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Law School Case Brief

Sec. Indus. Asso. v. Bd. of Governors of Fed. Res. Sys - 257 U.S. App. D.C. 137, 807 F.2d 1052 (1986)


Subtle hazards counsel prohibition of a banking practice only when the practice gives rise to each and every one of the hazards. Nor must a hazard be totally obliterated to permit a banking practice avoidance of the hazard. The subtle hazards analysis as a whole is a specific instance of the principle that requires the court's deference to an agency's reasonable construction of its statute's ambiguities.


This is an appeal from an order of the district court invalidating under the Glass-Steagall Act a decision of appellant Board of Governors of the Federal Reserve System (Board of Governors) that permitted appellant Bankers Trust Company, a state-chartered commercial bank and a member of the Federal Reserve System, to place commercial paper issued by third parties. The Act prohibits commercial banks from engaging in investment banking. The Board of Governors determined that Bankers Trust's activities did not cross the line into investment banking, but the district court concluded that they did.


Did the Bank comply with the regulatory requirements of the Glass-Steagall Act when placing commercial paper issued by third parties?




The court reversed the judgment of the district court, concluding that the Bank's placement of commercial paper issued by third parties did not cross the line into investment banking; rather, the Bank's activities fell within the Act's requirement that its business of dealing in securities and stock be limited to purchasing and selling securities and stock, without recourse, solely upon the order and for the account of customers and in no case for its own account, nor underwrite any issue of securities or stock. The placements met the literal requirements, and were consistent with the panoply of the Act's purposes.


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