits and risks in areas traditionally

recognized as the core business of banking. The changing

financial services landscape has eliminated some of banks’ most

profitable borrowers and correspondingly pressured those banks

to make lower-quality loans to higher credit risks in order to

compensate for the loss of the better business. See 48 Banking

Rep. (BNA) 152 (Jan. 19, 1987). With the loss of much of their

traditional businesses, banks have necessarily looked in other

directions for business. In short, "banks, as we have known

them, should be seen as creatures of a time when information was

expensive. .. . Now, technologically, any number can play [in

the financial services market]; and the old games with their rigid

rules and limited participation are gone forever." Martin Mayer,

The Money Bazaars 378-79 (1984).”

Although "the business of banking" has changed significantly

since 1863, the statute remains the same.'’ “[{C]ommentators

'*See also Arthur F. Burns, The Ongoing Revolution in American

Banking 25 (1988):

By 1980 banking had changed fundamentally. In the new era banks

found themselves competing vigorously at home and abroad for the

business of depositors and borrowers who were becoming more

sophisticated, whose needs were growing more complex, whose

operations for meeting their needs were continually expanding, and

whose decisions were now likely to turn on fractions of a percentage

point and interest rates rather than on number of years of personal

acquaiitance.

'’While there have been notable efforts in other statutes to define terms

such as "bank," see, e.g., 12 U.S.C. § 1841(c) (1988), Congress has

refused for 129 years to define "the business of banking" in the National

Bank Act. It is thus clear that notions of what "the business of banking"

is continue to evolve, and this evolution has confounded even the most

notable authorities. See, e.g., Mayer, supra note 3, at 4 (noting

"dilemmas" of Federal Reserve Board and quoting Chairman Paul

12

uniformly have recognized that the 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). Cf. Oklahoma ex rel. State Banking Bd. v. Bank of

Okla. , 409 F. Supp. 71, 84, 90-91 (N.D. Okla. 1975) (concluding

that although automated teller machines (ATMs) were unknown

in 1927, at the time of the adoption of the McFadden Act, the

Comptroller’s view, that ATMs were incidental to the business of

banking and not "branches," was entitled to great weight).

Because of technological developments and market forces, the

banking industry changed and must continue to change to survive.

"While the functions historically performed by banks continue to

grow in significance, the role of bankers in performing them has

already diminished and will be reduced further. The future of

banking is up for grabs, and there are many grasping hands in the

air." Mayer, supra, at 4.

2. The Comptroller Has Played a Pivotal Role in

Developing "The Business of Banking."

The National Bank Act recognizes and amply accommodates

the evolutionary character of banking by providing undefined and

flexible authority for banks, under the guidance and direction of

the Comptroller, to define "the business of banking" in response

to marketplace considerations. That same Act established the

Comptroller to have pervasive regulatory authority of national

banks, thus empowering him to interpret "the business of

banking" in light of changing economic conditions and tech-

nology. Even the Second Circuit recognized the Comptroller's

Volcker as stating "My instinct is that there’s something unique about a

bank."); Douglas H. Ginsburg, /nterstate Banking, 9 Hofstra L.Rev.

1133, 1137 (1981) ("What is ‘the business of banking’?"). Even a

leading treatise on banking law skillfully evades a definition of “the

business of banking." See 1 Raymond Natter, et al., Banking Law

§ 1.03, at 1-6 to 1-8 (1992).

13

special role in giving meaning to the National Banking Act. See

Chase Pet. at 10a’* (citing Clarke v. Securities Indus. Ass’n, 479

U.S. 388, 403-04 (1987)). Since the Comptroller "possesses the

expertise that can enlighten and rationalize the search for the

meaning and intent of Congress," /nvestment Company Institute

v. Camp, 401 U.S. 617, 628 (1971), the long-term evolution of

"the business of banking" is “within [his] area of special

expertise," Baltimore Gas & Elec. Co. v. Natural Resources

Defense Council, Inc., 462 U.S. 87, 103 (1983).

Courts have recognized the special regulatory authority of the

Comptroller, noting that the preparation of a comprehensive

charter to guide "the business of banking" over time is a function

belonging solely to the Comptroller of the Currency. M & M

Leasing, 563 F.2d at 1384. Accord American Ins. Ass'n v.

Clarke, 865 F.2d 278, 282 (D.C. Cir. 1988) (noting

Comptroller’s "expert financial judgment"). Congress originally

recognized in the enactment of the National Bank Act that a

legislature is not itself equipped to continuously adjust the banking

laws to accommodate the rapid changes in the banking business,

since most banking legislation is necessarily backward-, rather

than forward-looking.’* Indeed, Congress itself has reaffirmed

the expansive flexibility of the law by leaving unaltered a long

line of expansive Comptroller interpretations. The only institution

well-equipped to guide and define the evolution of "the business-

of banking" is the Comptroller of the Currency. In recognition

of the Comptroller’s role, one federal appeals court said long ago

that "[cJourts have nothing to do with determining the policy

which national banks should pursue. That is a question for the

Comptroller of the Currency and the banks themselves so long as

‘$Citations to “Chase Pet." are to Chase Manhattan Bank, N.A.’s

Petition for Writ of Certiorari.

'S"(MJuch of commercial bank regulation in this country is aimed at

weaknesses, real or fancied, that became apparent in depressions long

since forgotten." Robertson, supra note 7, at 7.

14

that policy is not unlawful and does not offend against public

policy." Baltimore & Ohio R.R. v. Smith, 56 F.2d 799, 802 (3d

Cir. 1932).

The Comptroller has provided this long-term guidance

principally through his power to define what incidental powers are

"necessary to carry on the business of banking." 12 U.S.C.

§ 24(Seventh). One of the factors which the Comptroller has

traditionally considered in determining what is necessary to carry

on the business of banking is the need for national banks to meet

their competition.’ One of the principal objectives of bank

regulation is to oversee and promote the financial soundness of

banking institutions. Robert C. Clark, The Soundness of

Financial Intermediaries, 86 Yale L. J. 1 (1976); Michael Mussa,

Competition, Efficiency, and Fairness in the Financial Services

Industry, in Deregulating Financial Services: Public Policy in

Flux 121, 128-35 (George G. Kaufman & Roger C. Kormendi

eds., 1986). To this end, the Comptroller has interpreted

§ 24(Seventh) to authorize national banks to engage in leasing

activities,’’ real estate appraisal services,’* real estate asset

management and advisory services,” investment advice,”

‘This has long been established as an appropriate criterion under

§ 24(Seventh). See, e.g., Franklin Nat’l Bank v. New York, 347 U.S.

373, 377 (1954); Colorado Nat'l Bank v. Bedford, 310 U.S. 41, 49

(1940); First Nat’l Bank v. Hartford, 273 U.S. 548, 558 (1927).

Comptroller Interp. Letter No. 369, [1985-87 Transfer Binder] Fed.

Banking L. Rep. (CCH) 4 85,539 (Sept. 25, 1986). See generally 12

C.F.R. § 7.3400 (1992).

‘*Comptroller Interp. Letter No. 467, [1988-89 Transfer Binder] Fed.

Banking L. Rep. (CCH) 4 85,691 (Jan. 24, 1989).

‘Comptroller Interp. Letter No. 389, [1988-89 Transfer Binder] Fed.

Banking L. Rep. (CCH) § 85,613 (July 7, 1987).

15

computer processing and telecommunications services,” elec-

tronic switching systems for automated teller machines,” and

data processing.~ The Comptroller explicitly recognized the

need for national banks to fairly meet their competition in his

1986 interpretive letter allowing banks to sell title insurance.

Chase Pet. 41a.™

B. The Second Circuit Erred in Denying The Comptroller

Authority To Approve Certain Insurance Activities as

an Important Element of The Modern Business of

Banking.

The Second Circuit’s broadly-drawn holding, that § 92

prohibits national banks from acting as agents for "’any...

insurance company", Chase ret. 14a, contravenes long-standing

and reasonable interpretations of § 24(Seventh) by the

Comptroller which have been upheld by federal Courts of Appeals

*Comptroller Interp. Letter No. 367, [1985-87 Transfer Binder] Fed.

Banking L. Rep. (CCH) { 85,537 (Aug. 19, 1986).

‘Comptroller Interp. Letter No. 381, [1988-89 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¢ 85,605 (May 5, 1987).

=Comptroller Interp. Letter No. 382, [1988-89 Transfer Binder] Fed.

Banking L. Rep. (CCH) § 85,606 (May 5, 1987).

“Comptroller Interp. Letter No. 345, [1985-87 Transfer Binder] Fed.

Banking L. Rep. (CCH) § 85,515 (July 9. 1985).

“The thin legislative history of § 92 relied upon by the Second Circuit

illustrates that competition has long been a special area of the

Comptroller's concern. The letter of Comptrolier Williams, proposing

legislation that would become § 92, noted that its purpose was to provide

banks in small communities "with additional sources of revenue.” 53

Cong. Rec. 11,001 (1916).

16

in the past. By construing the implied limitations of § 92”

together with § 24(Seventh)’s incidental powers provision, the

Comptroller has interpreted the banking laws to allow national

banks to develop and seli various insurance-related products, e.g.,

debt cancellation contracts,” municipal bond insurance,”’ and

credit-related life insurance.** These developments have

undoubtedly benefitted consumers by ensuring the efficient and

price-competitive availability of such financial products.

As Petitioner Chase has correctly pointed out, the plain

language of § 92 leads to the conclusion that Congress meant only

to grant national banks in small towns an additional income

“Notwithstanding Independent Ins. Agents of Am. v. Clarke, 955 F.2d

731 (D.C. Cir. 1992), cert. pending (Nos. 92-484 and 92-507), your

amici have assumed, throughout this brief, that § 92 remains in full

force and effect. Should this Court affirm in Nos. 92-484 and 92-507,

your amici contend that that result would compel reversal of the Second

Circuit's judgment, since the "implied bar" of § 92 found by the Second

Circuit would no longer exist to iimit the Comptroller's powers under

§ 24(Seventh).

*See 12 C.F.R. § 7.7495 (1992) (debt cancellation contracts are similar

to credit life insurance) and First Nat'l Bank v. Taylor, 907 F.2d 775,

777-78 (8th Cir.), cert. denied, 111 S. Ct. 442 (1990).

“See Comptroller Interp. Letter No. 338 [1985-87 Transfer Binder] Fed.

Banking L. Rep. (CCH) 4 85,508, at 77,792 (May 2, 1985) and

American Ins. Ass'n v. Clarke, 865 F.2d 278 (D.C. Cir. 1988).

*See 12 C.F.R. § 2.6 (1992); Comptroller Interp. Letter No. 277

[1983-84 Transfer Binder] Fed. Banking L. Rep. (CCH) § 85,441

(Dec. 21, 1983) (underwriting credit life insurance, which is much

riskier to banks’ financial well-being than an agency arrangement. See

Stephen K. Huber, /nsurance Powers of Banking Organizations, 8 Ann.

Rev. Banking L. 147, 149 (1989)); and Independent Bankers Ass'n v.

Heimann, 613 F.2d 1164, 1170 (D.C. Cir. 1979), cert. denied, 449

U.S. 823 (1980).

17

source. There is thus no need to resort to canons of construction,

as did the Second Circuit, to elucidate the plainly-expressed

meaning of § 92. See Connecticut Nat’l Bank v. Germain, 112

S. Ct. 1146, 1149 (1992) ("When the words of a statute are

unambiguous, then, this first canon is also the last.").

By resorting to a second canon of construction beyond the four

corners of the statute, the Second Circuit implicitly found § 92

ambiguous. But it is clear that if there is an ambiguity, the

Second Circuit did not go far enough to resolve it. The Second

Circuit, following Saxon v. Georgia Ass’n of Independent Ins.

Agents, 399 F.2d 1010 (Sth Cir. 1968), applied the maxim

expressio unius est exclusio alterius and concluded that Congress,

by explicitly empowering national banks in places of 5,000 or

tewer people to sell "any fire, life, or other insurance", implicitly

meant that national banks in all other places were not empowered

to sell such insurance. The Second Circuit specifically noted that

if Congress believed that all national banks already possessed this

authority, "this provision would have been superfluous." Chase

Pet. 12a.

Such logic fails entirely in light of the fact that the activities

encompassed within "the business of banking" have evolved under

the Comptroller’s supervision. Congress’ grant of explicit

authority to sell insurance in small towns thus must be viewed as

a decision positively to establish that authority, rather than to rely

on the evolutionary process which would otherwise govern. The

Comptroller's decision to allow sales of certain types of insurance

in areas other than those covered by § 92 is consistent with the

continued evolution of “the business of banking". Congress

simply meant to be very clear about the existence of such

authority in small towns.

In reaching its result, the Second Circuit heid that “any fire,

life, or other insurance" as used in § 92 means “any insurance,"

despite the fact that Congress did not write it that way. Chase

Pet. 14a. It should have applied the maxim of noscitur a sociis

18

to interpret what “other insurance" in § 92 means.” This is

what the Comptroller did. In his 1986 interpretive letter, the

Comptroller recognized the expressio unius rationale of Saxon,

see Chase Pet. 42a, but concluded that “title insurance... . is

sufficiently unlike life, property, and casualty insurance to justify

treating it differently from these forms of insurance for regulatory

purposes." Jd. at 41a-42a.*

The Comptroller’s construction deserved deference under

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467

U.S. 837 (1984). The Comptroller’s interpretation of

§ 24(Seventh) and § 92 of the National Bank Act was a

reasonable one, and the Court of Appeals should have deferred to

it. By picking the canon most relevant to their result, but

eschewing the canon relied upon by the Comptroller in issuing his

interpretive letter, the Second Circuit effectively usurped the role

of the Comptroller, a role flatly foreclosed to it by Chevron.

National banks have ordered their affairs based on the

Comptroller’s interpretations of § 92 which have been affirmed by

various courts of appeals. The national banks represented by

your amici have relied on being able to sell various forms of

limited purpose insurance to enable them to stay competitive in

the financial services market. To now upset the Comptroller’s

reasonable interpretation of § 92 and 12 U.S.C. § 24(Seventh)

could have the effect of seriously upsetting the settled business

*This Court has adhered steadfastly to the rule that words grouped in a

list should be given related meaning. Dole v. United Steelworkers of

America, 494 U.S. 26, 36 (1990); Massachusetts v. Morash, 490 U.S.

107, 114-15 (1989); Schreiber v. Burlington Northern, Inc., 472 U.S. 1,

8 (1985); Securities Indus. Ass'n v. Board of Governors, 468 U.S. 207,

218 (1984).

*This letter also recognized that, as part of their business, "banks

traditionally have been involved in the title insurance business." Chase

Pet. 4la.

19

expectations of an already-disadvantaged industry. This Court has

shown a special solicitude for continuity "in cases involving

property and contract rights, where reliance interests are

involved." Payne v. Tennessee, 111 S. Ct. 2597, 2610 (1991).

The same special solicitude should have been granted to the

Comptroller’s long-standing conclusion that the sale of certain

insurance products is an incidental power necessary to the

business cf banking. See, e.g., Zenith Radio Corp. v. United

States, 437 U.S. 443, 457-58 (1978) (administrative interpretation

sustained in view of “substantial reliance interests").

As Justice Frankfurter presciently remarked over fifty years

ago, “when Congress has spoken at best with ambiguous silence

-- a long continued practice pursued with the knowledge of the

Comptroller of the Currency is more persuasive than

considerations of abstract conflict between such a practice and

purposes attributed to Congress." J/nland Waterways Corp. v.

Young, 309 U.S. 517, 524 (1940). Given the reasonableness of

the Comptroller’s interpretation of the National Bank Act, the

reliance thereon by national banks, and the need of those banks

to compete with the less-fettered "financial services industry" for

their survival, the Second Circuit should not have invalidated a

permissible construction of a statute which the Comptroller

reasonably has determined makes the selling of title insurance

incidental to "the business of banking."

In large part due to the statutory flexibility embodied in the

incidental powers clause of § 24(Seventh), "the business of

banking" has not remained static and is not the same as it was in

1863, or even in 1963. Banks, with the continuous guidance of

the Comptroller, have heretofore been able to meet and lead in

the development of financial products and services, constrained

only by the agency and when Congress has seen fit to explicitly

intercede (as it did to constrain investment banking practices via

the Glass-Steagall Act). Against the backdrop of the recent S & L

crisis, and predictions that a national bank crisis looms, the

Comptroller is best able to take into account the need for banks

20

to compete fairly with their competitors in order to survive. If

not reviewed, the Second Circuit's decision will eliminate

important business opportunities, diminish significantly national

banks’ ability to compete profitably, and seriously endanger the

evolution, let alone the future, of the business of banking.

CONCLUSION

The petitions for writ of certiorari should be granted.

Respectfully submitted,

DONALD B. AYER

(Counsel of Record)

DAVID W. RODERER

STEVEN J. MINTZ

JONES, DAY, REAVIS & POGUE

1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Amici Curiae

November 12, 1992