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INVESTMENT CO. INST. v. FDIC

April 23, 1985

INVESTMENT COMPANY INSTITUTE, ET AL., Plaintiffs,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL., Defendants



The opinion of the court was delivered by: GESELL

 This case concerns an interpretation of the Glass-Steagall Act that the Federal Deposit Insurance Corporation (FDIC) has implemented through regulations *fn1" permitting state banks insured by the FDIC that are not members of the Federal Reserve System to own affiliated subsidiaries engaged in the securities business. Plaintiffs are trade associations representing mutual fund companies and investment bankers that would compete with the security affiliates of such banks. *fn2" To test the legality of the FDIC's actions, the parties have filed cross-motions for summary judgment, which have been fully briefed and argued. *fn3"

 The regulations issued by the FDIC are designed to govern the manner in which insured non-member state banks can arrange to own subsidiaries and affiliates engaged in aspects of the securities business, particularly underwriting various types of securities. The regulations announce and assume that the Glass-Steagall Act does not bar such a relationship between an insured non-member bank and its security subsidiary or affiliate but proceed to control aspects of that relationship. The regulations rely on the FDIC's power, granted by the Federal Deposit Insurance Act, to prohibit unsafe and unsound banking practices. 12 U.S.C. § 1818(a). Plaintiffs do not seriously challenge the detailed terms of these regulations. Rather, they simply maintain that the regulations as a whole are illegal because the Glass-Steagall Act prohibits any securities activity by state insured non-member banks, whether directly or through subsidiaries and affiliates.

 Since defendants have moved alternatively to dismiss the complaint on the ground that plaintiffs lack standing, that threshold issue must be resolved before considering the merits.

 Plaintiffs' claim of injury is straightforward: they claim their members will be hurt competitively if the FDIC allows insured non-member state banks to set up subsidiaries and affiliates to compete with plaintiffs' members. Because in their view such competition is illegal and barred by Section 21 of the Glass-Steagall Act, 12 U.S.C. § 378(a)(1), they assert they are within the "zone of interests" protected by the Act. In another case where plaintiffs' members challenged a banking regulator's interpretation of the Glass-Steagall Act to their disadvantage, the Supreme Court found plaintiffs' members within the Act's zone of interests. Investment Co. Institute v. Camp, 401 U.S. 617, 620-21, 28 L. Ed. 2d 367, 91 S. Ct. 1091 (1971). *fn4"

 The FDIC's argument against standing seeks to parse plaintiffs' alleged competitive injury into two parts and then separately to defeat each.

 First, the FDIC argues that plaintiffs are only challenging the FDIC's interpretation of the Glass-Steagall Act, which merely states the agency's opinion that insured non-member state banks are not barred by the Act from establishing subsidiaries and affiliates to engage in securities underwriting and other transactions. The agency thus claims plaintiffs are seeking merely an advisory opinion from the Court on the correctness of the agency's view. Second, the FDIC asserts plaintiffs suffer no economic injury from the regulations themselves because those regulations do not open the door to competition with plaintiffs' members but merely partially close a door already open.

 The validity of this argument, of course, is premised on the correctness of the FDIC's view that the door is already in fact open. The FDIC cannot so easily divide and conquer plaintiffs' standing. The FDIC's challenged act must be examined as a whole, not in its pieces. As a whole, the agency action coupling its interpretation of the Glass-Steagall Act with regulations implementing that interpretation plainly threatens economic injury to securities firms and provides standing to plaintiffs. The Court thus must address the merits of the complaint.

 Section 21 of the Glass-Steagall Act provides in pertinent part:

 12 U.S.C. § 378(a)(1). Under section 24, national banks, with limited specific exceptions, are barred from engaging in securities transactions for their own account. 12 U.S.C. § 24 (Seventh). Neither section specifically mentions affiliates or subsidiaries. Section 20 of the Act bars affiliations between banks and securities firms but is expressly limited to banks that are members of the Federal Reserve system. 12 U.S.C. § 377. Similarly, section 32 of the Act -- also limited to member banks -- bars officers, directors or employees of security underwriting firms from being officers, directors or employees of banks at the same time, with certain exceptions. 12 U.S.C. § 78.

 The parties agree that section 21 prohibits insured non-member state banks from engaging directly in the securities business. They disagree as to whether it also prohibits affiliates and subsidiaries of such banks from conducting a security business.

 Section 21 is silent as to the activities of bank subsidiaries and affiliates. Plaintiffs argue that the bar in the section's first clause prohibiting security companies from taking deposits "to any extent whatever" by implication prevents banks from having security subsidiaries and affiliates.

 Section 21 is a criminal statute, 12 U.S.C. § 378(b). *fn5" It must be strictly construed. E.g., Dunn v. United States, 442 U.S. 100, 112-13, 60 L. Ed. 2d 743, 99 S. Ct. 2190 (1979). Plaintiffs' reading of the section violates this rule of construction. Beyond this, another rule of construction requires courts to give meaning to every part of a statute and to reject interpretations that render related sections surplusage or contradictory. See In re Surface Mining Regulation Litigation, 201 U.S. App. D.C. 360, 627 F.2d 1346, 1362 (D.C. Cir. 1980). Under plaintiffs' interpretation of section 21, the prior section, section 20, becomes surplusage. That section forbids member banks from forming controlling affiliations with companies engaged in securities underwriting and similar activities. 12 U.S.C. § ...


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