Board of Governors of the Federal Reserve System v. Dimension Financial Corporation

PETITIONER: Board of Governors of the Federal Reserve System
RESPONDENT: Dimension Financial Corporation
LOCATION: March Air Force Base

DOCKET NO.: 84-1274
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 474 US 361 (1986)
ARGUED: Nov 04, 1985
DECIDED: Jan 22, 1986

ADVOCATES:
Jeffrey S. Davidson - on behalf of Dimension Financial Corporation, Daniel T. Carroll, Harold D. Dufek, William L. Mitchell, Ronald L. Shaffer, and A. Gary Shilling, Respondents
John D. Hawke, Jr. - on behalf of American Financial Services Association, Household Finance Corporation, and First Bankcorporation, Respondents
Michael Bradfield - on behalf of Petitioner

Facts of the case

Question

Media for Board of Governors of the Federal Reserve System v. Dimension Financial Corporation

Audio Transcription for Oral Argument - November 04, 1985 in Board of Governors of the Federal Reserve System v. Dimension Financial Corporation

Warren E. Burger:

We will hear arguments next in Board of Governors of the Federal Reserve System against Dimension Financial Corporation, et al. Mr. Bradfield, I think you may proceed whenever you are ready.

Michael Bradfield:

Thank you, Mr. Chief Justice, and may it please the Court:

This case involves the validity of Federal Reserve Board rule applying the Bank Holding Company Act to the corporate owners of certain banks, so-called non-bank banks.

The Bank Holding Company Act applies to companies that control a bank, which the Act defines as any institution that both takes deposits the depositor has a legal right to withdraw on demand, and engages in the business of making commercial loans.

The first part of this definition concerning demand deposit was added to the Act in 1966, substituting for a broad charter test.

The second half was added in 1970.

Bank holding companies may engage in only limited activities; owning banks and in activities that are closely related to banking.

The Act prohibits the commingling of banking and commerce.

This policy was adopted to prevent abuses in the allocation of credit; to prevent concentration of banking resources in a few hands; and to maintain local control over local banking resources.

These companies, securities firms, insurance firms, retail firms and other commercial and industrial companies which control non-bank banks, claim that they have removed themselves from the regulation under the Act when they act through national banks, state banks and industrial banks to provide essential banking services but eschew either the taking of demand deposits or the making of commercial loans.

Begnning in 1980 there was a sudden explosion in the number of institutions that use this device, but in a new way; to achieve interstate banking and to combine banking and commerce.

The Board became concerned that these institutions which took NOW accounts and made commercial loans would become a vehicle for preferential lending and for interstate banking in violation of state policy.

In response, a unanimous board of governors, after rulemaking, defined the term NOW accounts.

Sandra Day O'Connor:

Mr. Bradfield, in 1966 when Congress was considering adopting the definition, did the Board propose to Congress that, in defining demand deposits, that it include accounts which in actual practice were paid on demand?

Was that a suggestion made by the Board to Congress in '66?

Michael Bradfield:

That was a suggestion that was made by... The Board took the position, not in practice, but that accounts that were payable by check, the accounts that were payable on demand should be covered by the Act.

There's a bit of history that I will get to, Justice O'Connor, concerning industrial banks and their proposal and the Board's proposal to cover--

Sandra Day O'Connor:

Yes, but my concern is to determine whether it be the essence of the present Board rule and position was one that was suggested by the Board itself to Congress in 1966 and resulted in the adoption of somewhat formalistic language by the Congress that rejected--

Michael Bradfield:

--The Board actually proposed the language was deposits payable on demand.

That language later became deposits that the depositor has a legal right to payment on demand.

I do not think that there was any significance to that change in language.

The legislative history that Congress... The committee reports specifically say that they were talking about demand deposits checking accounts, and they used for emphasis, right after demand deposits, they were using checking accounts.

And I don't believe that they intended any specific technical distinction.

Sandra Day O'Connor:

--Well, can we say in concluding that Congress did not intend to pick up passbook savings accounts?

Michael Bradfield:

Yes, I believe that that is correct, and the legislative history makes that clear.

Sandra Day O'Connor:

Well, tell me whether you think literally the Board's new definition of a NOW account is broad enough to pick up passbook savings accounts.

Michael Bradfield:

The Board's definition does not pick up savings accounts.

It doesn't apply to savings accounts, and the legislative history makes it clear that Congress was not intending to cover savings accounts--

Sandra Day O'Connor:

Well, does the literal language of the Board's new definition cover... is it broad enough to conceivably cover passbook savings accounts?

Michael Bradfield:

--Well, technically it's possible that it might cover that, but the, the specifics of the definition do not cover passbook savings accounts because they're not payable by checks.