In short, the federal securities laws do not provide the compelling analogy the Board finds in them. Bankers Trust's sales activities are a form of best efforts underwriting aimed at large institutional investors, and accordingly fall within section 21's prohibition on underwriting. The Board's attempt to narrow the reach of this statutory language by importing limitations found in the securities laws is simply unpersuasive in light of the differing objectives of the Glass-Steagall Act, and the fact that the hazards which prompted passage of this Act are just as likely to occur in sales to private institutions as in sales to the general public.
The Board's conclusion that Bankers Trust has not engaged in prohibited distribution of securities is equally flawed. Indeed, its interpretation of this particular statutory term highlights the inconsistency of its analysis. The Board states that the term "distribution" has been "traditionally . . . viewed . . . as synonymous with a public offering of securities," June 4, 1985 Statement at 24 (footnote omitted), and notes that "section 4(2) of the Securities Act (15 U.S.C. § 77d(2)) exempts from the registration and prospectus delivery requirements of the [securities laws] those transactions that do not involve a public offering." Id. The Board then goes on to find that Bankers Trust does not engage in a public offering of commercial paper "in the ordinary sense of the term," and therefore does not distribute securities for purposes of the Glass-Steagall Act.
In so ruling, however, the Board fails to account for a significant difference between the two statutes: the Securities Act contains an express exemption for securities distribution through a non-public offering, while the Glass-Steagall Act provides no similar qualification. This discrepancy is significant in at least two respects. First, it indicates that, contrary to what the Board might believe, the term "distribution" in the Securities Act does not mean only "public offerings"; if that were true, then the exemption for non-public offerings would be entirely superfluous, since by definition such offerings would not be "distributions," and thus would not be covered by the statute in the first place.
Second, the Securities Act exemption demonstrates that Congress was aware of the sometimes different nature of public and non-public distributions of securities, and that when it deemed those differences relevant to a given statute's purpose, it drew appropriate distinctions between the two types of offerings. The Glass-Steagall Act contains no such distinctions, however, compelling the conclusion that the statute prohibits banks from all distributions, be they public or non-public. In light of these different statutory structures, the Board's attempt to create an exemption for non-public distributions where none was provided nor apparently intended, simply cannot be upheld.
The Board's efforts to engraft the Securities Act exemption onto the Glass-Steagall Act fail for yet another reason. Having limited the unqualified terms of the Glass-Steagall Act by analogizing to the securities laws, the Board immediately encounters difficulty because Bankers Trust's activities do not satisfy all the requirements of the Securities and Exchange Commission's ("SEC's") Regulation D, which sets out the conditions that must be met in order for an offering to qualify for the private placement exemption of the Securities Act.
Forced to back away from its "compelling analogy" and to acknowledge that the Glass-Steagall Act and securities laws were designed to accomplish different objectives, the Board concedes that the interpretation of terms used in the Securities Act should not be controlling for all purposes of the Glass-Steagall Act. June 4, 1984 Statement at 24-25. Having recognized the different purposes of the two statutes, however, the Board does not then ask whether the public/non-public distinction which it finds in the securities laws is relevant to the Glass Steagall Act. Instead, it dismisses those provisions of Regulation D that Bankers Trust fails to satisfy as not "germane to the core concerns of the . . . Act." Id. at 31. This pick-and-choose approach to statutory construction is insupportable. The Board cannot have it both ways, drawing on those provisions of the securities laws that support its decision and rejecting other, less favorable features of those laws as irrelevant. Had the Board looked to see whether the non-public exemption was "germane" to the Glass-Steagall Act, it would have found, as the Court noted previously, that the promotional pressures Congress sought to eliminate are equally present in non-public as well as public distributions. The limitations the Board attempts to impose on the terms of the statute are not only not germane to the Act, they are inconsistent with its core concerns. The Board, however, only inquired into the relevance of those provisions that ran counter to its conclusions, thus undermining the validity of its decision.
Moreover, the Board once again looked to the nature of the purchasers in order to determine whether Bankers Trust is engaged in impermissible distribution of securities. As noted above, the Supreme Court has rejected this consideration as irrelevant to the Glass-Steagall Act, which bars banks from all distributions, and draws no distinctions based on the investment expertise of those to whom the securities are offered. SIA, 468 U.S. at , 104 S. Ct. at 2991. The rejection is perfectly consistent with the Act's purposes, for as discussed previously, the promotional incentives that inhere in Bankers Trust's sales are as great, if not greater, than the pressures that would arise if the banks were to sell securities to the general public. See note 10, supra and accompanying text; see also A.G. Becker, Inc. v. Board of Governors, 224 U.S. App. D.C. 21, 693 F.2d 136, 154 (D.C. Cir. 1982) (Robb, J., dissenting), rev'd, 468 U.S. 137, 104 S. Ct. 2979, 82 L. Ed. 2d 107 (1984) (bank depositors who are financially able to purchase commercial paper in large denominations likely to be among bank's most important clientele; loss of their goodwill due to losses on paper sold by bank could be detrimental to bank's operations). The Board's reliance on this feature of the bank's activities, therefore, provides no support for its conclusion that Bankers Trust does not engage in distributing securities.
Finally, the Board's determination that the bank's activities do not constitute distribution of securities within the meaning of the Glass-Steagall Act reveals again the regulatory approach the Board has adopted. Commenters before the Board argued that because of the short-term maturity of the paper the bank sells, Bankers Trust will be forced to assist in "rolling over" the paper, and therefore its sales efforts cannot realistically be viewed as one-time private placements of securities. In response, the Board stated that the frequent nature of these activities, standing alone, does not necessarily convert a private offering into a public one, and went on to add that "if the bank's activities become directed toward marketing securities to an ever-broadening class of customers, the character of the offering could eventually change from nonpublic to public and the provisions of the Act could then apply." June 4, 1985 Statement at 32. Not surprisingly, the Board offers no suggestion as to how it will determine if and when the bank's marketing efforts have crossed the magic threshold from private to public offerings. Whatever criteria the Board will apply, they certainly will not derive from the statute itself, since the Act draws no distinction between public and private distributions. The Board therefore will have to draft guidelines or rules to demarcate the boundaries between permissible and impermissible offerings of securities, and in addition, will be forced to monitor the sales activities of banks to assure adherence to such guidelines.
The Supreme Court, however, has made clear that "although . . . guidelines may be a sufficient regulatory response to . . . potential problems, Congress rejected a regulatory approach when it drafted the statute, and it has adhered to that rejection ever since." SIA, 468 U.S. at , 104 S. Ct. at 2988. In addition, Congress has consistently "continued to withhold from the [Board] the authority to issue regulations concerning 'securities activities of National Banks under the Act.'" SIA, 468 U.S. at , 104 S. Ct. at 2989 (quoting Depository Institutions Deregulation and Monetary Control Act of 1980, § 708, 94 Stat. 188, 12 U.S.C. § 93a). Once again the Board has run afoul of these unequivocal admonitions. While the Board insists that it is not regulating banks but simply interpreting the statutory terms, its interpretation raises a host of difficulties that can only be addressed through guidelines or regulations. Congress designed the Act as a series of flat prohibitions, obviating the need for regulation. That the Board's ruling converts these clear statutory commands into sliding scale prohibitions necessitating guidelines and agency oversight simply underscores the invalidity of the Board's decision.
In sum, the Court concludes that Bankers Trust is engaged in underwriting and distributing securities for purposes of the Glass-Steagall Act. The Board's attempt to superimpose the private placement exemption of the securities laws onto the Glass-Steagall Act is simply inconsistent with the Act's purpose, as the subtle hazards that Congress intended to forestall are equally present in public and private offerings of securities. The Board's ruling on this issue must therefore also be invalidated.
The Glass-Steagall Act was enacted over 50 years ago, in response to a financial collapse the likes of which the nation had never before witnessed, nor, fortunately, has it experienced since. It may well be that as the memory of that event recedes from the national consciousness, the concerns which prompted passage of the Act in those stark times appear in retrospect to be less pressing or important than the 1933 Congress envisioned, and the prohibitions Congress drafted may seem today to be unnecessarily restrictive. The commercial banking industry apparently believes so, and has been lobbying Congress to change the law for some time now. To date, the nation's elected representatives have not seen fit to do so. In the face of this congressional inaction, it is not for this Court or the Board to alter the law. Yet, the Board would effectively reform the Act under the guise of interpreting it, by attempting to regulate and minimize the very promotional hazards that Congress sought to permanently eliminate from commercial banking. Indeed, Federal Reserve Board Chairman Paul Volcker recognized as much in his concurring statement, in which he wrote that
a more straightforward way of proceeding would be to obtain legislative authorization for banks to deal in and act as agents for the distribution of commercial paper. Congressional action is needed in order to provide a firm foundation of specifically applicable new law for the conduct of this activity, as well as to provide the Board with full authority to establish the necessary prudential framework.
June 4, 1985 Statement, Concurring Statement of Chairman Volcker at 3. Congress has not yet provided such legislation, nor granted the Board the authority it attempts to assert through its ruling. Until such time as Congress acts, the Board may not give its blessings to Bankers Trust's activities, nor regulate those activities in an effort to minimize the hazards they present.
For all the foregoing reasons, therefore, plaintiff's Motion for Further Summary Judgment be and it hereby is granted. The Federal Reserve Board's June 4, 1985 Statement, permitting banks to sell third-party commercial paper, be and it hereby is invalidated as inconsistent with the Glass-Steagall Act.