United States: Judicial Restraint On Bank Regulatory Issues

In the Face of Congressional Inaction, the Supreme Court Has Attempted to Provide Uniform Answers to Current Banking Problems, While Refusing the Role of Economic Policymaker. Despite an Appearance of Activism, the Court Continues to Defer to the Views of Expert Administrators.

In his recent survey, Financial Market Structure: A Longer View (1987), E. Gerald Corrigan of the New York Federal Reserve Bank aptly commented that "[t]he speed and scope of change we are seeing in our financial markets and institutions have taken on a revolutionary character." Inescapable forces of change — technological, economic, and competitive — are at work in the financial services industry, and the barriers between classes of financial institutions are becoming increasingly blurred. These revolutionary tides of change have proved to be a prolific source of litigation. This article will summarize the decisions handed down by the courts in the last year and attempt to identify those factors that have influenced them, factors that are likely to affect the course of judicial decision-making in future litigation.

At the outset, we note the dilemma these cases pose for the judiciary. Fundamental disputes affecting the structure of the financial services industry have been referred to the courts for decision not under modern legislation adapted to current economic conditions, but rather under legislation, such as the McFadden Act, the Douglas Amendment, and the Glass-Steagall Act, that Congress passed many years ago. Faced with modern problems of bank regulation but equipped only with time-worn legislative tools, the courts have struggled, in the words of President Corrigan, to "muddle through" without contemporary illumination from Congress.

The current situation of the Supreme Court illustrates the difficulty of proceeding in this fashion. The Court receives more than 4000 applications for review every year, but can hear only 160 cases on the merits. The members of the Court are generalists, not specialists in the field of banking. The Justices nonetheless face a rising volume of difficult banking cases, of importance to the general economy as well as to industry members, that they cannot responsibly avoid. Congressional inertia and the increasing obsolescence of existing federal legislation do not stem the flow of new banking controversies onto the Supreme Court's docket. Quite the contrary, they multiply the occasions for disagreement, the scope of legal ambiguity, and the need for authoritative answers to industry-wide uncertainties.

The Supreme Court, therefore, faces intense pressure to act despite its relative lack of institutional expertise. One would expect this pressure to increase the occasions for granting certiorari, and that has been the case. The Supreme Court has countered congressional inaction by increasing its number of grants of certiorari in ever more important banking cases.¹ In addition, as will be discussed in greater detail in this article, the pressure for more authoritative rulings on banking law issues has occasioned an expansive construction of "standing to sue" for litigants that seek to test the boundaries of permissible competition. Thus, as the legislative process has ground to a halt, the Supreme Court has responded by enlarging its role as expounder of federal banking law.

At first blush, the lowering of "standing" barriers and the escalation of grants of certiorari sound like signs of "judicial activism" — something out of step with the times. In fact, however, the reality is quite different. The growing willingness of the Supreme Court to decide banking cases reflects its recognition of the fact that nationwide uniform rules are an essential prerequisite to efficient business operations for both bankers and their competitors. On the merits of the issues of banking policy that these cases present, the Justices have not been activists. Indeed, within the conventional framework of adversary litigation it would be difficult to pursue a course of judicial activism in cases such as these, which frequently turn on fundamentally non-justiciable questions of economic policy.

Where, then, does the Court turn for illumination in banking cases? The briefs and arguments of industry members and their competitors are certainly important. But because those submissions necessarily reflect a narrow and partisan view on issues of broad public concern, the Court must look further. And it has done so in reliance on the principle that judicial deference is appropriately accorded to those who administer the federal banking laws and are responsible for supervising the system on a day-to-day basis and as a whole. Although the Court does not give "rubber stamp" approval to administrative interpretations of the law, it is increasingly evident that administrative views are the most important ones before the Court in deciding banking cases.

This deference to administrative authorities stems from a salutary institutional conservatism. Because Supreme Court interpretations of federal banking law have a nationwide impact and can only be reversed by Congress, there is an overriding need to decide these cases in a manner that will not cause economic injury or strain the supervisory system. The Court has only episodic experience with bank regulatory issues, only limited access to relevant information, and only a brief amount of time to study any single case, no matter how important it may be. These factors combine to make reliance on the submissions of bank regulatory agencies a matter of simple necessity.

But there is a significant check on the advice that the Court receives from administrative authorities. In our complex banking system the regulators speak with several voices, reflecting not only varying degrees of political independence but also varying supervisory responsibilities. How does the Supreme Court know to which body it should accord deference? The answer, in substantial part, is that the Court relies on an intragovernmental referee — the Solicitor General.² The Solicitor General attempts to harmonize the views of different regulatory agencies concerned with a single issue, and when that is not possible he aids the Court by speaking as a "tenth Justice" on the correct resolution of an intramural government dispute. In banking cases, as in other similar cases, the Court generally follows the lead.³

This is not to say that the administrative view of the law supersedes statutes enacted by Congress simply because they are of antique vintage or ill-adapted to present-day economic realities. What it does mean is that if legislation is ambiguous or incomplete — which is frequently the case as old laws are applied to new conditions — the Court must of necessity rely on the expert administrators and their spokesman, the Solicitor General. But if the Court perceives that Congress has struck a specific balance in a particular statute, any contrary arguments of policy, even from an expert agency, cease to have a place: the Court's job in such a case is simply to defer to the expressed intent of Congress.

What has been sketched above holds true for the decision-making process not only in the Supreme Court but also in the courts of appeals. The federal judiciary serves as umpire by default, applying legislation that is frequently ambiguous, incomplete, or obsolete, and must shoulder its responsibility with very substantial assistance from those who administer the banking laws across the nation. Thus, the courts have "muddled through" by providing uniform and authoritative answers to banking law controversies, while eschewing any role as originators of economic policy.

Over the last year, the Supreme Court handed down three landmark opinions that illustrate the tensions and resolutions characteristic of banking litigation today. In Board of Governors of the Federal Reserve System v. Dimension Financial Corporation,⁴ the Court granted the Board's petition for certiorari to consider the validity of a rule designed to curtail the expansion of so-called nonbank banks outside the coverage of the Bank Holding Company Act. The issue was whether the Board had properly construed the terms "demand deposit" and "commercial loan" that appeared in the Act and that determined the scope of the Board's regulatory jurisdiction. The Board amended its regulation Y to include not only traditional demand deposits and commercial loans, but also deposits that "as a matter of practice" are payable on demand (including NOW account deposits) and all loans other than "personal, family, or household loans" (including money market instruments). The amended regulation would have had the practical effect of extending the Act to an expanded universe of depository and lending institutions, along with its prohibition against combinations of banking and commercial enterprise and against interstate bank acquisitions that violate state law.

Although the Board's action generated intense controversy, it had a perfectly plausible legal basis. The statutory terms at issue were undefined and the Board had express statutory power to "issue such regulations and orders as may be necessary to enable it to administer and carry out the purposes of this [Act] and prevent evasions thereof."⁵ The Supreme Court nonetheless overturned the Board's regulation and held that the Board lacked power to narrow the "nonbank bank loophole" through such regulatory definitions.

In rejecting the Board's view that NOW deposits could be treated as the equivalent of demand deposits because they are indistinguishable in modern banking practice, the Court stated that "[i]nstitutions offering NOW accounts do not give the depositor a legal right to withdraw on demand; rather, the institution itself retains the ultimate legal right to require advance notice of withdrawal."⁶ The Court did not explain, however, why the Board erred when it concluded that depositors possess a "legal right" to withdraw NOW deposits "on demand" unless a bank actually invokes its privilege of receiving advance notice — a privilege that, in actual practice, is never exercised by depository institutions. The Board had, in short, advanced a rational argument for construing the term "demand deposit" broadly to encompass all checking accounts, which the Supreme Court failed to credit.⁷

The Court made even quicker work of the Board's contention that purchasing money market instruments, such as commercial paper, constituted a form of commercial lending. The Court stated that "money market transactions do not fall within the commonly accepted definition of 'commercial loans.'" The Court simply disagreed with the contrary judgment rendered by the Board.⁸

Finally, the Supreme Court rejected the Board's assertion that its regulation was necessary to prevent evasion of the purposes of the Bank Holding Company Act through widespread exploitation of the "nonbank bank loophole." The Court declared:

The "plain purpose" of legislation is determined in the first instance with reference to the plain language of the statute itself . . . . Application of "broad purposes" of legislation at the expense of specific provisions ignores the complexity of the problems Congress is called upon to address and the dynamics of legislative action. Congress may be unanimous in its intent to stamp out some vague social or economic evil; however, because its Members may differ sharply on the means for effectuating that intent, the final language of the legislation may reflect hard fought compromises. Invocation of the "plain purpose" of legislation at the expense of the terms of the statute itself takes no account of the processes of compromise and, in the end, prevents the effectuation of Congressional intent.

In view of the Board's express authority to define statutory terms and prevent evasion of statutory policies, and in view of the reasonable effort the Board had made to reconcile its definitions with the statutory terminology, the decision in Dimension is surprising. At least one commentator has branded the decision as a specimen of "judicial activism."⁹ Within the context of the decision-making process previously outlined, however, the decision of the Court becomes comprehensible.

As noted above, the Court does not possess independent expertise on banking issues. Although it must make final pronouncements, it relies heavily on the expertise of the bank regulators for the substance of those pronouncements. In Dimension, the dispositive factor was that the Treasury Department, supported by the Solicitor General, took the extraordinary step of filing an amicus curiae brief opposing the Board's position. That brief asserted that the Board's decision intruded upon the jurisdiction of other bank regulators that favored different policies — principally, the Comptroller of the Currency and the FDIC — and upset understandings prevalent throughout the industry. It was the Board, in other words, that had rocked the regulatory boat.¹⁰ Thus, in the all-important process of identifying the expert regulator entitled to deference, the Supreme Court was swayed by the combined views of the rest of the bank regulatory community and the Department of Justice, which served as a "check" on the analysis of the Board.

Why should the amicus curiae brief submitted by the Solicitor General and the Treasury Department have exercised such a potent influence in Dimension? Several answers can be offered. In the first place, the Supreme Court has traditionally viewed the Solicitor General as an accurate and impartial source of legal advice when he speaks as amicus curiae. As the nation's most frequent litigant in the Supreme Court, the Solicitor General has a large stake in tendering correct legal advice the Court can rely upon. Accordingly, when the Solicitor General takes the extraordinary step of disagreeing with one of his client agencies in the Supreme Court, that necessarily casts substantial doubt on the position advocated by that agency. Viewed in broader political terms, the Solicitor General's screening of the legal theories asserted by federal administrative agencies provides important perspective to the Justices in assessing complex legal arguments — and their real-world implications — emanating from an unelected but powerful component of the federal bureaucracy. The Solicitor General speaks with special persuasiveness, moreover, when he speaks on behalf of other expert agencies as well as the Department of Justice. In Dimension, the Solicitor General was advocating the views of other bank regulators who were entitled to judicial deference in their own right.

Although Dimension was a victory for the Solicitor General and the Treasury Department, that victory was clearly an uncomfortable one for the bank regulatory community. Inviting the Supreme Court to withhold deference from the agency primarily charged with responsibility for enforcing a federal statute is a risky business. That risk materialized in the sharply divided votes in FDIC v. Philadelphia Gear Corp."¹¹, handed down shortly after Dimension. The question in Philadelphia Gear was whether the nation's deposit insurance fund should be extended to standby letters of credit backed by contingent promissory notes. Even though the FDIC had never regarded such arrangements as falling within the deposit insurance scheme, and even though inclusion of them would have seriously adverse practical effects, the applicable federal statute¹² appeared unambiguously to embrace them:

The term "deposit" means . . . . [t]he unpaid balance of money or its equivalent received or held by a bank in the usual course of business . . . . or which is evidenced by . . . . a letter of credit. . . . on which the bank is primarily liable: Provided, that, without limiting the generality of the term "money or its equivalent," any such account or instrument must be regarded as evidencing the receipt of the equivalent of money when credited or issued in exchange. . . . for a promissory note upon which the person obtaining any such credit or instrument is primarily or secondarily liable.

The Supreme Court did not question that the literal language of the statute encompassed a standby letter of credit secured by a contingent promissory note. And it cited no legislative history indicating that the statute should not be taken at face value. Nevertheless, the majority opinion accepted the FDIC's administrative interpretation and looked beyond the literal statutory language, reasoning that in appropriate cases, courts may conclude "that Congress did not intend words of common meaning to have their literal effect." Significantly, the Court endorsed the FDIC's administrative construction even though "the FDIC does not argue that it has an express regulation excluding a standby letter of credit backed by a contingent promissory note from the definition of 'deposit.'"

This remarkably generous application of the doctrine of judicial deference to trump unambiguous statutory language did not escape the three Justices who dissented in Philadelphia Gear:

There is considerable common sense backing the Court's opinion. The standby letter of credit in this case differs considerably from the savings and checking accounts that come most readily to mind when one speaks of an insured deposit. Nevertheless, to reach this common sense result, the Court must read qualifications into the statute that do not appear there. We recently recognized that even when the ingenuity of businessmen creates transactions and corporate forms that were perhaps not contemplated by Congress, the courts must enforce the statutes that Congress has enacted. See Board of Governors, FRS v. Dimension Financial Corp., 474 U.S. ___. Congress unmistakably provided that letters of credit backed by promissory notes constitute "deposits" for purposes of the federal deposit insurance program, and the Court's attempt to draw distinctions between different types of letter of credit transactions forces it to ignore both the statute and some settled principles of commercial law. Here, as in Dimension, the inflexibility of the statute as applied to modern financial transactions is a matter for Congress, not the FDIC or this court, to remedy.

How was it possible for the Supreme Court to hand down its decisions in Philadelphia Gear and Dimension within a few months of each other and reach such divergent results on the basis of such utterly discrepant reasoning? In Dimension, the Court insisted on a literal — indeed, a rigidly narrow — reading of the statute and eschewed a flexible construction resting on the expert agency's view of statutory purpose. In Philadelphia Gear, the Court had no hesitation in adopting a construction that was far from literal, deferring to agency arguments based on general legislative purpose and administrative necessity. Ironically, the agency that received judicial deference (the FDIC) had promulgated no regulation on the subject, whereas the agency that was denied judicial deference (the Board) had adopted a specific regulation following formal rule-making proceedings pursuant to a broad grant of statutory authority. This paradoxical difference in outcome can best be explained by the fact that the FDIC stood unopposed by its sister banking agencies and enjoyed the support of the Solicitor General in propounding its version of banking policy. The Supreme Court simply deferred to the unanimous views of the regulators in Philadelphia Gear, while siding with the majority of the regulators in Dimension.

The Supreme Court's most recent ruling on banking law, Clarke v. SIA,¹³ provides a third illustration of its current approach to banking law issues. In Clarke, the Court held that discount brokerage offices established by banks did not constitute "branches" subject to the geographical limitations prescribed in the McFadden Act. In its opinion, the Court spent the lion's share of its analysis discussing the issue of "standing to sue." It rejected the Comptroller's assertion that the SIA lacked standing to invoke the McFadden Act because it was not within the "zone of interests" intended to be protected by the Act. In so ruling, the Court held that Congress intended the Administrative Procedure Act to be a "generous" grant of standing to seek judicial review. The Act must accordingly be construed "not grudgingly but as serving a broadly remedial purpose." The APA is not, the Court insisted, an "especially demanding" provision: it opens the door to judicial review unless the complaining party asserts interests that "are so marginally related to or inconsistent with the purposes implicit in the statute that it cannot reasonably be assumed that Congress intended to permit the suit."

What this avalanche of permissive rhetoric will mean in actual practice remains to be seen; but it would appear to allow any party claiming to vindicate the general purposes of a federal banking statute and asserting direct competitive injury to invoke the APA judicial review mechanism. In rejecting the narrower interpretation advocated by the government, the Supreme Court simultaneously expanded its own jurisdiction to decide banking cases on the merits and to serve as umpire sooner rather than later.¹⁴

While the Supreme Court disagreed with the government on the authority of the federal courts to review the decisions of bank regulators, the Court nonetheless unhesitatingly endorsed the government's views on the merits. As in Philadelphia Gear, the government spoke with a unanimous voice. There was no discordance of opinion, and the Court showed no inclination to embark on a law-making venture of its own. In accepting without reservation the Comptroller's generalized assertion that only "core banking functions" fall within the geographical limitations of the McFadden Act — and not tangential functions such as securities brokerage — the Court laid emphasis on the following passage from Investment Company Institute v. Camp:

It is settled that courts should give great weight to any reasonable construction of a regulatory statute adopted by the agency charged wit the enforcement of that statute. The Comptroller of the Currency is charged with the enforcement of the banking laws to an extent that warrants the invocation of this principle with respect to his deliberative conclusions as to the meaning of these laws."¹⁵

This was, of course, a revisionist view of Camp. Camp is the leading Supreme Court decision rejecting an administrative ruling in the field of banking. In the Clarke case, however, Camp stood for the proposition that "any" reasonable construction of the law by a banking agency must receive judicial deference.¹⁶

In sum, the harvest of Supreme Court decisions in 1986-87 has been an important one. Three times in approximately one year the Court granted certiorari to resolve issues of general concern to the banking community. The Court defended its own authority to provide uniform, nationally binding interpretations of federal banking law in an era of congressional paralysis. On the merits, it deferred heavily to the expert administrators, breaking stride only when they disagreed among themselves and thereby gave the Court alternative "expert" perspectives to choose from.

The principles announced by the Supreme Court have reverberated in several recent rulings of the courts of appeals, producing some of the most far-reaching decisions on banking law to be handed down in many years. Most of these appellate opinions have come from the D.C. Circuit, long a preeminent tribunal in the field of administrative law, and a court that is staffed today with many conservative jurists committed to the concept of "judicial restraint." While the D.C. Circuit has often been viewed as an interventionist court, particularly in the field of banking law, its most recent rulings show a decidedly different tendency.

The Dimension case teaches that the plain language of a statute prevails over its plain policy, while the Clarke case teaches that the responsible administrative agency is empowered to interpret ambiguous statutory language and fill in statutory gaps. The D.C. Circuit combined these principles in 1986 and 1987 to produce a series of decisions highly favorable to the banking industry on the ability of commercial banks to place commercial paper for customers, to market commingled IRA funds, and to engage in brokerage activities without supervision from the SEC. In addition, FDIC-insured banks that are not members of the Federal Reserve System won the right to operate securities affiliates and subsidiaries within guidelines laid down by the FDIC. Perhaps the only comfort the appellate courts gave the securities industry was a continuing recognition of its right to bring suit- a dubious privilege in view of the trend of decisions.

The leading case is Judge Bork's opinion in SIA v. Board of Governors,¹⁷ which held, on remand from the Supreme Court's ruling that commercial paper constitutes a "security" subject to the Glass-Steagall Act (SIA v. Board of Governors),¹⁸ that a bank may nonetheless place commercial paper issued by third parties in private placement transactions. As required by Dimension, the court found that the Board's ruling permitting this activity comported with the literal language of section 16 of the Glass-Steagall Act, even though its terms were "decidedly ambiguous" in various respects. The theme of deference to the bank regulator ran through the opinion as its dominant refrain.

In concluding that private placements of commercial paper comply with the Glass-Steagall Act, the court began by observing that it owed the agency determination "the greatest deference." It explained past Supreme Court decisions- including the Supreme Court's decision in ICI v. Camp,¹⁹ which had refused to defer to the bank regulator- as cases in which the agency had acted without issuing an adequate contemporaneous opinion. Those cases, therefore, had no bearing in a situation in which the agency "comprehensively addressed the language, history, and purposes of the Act."

The court quickly dispatched the SIA's argument that the securities activity at issue presented many of the "subtle hazards" that Congress meant to avert by passing the Glass-Steagall Act. Initially, the court questioned whether the "subtle hazards" analysis, originally utilized in Camp, could survive the Supreme Court's decision in Dimension, which stressed the primacy of "plain language" and dismissed arguments based on "plain purpose." And when the court grudgingly reviewed the "subtle hazards" arguments asserted by the SIA, it found them insufficient to overturn the Board's ruling. It explained that "[a]lthough the Act may seek to prevent even 'potential' conflicts, . . . this does not foreclose the Board from deciding that the realities of a situation make even the potential for conflict substantially unlikely." By this reasoning, even the indisputable presence of some "subtle hazards" raised a question for the discretion of the agency:

In a second important rule under the Glass-Steagall Act, ICI v. FDIC,²¹ the D.C. Circuit sustained an FDIC regulation permitting FDIC-insured non-member banks to establish affiliates and subsidiaries that engage in the business of issuing, underwriting, or distributing securities, subject to FDIC regulatory standards. In so ruling, the Court held that section 21 of the Glass-Steagall Act, which forbids the union of the business of accepting deposits and the business of underwriting securities, is simply inapplicable to such securities affiliates. Consistent with the Supreme Court's decision in Dimension, the court of appeals looked to the literal language of the statute and rejected arguments of "policy":

The securities industry received a third rebuff under the Glass-Steagall Act in a trilogy of court of appeals rulings upholding the power of national banks to commingle IRA funds in trust vehicles marketed to the public. Once again, the D.C. Circuit handed down the principal decision.²³ In sustaining the establishment of a bank-operated collective trust for IRA funds, the D.C. Circuit acknowledged the close similarity between the trust and the commingled managing agency account disapproved by the Supreme Court in Camp. But it deferred to the Comptroller's determination that the existence of a true fiduciary relationship removed the case from the holding in Camp. In contrast to Camp, the D.C. Circuit noted, the Comptroller had provided a reasoned decision that warranted judicial deference, and it observed that "Camp cannot fairly be read to prohibit any financial service that some actors in the marketplace view as functionally similar to a mutual fund." The court also stressed that "assessment of the dangers foreseen by the [ICI] would involve judgments about complex economic phenomena related to the banking industry. Congress has charged the Comptroller with making those judgments in the first instance."²⁴ The Second and Ninth Circuits reached identical results in ICI v. Clarke²⁵ and ICI v. Clarke,²⁶ and the Supreme Court has since denied certiorari.²⁷

One additional decision, handed down by the D.C. Circuit in 1986, warrants mention. This is American Bankers Association v. SEC,²⁸ which invalidated SEC rule 3b-9, a rule that purported to subject banks engaged in the discount brokerage business to SEC registration and supervision. Rejecting the SEC's "functional regulation" approach, the D.C. Circuit applied the Supreme Court's Dimension decision and held that the literal language of the Exchange Act excluded banks categorically from the definition of "broker." As in Dimension, the court perceived the SEC's arguments as conflicting with unambiguous statutory language; and as in Dimension, the court withheld judicial deference because the agency's action appeared to intrude upon the regulatory responsibilities of other agencies. The court concluded its opinion on the following note:

While the banking industry achieved these major victories in the D.C. Circuit, other circuits have also responded favorably to similar arguments from the industry and its supervisors urging less regulatory restraint and greater competition. The most recent example is the Fifth Circuit's ruling in Mississippi Department of Banking and Consumer Finance v. Clarke,³⁰ holding that national banks may "branch" under the McFadden Act to the same extent as state-chartered savings and loan associations. The Comptroller had found that Mississippi savings and loan associations were the equivalent of "state banks" under the McFadden Act because those associations had, as a practical matter, assumed most of the functions of state banks through their expanded range of activities. The Comptroller ruled that national banks could accordingly branch to the same extent as the savings and loan associations - i.e., statewide. In affirming the order of the Comptroller, the Fifth Circuit found that he had properly applied a federal definition of banking and eschewed state-law labels, looking to the actual functions of the institutions in question and to the federal policy of "competitive equality." In deferring to the administrative interpretation, the court observed that the Comptroller has "demonstrated considerable expertise in balancing national and state interests in this constantly evolving area."

Like the other appellate decisions summarized above, the Fifth Circuit's ruling on branch banking has major practical importance. In the words of Richard Fitzgerald, Chief Counsel to the Comptroller:

A number of lessons emerge from these recent cases:

1. The Supreme Court has become a key participant in the bank regulatory system. The number of banking cases reviewed on writ of certiorari is rising and the Court has generously construed the provisions of the Administrative Procedure Act conferring standing to sue on litigants seeking to raise banking law issues. While Congress labors unsuccessfully to prescribe new law in its field, the Supreme Court has emerged as a lawgiver willing to grapple with controversies of fundamental and industry-wide importance. Significantly, the Supreme Court has granted review in a substantial number of banking cases, even when there is no conflict among the circuits, based on a demonstration of general public importance in the petition for certiorari and the reasonable probability of an error in the decision below.
2. Although the Supreme Court has responded to the need for authoritative and uniform rulings on important banking law issues, it does not view itself as a maker of policy. In light of the complexity of the underlying issues, this is hardly surprising. Accordingly, arguments addressed to the Court must be framed in terms of the literal language of the relevant statutes, the overall statutory structure, pertinent legislative history, and past administrative constructions. The Court is not inclined to extrapolate conclusions from general "policies" or "concerns" embodied in federal legislation. As stated in Dimension, the statutory language that crystallizes from those legislative concerns is the dispositive consideration. Policy arguments, such as the "subtle hazards" argument, would appear to be on the wane, and precedents such as Camp would appear to be under fire.
3. The federal courts of appeals, and particularly the D.C. Circuit, have exhibited at least as much judicial "restraint" as the Supreme Court. This phenomenon may reflect the large number of Reagan appointees on the courts of appeals, but it is by no means limited to those judges. The views of the regulators have received very substantial deference from everyone. Past Supreme Court decisions disagreeing with regulatory judgments have been narrowly construed, mainly on the ground that the regulators in those cases did not do an adequate job of explicating the literal language of the statute, its structure, and its legislative history. An agency decision that rests on a reasoned consideration of these factors appears to be approaching the point of invulnerability, if there is no intra-governmental conflict of the kind evident in Dimension.
4. These developments underscore the critical importance of persuading the appropriate regulatory agency of the correctness of the position to be advocated in court. In cases in which the agency is a party, its views will be formulated at the outset. But in private litigation the federal banking agencies may also appear as amicus curiae, and the value of their views can be equally decisive. When a case reaches the Supreme Court, it is essential to approach the Solicitor General's office as well as the bank regulatory agencies. Communications concerning amicus curiae support are typically made in the form of a written memorandum followed by a telephone conference or personal visit.
5. When the "deference" doctrine cuts against the litigating interests of one's client, it is necessary to consider the possibility that other regulatory authorities, to whom deference is also owed, may support a different position. The Dimension case illustrates that possibility. In other instances, state banking regulators may provide amicus curiae support that receives judicial deference.³²

The cases reviewed above have arisen in regulatory contexts in which federal administrators have exercised a continuing supervisory role that permitted them to guide judicial decisions in a direction consistent with federal banking policy. The hallmark of these cases is deference to the expert administrative agency. Recent judicial decisions considering the scope of the civil liability of depository institutions evidence a contrary tendency. These decisions have been haphazard and, in many cases, inconsistent with federal regulatory goals. The uncertainty and financial burden generated by these cases should be of substantial concern to federal regulatory agencies. They are an inviting subject for the steadying influence that administrative agencies can provide, both through amicus curiae participation in civil litigation and through issuance of preemptive regulations.³³

The civil liability of banks is a multi-faceted subject, but it has shown many of the characteristics of the explosion in tort liability prevalent in other sectors of commerce. Customers have sued their bankers alleging negligent processing of loans, overcharging of interest, refusal to lend money, interference with business decisions, bad faith acceleration of loan obligations, and a host of other grievances.³⁴ While most such cases represent routine civil disputes turning on relatively well-established contract and negligence principles some recent suits have taken on a different character and raise serious federal policy concerns.

A recent case in point is Perdue v. Crocker National Bank,³⁵ in which the California Supreme Court sustained a class-action suit brought against a national bank on the theory that a $6 charge for processing checks returned for insufficient funds (NSF checks) was "so excessive as to be unconscionable." The court ruled that "the market price set by an oligopoly should not be immune from scrutiny," and it held that courts (and juries) applying general common law principles should "consider not only the market price, but also the cost of the goods or services to the seller." Even though the Comptroller of the Currency had declared that "a national bank may establish any deposit account service charge . . . notwithstanding any state laws which prohibit the charge assessed or limit or restrict the amount of that charge,"³⁶ the California Supreme Court simply disagreed with the Comptroller's regulation and declined to recognize the principle of federal preemption. Subsequently, in Best v. United States National Bank of Oregon,³⁷ the court also declined to apply the Comptroller's regulation and upheld a class-action suit attacking a $5 service charge for checks returned for insufficient funds.

These class-action suits, seeking to impose a retroactive form of price regulation on federally regulated depository institutions, have proliferated since the decision in Perdue. According to the jurisdictional statement filed in the Supreme Court in Perdue, at least twenty-eight such suits have already been filed in California. Similar class-action suits have been filed in California. Similar class-action suits have been filed to challenge the level of other fees charged by depository institutions.³⁸

These troublesome class-action proceedings are not merely a phenomenon of state law. The civil liability explosion has also been filed by the federal RICO statute, which authorizes treble damages based on multiple acts of "racketeering." In the landmark cases of Sedima S.P.R.L. v. Imrex Co.,³⁹ and American National Bank & Trust Co. v. Haroco, Inc., ⁴⁰ the Supreme Court held that the treble-damage RICO remedy was available even though the defendants had not been convicted of any crime and the plaintiff had not suffered any form of specialized "racketeering injury."

The Haroco complaint charged that the defendant bank had committed multiple acts of mail fraud by misleading its borrowers concerning the applicability of its "prime" lending rate. Since Haroco, RICO claims have appeared in a large number of "prime rate" class-action suits and in a host of other controversies between lenders and their customers. The Reagan Administration has urged Congress to curtail the scope of RICO to bar its application in such garden-variety civil disputes, but Congress has failed to amend the statute. At present, RICO reform advocates expect at best only a modest overhaul of RICO, assuming there is any action from Congress at all.

Civil suits such as these, aimed at federally insured and regulated depository institutions, present problems of sufficient magnitude to warrant the attention of the bank regulatory agencies. In these civil liability cases, as in the regulatory cases previously summarized, the expert agency's guidance could serve a vitally important purpose in rationalizing the course of judicial interpretation.

In cases such as Perdue, the Comptroller should respond by strengthening his preemption regulation through application of APA procedures necessary to make it a legislative rule. The California Supreme Court refused to apply the Comptroller's regulation in the belief that it constituted a mere interpretative release. But since 1980, the Comptroller has possessed express legislative rule-making power by virtue of 12 U.S.C. 93a, and legislative rules plainly suffice to preempt state common law doctrines, as applied to fees charged by lenders.⁴¹ Preemptive federal regulations can be backed up through amicus curiae participation in appellate proceedings that raise conflicting common law principles.

The federal bank regulators cannot, of course, "preempt" erroneous principles evolved by the federal courts under RICO. But they can, with the assistance of the Department of Justice, file amicus curiae briefs in select RICO suits that exemplify the most glaring abuses of the statute- an opportunity that was missed in Sedima and Haroco. Such amicus curiae filings are not uncommon in private suits arising under other federal statutes (such as the antitrust laws) that are enforced by the Department of Justice, and they could serve a valuable purpose. For example, the Supreme Court's decision in Sedima invited the lower federal courts to apply a more stringent "pattern of racketeering activity" requirement to limit the treble damage action to cases of true criminal behavior. And a number of lower federal courts have acted on that lead.⁴² Limiting doctrines such as these, recognized by some federal courts but not by others, could be advocated effectively in amicus curiae briefs sponsored by both the bank regulatory agencies and the Department of Justice.

In this way, the resurgent doctrine of "deference to the administrative agency" could be invoked to serve the ultimate goal of securing a sound financial services industry as the litigation process continues to "muddle through."

* STEPHEN M. SHAPIRO is a partner at Mayer, Brown & Platt in Chicago, Ill. He served formerly as Deputy Solicitor General of the United States and was responsible for supervising the Supreme Court litigation of the federal bank regulatory agencies. MARY C. FONTAINE and EDWARD S. BEST are associates at Mayer, Brown & Platt.

1This phenomenon appears from a review of the major cases decided by the Supreme Court during the tenure of Chief Justice Burger. See First National Bank v. Dickinson, 396 U.S. 122 (1969) (branch banking); Association of Data Processors v. Camp, 397 U.S. 150 (1970) (standing to sue); ICI v. Camp, 401 U.S. 617 (1971) (Glass-Steagall Act); Camp v. Pitts, 411 U.S. 138 (1973) (chartering authority); California Bankers Association v. Schultz, 416 U.S. 21 (1974) (Bank Secrecy Act); Citizens & Southern National Bank v. Bougas, 434 U.S. 35 (1977) (venue in suits against national banks); Marquette National Bank v. First of Omaha Service Corp., 439 U.S. 299 (1978) (credit card interest rates); Board of Governors v. First Lincolnwood Corp., 439 U.S. 234 (1978) (bank capitalization); Lewis v. BT Investment Managers, 447 U.S. 27 (1980) (interstate expansion of holding company affiliates); Board of Governors v. ICI, 450 U.S. 46 (1981) (Glass-Steagall and Bank Holding Company Acts); Fidelity Federal Savings & Loan Assn. v. de la Cuesta, 458 U.S. 141 (1982) (due-on-sale clauses); Williams v. United States, 458 U.S. 279 (1982) (check kiting); Bankamerica Corp. v. United States, 462 U.S. 122 (1983) (interlocking directorates); SIA v. Board of Governors, 468 U.S. 137 (1984) (Glass-Steagall Act); SIA v. Board of Governors, 468 U.S. 207 (1984) (Glass-Steagall and Bank Holding Company Acts); Northeast Bancorp v. Board of Governors, 472 U.S. 159 (1985) (regional banking compacts); Board of Governors v. Dimension Financial Corp., ___ U.S. ___, 106 S.Ct. 681 (1986) (nonbank banks); FDIC v. Philadelphia Gear Corp., ___ U.S. ___, 106 S.Ct. 1931 (1986) (FDIC insurance); SIA v. Clarke, ___ U.S. ___, 107 S.Ct. 750 (1987) (branch banking); see also Langley v. FDIC, 55 U.S.L.W. 3472, certiorari granted January 12, 1987 (side-agreements in FDIC receiverships).

2See W. H. McCree, Jr., The Solicitor General and His Client, 59 Wash. U.L.Q. 337 (1981), for a description of the operation of the Solicitor General's office.

3In the 1985 term, the Solicitor General's office participated in 62% of the cases that were argued before the Supreme Court, either as a party or as an amicus curiae. The Court agreed with the Solicitor General's position in 71% of the cases in which he participated. When the Supreme Court asks for the Solicitor General's views on the question whether certiorari should be granted in a private case, the level of agreement is approximately the same. These figures fluctuate from year to year, but the cited statistics are typical.

4___ U.S. ___, 106 S. Ct. 681 (1986).

512 U.S.C. 1844(b).

6___ U.S. ___, 106 S. Ct. 686.

7As the Board explained:

Reply Brief at 7.

8The Board reasoned that

Reply Brief at 16. The Board cited a number of banking law treatises that supported its analysis.

9B. Fein, Agency Discretion Unwisely Limited in Dimension, W.L.T. at 10 (Feb. 10, 1986).

10Amicus curiae brief at 1-5.

11___ U.S. ___, 106 S. Ct. 1931 (1986).

12 12 U.S.C. 1813 (1)(1).

13___ U.S. ___, 107 S. Ct. 750 (1987).

14In many other contexts, the Court has strictly construed rules of standing, which create "a time lag between [government action] and adjudication, as well as shifting the line of vision." A. Bickel, The Least Dangerous Branch 116 (1962). See, e.g., Valley Forge Christian College v. Americans United for Separation of Church and State 454 U.S. 464 (1982) (summarizing standing principles).

15401 U.S. 617, 626-27 (1971).

16107 S. Ct. 759-60.

17807 F.2d 1052 (D.C. Cir. 1986).

18468 U.S. 137 (1984).

19401 U.S. 617 (1971).

20Id. at 1069.

21___ F.2d ___ (D.C. Cir. Jan. 16, 1987).

22Slip op. 19-20.

23ICI v. Conover, 790 F.2d 925 (D.C. Cir. 1986).

24790 F.2d at 938.

25793 F.2d 220 (9th Cir. 1986).

26789 F.2d 175 (2d Cir. 1986).

27107 S. Ct. 421-22 (1986).

28804 F.2d 739 (D.C. Cir. 1986), reh. den. (Jan. 12, 1987).

29804 F.2d at 755.

30___ F.2d ___ (5th Cir. Feb. 9, 1987).

31American Banker, Feb. 12, 1987, at 2.

32See, e.g., Northeast Bancorp v. Board of Governors, 472 U.S. 159 (1985) (sustaining the constitutionality of regional banking compacts).

33See Shapiro, The Lawgiver';s Faltering Hand: Recent Development Under RICO, the Bank Bribery Act, and the Depository Institutions Deregulation and Monetary Control Act, U.S. League of Savings Institutions, Sept. 1986, Legal Bulletin 213, discussing amicus curiae participation as a means to mitigate litigation error.

34See Flick and Replansky, Liability of Banks to Their Borrowers: Pitfalls and Protections, Banking L.J. 220 (May-June 1986) (collecting recent cases).

35702 P.2d 503 (Cal. 1985), appeal dismissed for want of jurisdiction, 106 S. Ct. 1170 (1986).

3612 C.F.R. 7.8000(c).

37714 P.2d 1049, 1056 (Or. App. 1986), review granted, 719 P.2d 873 (Or. 1986).

38The Supreme Court dismissed the appeal in Perdue for want of a final judgment as required to predicate jurisidiction under 28 U.S.C. 1257. A dismissal on such grounds does not constitute a reflection of the Court's view of the merits of the case. In light of the substantial preemption issue presented in Perdue and its progeny, Supreme Court review is a distinct possibility for the future.

39___ U.S. ___, 105 S. Ct. 3275 (1985).

40___ U.S. ___, 105 S. Ct. 3291 (1985).

41See Conference of State Bank Supervisors v. Conover, 710 F.2d 878, 881-85 (D.C. Cir. 1983) ("It bears repeating that the entire legislative scheme is one that contemplates the operation of state law only in the absence of federal law and where such state law does not conflict with the policies of the National Banking Act. So long as he does not authorize activities that run afoul of federal laws . . . the Comptroller has the power to preempt inconsistent state law"); accord, Fidelity Federal Savings & Loan Association v. de la Cuesta, 458 U.S. 141 (1982) (preempting California common law and observing that "[f]ederal regulations have no less preemptive effect than federal statutes").

42See, e.g., Grant v. Union Bank, 629 F. Supp. 570 (D. Utah 1986), finding no "pattern of racketeering activity" in a "prime rate" case.

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