## Facts

- Bankers Trust Company, a state-chartered Federal Reserve member bank, sought Federal Reserve approval to “place” (privately market) commercial paper issued by certain corporate customers to institutional investors.
- Bankers Trust would act as agent for issuers (not as principal), earning placement fees.
- After earlier litigation, the Supreme Court held commercial paper is a “security” under Glass–Steagall and remanded for the Board to address whether the activity created the Act’s targeted “subtle hazards.”
- On remand, the Board again approved the program, issuing a detailed analysis of potential hazards (speculative investment of bank funds, lending to support offerings, conflicted lending, and unsound advice) and concluded the proposal, with internal controls, did not create those hazards.
- The U.S. District Court for the District of Columbia set aside the Board’s order, finding the activity inconsistent with Glass–Steagall’s prohibitions.
- The Board and Bankers Trust appealed to the D.C. Circuit.

## Issues

1. Whether a member bank’s private placement of customer commercial paper constitutes prohibited “underwriting” or “dealing” under Glass–Steagall Act provisions, including 12 U.S.C. §§ 24 (Seventh) and 378.
2. Whether the Board’s post-remand interpretation and application of Glass–Steagall to commercial-paper placement was reasonable and entitled to judicial deference.
3. Whether the Board reasonably concluded that the proposal lacked the “subtle hazards” Congress sought to prevent, given the bank’s agency role, fee structure, and internal controls.

## Decision

- The D.C. Circuit reversed the district court and upheld the Board’s order approving Bankers Trust’s commercial-paper placement program.
- The court held the Board’s interpretation—that this agency placement activity was not prohibited underwriting or dealing—was reasonable.
- The court concluded the Board’s remand decision adequately analyzed the relevant Glass–Steagall hazards and supported its conclusions with reasoned findings.
- The court gave substantial deference to the Board’s expert judgment in administering complex banking statutes where the agency supplied a detailed, purpose-based explanation.

## Legal Principles

- When a statute administered by an expert agency is ambiguous as applied to modern financial practices, courts generally uphold the agency’s reasonable interpretation if supported by a reasoned explanation consistent with statutory purposes.
- Glass–Steagall’s restrictions focus on preventing bank exposure to securities-market risks and conflicts of interest (e.g., speculative investment losses, pressure to make support loans, conflicted lending, and advice distorted by securities incentives).
- A bank’s acting as an agent in private placements—without buying for its own account and under compliance controls—may be treated as materially different from prohibited underwriting as principal, depending on risk and conflict characteristics.
- Agency findings about practical banking risks and the effectiveness of internal policies may justify allowing limited securities-related activities where the traditional hazards are not materially present.

## Conclusion

The D.C. Circuit held that the Federal Reserve reasonably interpreted and applied Glass–Steagall to permit Bankers Trust’s agency placement of customer commercial paper, and that the Board’s detailed post-remand hazards analysis warranted deference; the district court’s contrary judgment was reversed and the Board’s approval was reinstated.


Securities Indus. Ass’n v. Bd. of Governors of the Fed. Rsrv. Sys., 807 F.2d 1052 (D.C. Cir. 1986)