## Facts

- Bankers Trust Co., a New York commercial bank and Federal Reserve member, began acting as an agent to market corporate customers’ commercial paper to investors.
- Commercial paper consisted of unsecured, short-term promissory notes issued by commercial entities.
- Securities Industry Association and A.G. Becker Inc. petitioned the Board of Governors of the Federal Reserve System to rule that the bank’s commercial paper placement activities violated §§ 16 and 21 of the Glass–Steagall Act.
- The Board ruled that commercial paper was not a “security” or “note” for Glass–Steagall purposes, reasoning through a “functional analysis” that treated it as more similar to a traditional bank loan than an investment security.
- The District Court set aside the Board’s ruling as contrary to law; the D.C. Circuit reversed and deferred to the Board’s interpretation; the Supreme Court granted certiorari.

## Issues

1. Whether commercial paper falls within the terms “security,” “securities,” or “notes” in Glass–Steagall Act §§ 16 and 21, thereby triggering the Act’s limits on commercial banks’ underwriting and distribution activities.
2. What level of judicial deference is owed to the Board’s interpretation where it conflicts with statutory text and relies on litigation-stage rationales.

## Decision

- The Supreme Court reversed the D.C. Circuit and held the Board’s interpretation unlawful.
- Commercial paper falls within the plain language of the Act and therefore is a “security” and a “note” under §§ 16 and 21.
- The Board’s attempt to exclude commercial paper through a loan-like “functional analysis” was impermissible because it conflicted with the statute’s text.
- Although the Board’s statutory interpretations can receive substantial deference, deference did not justify adopting a construction inconsistent with clear statutory language, particularly where the agency’s rationale shifted and relied on post hoc explanations.

## Legal Principles

- Undefined statutory terms are construed according to their ordinary meaning as understood at the time of enactment, and courts may consult contemporaneous usage and related federal statutes for confirmation.
- Clear statutory text controls unless applying it would be demonstrably at odds with the statute’s purposes.
- Glass–Steagall reflects a broad congressional policy separating commercial and investment banking based on perceived incompatibilities and risks, supporting prophylactic prohibitions rather than narrow, transaction-by-transaction exceptions.
- Agency interpretations of their governing statutes may warrant substantial deference, but courts need not defer to interpretations that contradict plain text or to post hoc litigation rationalizations offered after the agency’s decision.

## Conclusion

The Court held that commercial paper is covered by Glass–Steagall’s terms “security” and “note,” rejecting the Federal Reserve Board’s loan-like functional characterization and reaffirming that agency deference does not permit narrowing clear statutory prohibitions on commercial banks’ securities-related activities.


Securities Indus. Ass’n v. Bd. of Governors of the Fed. Rsrv. Sys., 468 U.S. 137 (1984)