479 U. S. 388
January 14, 1987
I am humble enough to admit that I do not understand all areas of law equally well. Banking, securities, and the like is one area that kind of mystifies me, so you’ll have to forgive me if some of my summaries are not quite up to par.
Two national banks attempted to begin operating discount brokerage services on a nationwide basis. According to the McFadden Act, banks could operate branches that did the “general business” of banking only in the main bank’s home state. The Comptroller of the Currency approved of the proposed brokerage services though, finding that they would not carry on the “general business” of banking, and would thus not be branches for the purposes of the McFadden Act. Competing brokers sued, arguing just the opposite
Unanimously, the Court rejected this challenge to the Comptroller’s decision (with Scalia not participating). First, Justice White held that the petitioners did have standing. Even though the McFadden Act did not directly provide for legal challenge, judicial precedent had long allowed agency decisions to be contested if injury would exist, and if the party was within a nebulous “zone of interest.” The zone of interest standard was not demanding, and the Court concluded confidently that competing brokers would fall within it. Stevens, writing for himself, Rehnquist, and O’Connor, did not join this section. He argued that the resort to the zone of interest test was unnecessary. The McFadden’s Act’s very purpose was to prevent a bank from acquiring too much dominance in the financial realm, and this by itself was enough to confer the plaintiffs with standing.
Moving on to the merits, White did a good deal of historical and textual analysis to show that the restriction on out-of-state branches doing the “general business” of banking meant only that such subsidiaries could not engage in core banking functions. Based on history and practice during the 20th century, brokerage services did not qualify as core banking functions. Thus, the Court deferred to the ruling of the Comptroller.
I have no real quarrel with the ruling, to the extent that I understand it. I must admit, it was illuminating to read in the Stevens concurrence about how much paranoia exists over the possibility of dominant national banks. It seemed to be cartoonish ‘Big Banks = TEH EVILZZZ’ logic. Maybe it’s justified, but to me, the McFadden Act comes across in large part as an exercise of blind hostility toward any reasonably large amassing of capital.