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Nationsbank of N.C., N.A. v. Variable Annuity Life Ins. Co. - 513 U.S. 251, 115 S. Ct. 810 (1995)


The business of banking is not limited to the enumerated powers in the National Bank Act, Rev. Stat. § 5136, as amended, 12 U.S.C.S. § 24 Seventh; the Comptroller of Currency therefore has discretion to authorize activities beyond those specifically enumerated. The exercise of the Comptroller's discretion, however, must be kept within reasonable bounds.


Petitioner Nationsbank of N.C. sought permission from the Comptroller of the Currency to sell annuities. The Comptroller granted Nationsbank of N.C.’s petition as he determined that federal law permits annuity sales as a service to bank customers, as the Comptroller considered these sales “incidental" to "the business of banking" under the National Bank Act, Rev. Stat. § 5136, as amended, 12 U.S.C. § 24 Seventh.  These annuities are not "insurance" within the meaning of § 92; that provision, by expressly authorizing banks in towns of no more than 5,000 people to sell insurance, arguably implies that banks in larger towns may not sell insurance. Respondent Variable Annuity Life Insurance Co. (VALIC), which sells annuities, challenged the Comptroller's decision and filed suit in the United States District Court for the Southern District of Texas to seek declaratory and injunctive relief. The United States District Court for the Southern District of Texas upheld the Comptroller's conclusions as a permissible reading of the National Bank Act, but the United States Court of Appeals for the Fifth Circuit reversed the decision.


May national banks serve as agents in the sale of annuities?




The Court respected as reasonable the Comptroller's conclusion that brokerage of annuities is an "incidental power necessary to carry on the business of banking." It thus deferred to the Comptroller's reasonable determination that 12 U.S.C. § 92 is not implicated because annuities are not insurance within the meaning of that section.

In authorizing NationsBank to broker annuities, the Comptroller invokes the power of banks to "broker a wide variety of financial investment instruments," Comptroller's Letter 38a, which the Comptroller considers "part of banks' traditional role as financial intermediaries," and therefore an "incidental power necessary to carry on the business of banking."

This better comprehends the Act’s terms rather than VALIC’s interpretation that banks are confined to the five activities listed in § 24 Seventh after the words “business of banking”: discounting and negotiating evidences of debt; receiving deposits; buying and selling money; making loans; and obtaining, issuing, and circulating notes. and to endeavors incidental thereto. The section's second sentence, which limits banks' "dealing in securities," recognizes that banks otherwise have the authority even though that authority is not specifically enumerated. Congress thus evidenced its intent to accord banks authority "to carry on the business of banking" through customer services not circumscribed by the five listed activities. The Comptroller therefore has discretion, within reasonable bounds, to permit banking activities beyond those the statute sets forth as exemplary.

The Court further deferred to the Comptroller's determination that annuities are properly classified as investments, not "insurance" within § 92's meaning. The Comptroller's classification of annuities, based on the tax deferral and investment features that distinguish them from insurance, is at least a reasonable interpretation of the controlling legislation. A key feature of insurance is that it indemnifies loss. Annuities serve an important investment purpose and are functionally similar to other investments that banks typically sell. And though fixed annuities more closely resemble insurance than do variable annuities, fixed annuities too have significant investment features and are functionally similar to debt instruments. Moreover, mindful that fixed annuities are often packaged with variable annuities, the Comptroller reasonably chose to classify the two together.

The judgment of the Court of Appeals for the Fifth Circuit was reversed.

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