The opinion of the court was delivered by: GREEN
JOYCE HENS GREEN, United States District Judge.
MEMORANDUM OPINION AND ORDER
Plaintiff, Securities Industry Association ("SIA"), a trade association representing the nation's securities dealers and underwriters, challenges a decision of the Federal Reserve Board ("Board") permitting Bankers Trust Company to place commercial paper with investors on behalf of issuers under certain prescribed conditions. Specifically, in its ruling of June 4, 1985, the Board determined that Bankers Trust's commercial paper placement activities did not constitute "selling," "underwriting," or "distributing" commercial paper securities for purposes of the Glass-Steagall Act, which generally prohibits banks from underwriting or dealing in securities. The SIA contends that the Board's interpretation of the Act is incorrect as a matter of law and that its ruling must therefore be set aside. The Board, along with defendant-intervenor Bankers Trust (hereinafter referred to collectively as "defendants"), oppose the SIA's motion for summary judgment and have filed cross motions for summary judgment. For the reasons set forth below, the Court concludes that Bankers Trust's commercial paper activities do indeed violate the strictures of the Glass-Steagall Act and that the Board's contrary ruling must therefore be invalidated.
The Court is well-acquainted with the parties to this action and their dispute, which began in 1979 and has already wound its way once through the entirety of the federal judicial system. In January 1979, plaintiff SIA and A.G. Becker, Inc., a commercial paper dealer, requested that the Board prohibit Bankers Trust from selling commercial paper issued by companies not related to the bank,
claiming that such sales were prohibited by certain provisions of the Banking Act of 1933, commonly referred to as the Glass-Steagall Act. Section 16 of the Act, 12 U.S.C. § 24 Seventh (1982), bars national banks from dealing in securities, except purchases and sales made, without recourse, upon the order and for the account of bank customers, while section 21, 12 U.S.C. § 378(a)(1) (1982), prohibits banks from "issuing, underwriting, selling or distributing" securities. Responding to the petitions of SIA and Becker in September, 1980, the Board took the position that the financial instruments sold by Bankers Trust -- prime quality third-party commercial paper with a maturity of nine months or less, sold in large denominations to sophisticated customers -- were not "notes or other securities" for purposes of the Glass-Steagall Act, and that Bankers Trust's sales were therefore legal. Shortly thereafter, Becker and the SIA commenced suit in this Court, seeking review of the Board's conclusion. In a decision dated July 28, 1981, this Court ruled that commercial paper was in fact a "note or other securit[y]" within the meaning of the Act, and therefore invalidated the Board's decision. A.G. Becker, Inc. v. Board of Governors of the Federal Reserve System, 519 F. Supp. 602 (D.D.C. 1981). A divided panel of the Court of Appeals reversed that judgment, adopting the Board's reasoning, A.G. Becker, Inc. v. Board of Governors of the Federal Reserve System, 224 U.S. App. D.C. 21, 693 F.2d 136 (D.C. Cir. 1982), but the Supreme Court overturned the Court of Appeal's decision and reinstated this Court's holding that commercial paper is comprehended by the literal language of the statute, and that the inclusion of such financial instruments within the Act's terms is fully consistent with its purposes. Securities Industry Association v. Board of Governors of the Federal Reserve System, 468 U.S. 137, 104 S. Ct. 2979, 82 L. Ed. 2d 107 (1984) (" SIA "). The Supreme Court, however, expressed no opinion as to whether Bankers Trust's placement activities constituted "underwriting," "issuing," "selling" or "distributing" within the meaning of the statute, and therefore remanded the case for determination of that question. Id. at , 104 S. Ct. at 2992. In an Order dated October 19, 1984, this Court remanded the case to the Board so that it might consider the "underwriting" issue in the first instance.
In order that the contentions of the parties and the conclusions of the Court may be better understood, it is necessary to set out Bankers Trust's activities in some detail. In 1978, the bank first began offering for sale third-party commercial paper, soliciting purchasers through advertisements announcing its placement services. The bank also initiated a marketing campaign aimed at issuers of commercial paper, promising to perform services competitive with securities dealers. Chief among these services was Bankers Trust's offer to extend short-term credit to commercial paper issuers to cover the unsold portions of any given issue, at interest rates equal to or near the rates borne by the paper. Following the Supreme Court's decision, the Board notified Bankers Trust by letter dated December 3, 1984, that this practice of extending back-up credit to issuers "appears to be the economic equivalent of buying some of the unsold issue with the bank's own funds, an activity that would appear to be prohibited by the [Glass-Steagall] Act." Statement Concerning Applicability of the Glass-Steagall Act to the Commercial Paper Placement Activities of Bankers Trust Company at 3 (June 4, 1985) ("June 4, 1985 Statement"). As this conclusion was based upon Bankers Trust's 1980 placement activities, the Board offered the bank an opportunity to provide information concerning its more recent placement methods, and also solicited comments from interested parties, including, among others, the SIA.
The bank's current activities in the commercial paper market, which are described in the Board's June 4, 1985 Statement and lie at the heart of the present dispute, differ in several material respects from its 1980 placement methods. Bankers Trust still assists issuers in placing their paper with large financial institutions, advising client issuers with respect to the rates and maturities of a proposed issue that are likely to be accepted, soliciting potential purchasers and selling the paper to them. The bank, however, no longer lends short-term funds to issuers at or near the rates of interest of the paper being placed. It does not purchase or repurchase the paper, inventory it overnight, or take any ownership interest in the paper. Nor does the bank make loans on the paper, as it used to, or take the paper as collateral for loans. Finally, the bank enters into no repurchase, endorsement or other guarantee arrangement with purchasers of the paper. June 4, 1985 Statement at 4-5.
In its June 4, 1985 Statement, the Board concluded that Bankers Trust is not engaged in "distributing" or "underwriting" securities under section 21 of the Glass-Steagall Act, because its current placement activities do not involve public offerings as that term is defined under the federal securities law. While Bankers Trust is involved in "selling" securities, the Board found that the bank does so without recourse, upon the order and for the account of its customers, and that its sales therefore fall within the "permissive phrase" of section 16 of the Act. Finally, the Board concluded that the bank's placement activities will not give rise to the hazards and financial dangers that the Glass-Steagall Act was designed to prevent, and that they therefore fall outside the scope of the Act.
Following the Board's decision, the parties filed the cross motions for summary judgment now before the Court, and various amici filed supporting memoranda. Oral argument on the motions was held on September 19, 1985.
The Board, of course, is the agency charged with regulating the national banking system, and as such has primary responsibility for implementing the Glass-Steagall Act. SIA, 468 U.S. at , 104 S. Ct. at 2983. Courts, therefore, are to "accord substantial deference to the Board's interpretation of that Act whenever its interpretation provides a reasonable construction of the statutory language and is consistent with legislative intent." Securities Industry Ass'n v. Board of Governors, 468 U.S. 207, 104 S. Ct. 3003, 3009, 82 L. Ed. 2d 158 (1984) (" Schwab "). The Supreme Court has made clear, however, that the deference owed is not so great as to convert judicial review into a rubber stamp for Board decisions. Under the standard enunciated in SIA, courts are to determine for themselves the congressional intent underlying a given banking statute, and "'must reject administrative constructions of [that] statute . . . that are inconsistent with the statutory mandate or that frustrate the policy that Congress sought to implement.'" SIA, 468 U.S. at , 104 S. Ct. at 2983 (quoting Federal Election Comm'n v. Democratic Senatorial Campaign Comm'n, 454 U.S. 27, 32, 70 L. Ed. 2d 23, 102 S. Ct. 38 (1981)).
The Glass-Steagall Act was passed in 1933, in response to the banking collapse that ushered in the Great Depression of the 1930's. The Act reflected the widely-held view that the depth of the nation's financial crisis was attributable in large measure to the extensive participation of commercial banks in speculative investment banking activities. In order to restore public confidence in commercial banks as depository institutions, and to prevent future financial disasters, Congress sought "through flat prohibitions . . . to 'separat[e] as completely as possible commercial from investment banking.'" SIA, 468 U.S. at , 104 S. Ct. at 2985 (quoting Board of Governors v. Investment Company Institute, 450 U.S. 46, 70, 67 L. Ed. 2d 36, 101 S. Ct. 973 (1981) ("ICI")). The two principal prohibitions designed to effect such a separation are found in sections 16 and 21 of the Act. Section 21 prevents persons or firms involved in investment banking activities from engaging in commercial banking by making it illegal for any person "engaged in the business of issuing, underwriting, selling or distributing . . . stocks, bonds, debentures, notes or other securities to engage . . . in the business of receiving deposits. . . ." 12 U.S.C. § 378.
Section 16 enforces this prohibition from the other side of the equation. It provides that "the business of dealing in securities and stock by [member banks] shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account. . . ." 12 U.S.C. § 24 Seventh. As Bankers Trust is a member bank in the business of receiving deposits, both sections apply to its activities. SIA, 468 U.S. at , 104 S. Ct. at 2986.
A. Bankers Trust's Activities As "Selling" Commercial Paper
There can be no dispute that Bankers Trust "sells" commercial paper on behalf of issuers, and that its activities are therefore embraced by the literal terms of section 21, which broadly prohibits banks from "selling" securities. In its June 4, 1985 Statement, the Board took the position that because section 16 authorizes banks to engage to some extent in selling securities, section 21 should not be read as prohibiting sales activities expressly permitted by section 16. June 4, 1985 Statement at 9. Plaintiff challenges this construction of the Act. Noting that the terms of the statute are to be given their literal meaning, ICI, 450 U.S. at 65, plaintiff argues that the term "selling" comprehends all sales activities -- be they principal or agency transactions, private or public sales -- and thus carves out no exception for sales authorized under section 16. Bankers Trust's activities are unlawful if prohibited by either section of the Act, SIA, 468 U.S. at , 104 S. Ct. at 2986, plaintiff claims, and thus because they fall within the plain meaning of section 21's broad prohibition, the bank's activities are illegal.
In advancing such an argument, however, the SIA ignores the Supreme Court's observation that sections 16 and 21 "seek to draw the same line." Id. Indeed, section 21 expressly states that its provisions "shall not prohibit national banks . . . from dealing in, underwriting, purchasing, and selling investment securities to the extent permitted . . . by the provisions of section 24 of this title." 12 U.S.C. § 378(a)(1). Paragraph seventh of section 24, of course, is the codification of section 16 of the Glass-Steagall Act. Thus, section 21 would appear to incorporate by express reference the sales exception created by section 16. Even were this not the case, plaintiff's construction of the Act flies in the face of the maxim that the provisions of a statute should be read consistently with one another in order to give meaning to each, since Congress is presumed not to draft superfluous or insignificant language. United States v. Menasche, 348 U.S. 528, 538-39, 99 L. Ed. 615, 75 S. Ct. 513 (1955); Zeigler Coal Co. v. Kleppe, 175 U.S. App. D.C. 371, 536 F.2d 398, 406 (D.C. Cir. 1976). Under plaintiff's reading of the Act, section 16's carefully drafted exception to the general prohibition on the sale of securities would be rendered completely nugatory by section 21. Congress most certainly could not have intended such a result. The Court, therefore, finds that the Board's construction of section 21, which gives effect to section 16's permissive phrase, is both consistent with congressional intent and reasonable.
1. Section 16's Permissive Phrase
The relevant inquiry then, is whether Bankers Trust's sales activities fit within section 16's permissive phrase. In the Board's view, the bank's current placement methods satisfy each of the criteria set out in the section: the Board concluded that (1) the bank does not purchase the commercial paper for its own account or extend credit to the issuer in a manner that is the functional equivalent of purchasing the paper; (2) the bank does not assume any market risk for, or in any way guarantee, the paper it places; and finally (3), the bank places the paper solely ...