## Facts

- Citibank, N.A., a national bank and subsidiary of Citicorp (a bank holding company), proposed forming a wholly owned operating subsidiary to offer “municipal bond insurance” to municipal bond issuers.
- Under the proposal, a municipality would apply for coverage; the subsidiary would conduct credit analysis and, if approved, provide a “standby credit” supporting bond payments.
- If the issuer defaulted, bondholders would submit documentary proof of nonpayment; the subsidiary would pay principal and interest due and then become subrogated to bondholders’ rights against the issuer.
- The product’s purpose was to lower issuers’ borrowing costs by substituting the bank’s credit for the issuer’s and reducing the market’s risk premium.
- The Comptroller of the Currency approved the proposal, concluding the activity was permissible for national banks under the National Bank Act (NBA) and consistent with the Bank Holding Company Act (BHCA) structure.
- A trade association representing insurance companies sued to set aside the approval, arguing it unlawfully expanded banking into insurance.
- The district court granted summary judgment to the Comptroller on the NBA claim and dismissed the BHCA challenge.
- The association appealed.

## Issues

1. Whether the Comptroller reasonably concluded that the proposed municipal bond “insurance” (standby credit) fell within national banks’ “business of banking” and incidental powers under the NBA.
2. Whether the district court erred in dismissing the association’s BHCA challenge as nonjusticiable or otherwise not subject to judicial review.

## Decision

- The court of appeals affirmed the judgment for the Comptroller on the NBA claim.
- The court held the Comptroller’s functional characterization of the product as a credit-enhancement device akin to standby letters of credit was reasonable and entitled to deference.
- The court reversed the dismissal of the BHCA claims and remanded for further proceedings.
- The court did not decide the BHCA merits, but held the challenge could proceed.

## Legal Principles

- In determining whether an activity is within the “business of banking” under the NBA, courts may assess economic function rather than regulatory labels (e.g., “insurance”).
- A national bank’s incidental powers may include credit-support products (such as standby credits and similar guarantees) reasonably treated as variants of recognized banking instruments.
- When statutory scope is ambiguous, a court generally defers to the Comptroller’s reasonable interpretation of the banking laws in approving new banking products.
- Where an agency’s approval addresses BHCA compliance in a manner that constitutes reviewable agency action, dismissal of BHCA-based challenges may be improper; such claims may warrant adjudication on remand.

## Conclusion

The D.C. Circuit upheld the Comptroller’s approval of a national bank subsidiary’s municipal bond credit enhancement as permissible under the NBA based on functional equivalence to standby letters of credit and agency deference, but it reinstated the BHCA challenge and remanded for further proceedings on that statutory theory.


Am. Ins. Ass'n v. Clarke, 865 F.2d 278 (D.C. Cir. 1989)