Citibank, N.A. v. Wells Fargo Asia Ltd.

RESPONDENT:Wells Fargo Asia Ltd.
LOCATION:Residence of Cruzan

DOCKET NO.: 88-1260
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 495 US 660 (1990)
ARGUED: Mar 19, 1990
DECIDED: May 29, 1990

Darryl Snider – on behalf of the Respondent
Thomas W. Merrill – on behalf of United States as amicus curiae, supporting the Petitioner

Facts of the case


Audio Transcription for Oral Argument – March 19, 1990 in Citibank, N.A. v. Wells Fargo Asia Ltd.

William H. Rehnquist:

We’ll hear argument next in Number 88-1260, Citibank v. Wells Fargo Asia Limited.

Mr. Bork.

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

Petitioner Citibank is here on writ of certiorari to the Second Circuit.

The outcome of this case will be of tremendous importance to the banking industry and to Federal regulators, but the case is not complex.

What happened was this.

Wells… the Respondent, Wells Fargo Asia Limited, made two deposits totalling $2 million, Eurodollars, in Citibank’s Manila branch.

Before the time came for repayment the Philippine government entered a decree that made it impossible for us to repay in full.

Now, at that point Wells Fargo Asia sued Citibank in New York, saying that since the Manila branch could not pay, Citibank in New York had to pay.

We, of course, think the risk of what the Philippine government did was on the depositor in the foreign branch, in the Manila branch.

Now, a panel of the Second Circuit stated that normally a deposit is repayable only at the branch where it is made, but in this case, because there were routing instructions, routine routing instructions for putting the money back through New York on the way to repayment, that they had somehow… the banks had somehow agreed to repay in New York–

William H. Rehnquist:

Well, they found… the Second Circuit found there was a contract to that effect, a contractual agreement.

–That’s right.

They found there was a contract.

And what that contract was, a routing instruction, it was a little odd because the routing instruction said that Citibank Manila would pay out of its bank account in Citibank… its bank account, not Citibank,… its bank account in Citibank, would repay Wells Fargo Asia’s bank account with Wells Fargo.

But simply because it went through New York the Second Circuit decided that it was payable in New York, and then shifted the person who had to pay from Citibank Manila to Citibank in New York.

William H. Rehnquist:

Well, we don’t usually review those very factual determinations, was there or was there not a contract to a particular effect.

Well, I think in this case what is up for review is a question of Federal law.

It is our contention that that question of law, when they construed that as a contract, is preempted by Federal law.

And you will notice, Mr. Chief Justice, that nobody in this case defends the Second Circuit’s rationale.

William H. Rehnquist:

Well, do you contend that whatever the Federal law is, the parties could not agree otherwise by contract in a situation like this?

They could agree otherwise than by contract.

As we have said in our brief and as the Solicitor General says, this is clearly not a contract.

These are the routing instructions that are used in–

William H. Rehnquist:

Well, then you are just arguing about a very fact specific determination about the Second Circuit, it seems to me, if you agree that whatever view of Federal law one takes, the parties could change the result by agreement.

–Yes, but according to Federal law, Mr. Chief Justice, what I am saying is this cannot be a contract.

If it has been, then for 40 years the Federal Reserve Board and the FDIC have been interpreting these things wrong.

Byron R. White:

Well, but if they can… if Citibank could have agreed to this liability by an express contract, you would know… you could protect yourself in every, every transaction after this by making sure that you didn’t have such a contract.

No, we couldn’t, Your Honor.

What we have here, all of these dollars are routed through New York, 90 percent of them.

That is the way the whole industry works.

If this were correct, all Eurodollars, which are payable offshore only, suddenly hundreds of billions of dollars suddenly become payable in New York.

Those are deposits offshore for which no reserves have been created, for which no insurance has been paid–

Byron R. White:

So there are a lot of transactions out there already that–

–Already out there.

So you couldn’t cure the existing obligations by contract.

Moreover, this is an oral market.

All of these deals are done, and there are hundreds of billions of them done a day, on the telephone by people who are about 25 years old.

And all they are allowed to do is give the amount, the interest rate and the time of repayment.

There are no other terms.

William H. Rehnquist:

–Well, they are allowed to make contracts, aren’t they?

No, they’re not.

That’s it.

William H. Rehnquist:

People 25 years old in this job are not allowed to make contracts?

They are not allowed by their employer to make contracts other than the amount, the interest rate and the time of repayment.

It is an oral market, and it can’t work with all kinds of terms being done that way.

William H. Rehnquist:

Well, does that say nobody ever gets out of line?

Never gets… I assume that if somebody gets out of line and makes a different kind of a contract over the telephone that drastic repercussions follow.

But that is not the point here.

The point is that we have Federal law that says that these deposits are payable only overseas at the branch where made, when a sovereign foreign government interferes with the power of the branch to repay.

Sandra Day O’Connor:

Well, Mr. Bork, I think the Solicitor General would offer a narrower approach than the adoption of some Federal common law rule.

I think you differ somewhat in that regard.

That is certainly true, Justice O’Connor.

The Solicitor General says he finds our rule attractive… and by the way, I am not arguing primarily for a Federal common law rule.

I am arguing primarily for a straight out preemption, which I think I can prove.

But the Solicitor General says you don’t have to reach that issue because the common law, correctly interpreted, would give us the same result.

And he does stress that there in an enormous Federal interest here.

If you look at page 12 of his brief, page 18 of his brief, and towards the end of the brief, he says if the common law doesn’t come out right they will have to come back and begin discussing whether or not there is a Federal law that preempts, or that there is a common law.

The fact is his position rests upon a notion that the law is the same all over the world and in all states.

That may be true, but nobody knows it.

And he may be willing to rest on that, but the banks and the banking regulators would find that situation present… nobody would know where the risk–

Sandra Day O’Connor:

What was the source of Federal jurisdiction here?

Was it diversity jurisdiction in the Federal court?

–Yes, and there is a bank statute that says that–

Sandra Day O’Connor:

Are you relying on Section 632?

–For jurisdiction, and also I think there was diversity jurisdiction here.


Sandra Day O’Connor:

You think both existed?


I think that is right, Justice O’Connor.

But the fact is the Second Circuit’s theory is one I had not planned to discuss, because nobody in this case, not the respondent, the amici, the respondent’s amici, our amici, the government, nobody supports the Second Circuit’s rationale, and nobody has ever seen that rationale before in this entire market.

Anthony M. Kennedy:

But I take it Wells Fargo supports the district court’s rationale?

Wells Fargo has something more than the district court’s rationale.

It has a really a very revolutionary proposition.

But even without a… it’s not really the district court’s rationale, I don’t think, but even without an agreement, a deposit in Manila is repayable by Citibank in New York or anywhere else in the world that Citibank has a branch, whenever any foreign government interferes with repayment by the Manila branch.

Now that… that theory absolutely destroys the distinction between domestic deposits and deposits overseas in foreign branches.

And that is a distinction upon which the banking industry in this area is built.

It is the distinction upon which all Federal regulation in this area is built.

And in this case you have two Federal… you have two regulatory systems.

You have the Philippine regulatory system, which fully regulates the Manila branch, and you have the U.S. regulatory system.

Now, a depositor faces a trade-off, depending on which system he wants to choose to go into.

Deposit here and get all of the protections, reserves, insurance and so forth that the United States provides, or he can deposit abroad, without the cost of the U.S. regulatory system and get a higher interest rate.

What he can’t do is get both.

Anthony M. Kennedy:

What are the risks that he takes?

Just the risk of a foreign freeze order?

Because everyone concedes that if the foreign branch is insolvent that the primary branch, that the primary bank is liable.

That is right.

That is right, by Federal law there, too.

In 1917 the Federal Reserve stated–

Anthony M. Kennedy:

So what are the risks?

Anthony M. Kennedy:

Just a foreign freeze order?

–Foreign expropriation, freeze, anything that restricts the ability of the foreign branch to repay the debt when it is due.

That is called sovereign risk, and that is what the government has said, by law, rests with the depositor and not with the home office.

And it can’t operate its regulatory system any other way, because if all of those deposits suddenly become payable in the United States, perhaps the Federal Reserve will have to create reserves against those deposits, and there are hundreds of billions of them out there.

Citibank, for example, and it is not alone in this, has many more deposits overseas than it has in this country.

And if they all came here to be repaid after they were lost to a foreign government, the situation would be pretty serious.

So, if Respondent’s theory were adopted, what would happen is that the Federal Reserve Board would have to figure out whether it is going to require reserves against all of those deposits.

The FDIC would have no choice under its statute.

Byron R. White:

Is your, is your suggestion that… the fact that… the holding that there was a contract to pay in New York or to expose Citibank’s assets everywhere, that is just out of the case because nobody defends the holding below?

No, no, actually General Merrill is going to address that aspect of the case, and I had hoped to discuss the Federal law, but I am willing to discuss it too if you wish.

Okay, no.

The, that’s in the case, but I think by Federal law that is not the way to view standard routing instructions, because if you do all Eurodollars are wiped out and they all become domestic dollars.

But anyway, the law in this case was made in 1913 by the Federal Reserve Act, which delegated to the Federal Reserve Board the power to license foreign branches under such regulations, upon such conditions as they saw fit.

The Federal Reserve Board then–

William H. Rehnquist:

We will resume there at 1:00 p.m., Mr. Bork.

We will resume argument now in Citibank v. Wells Fargo.

Mr. Bork.

Mr. Chief Justice:

Since General Merrill is going to discuss the issue of the routing instructions, I would like not to use up all of my time on that issue.

But I want to say just a couple of things.

There is only one finding of fact in this case about what those routing instructions mean.

That was by the district court.

The district court found as a fact that was not an agreement making the deposits collectable in New York.

The court of appeals did not find that clearly erroneous, it simply read the words of the telexes and said that’s an agreement.

I think that is a matter of law, not of fact.

And these are routine transactions, and I think as a matter of Federal law they cannot be taken as agreements.

And in fact I think Federal law covers this entire field I have mentioned to you, Congress’ delegation to the Federal Reserve Board to make all the regulations as to foreign banks.

The Federal Reserve Board did that in its most… its clearest statement of Federal law was in its 1970 bulletin opinion, which is to be found at page 87 of the appendix, and I will quote just three sentences from that.

It said said exemptions, that is, exemptions from… for foreign branches from reserve requirements and exemptions from interest rate limits, are intended principally to enable foreign branches of U.S. banks to compete on a more nearly equal basis with other banks in foreign countries in accordance with the laws and regulations of those countries.

Having given the policy of Federal interest, a Federal policy in having competitive foreign branches, in the very next sentence the opinion goes on to say, to lay out the law, a customer who makes a deposit that is payable solely at a foreign branch assumes whatever risk may exist that the foreign country might impose restrictions on withdrawals.

To make it still clearer, the very next sentence says when payment of a deposit in a foreign branch is guaranteed by a promise of payment at a banking office in the United States if not paid at the foreign office, the depositor no longer assumes such risk.

William H. Rehnquist:

What would you call that in the world of administrative law, Mr. Bork, an interpretive regulation or interpretation of a regulation?

It is an interpretation of the 1918 opinion, which is a regulation, and then you will have… I think this is a regulation.

I think you will see in 1982 and 1983 in the appendix staff opinions published by authority of the board which say the same thing.

They… but the important point is the matter of practical construction for decades and decades, since 1918 to the present day, the Federal Reserve Board and the FDIC since 1933 have been operating on that rule.

And among other things, the Federal Reserve Board and the FDIC for 40 years have been saying that these routing instructions, which every day send $750 billion through New York, every day, these routing instructions are not agreements to repay in the United States.

And the finding… the holding to the contrary by the court of appeals, I think, is clearly a holding of law and not a finding of fact.

But in any event, our brief discusses how the law was made at some length, and Congress has ratified in 1980 these interpretations and these regulations.

That is in our brief, too.

The clear fact is that Federal law had to be created, if we were going to have Eurodollar markets, if we were going to have foreign branches that are competitive with other countries.

Other countries don’t have a rule of home office liability.

The risk of sovereign interference under English law and under French law rests with the depositor in the foreign branch.

That was the rule here up until this case.

But it is clearly the rule that the Federal Reserve and the FDIC have laid down and operate on.

Now, if the court of… if this Court–

John Paul Stevens:

May I just interrupt for a second?

How do we determine whether the… whether a deposit is payable solely at a foreign branch?

For example–

–If it’s made at the foreign branch–

John Paul Stevens:

–if it is not insolvent it would have been payable somewhere else, wouldn’t it?

–If it’s… under the 1917 regulation of the Federal Reserve Board, if there is insolvency or a credit failure, it is payable by the home office.

John Paul Stevens:

Then how can you say it is payable solely at the branch office?

In terms of sovereign risk, because of the 1918 regulation which said that the reserves will not be created by sovereign–

John Paul Stevens:

Yes, but the… but your sentence you read to us says a customer who makes a deposit that is payable solely at a foreign branch assumes a certain risk.

–He assumes the risk.

The risk he assumes is that the foreign country might interfere with repayment.


He does not assume the risk if the branch manager will run off with the funds.

John Paul Stevens:

Well, I understand that, but if the branch manager does run off with the funds, it is payable someplace else.

So how can you say it is payable solely at a foreign branch?

Oh, it probably is payable… well, under… that is probably Justice Harlan’s distinction he made, it’s in our brief, which is that it is not payable at the home office.

You sue at the home office for breach of contract, recision, something of that sort.

But it is not the deposit itself that is repayable.

John Paul Stevens:

It seems to me one of the tough issues in the case is whether or not this deposit was payable solely at a foreign branch.

That is one of–

If this one wasn’t, then none are.

And the Federal Deposit Insurance Corporation and the Federal Reserve Board have been operating under their own regulations for decades and decades on a wrong interpretation of their own regulations.

Because this is an utterly standard routing instruction, utterly standard transaction.

Antonin Scalia:

–Mr. Bork, isn’t it possible to… I don’t know whether we are quarreling over the right words, isn’t it possible to have it payable at the home… at the home office, but not payable from the home office funds.

Couldn’t you analyze it that way, saying even though you have made it payable there, in order to overcome the banking regulations here you have to make it payable there out of the home office funds?

Wouldn’t that… that would give you the same result, wouldn’t it?

No, the court has… here has said it is payable out of the home office funds, although the telexes don’t say that.

They say payable out of Manila branch’s funds.

And the transfer, the electronic transfer, takes place in New York because of this computer system that nets out $750 billion worth of these Eurodollar transactions a day.

That is why they all go through New York, and the only reason.

And that practical industry fact has been understood by the regulatory agencies not to be a contract that the home office will pay.

If the Court should rule as we ask the Court to, nothing in the regulatory system that has been in place for decades now will change.

What would be our judgment if we agree with you?

You would reverse and judgment would be entered for Citibank.

Byron R. White:

Nothing left… nothing left of the case to be decided below.

That is right.

That is right, Mr. Justice White.

If the Court should rule the other way, however, on these notions that Respondent offers, which are essentially unworkable, they don’t do… for example, it says an attachment of a deposit, the risk of that is on the depositor, but a currency blocking, the risk of that is on the home office.

You can block currency for so long it becomes an attachment.

Byron R. White:

But if we… if we… to agree with you we first have to say that there was no contract, don’t we?

That is correct.

Byron R. White:


And secondly, and if there isn’t any contract, there can’t be any liability here, because of the Federal law.

That is correct.

The risk of laws rests with the depositor.

Byron R. White:

You don’t think New York or Philippine law has anything to do with it?

If it did–

Byron R. White:

Let’s assume there is no contract, and then you say well, is there some other basis for liability, and you say there can’t be because of the Federal law, even if New York might say… the New York law might be that the home office is liable.

–Well, I don’t think the New York law is that way.

Byron R. White:

Well, I know, but what if it were?

But if it were I think that New York law is preempted because a foreign branch banking is an area of vital Federal interest.

These branches exist only because of Congress and the Federal Reserve Board.

And they have been regulated by Congress and the Federal Reserve Board all of this time.

And Congress said it wants healthy competitive foreign branches to help assist American business, to act as fiscal agents to the U.S. government, and so forth.

This is the area of almost exclusive Federal concern, and there is Federal rules on it which I think must preempt any rules to the contrary.

It is a very narrow preemption.

It is just about where the risk of sovereign laws lies.

Byron R. White:

The agencies may have operated on this assumption for a long time that the home office is not liable, but there is no… is there some specific provision in a statute to that effect?

Well, the statute in 1913 said that the Federal Reserve may license foreign branches on such regulations and conditions as it deems necessary.

The Federal Reserve then began to make opinions and regulations of the kind I just read you, which says the risk of sovereign interference at the branch lies solely with the depositor.

In 1980 Congress passed the statute saying reserves… following the Federal Reserve practice… reserves are not creatable for deposits of foreign branches.

And the House report said that it is our intention not to disturb the administrative classifications that have been made under existing law, which I think is a ratification of what the Federal Reserve and the FDIC had been doing all of this time.

Thank you, Mr. Bork.

Mr. Merrill.

Thomas W. Merrill:

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

The lower courts in this case adopted two general theories in support of the conclusion that a routine Eurodollar placed with a foreign branch of a United States bank is a general obligation to the bank as a whole.

The district court found that there had been no agreement between the parties as to where the deposit would be repaid, but concluded that as a matter of law that deposit obligation was an obligation of the bank as a whole.

The court of appeals disagreed with that statement of the rule of law, but found that in fact the routing instructions that the parties had agreed to for settlement of the deposit account in New York constituted an agreement to repay in the United States.

Let me briefly address why both of those are matter of deep concern to the Federal banking agencies and why we think in particular the court of appeals’ judgment cannot stand as a matter of law.

It has long been understood by the banking community and by the Federal banking agencies that the relationship between a deposit agreement and instructions for settlement of a deposit through the New York clearinghouse bears roughly the same relationship as any type of contractual obligation pays to provisions for the clearance of a check that might be written in satisfaction of that contractual obligation.

William H. Rehnquist:

How do… first of all, how do you know this, Mr. Merrill, and second, how do we know it?

Was there expert testimony to this effect in the district court?

Thomas W. Merrill:

Yes, there was testimony in the district court about the significance of the routing instructions.

And as far as I know, it was all to the effect that the routing instructions were not understood to be part of the obligation of the parties.

William H. Rehnquist:

And so, what you are telling us now about what everybody knows is based on the testimony of expert witnesses before the trial court?

Thomas W. Merrill:

It is not a question of fact, Your Honor.

The district court found–

William H. Rehnquist:

Well, you… you’re telling us that certain transactions have always been assumed to be just like this or just like that.

If that isn’t a question of fact, I don’t know what is.

Thomas W. Merrill:

–Well, it is not a question of fact because the district court found the facts in this case.

The district court specifically found two things.

It found… it made a distinction between what it called the provisions for clearing… for repayment of… it defined repayment as the provisions for routing money between the banks, and it distinguished that from collectability, which it defined as where the parties could look to satisfy the obligation.

It found that there had been no agreement reached on collectability, which is what we understand to mean repayment.

William H. Rehnquist:

So, are… is what you are telling us, were telling us a moment ago that everybody knows, is that based on findings of the district court?

Thomas W. Merrill:

We think that the court of appeals ruled as a matter of law that this is an obligation in New York.

It did not question any of the findings of the district court.

William H. Rehnquist:

Well, but your… your opening remarks, Mr. Merrill, were to the effect that there are a lot of things that people have been taking for granted for a long time, and this is how the cow ate the cabbage, so to speak.

And I am asking you what is the source of our knowledge that that is how the cow ate the cabbage?

Thomas W. Merrill:

Well, two things basically.

One would be, of course, prior case law about the relationship between banking deposits and routing instructions, which is entirely… is completely consistent that the routing instructions have no effect on the modification of the obligation.

That is the holding of the Second Circuit in the Braka case.

It’s the holding of the Fifth Circuit in the Callejo case.

William H. Rehnquist:

Well, but those cases aren’t binding on us.

Thomas W. Merrill:

No, those are cases construing as a matter of law that the type… those types of routing obligations don’t constitute a contract.

The district court found that the routing instructions were not a contract that affected the obligation to repay.

Anthony M. Kennedy:

Well, how can you say then the court of appeals didn’t disagree with any of the findings of the district court?

Thomas W. Merrill:

Because the court of appeals accepted the findings that–

That there wasn’t a contract?

Thomas W. Merrill:

–But construed the routing agreements to be a legal obligation to repay in the United States.

Anthony M. Kennedy:

Well, isn’t that… in short there was an agreement.

Thomas W. Merrill:

There was an agreement about routing instructions, but the court of appeals changed the interpretation of that as a matter of law to be an agreement to repay in New York.

There are approximately $1.5 trillion worth of Eurodollar deposits in existence in the world today; 90 percent of those are cleared through these banks in New York.

The Federal Reserve and the Federal Deposit Insurance Corporation have for years followed a basic two-step process in deciding the question of where an obligation is repaid… is repayable.

Whether it is payable only outside the United States or payable in the United States.

First they look to the agreement of the parties, the deposit agreement.

Thomas W. Merrill:

And if the deposit agreement specifically provides for a place of payment, that is where it is determined to be payable.

Secondly, if there is no agreement, it is presumed to be payable at the branch where it has been placed.

Now, if the court of appeals is correct that routine routing instructions, which are no different in any material respect from the routing instructions that accompany all of these Eurodollar transactions, constitute an agreement to make the obligation… the underlying obligation payable in the United States, then the entire understanding on which the banking agencies have been operating has been totally revolutionized.

The Eurodollar market would be called into question, and it would have significant implications for the security and stability of the United States banking system.

Sandra Day O’Connor:

Well, Mr. Merrill, in responding to the question you take a different position than Mr. Bork takes in how we should resolve it.

He would propose articulation of some Federal common law.

Thomas W. Merrill:

I don’t think there is any difference in our position with respect to the Second Circuit’s rationale.

I think we both agree that as a matter of law that is simply erroneous.

Sandra Day O’Connor:

Well, if it isn’t… if we don’t say, as he suggests, that there, it is governed by some Federal law, then what law does apply here?

Thomas W. Merrill:

Well, we have suggested in our brief that as a matter of New York and Philippine law there is no basis whatsoever for concluding that these are general obligations of the bank.

I can understand how the Court might be reluctant to wade into deciding questions of Philippine law, and our invitation brief we simply suggested that the matter be remanded to the Second Circuit.

Antonin Scalia:

That isn’t our reluctance.

Our reluctance is to say lucky thing for the Eurodollar market that New York and Philippine law provide this way.

Because had they provided otherwise all the chaos that you have just described would ensue.

You want us to say fortunately, in this particular case since it is either New York or Philippine law that governs, and since that law effectuates all the good things you say, everything works out okay.

The next case may be Louisiana, and we will worry about that when we get to it.

That is basically what you are telling us.

Thomas W. Merrill:

Well, we think that if in fact New York and Philippine law had a contrary understanding, that that would have very serious implications for the way in which the Federal banking system operates, and we would at that point urge the application of some type of Federal common law rule to resolve this case.

I see.

Thomas W. Merrill:

Our reluctance to do so so far has been that we have been quite convinced that in fact there is nothing in either New York or Philippine law which suggests that it is in any way inconsistent–

Anthony M. Kennedy:

Well, but that is going to have to be done back at the court of appeals, isn’t it?

Thomas W. Merrill:

–That would be the most natural thing to do about that, and I can understand how the Court might not wish to do that, given that both parties have… that the Court granted certiorari.

We recommended in our invitational brief granting certiorari only on the second question about the routing instructions, but the Court has granted certiorari on both questions.

Parties have extensively briefed the question of what the underlying rule of law ought to be, and the Court may very well wish to consider a proceeding to decide that question.

The Federal government has no policy objection to the use of a Federal common law rule in this context.

We would in fact be quite delighted with such a rule.

We simply have been concerned–

Byron R. White:

Why do you call it a common law rule?

Thomas W. Merrill:

–Excuse me?

Byron R. White:

Why do you call it… call it a common law rule?

Thomas W. Merrill:

A Federal common law rule?


Thomas W. Merrill:

We don’t construe our regulations as being preemptive.

We think they are interpretive regulations which rest on the understanding that the common law rule, absent agreement–

Byron R. White:

Well, they are evidence of what the common law rule is, you think.

Thomas W. Merrill:


The Federal government has been operating on an understanding for years–

Byron R. White:

And if there is a Federal common law rule, it preempts the state law, doesn’t it?

Thomas W. Merrill:

–It would in that, yes, Your Honor.

William H. Rehnquist:

Is what you’re saying that the regulations follow not a sort of Federal common law, but the common law rule that has been in existence for a long time, that is shown by its state court decisions?

Thomas W. Merrill:

Yes, the Federal scheme is keyed to the agreement of the parties.

The Federal banking examiners, when they go out and decide whether or not something is payable only outside the United States, will look to see if there is an agreement.

If there is no agreement they assume that the separate entity doctrine, which the banking system has followed for decades, applies, and that the agreement is… the deposit is payable only outside the United States.

This entire structure has been built up on that premise.

The Eurodollar market exists on that premise.

If the rule were to the contrary it would have serious implications for the United States banking system because it would mean that foreign governments could expropriate or place freeze orders on the assets–

William H. Rehnquist:

So Federal regulations really just adopted what they saw as being the law already in force in the majority of jurisdictions?

Thomas W. Merrill:

–That is our understanding, Your Honor.

But if that turned out to be mistaken, it would have very serious implications for the integrity of the banking system.

It would mean, for example, that a foreign government… United States banks do business in many, many foreign governments that are subject to all sorts of political and economic instability.

Byron R. White:

Do you think that the Federal Reserve Board would have the authority to put out a regulation to this effect, make it the force of law that–

Thomas W. Merrill:

It’s unclear, Justice White, and that’s… that proposition has never been tested.

The Federal Reserve has broad authority over branch banks in foreign governments.

It can specify the terms and conditions under which those branch banks operate.

And it is conceivable that that statutory authority would be broad enough to justify the issuance of a preemptive rule.

But it is not the understanding of the Federal Reserve that it has at this point issued such a rule.

Its understanding is that it has been following the agreement of the parties, and that the agreement of the parties, when there is no express agreement of the parties to the contrary, that the intention is that the deposit is payable–

John Paul Stevens:

–May I ask one question before you sit down?

In your view, if the deposit arrangement provided that the deposit would be repayable by the home office in the event of insolvency or act of God in Manila, would that… but not with regard to foreign risk, would that deposit be payable solely at a foreign branch within the meaning of the interpretive regulation that Judge Bork called our attention to?

Thomas W. Merrill:

–Our understanding, Justice Stevens, is that a deposit in a branch in a foreign bank is always payable at that branch, and thus is always subject to the law of that branch.

Thomas W. Merrill:

If a credit risk occurred–

John Paul Stevens:

You could answer my question yes or no, I think.

Thomas W. Merrill:

–Our position is that if it were payable in whole or in part in the United States it would not be payable only outside the United States.

John Paul Stevens:

Even if it is only conditioned on insolvency or act of God.

Thomas W. Merrill:

If there were express agreement to that effect, that is correct.

If there were a guarantee of payment at the home office, that is correct.

William H. Rehnquist:

Thank you, Mr. Merrill.

Mr. Snider.

Darryl Snider:

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

At the outset I will provide an overview of the four central points that I would like to leave with you today.

First, the Philippine decree in question, MAAB 47, did not in any way prohibit repayment of these deposits, a finding of the district court which was affirmed broadly by the Second Circuit in its opinion.

Second, Citibank’s unconditional promise to repay is not limited to any particular assets.

Third, no Federal law or regulation limits Citibank’s obligation to repay to any particular assets.

And fourth, and finally, policy considerations do not call for this Court now to create new Federal law in this area.

Let me then turn to my first point.

It is one that really hasn’t been discussed.

It has been glossed over today; it was glossed over in the briefs.

And I think it is so fundamental to an understanding of this case and to the contractual relationship of the parties and what the courts below did that we must deal with it at the outset.

The brief of the petitioner and the argument today proceeds upon the false assumption that some action taken by the Philippine Central Bank prevented repayment of these deposits by Citibank.

And in fact that is exactly contrary to what both courts below held.

So we must begin by analyzing what is it that the Philippine government did, and how did that action relate to either the assets of Citibank on the one hand, or the deposits of Wells Fargo on the other hand.

If we look at the verbiage of MAAB 47 and the way it was construed and enforced by the Philippine Central Bank and the government, what we find, contrary to Petitioner’s argument, is that it was only Citibank’s assets in its Manila branch that were affected by the Philippine regulation.

What the Philippine Central Bank said was because of certain economic instability in our country we are going to request that you obtain prior approval from us if you are going to reduce the overall level of your loan activities in the Philippines.

It did not say, as in a Perez case or in a Garcia case or some of these other cases, we are going to seize the deposit, we are going to garnish the deposit of Wells Fargo, the debtor, the depositor here.

It did not take action that was directed at all at Wells Fargo.

Wells Fargo merely had two deposits for six months on deposit with Citibank at the time that this action occurred.

The deposits were made in June of 1983.

The regulation was adopted in October of 1983.

In December these deposits matured, and Citibank at that time had no legal excuse for nonpayment.

After Wells Fargo demanded payment at Manila and Citibank refused to pay, they then claimed that they had a defense of impossibility.

Darryl Snider:

So it is important at the outset to understand that the–

John Paul Stevens:

Well, is that quite correct?

They didn’t really defend on grounds of impossibility.

They defended on the ground that Manila had imposed restrictions on the withdrawal–

Darryl Snider:

–Justice Stevens, if–

John Paul Stevens:

–and that that was in the nature of a contractual defense, that under the terms of the regulation if such restrictions are imposed they don’t have to pay.

Darryl Snider:

–In the answer that they filed, one of the affirmative defenses they pled, although they did not use the specific word MAAB 47 and the action taken by the Philippine government.

John Paul Stevens:

But you do agree, do you not, that MAAB 47 was a restriction on withdrawals?

Darryl Snider:

No, I disagree, Justice Stevens.

I think that is at the very root of the case.

Let me point to two pieces of evidence that were found by the court below to answer that very question.

First of all, in the spring of 1984 Citibank made a limited request to the Philippine Central Bank requesting that it have permission to repay only to the extent of its non-Philippine assets that it held in its Manila branch.

And having postured the question that way, which I would submit was part of their litigation strategy, they got back an answer which said of course, you can repay these deposits to the extent of your non-Philippine assets at the Manila branch.

But here is the question they didn’t ask.

They didn’t ask can we have permission under this regulation to repay with our assets that are outside the Philippines.

Because had they asked that question, they would have got an answer that they didn’t like.

And Justice Stevens, we didn’t just sit back then.

We asked ourself that question in December of 1984, and it’s at page 95 of the Joint Appendix, the Philippine Central Bank sent a telex to Wells Fargo’s counsel answering the very question, we have no objection, they said, to repayment of these deposits, as long as you do not in any way reduce the Philippine assets of Citibank at its Manila branch.

John Paul Stevens:

Well, that would be true with any freeze order, wouldn’t it?

And funds?

Darryl Snider:

That’s the point.

No action was taken to freeze the deposits.

The only thing that was frozen here, and only frozen for a limited period of time, were the assets of Citibank.

And so the question that is being raised is there some nexus or some link–

John Paul Stevens:

Well, but I suppose that with any freeze order, if say France freezes money, I’m sure that France would be quite happy to say well, you can substitute one deposit for another so long as you keep the amount in deposit as of the time of our freeze order.

Darryl Snider:

–Justice Kennedy, let me see if I can distinguish two things.

What the Philippine government was saying is with respect to the loans that you have made to Philippine borrowers, whether they be farmers or merchants, we do not want you to reduce, because we don’t want an outflow of foreign currency.

We don’t want you to reduce the overall level of those loans to Philippine borrowers.

You can call them in, you can collect them, you can pay them back, but you must maintain a level of overall funding in the Philippines.

They did not in any way go further and say, in addition, to the extent that you pay off Wells Fargo, you are going to have to in addition to that fund other borrowers that were putting in U.S. dollar deposits.

Darryl Snider:

That was not part of the regulation at all.

If you just look at what the Philippine Central Bank itself said it did, rather than the way Citibank characterizes it, it’s clear in Joint Appendix 95, it is clear with the wording of the stand still agreement, which is Joint Appendix 118, and moreover it is clear that by the time that the Philippine Central Bank gave partial permission to repay, based on the request that was made, which is at Joint Appendix 89 to 91, that they had no objection whatsoever to Citibank repaying these deposits after–

Did you make this argument at the court of appeals?

Darryl Snider:

–Yes, Justice White, and in fact–

Byron R. White:

Well, that isn’t the ground the court of appeals relied on.

Darryl Snider:

–It is one of the two grounds of the court of appeals’ opinion, Your Honor… Justice White.

Let me see if I can point you to that.

Part of the confusion that I heard this morning was over exactly what the Second Circuit decided and to what extent that related to decisions of the district court.

If you turn to Petitioner’s Appendix, this is in the white–

Petition for Certiorari.

Darryl Snider:

–Petition for Certiorari, that Appendix, at page 7a.

At the bottom paragraph, the very first sentence answers one of the questions that you posed this morning to Mr. Bork.

In the present case, the district court found that the parties had agreed that repayment was to occur in New York.

That finding plainly is not clearly erroneous.

That was the first arm of the Second Circuit’s decision, which I would submit is binding here and is a fact finding not generally to be reviewed by this Court.

But then the court went on, and on the bottom of that paragraph at page 7a said since MAAB 47 has no effect on a bank’s obligations to perform acts outside of the Philippines, we conclude that the district court did not err in upholding WFAL’s claim.

And that is the same finding that was made by the district court below, that MAAB 47–

Byron R. White:

That may be, but suppose the… suppose the Philippine branch wanted to make the repayment?

MAAB 47 interferes with that.

Darryl Snider:

–No, it did not.

Only… it only interfered with it if it used Philippine assets.

That is the key to this case.

Byron R. White:

Well, that’s pretty–

Darryl Snider:

But they had more than Philippine assets.

And in fact what Judge Knapp held in his first ruling was that there was nothing in MAAB 47 that prevented Citibank from transferring assets from New York or elsewhere, anywhere else in the world that it had assets, into the Manila branch.

After all, that is an internal bookkeeping matter between the Manila branch and Citibank.

William H. Rehnquist:

–Mr. Snider, the Court granted certiorari on two questions, and the first, of course… you know them as well as I do.

The first assumes that the, there was a prevention by the Philippine decree.

Now, you are entitled to argue for affirmance on an alternate ground under our rules, but the Court is not ordinarily interested in getting into very fact-specific questions.

Darryl Snider:


Darryl Snider:

Let me move then to my second point, Justice Rehnquist.

Antonin Scalia:

Could I ask you a question that relates to what you just referred us to in the court of appeals’ opinion?

The court of appeals, as you quoted it, said in the present case the district court found that the parties had agreed that repayment was to occur in New York.

Darryl Snider:

Yes, Justice Scalia.

Antonin Scalia:

Now, can’t one agree that repayment is to be made in New York without agreeing that that repayment is to be made out of the funds of the New York bank?

Darryl Snider:

I think–

Antonin Scalia:

The only factual finding made by the district court is that repayment was to be made in New York.

Even if we accept that and do not at all overturn it, it does not establish the point that repayment is to be made out of New York funds, which is what is asserted to be contrary to the Federal banking regime here.

Darryl Snider:


And that… I agree with that.

And that essentially takes us to my second point.

In other words, you don’t look to the agreement of the parties to where it can be collected.

You look to local law.

In this case–

Antonin Scalia:

All right.

So you agree that no factual finding precludes us in this case.

The district court did not find that there was agreed to be repayment out of New York funds.

It just agreed that repayment would be in New York.

Darryl Snider:

–I would agree that no fact finding absolutely prohibits your decision.

What I am saying is that, once the court made the fact finding that repayment was to occur in New York and it applied the applicable law of Sokoloff, which had been on the books for 60 years since Judge Cardozo decided that case.

And once you apply that law what you will see is essentially this distinction in the books.

And that is that when a foreign government seizes the assets of a bank, the depositor can still collect the deposit at the home office of the bank.

In a Perez-type case, if the foreign government goes further and takes a second step and seizes the deposit, or garnishes the deposit, or freezes the deposit in some respect, then that is a risk, indeed, that was taken by the depositor.

And unless you have a Garcia type guarantee in that situation then you are out of luck.

Antonin Scalia:

But that… all of that assumes that Sokoloff and New York law is what governs.

And if we were to assume that it is instead Federal law that governs, there would be no factual finding at least that would prevent us from reaching the conclusion that this didn’t have to be paid in New York, out of New York funds.

Darryl Snider:

I think that the… the fact finding that is binding is that repayment was to occur in New York.

There is no fact finding on where those assets have to come from.

But both courts held… the district court held that it could be repaid in Manila without violating the decree.

The New York court merely narrowed that holding, the Second Circuit narrowed that holding by saying indeed, since we find it to be repayable in New York, we don’t even have to reach that question.

Darryl Snider:

Citibank has enough assets in New York; we find it to be payable there.

Anthony M. Kennedy:

I take it you, your position is you could not have gone to the Manila counter and demanded payment at the Manila counter?

Darryl Snider:

Well, this was not a demand deposit in the first place, but we could have made a demand there because, indeed, in the trial of this case, we submitted it to the trial court on the basis that Philippine law applied and that it was repayable in Manila upon the maturity of the deposits in six months.

And the court held that indeed at the end of six months appropriate steps had been taken.

Wells Fargo had done what was necessary, and payment was to be made.

Its payment was unexcused.

There is no condition on the obligation here with respect to payment.

Let me then address the question of Federal law that Mr. Bork raised this morning, and I think Justice Scalia was driving at in his last question.

One of the questions that has now been raised for the first time by Petitioner at this Court and was not raised in the two lower courts is whether or not Reg. D and the 1970 Board interpretation can be construed to displace local law on this subject, which has been a set of dual regulation for the last 60 or 70 years, and has traditionally been the subject not of Federal law, but with respect to state law.

We are not talking about the question of reserves.

That has been a subject of Federal law.

We are talking about the traditional relationship between a bank and its depositors.

Antonin Scalia:

Of course at the time these regs were adopted, and these provisions that Mr. Bork was reading to us, there was no difference between Federal law and state law.

I mean, there was assumed to be a common law.

I mean, we are talking today as though at the time these things… this thing was set up and these regs were issued people were thinking well, it is the common law, but is it New York common law or is it Federal common law.

In fact, this was before Erie, and we didn’t think there was a difference, did we?

Darryl Snider:

Not before Erie, but that was certainly the enactment of the Federal Reserve Act.

I think it’s really the 1970 Board interpretation that Mr. Bork read to you in part today that they rely on.

That Board interpretation sets up a way of defining when reserves must be made with respect to foreign deposits.

It does not in any way purport to regulate the subject of when a depositor can be repaid from a foreign branch.

It is not a rule about liability.

I think that the petitioner here has mixed up cause and effect.

What the regulation says is that you look at the contractual relationship of the parties to assist you in determining whether or not reserves must be assessed.

It doesn’t say the converse of that.

It doesn’t say you look at whether reserves were paid, and then from having looked at whether reserves were paid you come back and decide whether there is liability or not.

And I would submit to you that that is indeed why the U.S. government here in its brief and in its argument does not contend that local law has been displaced by Reg. D or by the 1970 Board interpretation at all.

And in fact on this question we sought to clarify the matter with the Federal Reserve Board of Governors.

And one of the pieces of evidence that was put in at the trial court and is before you in Joint Appendix 135 is an opinion letter of the board of governors for the Federal Reserve Board in April of 1987, after this case was tried… after this case was filed.

And that opinion letter distinguishes the concept of liability on the one hand and reserves on the other.

It says that Reg. D and the 1970 Board interpretation regulate reserves but do not regulate the subject of liability as between a bank and its depositors, and goes on to say in fact nothing in Reg. D or the Board interpretation would prevent a bank from transferring assets from a U.S. office to a foreign office to effect a repayment in these circumstances.

Darryl Snider:

And so, just as Justice Stevens was saying earlier this morning in his questioning, just like in the case of insolvency where the home office might well have to pay because the foreign branch office cannot pay, the same is true in this circumstance.

Now, that is not to say that Wells Fargo did not take any risk whatsoever.

We are not here to say that we took no risk and therefore somehow Citibank should have paid reserves.

That is not the issue.

But the question is what is the risk that Wells Fargo took.

The risk it took was a Perez-type risk that the foreign government might actually take an action that was directed at it as an individual.

After all, that is what Mr. Castro did in the Perez and Garcia cases.

He was taking a certain action to seize the deposits of certain political individuals that he wished to point out and to deprive of their assets.

That is a very minimal risk when you are talking about a banking institution in the inter-bank market.

We did not take the risk.

And I would submit that the expert of Citibank at the trial admitted that in this situation Wells Fargo did not take the risk that some other regulation might be adopted that interfered in some way with Citibank’s assets.

It goes to the heart of the very question that is before the Court today.

And Mr. Ian Giddy, who is Citibank’s own expert, on cross-examination gave the following testimony.

“And the expectations of bankers, the practice, that is what I am trying to get to, is that they would be repaid by the home office, isn’t it. “

“Answer, under the circumstances where the branch had its assets restricted or seized, and that was a poor loan decision by the bank and it is their risk, they are still liable for the deposits. “

One of the important–

Where are you reading?

Darryl Snider:

–I am reading, I’m sorry, Justice Blackmun, I am reading from Joint Appendix 378, 379.

Our own expert, of course, came to the same conclusion.

Antonin Scalia:

You cited as to the Board opinion that’s at 135 and 136 of the Appendix, but I… if you would look on page 136, what that opinion says is that, under these provisions, deposits payable only at a particular office outside the United States are not subject to reserve requirements.

Then it goes on, however, this is true even if the depository institution, by which I gather it means the foreign branch, even if the depository institution may be contractually obligated to obtain funds in order to pay the deposit from another office of the depository institution located outside the United States.

Darryl Snider:


Antonin Scalia:

It significantly seems to indicate that if it were required to get funds to pay the department from another office in the United States we would have a different problem.

And that is what you are arguing was the situation here.

Darryl Snider:

Well, at worst it would mean that Citibank should have reserved against these deposits.

I don’t think that this regulation–

Antonin Scalia:

Well, but one must assume that if they don’t have to reserve against them they don’t have to pay them, unless we have a very crazy system in this country.

I mean, surely you would expect the reserve requirements to bear some relationship to the obligations of the institution.

Darryl Snider:

–I think they bear a relationship, but I think once again that is reversing cause and effect here.

Nothing in this regulation or the interpretation of it in any way attempts to assess liability or to displace local law with respect to the relationship between a bank and its depositors.

Byron R. White:

xxx the court of appeals’ decision right across the board or not?

Darryl Snider:

Yes, Justice White, I… it was heard this morning in this courtroom that no one supported that view, but I wanted to wait my turn to tell you that I did.

We support the Second Circuit’s opinion, and we find that it has at least two important elements.

One, just a simple finding that the deposit was repayable in New York by Citibank was sufficient for the Second Circuit, having found such an agreement, to uphold the lower court’s decision.

Because if it is payable in New York and the parties agree that it is payable in New York, then Citibank certainly has assets there.

Byron R. White:

Yes, but the part, the district court didn’t think that there… that the… whatever agreement he found, namely the district court found that it was repayable in New York, but that it was collectable elsewhere.

And certainly the district court did not rely on the agreement to make Citibank liable.

He had to go to the New York law.

Darryl Snider:

He did have to go to–

Is that right?

Darryl Snider:

–That is right.

He did have to go to–

Byron R. White:

So he did not rely on the fact that there was a contract.

Whatever kind of a contract he found, it wasn’t the basis for liability in the district court.

Darryl Snider:

–It takes more than just a yes or no answer, if you would permit me, Justice White.

If you look at page 16a of Petitioner’s Appendix, we have the district court’s second opinion.

And indeed he did find an agreement that the confirmations established an agreement that repayment was to occur in New York.


Darryl Snider:

Now, he goes on, on page 17a, as you said, to decide that there was not a specific agreement as to where things were to be collected, where the money was to be collected.

In other words, he found no limitation as to where it was to be collected.

But we need to put this in context.

This case was tried after summary–

Byron R. White:

Well, put it in the context that the district court put it.

He said that, he said now I am going to have to look elsewhere for liability, besides their agreement, I have to look at New York law.

Darryl Snider:

–He did.

Byron R. White:

And he did.

Darryl Snider:

He did.

But we need to go back–

Byron R. White:

And that is not the ground that the court of appeals has cited on.

Darryl Snider:

–The court of appeals narrowed that decision and, from finding that it was repayable in New York, decided that Citibank had to pay their… had assets.

Byron R. White:

Just because it was going to, just because the funds were going to be transferred from there?

Darryl Snider:

Well, it was more than that.

In fact, the testimony that had been given to the district court on the subject went beyond just the so-called standard routing instructions.

And in fact at pages 10 and 11 of our brief, and I won’t go through all the testimony with you today, but it is there.

The testimony was given by Mr. Boughey, the testimony was given by Mr. Cole, who were called by Wells Fargo, and indeed the testimony was given by Mr. Howard, the chief financial officer of Citibank, that in addition to these routing instructions the parties expected and agreed that repayment would occur in New York.

And after all, we have got to realize that in the Eurodollar market we are dealing with dollars in which these transactions not only clear in New York, but there is a specific agreement embodied in the very nature of the Eurodollar transaction that the parties are agreeing that the bank, the institution, stands behind these deposits.

One of the important concepts–

Byron R. White:

So you say that all this talk about what the regulatory agencies have been believing all these years, you think they for years have known exactly what you are just saying now?

Darryl Snider:

–Oh, indeed, and in fact–

Byron R. White:

That there should have been reserves all the time.

Darryl Snider:

–No, not that there should have been reserves.

Indeed, if you go back to the 1918 interpretation you will see that the Federal Reserve itself acknowledges that the institution itself ultimately remains liable for the deposits.

But I wanted to go back to the context–

Anthony M. Kennedy:

I still, I still find it hard to understand why, if the New York domestic branches are fully liable for all Eurodollars, there are no… under any contingency, that there are no reserves required.

Darryl Snider:

–Perhaps that was too broad a statement.

Let me come back.

What we have had since 1983, since Citibank defaulted in this case, is a situation in the world market, and much of this is discussed in the amicus brief of the Bank of Montreal, a situation in which banks now will only place money in secure money centers.

There are no longer inter-bank deposits in Manila, no longer inter bank deposits in Panama.

They are either in London or in Frankfurt or the Cayman Islands, in a secure location.

And the reason for that is because no one in 1983 assumed that the depositors were taking this kind of sovereign risk, and that is what the trial was all about, after all.

We moved for summary judgment.

The… Citibank came in and said we will prove a custom and practice that indeed depositors in the marketplace will not be repaid whenever there is any interference whatsoever with our assets or any repayment.

And the trial was had.

They had their day in court.

The witnesses were called.

And indeed the court found that there was no such custom and practice.

And one of the key points that the district court relied upon is at the very time that these deposits were made, in June of 1983, Citibank was offering a 10 percent interest rate in Frankfurt, London, Singapore and Manila, and yet everyone knew that in terms of political economic instability, the Philippines were a riskier location.

And yet the interest rates were identical.

Anthony M. Kennedy:

Well, based on what you say, then, the Federal Reserve assumes that deposits are safer in France than they are in New York.

Darryl Snider:

No, I don’t think that it assumes that they are safer.

Darryl Snider:

I think that the only purpose now for the Federal Reserve regulation of reserves is no longer a concept that we have to have a certain amount of money set aside in case there is some kind of a run on the bank.

I think that was one of the original purposes.

As the 1980 amendments to the act provide, the only remaining purpose for the Federal Reserve regulation of reserves is monetary policy, the implementation of monetary policy.

Anthony M. Kennedy:

So you… I think you say that the Federal Reserve understanding is just wrong.

Darryl Snider:

No, I don’t, Justice White.

Let me try one more time.

The Federal Reserve understanding is that because they did not want… they wanted U.S. banks on the one hand to be able to compete in the Eurodollar market, okay.

To do that they had to make offshore deposits free from reserves and free from FDIC assessments, so that U.S. banks could be competitive and could offer the same kind of interest rates that banks abroad are offering.


Having set up that exemption from reserves, they then were concerned about a situation like Garcia, and this whole interpretation came up because of a Garcia situation.

That’s where the depositor not only made the deposit at the offshore branch, it simultaneously exacted a promise out of the bank saying but if anything happens to interfere with repayment, I’ve got a guarantee that I will be repaid in New York.

And the Federal government and the Board interpretation is saying no, you can’t do that.

Anthony M. Kennedy:

I… if the… if the Federal Reserve Board had been asked how this case should come out you would say they would have said just like the Second Circuit did?

Darryl Snider:

I believe they would say that, except for their objection here through the Solicitor General to the reliance upon routing instructions.

But I believe that they would agree that, in the absence of a Garcia guarantee, that the normal rule of Sokoloff applies, that when only the assets of the bank are interfered with or regulated by the foreign government and there is no action to take on the deposits.

In fact, the very language of the C.F.R. regulation that they rely on, 204.128, is when there is imposition of a restriction on a withdrawal.

And I ask you, has there been an imposition of a restriction on Wells Fargo’s deposit with respect to withdrawal?

Both courts below have answered that question no.

The only action taken in the Philippines was to restrict Citibank’s assets to require them to continue to invest in the Philippines until the Philippines could restructure its debt.

It had no objection, as it said in the telex, to repayment of these deposits with dollars in New York in the United States.

Let me just finish, since I have a limited amount of time left, with some policy considerations that I think are important here.

This market is one in which only two of the top 50 banks in the world are from this country.

This market is one in which, while there are billions of dollars of transactions taking place every day, they take place under terms and understandings that have been agreed to and agreed upon by bankers around the world, and the subject matter that we are talking about is one that is not appropriate, in my view, to regulation by a court through enforcement or interpretation of a regulation like Reg. D.

This is a matter that should be discussed… if we are going to change the rules, because all Wells Fargo contends is that the status quo should be maintained, but if Citibank wants to change the rules, it is a more appropriate subject either for private negotiation–

William H. Rehnquist:

xxx court.

Darryl Snider:

–We went to court, Justice White, because under the rules at that time the depositor could be repaid, and in fact the court found that when Citibank announced this new rule, the depositors around the world reacted with outrage and despair.

No one else in the world had this understanding except Citibank.

And the court below said you know, it would have been a dead cinch, you had this view, you knew that nobody else was taking the view that they were taking the sovereign risk.

It would have been so easy for you either by way of contract, by putting a legend on your confirmation slips, by sending out a letter or some other means communicating to all these depositors that you had this unique view that everyone else was taking the risk.

And in fact I don’t even believe Citibank had the view until after they defaulted.

Darryl Snider:

Because what did they do right after they defaulted?

They sent a letter to us and to the other depositors and said now that you are assuming the sovereign risk we will pay you 1-1/8 percent interest over LIBOR, which is the London Inter-Bank Offer Rate.

They didn’t do that before, they just paid us the 10 percent.

And both experts said we didn’t pay any sovereign risk premium.

And as soon as this situation happened the, Citibank went out and it offered a point and an eighth over LIBOR.

Those offers by Citibank are found in the Joint Appendix 115 with respect to Wells Fargo, 116 for Marine Midland, and 399 for the Bank of Montreal.

So, Citibank, having come to its own unique view of the world, then attempted essentially to shift this loss to all of its depositors.

What it is asking this Court to do is to give it something that it couldn’t accomplish in private arms’ length negotiation, that it couldn’t accomplish through the application of local law.

Thank you, Your Honor.

William H. Rehnquist:

Thank you, Mr. Snider.

The case is submitted.

The honorable court is now adjourned until tomorrow at ten o’clock.