Facts
- Before the International Banking Act of 1978 (IBA), foreign banks generally could operate in the United States only under state charters, while domestic banks could choose either state or federal supervision.
- Congress enacted the IBA to reduce uneven, state-by-state treatment of foreign banks and to create a federal option—administered by the Office of the Comptroller of the Currency (OCC)—for foreign-bank branches and agencies in the United States.
- Section 4(a) of the IBA authorized the Comptroller to approve a foreign bank’s federal branch or federal agency in a state that did not “prohibit” foreign banks from establishing such offices.
- Section 5(a) addressed interstate operations, allowing the Comptroller to authorize a foreign bank to establish a federal branch or agency outside the bank’s “home State” when the host state “expressly” permitted such offices.
- Section 4(d) provided that “a foreign bank shall not receive deposits” at any federal agency.
- New York did not bar all foreign banks, but it declined to charter Australian banks because Australia did not provide reciprocal rights to U.S. banks under New York’s reciprocity policy.
- Comptroller C. Todd Conover approved Australian banks to establish federal branches in New York notwithstanding New York’s reciprocity-based refusal to grant state charters to those banks.
- Illinois did not bar foreign-bank branches from out-of-home-state banks, but Illinois reciprocity rules prevented state charters for Australian banks.
- Conover also permitted two Australian banks (whose home state was not Illinois) to open federal branches in Illinois.
- Conover issued a regulation allowing foreign-bank federal agencies to accept deposits despite § 4(d), based on the OCC’s reading that Congress meant to bar only deposits from U.S. depositors (domestic deposits), not deposits from foreign depositors.
- The Conference of State Bank Supervisors and other state officials sued for declaratory and injunctive relief, arguing that (i) state reciprocity rules must be treated as state “prohibitions” that constrain federal approvals under §§ 4(a) and 5(a), and (ii) § 4(d) plainly barred any deposit-taking by federal agencies.
- The district court ruled for the Comptroller, holding that the relevant IBA provisions were ambiguous and that the OCC’s interpretations were reasonable; it also reasoned that the plaintiffs’ reading would largely erase the federal option Congress created for foreign banks.
- The state regulators appealed to the D.C. Circuit.
Issues
- Whether IBA § 4(a) required the Comptroller to treat state reciprocity-based charter limits as a state “prohibit[ion]” that bars approval of federal branches or agencies for foreign banks otherwise excluded under state law.
- Whether IBA § 5(a) required the Comptroller, when authorizing out-of-home-state federal branches or agencies, to incorporate state reciprocity conditions and other state-law limits beyond the statute’s “expressly permitted” requirement.
- Whether IBA § 4(d)’s statement that a foreign bank “shall not receive deposits” at a federal agency imposed a complete ban on deposit-taking, or instead permitted the Comptroller to distinguish between domestic and foreign depositors.
- Whether the Comptroller’s constructions of §§ 4(a), 5(a), and 4(d) were reasonable and entitled to judicial deference.
Decision
- The D.C. Circuit affirmed the judgment for the Comptroller.
- The court agreed that §§ 4(a), 5(a), and 4(d) were not clear on the disputed points when read in statutory context and in light of the IBA’s structure.
- Under § 4(a), the court upheld the Comptroller’s interpretation that a state “prohibit[s]” foreign banks only when it imposes a categorical bar, and that reciprocity rules that exclude particular countries’ banks do not necessarily prevent federal approvals.
- Under § 5(a), the court upheld the Comptroller’s reading that the “expressly permitted” requirement does not automatically import each state’s reciprocity-based restrictions into the federal authorization decision once the state permits the relevant type of foreign-bank office in principle.
- Under § 4(d), the court upheld the Comptroller’s interpretation that the deposit restriction on federal agencies could reasonably be implemented as a ban on domestic deposits (from U.S. depositors) while allowing deposits from foreign depositors.
- The challenged OCC approvals and the OCC regulation permitting limited deposit-taking at federal agencies (as interpreted by the Comptroller) remained in effect, and the requested declaratory and injunctive relief was denied.
Legal Principles
- When Congress assigns administration of a specialized banking statute to a federal agency and the statutory text and history do not clearly resolve a disputed question, courts generally uphold the agency’s reasonable construction.
- Under the IBA, a state “prohibit[s]” foreign-bank federal branches or agencies only if it bars foreign banks as a class; state reciprocity rules that block certain countries’ banks may be treated differently from an across-the-board ban.
- Under IBA § 5(a), the host state’s decision to “expressly” allow foreign-bank offices can satisfy the statute even if state law would deny a state charter on reciprocity grounds; the Comptroller is not automatically required to apply each such condition to federal approvals.
- Under IBA § 4(d), a statutory restriction written broadly (“shall not receive deposits”) may leave room for a regulator to define its practical scope consistent with the Act’s design, including a distinction between domestic and foreign depositors at federal agencies.
Conclusion
Conference of State Bank Supervisors v. Conover held that the International Banking Act left sufficient uncertainty about the effect of state reciprocity rules and the scope of the federal-agency deposit restriction that the Comptroller of the Currency could reasonably interpret §§ 4(a) and 5(a) to allow federal-branch approvals in states that did not categorically bar foreign banks, and could interpret § 4(d) to bar domestic deposits at federal agencies while permitting deposits from foreign depositors; the D.C. Circuit therefore deferred to the OCC’s constructions and affirmed judgment for the Comptroller.