BankAmerica Corp. (BAC), a bank holding company, applied to the
Federal Reserve Board (Board) for approval under § 4(c)(8) of the
Bank Holding Company Act of 1956 (BHC Act) to acquire a nonbanking
affiliate corporation (Schwab) engaged in retail securities
brokerage. Section 4(c)(8) authorizes bank holding companies, with
prior Board approval, to acquire stock in other companies that are
engaged in nonbanking activities that the Board determines are "so
closely related to banking . . . as to be a proper incident
thereto." Petitioner, a national trade association of securities
brokers, opposed BAC's application and participated in the
administrative hearings. The Board authorized BAC to acquire
Schwab, holding that a securities business, such as Schwab, that is
essentially confined to the purchase and sale of securities for the
account of third parties, without providing investment advice to
the purchaser or seller, is "closely related" to banking within the
meaning of § 4(c)(8). The Board also concluded that the acquisition
would not violate § 20 of the Glass-Steagall Act, which prohibits a
bank (BAC's banking subsidiary here) from being affiliated with
companies "engaged principally in the issue, flotation,
underwriting, public sale, or distribution" of securities. On
petitioner's application for judicial review, the Court of Appeals
affirmed the Board's order.
Held: The Board has authority under § 4(c)(8) of the
BHC Act to authorize a bank holding company to acquire a nonbanking
affiliate engaged principally in retail securities brokerage. Pp.
468 U. S.
214-221.
(a) The Board's determination that a securities brokerage
business that is essentially limited to the purchase and sale of
securities for the account of customers, and without provision of
investment advice to purchaser or seller, is "closely related" to
banking, is consistent with the language and policies of the BHC
Act. There is no express requirement in § 4(c)(8) that a proposed
activity must facilitate other banking operations before it may be
found to be "closely related" to banking. The record substantially
supports the Board's factual findings that Schwab's brokerage
services were very similar to the types of services that are
Page 468 U. S. 208
generally provided by banks, and that banks are particularly
well equipped to provide such services. Pp.
468 U. S.
214-216.
(b) The Board's determination that a bank holding company's
acquisition of such a brokerage business as Schwab's is not
prohibited by § 20 of the Glass-Steagall Act is reasonable, and
supported by the statute's plain language and legislative history,
and deserves the deference normally accorded the Board's
construction of the banking laws. The term "public sale" in § 20
should be read to refer to the underwriting activity described by
the terms that surround it, and to exclude the type of retail
brokerage business in which Schwab principally was engaged. This
reading of the statute is further supported by the Board's similar
longstanding interpretation of identical language found in another
provision of the Glass-Steagall Act. Moreover, the legislative
history demonstrates that Congress enacted § 20 to prohibit the
affiliation of commercial banks with entities that are engaged
principally in activities such as underwriting. None of the hazards
of underwriting is implicated by Schwab's brokerage activities. Pp.
468 U. S.
216-221.
716 F.2d 92, affirmed.
POWELL, J., delivered the opinion for a unanimous Court.
JUSTICE POWELL delivered the opinion of the Court.
This case presents the question whether the Federal Reserve
Board has statutory authority under § 4(c)(8) of the Bank Holding
Company Act of 1956, 12 U.S.C. § 1843(c)(8), to authorize a bank
holding company to acquire a nonbanking affiliate engaged
principally in retail securities brokerage.
Page 468 U. S. 209
I
BankAmerica Corp. (BAC) is a bank holding company within the
meaning of the Bank Holding Company Act. [
Footnote 1] In March, 1982, BAC applied to the Federal
Reserve Board (Board) for approval under § 4(c)(8) of the Act to
acquire 100 percent of the voting shares of The Charles Schwab
Corp., a company that engages through its wholly owned subsidiary,
Charles Schwab & Co. (Schwab), in retail discount brokerage.
[
Footnote 2] The Board ordered
that formal public hearings be held before an Administrative Law
Judge (ALJ) to consider the application. The Securities Industry
Association (SIA), a national trade association of securities
brokers, and petitioner here, opposed BAC's application and
participated in those hearings. [
Footnote 3] After six days of hearings, the ALJ
recommended that BAC's application be approved. After reviewing the
evidentiary record, the Board adopted, with modifications, the
findings and conclusions of the ALJ and authorized BAC to acquire
Schwab. 69 Fed.Res.Bull. 105 (1983). SIA petitioned the Court of
Appeals for the Second Circuit for judicial review under 12 U.S.C.
§ 1848.
The Court of Appeals held that the Board had acted within its
statutory authority in authorizing BAC's acquisition of Schwab
under § 4(c)(8) of the BHC Act. The court accordingly affirmed the
Board's order. 716 F.2d 92 (1983). We granted SIA's petition for
certiorari, 465 U.S. 1004 (1984), and now affirm.
Page 468 U. S. 210
II
Section 4 of the Bank Holding Company Act (BHC Act) prohibits
the acquisition by bank holding companies of the voting shares of
nonbanking entities unless the acquisition is specifically
exempted. The principal exemption to that prohibition is found in §
4(c)(8). That provision authorizes bank holding companies, with
prior Board approval, to engage in nonbanking activities that the
Board determines are "so closely related to banking . . . as to be
a proper incident thereto." 12 U.S.C. § 1843(c)(8). [
Footnote 4]
Application of the § 4(c)(8) exception requires the Board to
make two separate determinations. First, the Board must determine
whether the proposed activity is "closely related" to banking.
[
Footnote 5] If it is, the
Board may amend its regulations to
Page 468 U. S. 211
include the activity as a permissible nonbanking activity.
[
Footnote 6] Next, the Board
must determine on a case-by-case basis whether allowing the
applicant bank holding company to engage in the activity reasonably
may be expected to produce public benefits that outweigh any
potential adverse effects. H.R.Conf.Rep. No. 91-1747, pp. 16-18
(1970). [
Footnote 7]
A
In this case, the Board held that the securities brokerage
services offered by Schwab were "closely related" to banking within
the meaning of § 4(c)(8). Relying on record evidence and its own
banking expertise, the Board articulated the ways in which the
brokerage activities provided by Schwab were similar to banking.
The Board found that banks currently offer, as an accommodation to
their customers, brokerage services that are virtually identical to
the services
Page 468 U. S. 212
offered by Schwab. 69 Fed.Res.Bull. at 107. [
Footnote 8] Moreover, the Board cited a 1977 study
by the Securities and Exchange Commission that found that
"bank trust department trading desks, at least at the largest
banks, perform the same functions, utilize the same execution
techniques, employ personnel with the same general training and
expertise, and use the same facilities . . . that brokers do."
Ibid. Finally, the Board concluded that the use by
banks of "sophisticated techniques and resources" to execute
purchase and sell orders for the account of their customers was
sufficiently widespread to justify a finding that banks generally
are equipped to offer the type of retail brokerage services
provided by Schwab.
Id. at 108. On the basis of these
findings, the Board held that a securities brokerage business that
is
"essentially confined to the purchase and sale of securities for
the account of third parties, and without the provision of
investment advice to the purchaser or seller"
is "closely related" to banking within the meaning of § 4(c)(8)
of the BHC Act.
Id. at 117. [
Footnote 9]
Page 468 U. S. 213
B
The Board next determined that the public benefits likely to
result from BAC's acquisition of Schwab outweighed the possible
adverse effects. Specifically, the Board identified as public
benefits the increased competition and the increased convenience
and efficiencies that the acquisition would bring to the retail
brokerage business.
Id. at 109-110. As to possible adverse
effects, the Board determined that the proposed acquisition would
not result in the undue concentration of resources, decreased
competition, or unfair competitive prices.
Id. at
110-114.
Finally, the Board concluded that BAC's acquisition of Schwab
was not prohibited by the Glass-Steagall Act. [
Footnote 10]
Id. at 114-116. The Board
observed that the proposed acquisition would make Schwab an
affiliate of BAC's banking subsidiary, and thus subject to the
provisions of the Glass-Steagall Act. It held, however, that Schwab
was "not engaged principally in any of the activities prohibited to
member bank affiliates by the Glass-Steagall Act," and thus
concluded that the acquisition was "consistent with the letter and
spirit of that act."
Id. at 114.
SIA challenges the Board's order in this case on two grounds.
First, it argues that the Board may not approve an activity as
"closely related" to banking unless it finds that the activity will
facilitate other banking operations. Second, it argues that § 20 of
the Glass-Steagall Act, 12 U.S.C. § 377, prohibits a bank holding
company from owning any entity that is engaged principally in
retail securities brokerage, and thus that the Board lacked
statutory authority under § 4(c)(8) to approve BAC's acquisition of
Schwab. [
Footnote 11]
Page 468 U. S. 214
III
A
There is no express requirement in § 4(c)(8) that a proposed
activity must facilitate other banking operations before it may be
found to be "closely related" to banking. Indeed, the relevant
statutory language does not specify any factors that the Board must
consider in making that determination. The general nature of the
statutory language, therefore, suggests that Congress vested the
Board with considerable discretion to consider and weigh a variety
of factors in determining whether an activity is "closely related"
to banking. In this case, the Board concluded that Schwab's
brokerage services were "closely related" to banking because it
found that the services were
"operationally and functionally very similar to the types of
brokerage services that are generally provided by banks, and that
banking organizations are particularly well equipped to provide
such services."
69 Fed.Res.Bull. at 107. [
Footnote 12] The Board acted well within its discretion
in ruling on
Page 468 U. S. 215
such factors. Moreover, the Board's factual findings are
substantially supported by the record.
Banks long have arranged the purchase and sale of securities as
an accommodation to their customers. Congress expressly endorsed
this traditional banking service in 1933. Section 16 of the
Glass-Steagall Act authorizes banks to continue the practice of
"purchasing and selling . . . securities and stock without
recourse, solely upon the order, and for the account of, customers,
and in no case for [their] own account[s]."
12 U.S.C. § 24 Seventh. [
Footnote 13] The Board found that, in substance, the
brokerage services that Schwab performs for its customers are not
significantly different from those that banks, under the authority
of § 16, have been performing for their own customers for years.
See 69 Fed.Res.Bull. at 107-109. Moreover, the amendment
to Regulation Y, added by the Board in 1983 to reflect its decision
in this case, expressly limits the securities brokerage services in
which a bank may engage "to buying and selling securities solely as
agent for the account of customers," and does not authorize
"securities underwriting or dealing or investment advice or
research services." 48 Fed.Reg. 37006 (1983). [
Footnote 14]
Congress has committed to the Board the primary responsibility
for administering the BHC Act. Accordingly, the Board's
determination of what activities are "closely related" to banking
within the meaning of § 4(c)(8) "is entitled to the
Page 468 U. S. 216
greatest deference."
Board of Governors of Federal Reserve
System v. Investment Company Institute, 450 U. S.
46,
450 U. S. 56
(1981) (
ICI). In this case, the Board has articulated with
commendable thoroughness the ways in which banking activities are
similar to the brokerage activities at issue here. The standard the
Board used to determine that Schwab's brokerage business is
"closely related" to banking is reasonable and supported by a
normal reading of the statutory language of § 4(c)(8). The factual
findings to which this standard was applied are substantially
supported by the record. The Court of Appeals, therefore, properly
deferred to the Board's determination in this case.
B
The Board expressly considered and rejected SIA's argument that
BAC's acquisition of Schwab violates the Glass-Steagall Act. That
Act comprises four sections of the Banking Act of 1933. [
Footnote 15] Only one of those four
sections is applicable here. That provision, § 20, as set forth in
12 U.S.C. § 377, provides in relevant part:
"[N]o member bank shall be affiliated in any manner described in
subsection (b) of section 221a of this title with any corporation,
association, business trust, or other similar organization
engaged principally in the issue, flotation, underwriting,
public sale, or distribution at wholesale or retail or through
syndicate participation of stocks, bonds, debentures, notes, or
other securities . . ."
(Emphasis added.) A bank holding company's subsidiaries are bank
affiliates within the meaning of § 20. 12 U.S.C. § 221a(b). Section
20, therefore, prohibits BAC's proposed acquisition if Schwab is
"engaged principally" in any of the activities listed therein.
Page 468 U. S. 217
SIA concedes that Schwab is not engaged in the "issue,
flotation, underwriting, . . . or distribution" of securities. It
argues, however, that the term "public sale" of securities as used
in § 20 applies to Schwab's brokerage business. The Board rejected
this argument, holding that "Schwab is not engaged principally in
any of the activities prohibited to member bank affiliates by the
Glass-Steagall Act." 69 Fed.Res.Bull. at 114. The Board has broad
power to regulate and supervise bank holding companies and banks
that are members of the Federal Reserve System. In this respect,
the Board has primary responsibility for implementing the
Glass-Steagall Act, and we accord substantial deference to the
Board's interpretation of that Act whenever its interpretation
provides a reasonable construction of the statutory language and is
consistent with legislative intent.
ICI, supra, at
450 U. S. 68;
Investment Company Institute v. Camp, 401 U.
S. 617,
401 U. S.
626-627 (1971). [
Footnote 16]
"Public sale" is used in conjunction with the terms "issue,"
"flotation," "underwriting," and "distribution" of securities. None
of these terms has any relevance to the brokerage business at issue
in this case. Schwab does not engage in issuing or floating the
sale of securities, and the terms "underwriting" and "distribution"
traditionally apply to a function distinctly different from that of
a securities broker. [
Footnote
17] An underwriter
Page 468 U. S. 218
normally acts as principal, whereas a broker executes orders for
the purchase or sale of securities solely as agent. [
Footnote 18] Under the "familiar principle
of statutory construction that words grouped in a list should be
given related meaning,"
Third National Bank v. Impac,
Ltd., 432 U. S. 312,
432 U. S. 322
(1977) (footnote omitted), the term "public sale" in § 20 should be
read to refer to the underwriting activity described by the terms
that surround it, and to exclude the type of retail brokerage
business in which Schwab principally is engaged. This reading of
the statute is further supported by the Board's longstanding
interpretation of identical language found in § 32 of the
Glass-Steagall Act, 12 U.S.C. § 78. That section prohibits
interlocking management or employment between banks and any
entity
"primarily engaged in the
issue, flotation, underwriting,
public sale, or distribution, at wholesale or retail, or
through syndicate participation"
of securities. 12 U.S.C. § 78 (emphasis added). [
Footnote 19] In
Page 468 U. S. 219
January, 1936, the Board interpreted the list of prohibited
activities described in § 32 to exclude the kind of brokerage
activities at issue here. Specifically, the Board ruled that
"[a] broker who is engaged solely in executing orders for the
purchase and sale of securities on behalf of others in the open
market is not engaged in the business referred to in section
32."
22 Fed.Res.Bull. 51, n. 1 (1936). Because §§ 32 and 20 contain
identical language, were enacted for similar purposes, and are part
of the same statute, the long-accepted interpretation of the term
"public sale" to exclude brokerage services such as those offered
by Schwab should apply as well to § 20. [
Footnote 20] The Board's interpretation of the
disputed term is supported by the plain language of the statute. It
is also entirely consistent with legislative intent.
The legislative history demonstrates that Congress enacted § 20
to prohibit the affiliation of commercial banks with entities that
were engaged principally in "activities such as underwriting."
ICI, 450 U.S. at
450 U. S. 64;
see Camp, supra, at
401 U. S.
630-634. In 1933, Congress believed that the heavy
involvement
Page 468 U. S. 220
of commercial banks in underwriting and securities speculation
had precipitated "the widespread bank closings that occurred during
the Great Depression."
ICI, supra, at
450 U. S. 61.
One of the most serious threats to sound commercial banking
perceived by Congress was the existence of "bank affiliates"
that
"devote themselves in many cases to perilous underwriting
operations, stock speculation, and maintaining a market for the
banks' own stock, often largely with the resources of the parent
bank."
S.Rep. No. 77, 73d Cong., 1st Sess., 10 (1933). [
Footnote 21]
Congressional concern over the underwriting activities of bank
affiliates included both the fear that bank funds would be lost in
speculative investments and the suspicion that the more "subtle
hazards" associated with underwriting would encourage unsound
banking practices.
See Camp, 401 U.S. at
401 U. S. 630.
[
Footnote 22] None of the
more "subtle hazards" of underwriting identified in
Camp
is implicated by the brokerage activities at issue here. [
Footnote 23] Because Schwab trades
only as agent, its assets are not subject to the vagaries of the
securities markets. Moreover, Schwab's profits depend solely on the
volume of shares it trades, and not on the purchase or sale of
particular securities. Thus, BAC has no "salesman's stake" in the
securities Schwab trades. It cannot increase
Page 468 U. S. 221
Schwab's profitability by having its bank affiliate extend
credit to issuers of particular securities, nor by encouraging the
bank affiliate improperly to favor particular securities in the
management of depositors' assets. Finally, the fact that § 16 of
the Glass-Steagall Act allows banks to engage directly in the kind
of brokerage services at issue here, to accommodate its customers,
suggests that the activity was not the sort that concerned Congress
in its effort to secure the Nation's banks from the risks of the
securities market.
In sum, we see no reason to disturb the Board's determination
that
"the business of purchasing or selling securities upon the
unsolicited order of, and as agent for, a particular customer does
not constitute the 'public sale' of securities for purposes of
section 20."
69 Fed.Res.Bull. at 114. This interpretation of the
Glass-Steagall Act is reasonable, consistent with the plain
language of the statute and its legislative history, and deserves
the deference normally accorded the Board's construction of the
banking laws.
IV
The Board determined in this case that a securities brokerage
business that is essentially limited to the purchase and sale of
securities for the account of customers, and without provision of
investment advice to purchaser or seller, is "closely related" to
banking. We hold that the Board's determination is consistent with
the language and policies of the BHC Act. We also hold that the
Board's determination that the Glass-Steagall Act permits bank
holding companies to acquire firms engaged in such a brokerage
business is reasonable, and supported by the plain language and
legislative history of the Act. We therefore affirm the judgment of
the Court of Appeals.
It is so ordered.
[
Footnote 1]
BAC operates one subsidiary bank, Bank of America. That bank is
a member of the Federal Reserve System, and the parties inform us
that it is the largest commercial bank in the United States.
[
Footnote 2]
Schwab is known as a "discount" broker because of the low
commissions it charges. Schwab can afford to charge lower
commissions than full-service brokerage firms because it does not
provide investment advice or analysis, but merely executes the
purchase and sell orders placed by its customers .
[
Footnote 3]
In addition to BAC, the Justice Department participated in the
hearing as a proponent of the proposed acquisition.
[
Footnote 4]
Section 4(c)(8) provides that the general ban on the ownership
by a bank holding company of shares in any company other than a
bank shall not apply to:
"(8) shares of any company the activities of which the Board
after due notice and opportunity for hearing has determined (by
order or regulation) to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. .
. . In determining whether a particular activity is a proper
incident to banking or managing or controlling banks the Board
shall consider whether its performance by an affiliate of a holding
company can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, or
gains in efficiency, that outweigh possible adverse effects, such
as undue concentration of resources, decreased or unfair
competition, conflicts of interests, or unsound banking
practices."
12 U.S.C. § 1843(c)(8).
[
Footnote 5]
In making this determination, the Board generally has followed
the guidelines announced in
National Courier Assn. v. Board of
Governors, 170 U.S.App.D.C. 301, 516 F.2d 1229 (1975). That
case held that an activity is "closely related" to banking within
the meaning of § 4(c)(8) if any one of the following is
demonstrated:
"1. Banks generally have in fact provided the proposed
services."
"2. Banks generally provide services that are operationally or
functionally so similar to the proposed services as to equip them
particularly well to provide the proposed service."
"3. Banks generally provide services that are so integrally
related to the proposed services as to require their provision in a
specialized form."
Id. at 313, 516 F.2d at 1237. The Board has recognized,
however, that the
National Courier guidelines do not
provide the exclusive basis for finding that an activity is
"closely related" to banking, and has stated that it will
consider
"any . . . factor that an applicant may advance to demonstrate a
reasonable or close connection or relationship of the activity to
banking."
49 Fed.Reg. 806 (1984).
[
Footnote 6]
See 12 CFR § 225 (1983) ("Regulation Y"). Section 225.4
of Regulation Y contains a list of those activities already
determined by the Board to be "closely related" to banking.
[
Footnote 7]
When a bank holding company applies for approval to engage in an
activity already listed in Regulation Y, the application generally
will be acted on by a Reserve Bank under delegated authority from
the Board. 49 Fed.Reg. 815 (1984). In acting on the application,
the Reserve Bank need determine only that the public benefits that
are likely to result from the applicant's proposal will outweigh
the possible adverse effects. If, as in this case, an application
involves a currently unlisted activity, it must be considered by
the Board itself. In that case, the Board must make both of the
determinations described above before approving the
application.
[
Footnote 8]
The Board conceded that banks, unlike retail brokers, use an
intervening broker to execute orders for the purchase and sale of
securities traded on an exchange. The Board found, however, that
banks often execute purchase and sell orders for securities that
are not traded on an exchange without an intervening broker. To
this extent, they perform the same services as a retail broker. 69
Fed. Res. Bull., at 107.
[
Footnote 9]
The Board, after notice and comment, subsequently amended
Regulation Y to include the securities brokerage business at issue
here in the list of permissible nonbanking activities.
See
48 Fed.Reg. 7746 (1983) (proposed amendment published for comment);
48 Fed.Reg. 37003 (1983) (final regulation amending 12 CFR §
225.4). The final amendment to Regulation Y added as a permissible
nonbanking activity:
"(15) providing securities brokerage services, related
securities credit activities pursuant to the Board's Regulation T
(12 CFR Part 220), and incidental activities such as offering
custodial services, individual retirement accounts, and cash
management services,
provided that the securities
brokerage services are restricted to buying and selling securities
solely as agent for the account of customers and do not include
securities underwriting or dealing or investment advice or research
services."
48 Fed.Reg. 37006 (1983) (emphasis in original).
[
Footnote 10]
The Glass-Steagall Act was enacted as part of the Banking Act of
1933.
[
Footnote 11]
In proceedings before the Court of Appeals, SIA apparently
challenged the Board's public benefit analysis as well.
See 716 F.2d 92, 103-104 (CA2 1983). SIA, however, has not
advanced that argument here.
[
Footnote 12]
SIA argues that the legislative history of the 1970 amendment to
§ 4(c)(8) establishes that Congress expressly rejected a
"functionally related" standard, and that the Board exceeded its
statutory authority by relying on that standard here. This argument
is without merit. In 1970, the initial versions of both the House
and Senate bills changed the "closely related" test of § 4(c)(8) to
a "functionally related" test. S.Rep. No. 91-1084, p. 25 (1970);
H.R.Rep. No. 91-387, p. 1 (1969). The Conference Committee,
however, retained the "closely related" language of the prior Act
in the final version of the bill. H.R.Conf.Rep. No. 91-1747, p. 5
(1970). As we observed in
Board of Governors of Federal Reserve
System v. Investment Company Institute, 450 U. S.
46,
450 U. S. 73
(1981), the significance of this legislative history is unclear. It
is, however, clear that the 1970 amendment broadened, rather than
restricted, the Board's discretion to determine whether nonbanking
activities are significantly related to banking.
See id.
at
450 U. S. 72-76.
Thus, there is no indication that Congress intended to preclude
consideration by the Board of the functional relationship of
nonbanking activities to banking in determining whether those
activities may qualify for the § 4(c)(8) exemption.
Moreover, it is not clear that the Board in this case applied
the "functionally related" test arguably rejected by Congress in
1970. The Board found that Schwab's brokerage business was both
"operationally and functionally very similar to" traditional
banking services and that banks were well equipped to provide those
services. 69 Fed.Res.Bull. at 107.
[
Footnote 13]
See S.Rep. No. 77, 73d Cong., 1st Sess., 16 (1933)
(explaining that § 16 was intended to permit banks "to purchase and
sell investment securities for their customers to the same extent
as heretofore").
[
Footnote 14]
See n 9,
supra. Schwab also provides some incidental services to
its customers such as margin lending, custodial accounts, and
appropriate account maintenance. The Board also approved these as
"closely related" to banking when offered incident to the approved
brokerage services.
See 69 Fed.Res.Bull. at 108-109. SIA
has not challenged the Board's conclusions with respect to these
incidental services.
[
Footnote 15]
Those four sections are §§ 16, 20, 21, and 32, codified
respectively at 12 U.S.C. §§ 2, 377, 378, and 78.
[
Footnote 16]
Such deference is appropriate where, as here, the Board
expressly addressed the application of the Glass-Steagall Act to
the proposed regulatory action and determined that the proposed
action implicated none of the concerns that led to the enactment of
that Act.
See ICI, 450 U.S. at
450 U. S. 68. In
Camp, on the other hand, we gave less deference to
regulatory action that was taken without any "expressly articulated
position at the administrative level as to the meaning and impact
of the provisions of [the Glass-Steagall Act]." 401 U.S. at
401 U. S. 627.
We held in
Camp that agency action taken "without opinion
or accompanying statement" was "hardly tantamount to an
administrative interpretation" of the Glass-Steagall Act, and was
not due the deference normally accorded such regulatory action.
Id. at
401 U. S.
627-628.
[
Footnote 17]
In the typical distribution of securities, an underwriter
purchases securities from an issuer, frequently in association with
other underwriters. The distribution of these securities to the
public may be effected by the underwriters alone, or in conjunction
with a group of dealers who also purchase and sell the particular
issue of securities as principals. Underwriters also may distribute
securities under a "best efforts" agreement pursuant to which large
blocks of specific issues of securities are offered to the public
by the investment banker as agent for the issuer. A "best efforts"
distribution is not technically an underwriting. 1 L. Loss,
Securities Regulations 172 (2d ed.1961). Because Schwab's brokerage
business involves none of these distribution plans, we need not
consider whether a "best efforts" distribution is prohibited under
§ 20.
[
Footnote 18]
Most securities firms engage in all aspects of the securities
business, acting at various times as underwriters, dealers, or
brokers. As underwriter and dealer, the firm buys and sells
securities on its own account, thereby assuming all risk of loss.
As broker, the firm buys and sells securities as an agent for the
account of customers. In these transactions, it is the customer,
rather than the securities firm, who bears the risk of loss. Schwab
is different from most securities firms in that it engages solely
in the brokerage business, and does not participate in underwriting
or dealing in securities.
[
Footnote 19]
Section 32 provides in relevant part:
"No officer, director, or employee of any corporation or
unincorporated association, no partner or employee of any
partnership, and no individual, primarily engaged in the issue,
flotation, underwriting, public sale, or distribution, at wholesale
or retail, or through syndicated participation, of stocks, bonds,
or other similar securities, shall serve the same time as an
officer, director, or employee of any member bank. . . ."
12 U.S.C. § 78.
[
Footnote 20]
SIA argues that the phrase in § 16 that allows banks to engage
in "purchasing and selling . . . securities and stock, without
recourse, solely upon the order, and for the account of, customers"
is essentially equivalent to the term in § 20 that prohibits the
"public sale" of securities. This argument is unpersuasive. There
is no basis for assuming that the dissimilar phrases found in §§ 16
and 20 are coterminous. The permissive phrase found in § 16
accurately describes securities brokerage, and clearly
distinguishes that activity from the activities of "dealing in,
underwriting and purchasing for its own account investment
securities" that are prohibited elsewhere in that section. Section
20 also prohibits bank affiliates from engaging in these latter
activities. The description of securities brokerage found in § 16,
however, appears nowhere in § 20.
Moreover, § 16 applies only to banks, not to bank holding
companies, and is not applicable here. Thus, we have no occasion to
determine whether § 16 would permit banks to engage in brokerage
activity on the behalf of the general public as well as for their
own customers.
[
Footnote 21]
See Hearings pursuant to S. 71 before a Subcommittee of
the Senate Committee on Banking and Currency, 71st Cong., 3d Sess.,
1052-1068 (1931).
[
Footnote 22]
We held in that case:
"The legislative history of the Glass-Steagall Act shows that
Congress also had in mind and repeatedly focused on the more subtle
hazards that arise when a commercial bank goes beyond the business
of acting as fiduciary or managing agent and enters the investment
banking business either directly or by establishing an affiliate to
hold and sell particular investments."
401 U.S. at
401 U. S.
630.
[
Footnote 23]
See Camp, 401 U.S. at
401 U. S.
631-634 (identifying the "subtle hazards" of affiliation
with underwriting firms). All these "subtle hazards" are
attributable to the promotional pressures that arise from
affiliation with entities that purchase and sell particular
investments on their own account.