240 The University of Chicago Law Review [42:235 For a period of a decade following the Civil War, limitations on the amount of national bank-note circulation served indirectly to limit chartering of national banks, but when that condition ended in 1875 national bank charters were available for every qualifying group.18 For the balance of the nineteenth century, Comptrollers not only recognized but proclaimed their lack of chartering discretion-for example, Comptroller Knox in 1881: "[T]he Comptroller has no discretionary power in the matter, but must necessarily sanction the organization. . . of such associations as shall have conformed in all respects to the legal requirements."19 A shift in position did not begin until 1908, when a new Comptroller took office on the heels of the Panic of 1907,20 and it did not become established policy until the 1920s.21 This new approach did not acquire a respectable statutory foundation, however, until the Great Depression led to the creation of the Federal Deposit Insurance Corporation22 and enactment of the Banking Act of 1935.23 The latter enactment required the Comptroller, when he chartered a new national bank, which automatically would become an insured bank, to certify to the FDIC that he had "considered" the same six factors that the FDIC was supposed to consider in passing upon the application for insured status of a state nonmember bank:24 “The financial history and condition of the bank, the adequacy of its capital structure, its future earnings prospects, the general character of its management, the convenience and needs of the community to be served by the bank, and whether or not its corporate powers are consistent with the purposes" of the Federal Deposit Insurance Act.25 In this somewhat backhanded fashion the law recognized-or, more accurately, created-the Comptroller's chartering discretion. To the extent that there are standards governing that discretion, therefore, they are to be found in the Federal Deposit Insurance Act, not the National Bank Act. Turning to the subject of branching, we find that it goes without mention in the National Bank Act of 1864.26 This legislative omission was regarded by early Comptrollers as prohibiting branch 22. The FDIC was created by Act of June 16, 1933, ch. 89, § 8, 48 Stat. 168. 23. Act of Aug. 23, 1935, ch. 614, § 101, 49 Stat. 684, 688, amending 12 U.S.C. § 264. 24. 12 U.S.C. § 1814 (1970). 25. Id. § 1816. 26. Act of June 3, 1864, ch. 106, 13 Stat. 99. 1975] Licensing Decisions of Federal Banking Agencies 241 banking by national banks,27 a view that was confirmed by the Attorney General in 191128 and ultimately by the Supreme Court in 1924.29 Meanwhile, branching by state banks had become extensive in a number of states, and considerable pressure built up for allowing national banks to do likewise. During the 1920s the Comptroller responded by approving "consolidations" as a device for obtaining branches and by authorizing "offices" that were almost branches.30 A more satisfactory answer was achieved with the passage of first the McFadden Act of 1927,31 which permitted national banks to have "inside" branches (located in the same city as the head office), and then the Banking Act of 1933,32 which authorized “outside" branches (located elsewhere in the state), in both cases only to the extent state law expressly authorized such branches for state banks and subject to certain additional capital requirements. Assuming the geographical and capital requirements were satisfied, a national bank could establish, operate or move a branch only with the "approval" of the Comptroller.33 No standards were provided to govern the grant or denial of approval. The statutory picture for the Federal Home Loan Bank Board is less complicated. Section 5 of the Home Owners' Loan Act of 193334 authorized the FHLBB, "giving primary consideration to the best practices of local mutual thrift and home-financing institutions in the United States," to provide for the organization, chartering, and operation of federal savings and loan associations. Section 5(e) of the Act went on to provide the following standards: No charter shall be granted except to persons of good character and responsibility, nor unless in the judgment of the Board a necessity exists for such an institution in the community to be served, nor unless there is a reasonable probability of its usefulness and success, nor unless the same can be established without undue injury to properly conducted existing local thrift and home-financing institutions.35 The Home Owners' Loan Act of 1933, like the National Bank Act of 1864, made no reference to the subject of branches. Never 27. R. ROBERTSON, supra note 16, at 81-85. 28. 29 OP. ATT'Y GEN. 81 (1911). First Nat'l Bank in St. Louis v. Missouri, 263 U.S. 640 (1924). 29. 242 The University of Chicago Law Review [42:235 theless, the Bank Board from the outset took the position that it had the power to authorize branches, and was upheld when ultimately challenged in court.36 The statute even today is silent on branching and obviously contains no standards to affect the FHLBB's discretion when passing upon branch applications by federal savings and loans. So by different routes the two agencies emerge at about the same point. Both face a short list of general standards in the relevant statutes for charter approvals, and no standards whatever for branch approvals. Furthermore, the charter standards are either too narrow or too unspecified to serve as much of a guide for or restraint upon the exercise of discretion. Of the Comptroller's list of six factors, the first ("the financial history and condition of the bank") is inapplicable to new charters and the last (corporate powers "consistent with the purposes" of the Act) is a routine formality.37 The second and third (“adequacy of its capital structure” and "future earnings prospects" for the Comptroller, "reasonable probability of its usefulness and success" for the Bank Board) do have content, but depend on a conjectural exercise in financial prediction. The fourth ("general character of its management" for the Comptroller, "persons of good character and responsibility" for the Bank Board) imposes a minimal constraint, occasionally in issue but capable of being met by millions of possible applicants and thousands of possible managing officers. It is therefore the fifth ("the convenience and needs of the community to be served" for the Comptroller, "a necessity . . . for such an institution in the community to be served" and establishment "without undue injury to properly conducted existing local thrift and home-financing institutions" for the Bank Board) that in most cases serves as the ground for decision. For convenience, this latter criterion will be referred to simply as the "need" factor. Standards so judgmental and indefinite constitute in effect a delegation by the legislature to the administrative agency of the task of developing public policy in this area. We shall next examine the manner in which the two agencies have done so. 36. First Nat'l Bank of McKeesport v. First Fed. Sav. & Loan Ass'n of Homestead, 225 F.2d 33 (D.C. Cir. 1955); North Arlington Nat'l Bank v. Kearny Fed. Sav. & Loan Ass'n, 187 F.2d 564 (3d Cir.), cert. denied, 342 U.S. 816 (1951). In its branch regulation, the FHLBB has simply repeated the statutory charter standards. See 12 C.F.R. § 545.14(c) (1974). 37. A simple prohibition of the exercise of inconsistent powers would suffice. Cf. 12 C.F.R. § 332.1 (1974). 1975] Licensing Decisions of Federal Banking Agencies B. Decision Procedures and Judicial Review: Pre-1965 243 One way for an agency to develop law and policy is by undertaking comprehensive studies, followed by the issuance of detailed policy statements or regulations. Neither the Office of the Comptroller nor the FHLBB has availed itself of this approach. On occasion, general statements of "philosophy" appear in public speeches or annual reports,38 but they have never been carried to the point of providing enlightenment as to how a particular application might fare. Another way to develop policy is by the common law method of case-by-case adjudication. In the period since the Comptroller began regularly exercising approval discretion in the 1920s and the Bank Board started performing that function for federal savings and loans in the 1930s, the two agencies have passed upon thousands of applications for charters and branches, granting some and denying others. Their procedures, however, have been quite informal and customarily have not entailed providing written opinions or explanations of the decisions. If one had consulted the Comptroller's regulations at the beginning of 1959 for information on how to obtain approval for a new bank or a branch, he would have found that the application was routed through various levels of the agency, with recommendations attached at each stage,39 but without any form of public hearing. A field examiner would make an “investigation" of the application, gathering unspecified kinds of economic and market data and visiting existing banks in the locale to ask for their views. The applicant would not know what the investigator turned up, and objectors would not generally know even what was in the application, let alone the examiner's report. On request, an applicant or objector would usually be given a "conference" with the Regional Comptroller or another representative, without the presence of other parties, at which he could voice his opinions on matters that he thought might be relevant to the outcome. "Among other matters to be considered" in the case of a new bank charter, the regulations stated, were the six factors enumerated in section 1816 of title 12 of the United States Code.4o For a branch application, the regulations listed additional factors: [T]he number of branches now in operation and their location, the proposed location of the new branch and the distance 38. See, e.g., 1964 Comp. CURR. ANN. REP. 2-4. 39. 12 C.F.R. §§ 4.1, 4.5 (1959). 40. Id. § 4.1(b). A modified version is now contained in 12 C.F.R. § 4.2(b) (1974). 244 The University of Chicago Law Review [42:235 from the head office, the nearest banking facilities, . . . the nature of the potential clientele and possible business available, including an estimate of contemplated volume within a reasonable period of time and the prospects of successful operation of the branch together with any other pertinent factors.11 The process of evaluation whereby these relevant "factors" were translated into a decision was not described in any published source available beforehand, and the applicant would know nothing more if ultimately he was turned down: "If the decision is unfavorable the applicants are so informed."42 In its entire history, the Office of the Comptroller had never held a public hearing on an application nor published a written opinion.43 Over at the FHLBB, applicants and their opponents were faring better procedurally but not substantively. The Bank Board customarily released charter and branch applications to the public and scheduled public hearings on either a "dispensable” or “nondispensable" basis.45 Information concerning the grounds for decision was about as hard to come by, however, as with the Comptroller. For charter applicants, the regulations merely required data "sufficiently detailed and comprehensive to enable the Board to pass" upon the four statutory criteria; in the case of branch applications, the regulations required an applicant to state the need for such branch office; the functions to be performed; the personnel and office facilities to be provided; the estimated annual volume of business, income, and expenses of such branch office; and [submit] a proposed annual budget of such association.46 How such data eventuated in a grant or denial of the application was not vouchsafed to the applicant in any form of written opinion, however, leaving the actual policies of the Board as obscure as those of the Comptroller. This state of affairs was not viewed critically by authorities in administrative law. In its 1941 report, the Attorney General's Committee on Administrative Procedure stated, in a passage cherished by the banking agencies: 41. Id. § 4.5(a)(1) (1959). 42. Id. § 4.1(d) (charters); id. § 4.5(a)(3) (branches). 43. Bloom, Hearing Procedures of the Office of the Comptroller of the Currency, 31 Law & CONTEMP. PROB. 723 (1966). 44. 12 C.F.R. §§ 543.2(c), 545.14, 542.2 (1959). 45. See Breisacher, Practice and Procedure Before the FHLBB, 16 Bus. Law. 146, 148 (1960). 46. 12 C.F.R. § 545.14 (1959). |