*1 INSTITUTE COMPANY INVESTMENT et v. al. CURRENCY, THE OF CAMP, COMPTROLLER et al. 5, 15, April 1971* 1970 Decided Argued December 61.
No. J., opinion delivered the Court, Stewart, in which Black, and JJ., joined. Douglas, BrenNAN, White, Marshall, HarlaN, 59, Dealers, *Together with No. National Association Securities Exchange al., Inc. v. Securities argued Commission et December 15, 1970, also certiorari to the same court. 14 - J., J., post, p. post, p. dissenting opin- filed BlackmuN, J., part ions. C. took no or decision Burger, consideration of these cases. *2 Duane
G. Vieth the cause for argued petitioners in No. him Fitzpatrick, 61. With on the briefs were James F. Spaeth, Augenblick. Melvin Robert Joseph and B. Levin argued petitioner for in cause No. 59. him With Lloyd J. briefs was Derrickson.
Deputy Solicitor General Friedman the cause argued for respondent Camp, Comptroller of the Currency, No. 61. With him on the brief Solicitor were General Griswold, Attorney Assistant General Ruckelshaus, Rich- Stone, ard B. Alan Rosenthal, S. Leonard Schaitman, and C. Murphy. Westbrook Friedman, Mr. by special leave of Court, argued the cause for the United States as amicus curiae urging affirmance in No. 59. With him on the brief were General Solicitor Griswold and Mr. Stone. Archibald Cox argued the cause for respondent First Na- tional City Bank in both cases. With him on the brief Stephen was Ailes.
Robert L. Stern a filed brief for Corporate Fiduciaries Association Chicago of as amicus curiae urging affirm- ance both cases. Justice Stewart delivered
Mr. opinion of the Court.
These companion cases involve a double-barreled as- upon sault the efforts of a national bank to go into the business of operating a mutual investment fund. The petitioners in No. 61 are an association of open-end in- vestment companies and several individual such com- panies. They brought an action in the United States District Court for the District of Columbia, attacking portions of Regulation 9 issued by the Comptroller of the purport- Regulation, that this ground on the Currency,1 collective operate to establish banks to authorize ing prohibited activities permit funds, sought investment provisions by various their affiliates banks or to national 162.2 48 Stat. Act Banking Glass-Steagall Comp- attacked specifically also The petitioners City National application First approval troller’s operate establish and permission York for Bank of New National In No. 59 the fund. a collective petition Dealers filed Association Securities Co- District of Appeals Court States United order of the Securities review of an seeking Circuit lumbia partially exempted Exchange Commission City Bank fund of First National collective investment *3 of the Investment provisions York from various of New Act of 1940.3 Company that the chal- the District Court concluded
In No. 61
under the
9 were invalid
Regulation
provisions
lenged
and First National
Comptroller
Act.4 The
Glass-Steagall
appeal
decision,
from this
and the
City
appealed
Bank
review in No. 59.
petition
with the
consolidated
was
by
taken
the
held that the actions
Appeals
The Court of
Comptroller
Commission and the
Exchange
Securities
to
with the statutes committed
fully consonant
were
it affirmed
supervision. Accordingly,
regulatory
their
judgment
and reversed the
order of the Commission
the
granted
Court.5 We
certiorari
con-
of the District
presented
regu-
under federal
important questions
sider
(1970).
1
Pt. 9
12 CFR
2
provisions
Glass-Steagall
the
Act are codified in various
The
through
12
sections scattered
Title
of the United States Code.
3
application
exemption
granted
response
in
to an
filed
The
was
(c).
(c)
Act,
15
C. 80a-6
54 Stat.
U. S.
pursuant to
§
§
Supp.
274 F.
624.
App.
latory statutes.6 sale of the as it authorizes invalid insofar Regulation by type established fund of the an interests Comptroller’s to the City pursuant Bank National First unnecessary to con- it disposition makes This approval. of the action of Securities propriety sider exemption fund affording Commission Exchange the Investment Com- provisions from certain 1940. Act of pany
I
petitioners
at the outset that
lack
urged
In
61 it is
No.
may legally
banks
question
whether national
standing
competition
with them. This contention
enter a field
by
Processing
Camp,
Data
v.
is foreclosed
Service
companies
offered
There we held that
U.
150.
S.
com
processing
general
services to the
business
data
munity
standing
judicial
ruling
had
to seek
review of a
could
by
Comptroller
that national banks
make data
to other banks and to bank
services available
processing
companies
We held that data processing
customers.
sufficiently injured
competition
were
had authorized to create a case or contro
Comptroller
versy.
injury
petitioners
to the
the instant case
indistinguishable.
We also concluded that
preclude judicial
did not intend “to
review of adminis
rulings
trative
as to the legitimate
*4
scope of activities available to national banks under [the
Bank
atS.,
pre
National
U.
157. This is
Act].”
cisely
petitioners
review that the
sought
the
have
in this
we concluded
Finally,
Congress
case.
that
had arguably
competition
the
legislated against
petitioners
the
from
sought
challenge,
injury.
which flowed their
whether Congress
prohibited
We noted that
had indeed
competition
question
was a
such
the
In
merits.
6
discussion that
follows
the balance
contentions
petitioners’
the merits of the
we deal with
legislate against
did
and conclude that
There can
competition
petitioners challenge.
question, therefore,
petitioners’
be no real
stand-
Processing
Data
also
light
case.
ing
See
Camp,
Arnold Tours v.
II The is of issue before us whether consistently with the au Currency may, banking laws, oppor thorize a national bank to offer its customers the tunity to fund invest a stock created and maintained by the bank. Before 1963 prohibited national banks were regulation administrative from offering this service. The of of Board Governors the Federal Reserve System, which jurisdiction until had regulatory over all the trust activities national banks, allowed the collective only trust assets for “the investment of funds held for fiduciary purposes.” true applicable regulation, Regulation F, specified operation that “the such Common Trust Funds as investment trusts for other strictly than fiduciary purposes hereby prohibited.” consistently The Board ruled improper it was for a bank to use “a Common Trust Fund as an investment trust attracting money seeking investment alone and to upon embark what would inbe effect sale participa tions a Common Trust public Fund to the as invest ments.” 26 Fed. Reserve Bull. 393 (1940); see also 42 Fed. Reserve Bull. 228 41 Fed. (1956); Reserve Bull. (1955).
In 1962 Congress jurisdiction transferred over most of the trust activities of national banks from the Board of Governors of the Federal System Reserve to the Comp- troller of the Currency, without modifying provision *5 87-722, 76 Stat. L. Pub.
of substantive law. sug- solicited thereupon C. 92a. The § U. S. trust applicable to regulations for gestions improving proposed were regulations new Subsequently, activities. investment the collective expressly which authorized management, for investment monies delivered to the bank proposed These accounts. managing agency so-called in 1963 with officially promulgated were regulations In 1965 the First National not material here.7 changes Comptroller’s for the City Bank of New York submitted approval plan managing collective investment for the approved Comptroller promptly The agency accounts. operation. plan, This which plan, and it is now by the departs respects plan envisaged in some from the expected, us, tell Comptroller’s Regulation, is briefs to be a model other banks which decide offer their service.8 customers a collective investment plan the bank customer tenders between Under $10,000 $500,000 bank, to the with an together authorization the bank the customer’s making managing agent. fund, customer’s investment is added to the participation and a written evidence of is which issued expresses participation” pro- “units of the customer’s portionate participation interest fund assets. Units of freely are redeemable, anyone and transferable to who has executed a managing agency agreement with the bank. company The fund is as an registered under Company Investment Act of 1940. The (a) provides 7 12 CFR that: not in “Where contravention §9.18 law, by fiduciary may of local funds held a national bank as collectively: (3) fund, invested ... In a common trust maintained by exclusively the bank for the collective investment and reinvest ment of monies contributed thereto capacity the bank its managing agent managing agency agreement expressly under a pro viding that such monies are received the bank in trust . . . .” example, For plan the investment fund as established does not provide that the money bank receives the investor’s in trust. *6 the underwriter of the fund’s within participation units of that meaning Act. The fund has filed registra a tion pursuant statement to the Securities Act of 1933. The fund supervised by a five-member committee annually elected by the participants pursuant to the Company Investment Act of 1940. The Securities and Exchange Commission exempted has the fund from the Company Investment Act to the extent majority that a of this may committee be affiliated bank, with the and it is expected majority that a always will be officers in the bank’s trust and investment division.9 The actual custody and investment of fund by assets is carried out the bank as investment pursuant advisor to a manage ment agreement. Although the Company Investment requires Act this management agreement ap be proved annually by the committee, including majority members, by unaffiliated or the participants, it is expected that the bank will continue to be investment advisor.
Ill 16 of Section the Glass-Steagall Act as amended, 12 U. 24, Seventh, provides S. C. § “business of deal- ing securities and [by stock a national shall be bank] limited to purchasing selling such securities stock without recourse, solely upon the and for order, the ac- count of, customers, and no case for its own ac- count Except .... as provided hereinafter or otherwise permitted by law, nothing herein contained shall authorize purchase by national for its [a own bank] account of any shares of stock of corporation.” any peti- The opinion of the Commission and the dissent of Commissioner Budge unofficially are reported at CCH Fed. Rep., Sec. L. 1964- Decisions, 77,332. ¶ Section enacted in granted authority purchase no stock for the account of prohibited any customers and purchase by of stock a national bank. The 1935 Amendments to the in- stock a bank’s purchase that a contend tioners for its a bank of stock purchase fund is a vestment of this section. in violation own account “shall a national bank provides that 16 also Section And securities stock.” underwrite issue of not (a), provides 378§ 21 of the 12 U. S. C. Act, § same corpora- any person, firm, (1) For “it shall unlawful — organiza- or other similar tion, association, trust, business sell- underwriting, tion, issuing, in the business engaged *7 retail, through or or ing, or at wholesale distributing, notes, syndicate stocks, bonds, debentures, participation, time to securities, engage or other to at same [deposit banking].” whatever in the business of extent operation petitioners contend that the creation and by of an investment fund a bank which offers to its cus- opportunity purchase tomers the to an in the interest fund’s assets the issuing, underwriting, selling, constitutes or or distributing securities stocks violation of these sections. by
The questions raised are novel and petitioners powers substantial. National banks were granted trust in 1913. Act, 11, Federal Reserve 261. § Stat. The first common trust fund was organized 1927, expressly by and funds such were authorized the Federal F Regulation Reserve Board promulgated 1937. Report on or Common Trust Commingled Funds Admin istered Companies, Banks and Trust H. R. Doc. No. 476, 76th 2d Cong., Sess., (1939). 4-5 For at least gen a eration, therefore, there has been no reason to doubt that consistently a national bank can, with the banking laws, trust funds on the commingle hand, one and act as a on the managing agent provision other. No of the bank provision Bank Act National included intended to make it clear may buy that a national bank stock for the account of customers Rep. but not its own account. S. No. 74th Cong., 1st Sess., 17; Rep. Cong., 74th Sess., H. R. No. 1st 18. national for a improper it is suggests law ing for in managing agent act as a assets, or to pool trust for the account stock purchase or to customers, dividual powers gives these union of But the customers. of its of a are whose activities fund to an investment birth the invest between The differences different character. and a has authorized ment fund that best, at fund are subtle open-end mutual conventional fund this bank undisputed and it fund with mutual competition direct itself in finds of a the business suppose industry. One would ac “for own buying stock its mutual fund consists “other “selling” “stock” “issuing” and of count” in and redeemable an undivided evidencing securities” face, §§16 On their in the assets fund.11 terest prohibit appear clearly Act Glass-Steagall 21 of the banks.12 activity by national company. The open-end investment fund is an 11 A mutual company defines an investment Company Act of 1940 Investment out as “any security” “is or holds itself “issuer” of which as an investing ... in the business of engaged primarily ... being (a)(1). An (a) (21), 80a-3 *8 80a-2 .” 15 U. S. C. securities . . . §§ offering sale or outstand has is one “which company open-end C. the issuer.” 15 U. S. security it is any of which ing redeemable “unit company includes a also (a) (1). investment An 80a-5 § which, among other company investment an trust”: agency . . . . of . . a . . . contract organized under things, “is securities, represents each of which only redeemable issues and . . . . . . .” specified securities a unit of interest an undivided (2). 80a-4 S. C. U. § affilia prohibits C. Act, 12 U. S. the 20 of § Section Reserve of the Federal that are members banks between tions flotation, issue, in the “engaged principally organizations System and or or retail at wholesale sale, underwriting, public or distribution debentures, notes, bonds, stocks, of syndicate participation through 78, provides C. 12 U. S. And § . . . .” securities § or other Federal in the a bank director, employee of officer, or no director, or officer, time as the may at same System serve Reserve activity de- engaged in the primarily association of an employee the conclusion that the to lightly But we cannot come the activity that violates has authorized give great It is settled that courts should banking laws. any regulatory construction of a to reasonable weight petitioners if bank’s invest- 20. The contend a scribed § bank, entity then an distinct from the ment fund be conceived as of these with the investment fund is violation its affiliation sections. to consider whether of has had occasion
The Board Governors by City First National type operated an investment fund of the Glass-Steagall Act. CFR 32 of the Bank involves a violation of § concluded, “general principles (1970). based on 218.111 The Board § 32,” developed respect application the of section that have been to of the bank’s trust that it would not violate that for officers section department of the investment to serve at the same time as officers single entity,” and fund because the fund and the bank “constitute a regarded nothing depart- than arm the fund “would be more an pro- ment the bank.” of The Board called attention to whose § forbidding organization it visions summarized as “a firm or securities engage receiving deposits, subject in the business to to certain exceptions.” Board, however, express position declined to a concerning applicability policy of this section because of its carry express meaning not views as to the of statutes that penalties. expressed criminal Nor has the Board its views on the application provision banking other law to operation creation and of a bank investment fund. applica- have no doubt but that the Board’s construction and
We reasonable and The investment fund tion of 32 is both rational. § by Comptroller’s regulation provided authorized and as service City only Bank is a service available the First National provided of the bank. It is held out as service customers bank, fund bears the bank’s name. The and the investment of the investment fund. has effective control over the activities the bank and Moreover, danger that to characterize there is no Congress. entity purpose single will disserve its fund as a place on the activities of The limitations laws placed great as the limitations banks are at least as national *9 the example, 32 refers to their affiliates. For the activities of § proscribes 21 while stocks or securities “public sale” of § “selling” or securities. of stocks
627 adopted by statute with the enforce agency charged Currency The Comptroller ment of that statute. of the is with the enforcement of the to an charged banking laws principle extent warrants of this invocation with conclusions as to the respect to his deliberative Mis First National Bank v. meaning these laws. See souri, 263 U. 658. S. adopted no difficulty Comptroller here is that the level position at administrative
expressly articulated provisions meaning impact §§16 to the they funds. The and 21 as affect investment opinion 9 without Comptroller promulgated Regulation subsequent report His accompanying statement. prohibitions did not advert to the of the Glass- Congress Annual Steagall Comptroller Currency, Act. 101st To for the Report (1963).13 sure, 14-15 counsel 13 by Comptroller Deputy review article written Saxon and A law Comptroller position did take the Miller Glass- inapplicable Steagall Act is to bank common trust funds. Saxon Miller, Funds, (1965). & Common Trust L. Geo. J. But predicated argument this view was on the that when provided exemption a tax for common trust funds main by bank, tained contemplated now U. C. it exemp S. § strictly tion of common trust funds created for purposes, consequently Congress and that banking must have assumed that the laws, appear proscribe funds, which otherwise such were not Id., applicable. at 1008-1010. argu Whatever the merits of this ment, bearing it has no litigation. the instant It clear that the is collective Regulation qual investment funds authorized 9 need not ify exemption 584; for tax under City the First National Bank Fund § qualify. Moreover, position does not so advanced in the brief filed litigation on behalf of the is not that the inapplicable funds, laws are to bank investment but rather operation that the creation and such funds are consistent with the banking laws. noteworthy
It exemption the 584 is available to common § exclusively trust funds “maintained a bank . . . for the collective *10 Comptroller in the course of this litigation, specifically and in his briefs and oral argument Court, this has rational- ized the basis of Regulation 9 with great professional com- petence. But hardly is tantamount to an adminis- trative interpretation of §§16 and 21. In Burlington Truck Lines States, v. United 371 U. S. we said, “The may courts accept not appellate post counsel’s hoc rationalizations for agency action .... For the courts to substitute or their counsel’s discretion for that of the [agency] incompatible with the orderly functioning of the process judicial Id., review.” at 168-169. Congress has delegated the administrative official and not to appellate counsel the responsibility for elaborating and enforcing statutory commands. It is the adminis- trative official not appellate counsel possesses who the expertise can enlighten and rationalize the search for the meaning and intent of Congress. Quite obviously should not grant new author- ity to national banks until he is satisfied that the exercise of this authority will not violate the intent of the bank- ing If he laws. faces such questions only after he has acted, there is substantial danger that the momentum generated by approval initial may seriously impair enforcement of the laws that Congress enacted. investment and moneys reinvestment of contributed thereto capacity in its a trustee, executor, administrator, guard- ian . . . (Emphasis added.) This language, which makes no reference to contributions the bank in capacity its as managing agent, is identical to exempting such common trust funds from the Investment Company Act 15 U. S. C. 80a-3 (c)(3). § The Securities Exchange Commission has taken position that commingled managing agency accounts do not come within (c) (3). 80a-3 See § Statement Cary, of Commissioner Hearings Common Trust Overlapping Responsibility and Conflict Funds — in Regulation, before a Subcommittee of the House Committee on Operations, Government 88th Cong., Sess., 1st (1963).
IV objectives that one dispute no There is banks, commercial prohibit Act was to Glass-Steagall lend repayment, subject deposits receive banks that *11 and the *12 without direct This access to the assets of the bank. was frequently because securities affiliates had been estab- lished with capital paid stockholders, the bank’s or by the or the allocation of a dividend public, through legal history on bank stock for purpose.20 legislative this Glass-Steagall Act shows that also had mind on the more hazards repeatedly and focused subtle beyond that arise when a commercial bank goes fiduciary business of or acting managing agent directly either or enters the investment business an to hold in- establishing particular affiliate and sell promotional This course places vestments. new pressures on the bank which in turn create new other 18 Cong., Sess., 6, 8, Rep. See S. No. 73d 1st 10. 19 Id., (re 18; Hearings 366; Cong. at see 1931 75 Rec. 9911 Bulkley). marks of Sen. 41, 192, 1056; Hearings Report Currency, quoted id., 1067. at temptations. For example, pressures are created because the bank and the affiliate closely are associated in public mind, and should the affiliate fare badly, public confidence in the bank might be impaired. And since public confidence is essential to the solvency of a bank, there might exist a natural temptation to shore up the affiliate through unsound loans or other aid.21 Moreover, pressure to sell particular a and make the affiliate successful might create a risk that the bank would make its credit facilities more freely available to those companies in whose stock or securities the affiliate has invested become otherwise involved. Congress feared that banks might even go so far as to make un- sound loans to such In any event, it was companies.22 thought that the bank’s salesman’s interest might impair ability its to function as an impartial source credit.23 Congress was also concerned that depositors might suffer losses investments that they purchased in re liance on the relationship between the bank and its This loss of good customer will might “be affiliate.24 come an important handicap to a bank during a major period of security market deflation.” More broadly, 21 1931Hearings 20, 237, 1063. See id., also at 1058, where it is said:
“Activities aof bank’s security affiliate as a holding or finance company or an investment trust are fraught also with danger large during losses period. deflation Bank affiliates of this kind show a greater much tendency to operate with borrowed funds than organizations do type *13 which are independent banks, of the reason being that the identity of control management and which prevails between the bank and its affiliate tends encourage reliance upon the lending facilities of the former.” 22 id., See 1064; at Cong. 75 (remarks Rec. Bulkley). of Sen. 23 See 1931 Hearings (remarks Glass). Chairman 24 See77 Cong. (remarks Rec. 4028 Rep. Fish). 251931 Hearings 1064. promotional feared that needs of invest- ment banking might lead commercial banks to lend their reputation for prudence enterprise and restraint to the particular and selling securities, stocks and that could not be done without reputation being undercut by the necessarily risks incident to the investment bank- ing perceived business.26 There was also the danger that when subject promotional commercial banks were to the they demands of investment banking, tempted be might to make loans to expectation customers with the that the loan would facilitate the purchase of and stocks securi- ties.27 There was evidence before Congress that loans investment written commercial banks had done much speculative to feed the fever of the late 1920’s.28 Senator plain Glass made it it was “the pur- fixed pose of not Congress” to see the facilities of commercial diverted into banking speculative operations by the ag- gressive promotional character of the investment banking business.29 Cong. See 75 Rec. 9912: although
“And such possibly a loss would not result in sub- impairment stantial of the resources banking institution owning that affiliate . . . there can be no doubt the whole transaction tends impair to discredit the bank and the confidence (Remarks depositors.” of its Bulkley.) of Sen. 27 Rep. 77, Cong., S. No. Sess., 73d 1st 9-10. 281931 Hearings 1006-1029; Rep. Cong., Sess., S. No. 73d 1st 8-9. 29 Cong. Rec. 9884. Rep. Cong., See also S. No. 73d 1st Sess., 8:
“The outstanding development system banking the commercial during prepanic period appearance security was the of excessive loans, and of overinvestment in securities of all kinds. effects of this changing situation in banking whole character of the problem hardly overemphasized. can National banks were never intended to undertake large scale, business on a legislation the whole tenor rulings and administrative concern-
633 much concerned very hazard that potential Another pro- the conflict between plain from the arose Congress the obli- banker investment motional interest disinterested render to banker the commercial of gation Bulkley stated: advice. Senator investment to to sell nothing who has banker the “Obviously, dis- to advise qualified better much depositors is his safety of the diligently regard interestedly and list of the uses who banker than the depositors to distribute department savings in his depositors or that, this, of advantages the concerning circulars re- tois the bank on which other investment profit underwriting or an profit an originating ceive profit trading aor profit distribution or a profits.” of such combination security affiliates it evidence had before through holdings excessive unload be driven to might witnesses bank.31 Some sponsor department trust con- practice that this the view expressed hearings at the obliga- trustee’s of self-dealing violation stituted improper would it indeed loyalty, and of tion from anything to purchase department trust a bank’s affiliate.32 securities bank’s in the growth of such recognition away from been ing them has legitimate.” banking as investment of direction Steagall said: Representative vein In the same purposes original its from was diverted system great “Our .... activities into bill is call provisions regulatory purpose “The industry the and commerce agriculture service to the
back framers designed service bank and the credit 3835. Cong. Rec. Act.” Reserve Federal 30 Cong. 9912. Rec. id., 237; at 1064. Hearings cf. 31 1931 266, 300, 311. Id., at *15 out banks keep commercial acted to sum, Congress In it because largely business banking investment of investment incentives promotional believed that stake pecuniary banker’s the investment banking and was opportunities investment particular the success of commercial and disinterested prudent destructive of in the commercial confidence public and of banking it: Bulkley put As system. Senator banking strictly banking to be “If service we want profits of additional expectation service, without keep the customers, we must something selling security business.” out of the investment banks y pur- this chose to achieve language that a national 16 that pose prohibitions § includes the any of securities or not underwrite issue bank “shall . . . “for its own account purchase stock” and shall not prohibition and the any corporation,” shares of stock of un- issuing, business of in “the against engaging § stocks, bonds, . . . distributing derwriting, selling, or In debentures, notes, litigation or other securities.” position operation that takes provi- fund consistent with these a bank investment is in such a fund are sions, participating because interests of the Act. It meaning not “securities” within the simply fund makes avail- argued the benefit of investment man- able to small investor which would department a bank trust agement only large investors, and that otherwise available problems fund creates no operation of an investment a bank invests securities present are not whenever for the account of customers.
33 Cong. Rec. 9912.
But there is nothing in the phrasing either 16 § or § 21 that suggests a narrow reading of the word “securities.” To the contrary, the breadth of the term is implicit in the fact that the antecedent statutory lan- guage encompasses not only equity securities but also securities representing debt. And certainly there is nothing in the language of provisions these to suggest the sale of an interest the business of buying, holding, and selling stocks for investment is to be dis- tinguished from the sale of an interest in a commercial or industrial enterprise.
Indeed, there is direct evidence that Congress specif- *16 ically contemplated that the word “security” includes an interest in an investment fund. The Glass-Steagall Act was product of hearings pursuant conducted to Senate Resolution which included among the topics to be in- vestigated the impact on the banking system of the formation of investment and security trusts.34 The sub- committee found that one of the activities in which bank security affiliates engaged was that of an investment trust: “buying and selling securities acquired purely for investment or speculative purposes.” Since Congress generally intended to divorce commercial banking from kinds activities in which security affiliates engaged, there is reason to believe that Congress ex- plicitly intended prohibit to a national bank from oper- ating an investment trust.36
But, in any event, persuaded we are purposes for which Congress enacted the Glass-Steagall Act leave no room for the conclusion that a participation in a bank investment fund is not a “security” within the S. Cong., Res. Sess., 71st 2d reprinted Rep. S. No. Cong., Sess., 73d 1st 1.
35 1931 Hearings 1057. id., See also at 307. 36See also supra, n. 21. competi- perspective of the Act. From the meaning to expertise, arguments there are tion, convenience, commercial banks to support allowing be made in But enter the investment business. nec- outlined made it determined that the hazards above activity commercial banks. essary prohibit to clearly present Those same are when a bank hazards fund. operate undertakes to an investment par- fund operates A bank that an investment has a indiffer- ticular investment to sell. It is not a matter of buys ence to the bank whether the customer an interest in the fund or some other investment. If its cus- makes bank’s persuaded tomers cannot be to invest investment the bank will lose their investment fund, the fee that business would have business and which brought large enough qualify in. Even as to accounts there management, might individual profit if potential greater placed for a the investment were individually fund securities, in the rather than selected of fixed because costs and economies scale. might mechanics of an investment fund also operating fund promotional pressure. create When interests effectively redeemed, were the bank would be faced with portfolio the choice of stocks from the fund’s selling *17 participations redemptions. of to cover The selling new pecuniary bank incentive to choose the might have a latter in to the cost of stock course order avoid trans- solely redemption purposes. for actions undertaken be might Promotional incentives also created the fund in circumstance that the bank’s would be direct competition that, point with mutual funds from the of investor, opportunity of the offered an investment view by the comparable to that offered bank. The bank position prospective to be in a to show to the would want fund was more attractive than the customer that its The bank mutual funds offered others. would have fund, the of performance the stake a salesman’s the competition the than fund less successful if the were fees. resulting the business and would lose bank neces- fund would an investment operated A bank that behind squarely facilities reputation and sarily put its the that opportunity the investment fund and con- might fund of the The investments fund offered. success the event speculative, but or servative record. public matter be a fund would of the failure in- bank’s management unsuccessful Imprudent or unjustified perhaps about bring could fund vestment impru- If itself. in the bank confidence public loss of distress, a fund in place the should management dent fund the to rescue pressure find itself under might bank banking. sound with inconsistent measures through to the pressures incidental and other promotional The involve words, in other fund, of an operation intended Congress potential abuses kinds the same security bank against it legislated when against to guard integrity reflection slightest is not the It affiliates. say that the traditions fund to industry of the mutual tra- necessarily the conservative industry are not interests needs banking. ditions of commercial nearly approximate more enterprise fund of a mutual activity in which underwriting, those securities When a security primarily engaged. were affiliates bank funds, with mutual competition puts bank itself ground the kind of make an accommodation must pru- not be firmly could concluded Congress rules that banking. of commercial mixed with business dently kind potential hazards of are other And there passage with sought eliminate in the invest- The bank’s stake Glass-Steagall Act. lead distort its credit decisions or might ment fund fund companies loans to the which to unsound exploit its confidential might The bank invested. had *18 relationship with its commercial and industrial creditors for the benefit of the might fund. bank under- directly take, indirectly, to make its credit facilities available to the fund or to other aid to the render fund inconsistent with the best interests of the bank’s depositors. might The bank loans to facilitate the make in purchase of interests the fund. The bank divert might talent and from its commercial banking opera- resources promotion tion to the of the fund. Moreover, because the would par- have a stake a making customer’s a ticular investment decision—the decision to invest bank’s investment fund —the might customer doubt the behind the motivation bank’s recommendation that he make such an If investment. the fund investment should turn out there would be badly danger a the bank would lose the good will of those in- customers who had vested It might unlikely fund. that disenchant- ment would go so far as to threaten the solvency of the But bank. because banks dependent are on the confi- dence of their customers, the risk would not be unreal.
These are all hazards that present are not when a bank purchase undertakes stock for the account of its individual customers or to commingle assets which it has received for true fiduciary a purpose rather than for investment. These activities, unlike operation of an investment do fund, not give promo- rise to a tional or salesman’s stake in particular a investment; they do not involve enterprise an competition direct with aggressively promoted funds offered by in- other vestment companies; they do not entail a threat public confidence in the bank itself; they do im- not pair ability the bank’s to give disinterested service as fiduciary or managing In agent. short, plain there is a difference between the sale of fiduciary services and the sale of investments.37 quoted supra, (1940), See Fed. Reserve Bull. at 621.
VI The Glass-Steagall Act was a prophylactic measure directed against conditions the experience of the 1920’s showed to be great potentials for abuse. The literal terms of that Act clearly prevent what the Comp- troller has sought to authorize here. poten- Because the tial hazards and abuses that from flow a bank’s entry into the mutual investment business are the same basic hazards and abuses that Congress intended eliminate almost years we ago, cannot but apply the terms of the federal statute as they were written. We conclude that operation of an investment fund of the kind approved by the Comptroller involves a bank in the underwriting, issuing, selling, and distributing of securities violation of 16§§ of the Glass-Steagall Act. Accordingly, we reverse judgment in No. 61 and vacate the judgment in No. 59.
It is so ordered. The Chief Justice took no part the consideration or decision of these cases.
Mr. Justice Harlan, dissenting.
The Court holds that the Investment Company Insti- tute has standing as a competitor to challenge the action of the Comptroller of the Currency because Congress “arguably legislated against competition pe- titioners sought to challenge, from which flowed their injury.” The says ICI, the Court, is prevail entitled to because “Congress did legislate against the competition the petitioners Ante, challenge.” at 620, 621 (em- phasis added.) I understand the Court to mean “leg- islated against the competition” not only that Congress prohibited banks from entering this field of endeavor, but that it did in part so stemming reasons from the fact competition. ante, resulting See 631-634, at 636- 638. However, Court cannot mean phrase that it was Congress’ purpose protect petitioners’ class against competitive injury for, as all three judges on the court below agreed, neither the language pertinent provisions of the Glass-Steagall Act nor the legislative history evinces any congressional concern for the interests *20 of petitioners and others like them in freedom from competition.1 Indeed, appears it reasonably plain that, if anything, Act adopted was despite its anticom- petitive effects rather than ante, because them. Cf. at 630, 636.
This being the case, discussion of standing Hardin v. Kentucky Co., Utilities 390 U. 1, 5-6 S. (1968), is directly in point:
“This Court has,
it
is true, repeatedly held that
the economic injury which results from lawful com
petition cannot, in and of itself, confer standing on
the injured business to question
legality
aspect of its competitor’s operations. Railroad Co.
Ellerman,
v.
Steel 310 U. 113 (1940). S. But competitive injury provided no basis for standing the above simply cases because the statutory and constitu tional requirements that the plaintiff sought to en force were in way no concerned with protecting against competitive injury. In contrast, it has been the rule, at least since the Chicago Junction Case, equally “It is clear giving even the broadest reading of the legislative history embellishing the Act support will not the conclu sion meant to upon Appellees bestow any protection competitive injury.” from App. U. 241, S. D. 263, C. 420 F. 2d J., (Burger, joined by Miller, J.) (footnote omitted); see also id., 254, 256-258, at 2d, 420 F. at (Bazelon, 98-100 J.). C.
The Court’s holding if Congress prohibited —that entry into a field of business for reasons relating to competi- tion, then a competitor has standing to seek observance prohibition the a surface —has appeal, but, so far as I can see, no sound analytical basis. Certainly none is offered. In any event, it appears to me that our prior decisions, particularly Hardin, require the conclusion that
2 See also Collins, Barlow v. 159, U. S. 164 (1970). petitioners in No. 61 lack standing challenge Comptroller’s I action. While would not foreclose possibility that those be further modified cases should in to re- respect,3 some Court has not undertaken I do examine deem it for me to them, inappropriate so as single Justice. I petitioners’
The view that take with stand regard unnecessary in No. it for me to reach the ing 61 makes require merits in that but it does me to rule on the case, Like Me. Black- contentions made No. 59. Justice I post, 645, see at find discussion this mun, lengthy topic superfluous. propriety At issue is the of the ac tion Exchange of the Securities and Commission increasing open from two to three the number of seats to bank officers on the five-man committee which serves Substantially of directors of the account.4 as a board of the court given judges below, the reasons 249-253, 266, D. C. F. 2d 91- App. 136 U. S. opinion I am of the the Commission did 95, 108, determining not abuse its discretion facts appropriate case made an exercise of the dis power explicitly vested pensing Commission (c). C. 80a-6 § U. S. I given herein, For the reasons would affirm the two under judgments review. Blackmun,
Mr. Justice dissenting. opinion and judgments here, Court’s it seems to me, are based more on what is deemed to appropriate policy and desirable national than on what is a *22 necessary judicial construction of the Glass-Steagall Act
3 suggestion effect, Jaffe, For Standing Again, one to this see (1971). Harv. L. Rev. 633 4 By “person party aggrieved” provision virtue of the or Act, Company §80a-42(a), Investment C. U. S. there is no difficulty supporting petitioner’s standing in No. 59. It a far different ago. thing almost four decades persuaded wise banks policy keep that it is national
out of funds, the business of mutual investment operating despite safeguards Cur- rency and and Exchange the Securities Commission have than it provided, persuaded is to be that existing and legislation somewhat ancient requires Policy that result. considerations are for the and not for this Court.
I recognize and am aware of fully the factors and of the economic considerations that led to the enactment of the Glass-Steagall Act. The second and third decades century of this are not the happiest chapter history of American banking. Deep national concerns emerged from the distressful experiences years of those and from the sad ends to which certain practices of that time had led industry. But those then-prevailing conditions, legislative history, and the remedy Con- gress provided, prompt me to conclude that what was proscribed was the involvement activity of a national bank in investment, as contrasted with commercial, banking, underwriting issuing, and in acquiring speculative securities for its own account. These were the banking sins of that time.
The propriety, however, of a national bank’s acting, when not in contravention of state or local law, as an inter vivos testamentary or trustee, as an executor or ad ministrator, guardian as a committee, as a custodian, and, indeed, as an agent for the individual customer’s securities and funds, see McNair, Carcaba v. 2d 795, F. (CA5 1934), denied, cert. 292 U. S. is not, and could not be, questioned by the petitioners here or by the Court. This being so, there is, me, an element of illogic ready admission by all concerned, on the one hand, that a national bank has power to manage, by way of a common trust arrangement, those funds that it holds as fiduciary in the technical sense, and to admin- *23 rejection, and in the separate agency accounts,
ister of the bank’s hand, propriety placing the other mutual investment fund. Court assets into a agency line I find it im- its decisional between two. draws statutory possible to locate root for that line drawing. Act as a tool for that Glass-Steagall To use the distinc- I is, think, misconception tion a fundamental statute. I am not
Accordingly, convinced that the Congress, otherwise, yet that Act proscribed has the banking under challenge competitors endeavors here in a competitive field. highly None of the judges of the Appeals Court of was so convinced, and neither was the Currency whose expertise the Court I concedes. would leave to privilege now prohibiting such national bank if activity that is its intent and desire.
In Parts IV and opinion V its the Court outlines hazards present when are a bank indulges specified activities. The Court then states, in the last paragraph V, Part that those hazards are present not when a bank purchase undertakes to stock for individual customers, or to commingle assets held in its several fiduciary capaci- ties, and the like. I must disagree. It seems to me that exactly the same hazards are indeed present. A bank offers its fiduciary services an atmosphere of vigorous competition. One need only observe the current and con- tinuous advertising of know claimed fiduciary skills to that this is so and that the business is one for profit. In fiduciary area a bank is engaged direct competition with other investment concepts and with nonbanking fiduciaries. Failure or misadventure of a single trust may constitute a threat public confidence among bank’s other trust beneficiaries, prospective trustors, and even the commercial activities of the bank itself. It has an inevitable adverse effect upon the bank’s fulfillment of what is fashionably described today as its “full service.” I
Thus feel the Court overstates its case when it seeks diminish the significance of these hazards the fiduciary area as contrasted fund opera- with mutual *24 tion. After we all, deal here with akin to something the traditional banking function and awith device makes available for the small investor already what available for large investor by way individual agency account.
What the Court decries in the investment is the fund combination of three banking operations, concededly each permissible: acting agent for the customer, purchasing for that customer, and pooling assets. It is said that “the union of powers” these gives birth to something “of a different character” and is statutorily prohibited. I doubt that those three powers, each by allowed the con- trolling statutes, operate somehow in combination to produce something forbidden those same controlling statutes, and I doubt that the unitization is something more than or something different from the mere sum of parts its and that it expands thereby to achieve offensive- ness under the Glass-Steagall Act. my position
With
as to the
only
Act
a minority one,
detailed discussion of the additional
issue, raised in No.
59, as to the propriety of the exemption granted by the
Securities and Exchange Commission, would be super
fluous. Suffice it to say that
I am in accord with the
views expressed in the respective opinions on this issue
in the Court of Appeals, 136 U. App.
S.
D. C. 241, 249-
253, 266,
I affirm would the judgments of the Court of Appeals. notes negotiate promissory and money, discount business. banking into the investment from like, going in the indirectly engaged banks were Many commercial passed Act was when the banking business generally Act it was the passage before 1933. Even bank to commercial improper for a it was believed that in 1908 directly.14 But banking in investment engage security affiliates establishing of practice the began banks alia, bond floating of inter the business in, that engaged issues.15 underwriting stock and, frequently, issues less national banks Act confirmed Glass-Steagall The directly, and in investment engage could not engaged so with an organization made affiliation addition security to abolish the effect of the Act was One illegal. banks.16 affiliates of commercial history Act legislative from the apparent It is necessary. step felt that this drastic was why Congress in 1930 was of of the Bank United States The failure respect activities with to that bank’s widely attributed Con- Moreover, securities affiliates.17 to its numerous 14 71 before a Hearings Pursuant to S. Res. Subcommittee (hereafter Currency Banking 1931 on and Committee Senate Report Sess., (1931); Cong., 3d Hearings), 71st quoted id., 1067, 1068. Senator Currency, at Comptroller of to, said, banking legislation, tried “We Glass, commenting on earlier system far as had, we removed thought at the time and Id., market.” at 262. the stock the influence of possible from 15Id., at 1052. Companies, pt. Investment Trusts and Report Investment (1939). Sess., 70, Cong., 76th 1st Doc. No. H. R. 116-117, 1068. Hearings 17 1931 in general that commercial banks gress was concerned System member banks of the Federal Reserve damaged and been particular aggravated had both direct by partly decline because of their stock market ownership trading and indirect involvement in the Act re- speculative Glass-Steagall securities.18 The policies competition, flected a determination that con- support venience, expertise which otherwise might entry bank- of commercial banks into the investment “hazards” and ing outweighed business were “financial that arise when commercial banks dangers” Act.19 engage proscribed in the activities in mind limited hazards that had were not to the own danger might obvious that a bank invest its security imprudent assets frozen or otherwise stock or For operated investments. often securities affiliates had