Securities Industry Association v. Board of Governors of the Federal Reserve System

PETITIONER: Securities Industry Association
RESPONDENT: Board of Governors of the Federal Reserve System
LOCATION: Men’s Central Jail

DOCKET NO.: 82-1766
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 468 US 137 (1984)
ARGUED: Mar 21, 1984
DECIDED: Jun 28, 1984

Harvey L. Pitt - on behalf of Petitioners
Louis F. Claiborne - on behalf of Respondents

Facts of the case


Media for Securities Industry Association v. Board of Governors of the Federal Reserve System

Audio Transcription for Oral Argument - March 21, 1984 in Securities Industry Association v. Board of Governors of the Federal Reserve System

Warren E. Burger:

We will hear arguments next in Securities Industry Association against the Board of Governors of the Federal Reserve System.

Mr. Pitt, I think you may proceed whenever you're ready.

Harvey L. Pitt:

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

At issue in this case is a dividing holding of the Court of Appeals for the District of Columbia Circuit which upheld a Federal Reserve Board ruling permitting Bankers Trust Company to market and corporate commercial paper notes for the first time since the Glass-Steagall Act was passed nearly 50 years ago.

Both the Federal Reserve Board and the Court of Appeals concluded that the Glass-Steagall Act should be given a narrower reading than the literal language or its unmistakable legislative purposes would dictate.

The court below in essence directed that the Federal Reserve Board should be free on a case by case basis to adapt the Glass-Steagall Act's flat prohibitions to current business reality and changing financial needs of our economy.

It is our contention in this Court that that decision should be reversed, first because it ignores the plain language and leaves our financial system open to precisely the hazards that Congress had in mind when it enacted the Glass-Steagall Act over 50 years ago.

Second, it's inconsistent with the specific policy choice that Congress made.

When Congress considered the Glass-Steagall Act and the dangers that had given rise to that statute, it had before it the choice of absolute prohibition or case by case regulation with delegation to an administrative agency.

Congress rejected regulation and chose absolute prohibition, as this Court has twice noted.

For that reason, the court below erred in undoing the specific policy choice the Congress had made.

And finally, the decision below represents a bad policy choice that not only is not justified by the statute and by its legislative history, but that, as recent events have shown, will substitute litigation and case by case administrative revisionism for resolving what bank activities are appropriate.

This would mark the first time in our history as a country and as a nation that any court has done so.

The factual background of this case is relatively simple and straightforward.

In 1978 Bankers Trust Company, which is a state bank which is a member of the Federal Reserve System, began underwriting commercial paper notes issued by third party corporations.

The Federal Reserve Board ruled that this was legal, not because the statute didn't cover it, but because the statute shouldn't be read to cover it even though its literal terms so provided.

The court said... the Federal Reserve Board said that commercial paper is more like a bank loan, even though it is conceded that the bank is not lending anyone any money in the activity of distributing and underwriting commercial paper.

Had the Board ever expressly forbidden such a thing before?

Harvey L. Pitt:

The Board has never expressly forbidden such a thing, because the statute has forbidden it.

And because no one has ever asked them before?

Harvey L. Pitt:

That is correct.

But I might point out that since the passage of the Glass-Steagall Act no bank has ever underwritten commercial paper?

Or even asked to be permitted to?

Harvey L. Pitt:

No bank has asked the Federal Reserve Board to be permitted to do so.

Were banks even doing that at the time of the enactment of the Glass-Steagall Act?

I kind of sensed in reading the briefs that the Glass-Steagall Act was not directed in its terms to that practice, and I wondered if banks say in the twenties, before the Glass-Steagall Act was passed, actually were doing that.

Harvey L. Pitt:

There were some isolated instances of banks underwriting commercial paper.

But by and large, the overwhelming function at the time of the passage of the Glass-Steagall Act was for banks to purchase commercial paper, which is the equivalent of making a loan, and of course there is express authority for banks to do that.

In our system banks are permitted to do that which is expressly provided, and they may not do that which is not expressly permitted.

In this case, the Glass-Steagall Act takes that regime a step further and says that banks, particularly state member banks and national banks and all banks, may not underwrite commercial paper notes.