FRS v. Dimension Financial Corp.
474 U.S. 361 (1986)

Annotate this Case

U.S. Supreme Court

FRS v. Dimension Financial Corp., 474 U.S. 361 (1986)

Board of Governors of the Federal Reserve System

v. Dimension Financial Corp.

No. 84-1274

Argued November 4, 1985

Decided January 22, 1986

474 U.S. 361

Syllabus

Section 2(c) of the Bank Holding Company Act of 1956 defines "bank" as any institution "which (1) accepts deposits that the depositor has a legal right to withdraw on demand, and (2) engages in the business of making commercial loans." In response to the increase in the number of arguably uncovered "nonbank banks" -- such as institutions offering customers "NOW" (negotiable order of withdrawal) accounts, which function like traditional checking accounts but are subject to a seldom exercised right of the bank to require prior notice of withdrawal, and institutions offering "commercial loans substitutes" such as certificates of deposit and commercial paper -- the Federal Reserve Board amended its "Regulation Y" to redefine a "bank" as any institution that (1) accepts deposits that "as a matter of practice" are payable on demand and (2) engages in the business of making "any loan other than a loan to an individual for personal, family, household, or charitable purposes," including

"the purchase of retail installment loans or commercial paper, certificates of deposit, bankers' acceptances, and similar money market instruments."

In consolidated cases challenging the amended Regulation Y, the Court of Appeals set aside the regulation.

Held: The Board did not act within its statutory authority in defining "banks" as it did. Pp. 474 U. S. 366-375.

(a) The Board's definition of "demand deposit" is not an accurate or reasonable interpretation of § 2(c) of the Act. An institution that offers NOW accounts -- even if it engages in commercial lending -- is not a "bank" for the purposes of the Act because the requirement of prior notice of withdrawal withholds from the depositor any "legal right" to withdraw on demand. No amount of agency expertise can make the words "legal right" contained in § 2(c) mean a right to do something "as a matter of practice." Pp. 474 U. S. 367-368.

(b) Nor is the Board's definition of "commercial loan" a reasonable interpretation of § 2(c), under which an institution, even if it accepts deposits that the depositor has a legal right to withdraw on demand, is not a bank unless it "engages in the business of making commercial loans." The term "commercial loan" is used in the financial community

Page 474 U. S. 362

to describe the direct loan from a bank to a business customer for the purpose of providing funds needed by the customer in its business. Money market transactions, which the Board characterizes as "commercial loan substitutes," do not fall within the commonly accepted definition of "commercial loans." Nothing in the statutory language or the legislative history indicates that the term "commercial loan" meant anything different from its accepted ordinary commercial usage. Pp. 474 U. S. 368-373.

(c) The Board's new definition cannot be supported on the asserted basis that it falls within the Act's "plain purpose" of regulating institutions "functionally equivalent" to banks. The "plain purpose" of legislation is determined in the first instance with reference to the plain language of the statute itself. Here, rather than defining "bank" as an institution that offers the functional equivalent of banking services, Congress defined with specificity certain transactions that constitute banking subject to regulation. The statute may be imperfect, but the Board has no power to correct flaws that it perceives in the statute it is empowered to administer. Its rulemaking power is limited to adopting regulations to carry into effect Congress' will as expressed in the statute. Pp. 474 U. S. 373-375.

744 F.2d 1402, affirmed.

BURGER, C.J., delivered the opinion of the Court, in which all other Members joined, except WHITE, J., who took no part in the consideration or decision of the case.

Page 474 U. S. 363

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