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INDEPENDENT BANKERS ASSN. OF AMERICA v. FHLBB

August 4, 1982

INDEPENDENT BANKERS ASSOCIATION OF AMERICA, Plaintiff,
v.
FEDERAL HOME LOAN BANK BOARD, ET AL., Defendants



The opinion of the court was delivered by: GESELL

 This case requires the Court to determine whether the Federal Home Loan Bank Board ("Board") has discretion to approve branches established by federally regulated savings and loan associations ("S&Ls") in states other than the association's state of domicile, pursuant to Statements of Policy issued by the Board in 1981. Independent Bankers Association of America ("Independent Bankers") contends that interstate branching by S&Ls is prohibited by the Home Owners' Loan Act of 1933, 12 U.S.C. § 1464 et seq. ("HOLA") and provisions of the National Housing Act, 12 U.S.C. § 1730a et seq. ("NHA"), and that the implementing Statements of Policy were made without complying with the Administrative Procedure Act, 5 U.S.C. § 553 et seq. ("APA"). Independent Bankers seeks a declaratory judgment that the Board's past approvals of interstate branches violated the Acts, recision of the Statements of Policy, and an injunction preventing the Board from approving any further interstate branching through mergers or otherwise. Cross-motions for summary judgment have been filed, briefed, and argued. No material facts are in dispute. For reasons stated below, summary judgment must be granted the Board and the complaint dismissed.

 On September 3, 1981, the Board approved a further Statement of Policy indicating that interstate S&Ls could apply to open further branches in those states in which they had acquired branches. Shortly following this announcement, which again went into immediate effect, a number of the approved interstate S&Ls applied to open further branches outside the home office's state.

 The Board's actions were undertaken in response to a situation that is reaching crisis proportions -- the nationwide deterioration of the savings and loan industry. The problems of the industry result from the difference between current high and volatile rates of interest and the low rates paid on the long-term mortgage portfolios held by S&Ls. That discrepancy results in thousands of S&Ls losing money on a daily basis. The Board is charged with aiding these ailing institutions and feels it must protect its very limited insurance reserves and avoid costly liquidations and payouts by merging the seriously financially weakened S&Ls with the stronger institutions. Such "supervisory" mergers preserve public confidence in the industry and avoid the harms to under- or uninsured depositors resulting from liquidation.

 It has not always proved possible for the Board to arrange an acceptable "supervisory" merger intrastate. The Board approved 294 mergers in 1981. In some of these cases, intrastate mergers could not be accomplished without substantial cost to the government's limited insurance fund. In the interest of preserving its financial resources so they could be used to the greatest effect, the Board announced the policy of permitting interstate mergers under very narrow circumstances. It is that practice Independent Bankers seeks to challenge, and of course no matter how urgent the need to take appropriate action to ensure the stability of the S&L industry, the Board must act within the limits of the authority Congress has delegated.

 Independent Bankers fears the competitive impact of the Board's new policy and alleges that the Board has exceeded its Congressional mandate in approving interstate operations by S&Ls. In support of that contention, Independent Bankers makes three basic arguments.

 First, it claims that the HOLA contains no express or implied authority for interstate operation of S&Ls. While the language of the statute does not specifically address the Board's authority to permit interstate branching, it does give the Board exceptionally broad authority to regulate federal S&Ls by providing:

 
the Board is authorized, under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as "Federal Savings and Loan Associations" . . . 12 U.S.C. § 1464(a).

 As the Supreme Court has noted in a recent case, "it would have been difficult for Congress to give the Bank Board a broader mandate." Fidelity Federal Savings & Loan Association v. De La Cuesta, 458 U.S. 141, 102 S. Ct. 3014, 3025, 73 L. Ed. 2d 664, 50 U.S.L.W. 4916, 4921 (1982). After reviewing the legislative history of the HOLA, the Court went on to state that "references to the Board's broad discretion to regulate the newly created federal savings and loans appear throughout the legislative history. Nowhere is there a suggestion of any intent somehow to limit the Board's authority." De La Cuesta, supra at 50 U.S.L.W. 4922. Despite the absence of any express or implied authority to permit intrastate branching under the HOLA, the law is now well settled that that broad mandate grants the Board complete authority to permit intrastate branching by S&Ls. North Arlington National Bank v. Kearny Federal Savings & Loan Association, 187 F.2d 564 (3d Cir. 1951), cert. den. 342 U.S. 816, 96 L. Ed. 617, 72 S. Ct. 30 (1951); First National Bank of McKeesport v. First Federal Savings & Loan Association of Homestead, 96 U.S. App. D.C. 194, 225 F.2d 33 (D.C. Cir. 1955). While the issue here presented is one of first impression, the mere failure of the HOLA to specifically address the issue of branching -- whether intra- or interstate -- cannot now be construed to preclude the Board's exercise of branching authority in the interstate area.

 Independent Bankers suggests, however, that Congress' silence on that issue gains more significance when viewed in the context of other statutes explicitly prohibiting the interstate operation of commercial banks, mutual savings associations, and S&L holding companies. See the National Bank Act, 12 U.S.C. § 36(c); the Bank Holding Company Act, 12 U.S.C. § 1842(d); the National Housing Act, 12 U.S.C. § 1730a(e)(3); and the Home Owners' Loan Act of 1933, 12 U.S.C. § 1464(a)(1). The Court agrees that those statutory provisions add further meaning to Congress' failure to regulate interstate branching by federal S&Ls under the HOLA. However, that added significance works against Independent Bankers' case. If Congress had wished to limit the Board's authority to regulate interstate branching under the HOLA, it clearly could have done so. Congress has continued to leave this issue completely to the Board's discretion. Indeed, Congress has considered and rejected proposed legislation designed to limit the Board's discretion in questions of branching policy. H.R. 4710 and S. 2006, 81st Cong., 1st Sess. (1949); S. Rep. No. 1118, 81st Cong., 1st Sess. (1949). As recently as 1978, Congress had the opportunity to address the issue when it amended the HOLA to provide for the federal chartering of mutual savings associations. The amendment specifically provided that the new federal mutual savings associations could operate branches only in the associations' states of domicile. Financial Institutions Regulatory and Interest Rate Control Act of 1978 (Pub. L. No. 95-630, 92 Stat. 3651 et seq. (Nov. 10, 1978)). Congress' failure, on this and earlier occasions, to apply similar limitations to federal S&Ls can only be read as a deliberate preservation of the Board's plenary authority to regulate branching policy for federal S&Ls.

 Finally, Independent Bankers argues that, even if the issue of branching lies within the discretion of the Board, the Board has exercised that discretion improperly and exceeded its authority because the interstate operations approved by the Board are contrary to Congressional intent and the general policy of maintaining a "dual banking system" of competing state and federally chartered institutions. Independent Bankers contends that, by permitting limited interstate branching of federal S&Ls, "the Bank Board has now embarked on a course which is dramatically and permanently altering the Congressionally-designed, competitively balanced structure of the financial services industry." Plaintiff's Opposition to Defendants' Motion for Summary Judgment at 11 (filed July 22, 1982).

 But the philosophy of the dual banking system can have no life beyond that breathed into it by the actual statutes Congress has passed in its pursuit. As noted earlier, the failure of Congress to limit branching of federal S&Ls under the HOLA cannot now be explained away as a simple oversight the legislature would have corrected had it ever been brought to its attention.

 Further, the Board has not changed its policies to favor the widespread adoption of interstate branching by all federal S&Ls. Rather, the Board has indicated its willingness to consider interstate branching in those very limited cases where such action is necessary to prevent imminent failure while avoiding inordinate expense that would deplete government insurance funds. Congress has charged the Board with the task of preserving the financial health and integrity of the savings and loan industry. It may be that Congress has determined that the dual banking concept is inappropriate given the paramount need to preserve the financial integrity of the regulated savings ...


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