Securities Indus. Assn. v. Frs, 468 U.S. 207 (1984)

Securities Industry Association v. Board of Governors

of the Federal Reserve System
No. 83-614

Argued April 24, 1984
Decided June 28, 1984
468 U.S. 207

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

Syllabus

BankAmerica Corp. (BAC), a bank holding company, applied to the Federal Reserve Board (Board) for approval under § 4(c)(8) of the Bank Holding Company Act of 1956 (BHC Act) to acquire a nonbanking affiliate corporation (Schwab) engaged in retail securities brokerage. Section 4(c)(8) authorizes bank holding companies, with prior Board approval, to acquire stock in other companies that are engaged in nonbanking activities that the Board determines are "so closely related to banking . . . as to be a proper incident thereto." Petitioner, a national trade association of securities brokers, opposed BAC’s application and participated in the administrative hearings. The Board authorized BAC to acquire Schwab, holding that a securities business, such as Schwab, that is essentially confined to the purchase and sale of securities for the account of third parties, without providing investment advice to the purchaser or seller, is "closely related" to banking within the meaning of § 4(c)(8). The Board also concluded that the acquisition would not violate § 20 of the Glass-Steagall Act, which prohibits a bank (BAC’s banking subsidiary here) from being affiliated with companies "engaged principally in the issue, flotation, underwriting, public sale, or distribution" of securities. On petitioner’s application for judicial review, the Court of Appeals affirmed the Board’s order.

Held: The Board has authority under § 4(c)(8) of the BHC Act to authorize a bank holding company to acquire a nonbanking affiliate engaged principally in retail securities brokerage. Pp. 214-221.

(a) The Board’s determination that a securities brokerage business that is essentially limited to the purchase and sale of securities for the account of customers, and without provision of investment advice to purchaser or seller, is "closely related" to banking, is consistent with the language and policies of the BHC Act. There is no express requirement in § 4(c)(8) that a proposed activity must facilitate other banking operations before it may be found to be "closely related" to banking. The record substantially supports the Board’s factual findings that Schwab’s brokerage services were very similar to the types of services that are generally provided by banks, and that banks are particularly well equipped to provide such services. Pp. 214-216.

(b) The Board’s determination that a bank holding company’s acquisition of such a brokerage business as Schwab’s is not prohibited by § 20 of the Glass-Steagall Act is reasonable, and supported by the statute’s plain language and legislative history, and deserves the deference normally accorded the Board’s construction of the banking laws. The term "public sale" in § 20 should be read to refer to the underwriting activity described by the terms that surround it, and to exclude the type of retail brokerage business in which Schwab principally was engaged. This reading of the statute is further supported by the Board’s similar longstanding interpretation of identical language found in another provision of the Glass-Steagall Act. Moreover, the legislative history demonstrates that Congress enacted § 20 to prohibit the affiliation of commercial banks with entities that are engaged principally in activities such as underwriting. None of the hazards of underwriting is implicated by Schwab’s brokerage activities. Pp. 216-221.

716 F.2d 92, affirmed.

POWELL, J., delivered the opinion for a unanimous Court.