## Facts

- Security Pacific National Bank (SPN Bank), a national bank, originated conventional fixed-rate residential mortgages and placed them into a pooled portfolio.
- SPN assigned the mortgage pool to a trustee, which authenticated and delivered mortgage pass-through certificates representing fractional undivided interests in the pool.
- SPN sold the certificates publicly or privately and acted as servicer, collecting principal and interest and distributing pro rata payments to certificateholders for a servicing fee.
- Credit support was limited (including an SPN letter of credit, a limited third-party guaranty, and possible mortgage insurance); beyond those supports, certificateholders bore the risk of loss.
- The Comptroller of the Currency determined that SPN’s issuance and sale of the certificates did not violate the Glass–Steagall Act and fell within permissible banking authority, including incidental powers and real-estate lending authority.
- The Securities Industry Association (SIA) challenged the Comptroller’s determination; the district court set it aside as prohibited underwriting, and the Comptroller and SPN appealed.

## Issues

1. Whether a national bank’s issuance and sale of mortgage pass-through certificates representing interests in a pool of the bank’s own mortgages constitutes prohibited “underwriting” or “dealing in securities” under Glass–Steagall.
2. Whether the Comptroller reasonably concluded that the program was within national banks’ incidental powers under 12 U.S.C. § 24 (Seventh) and real-estate lending/loan-sale authority under 12 U.S.C. § 371(a).

## Decision

- The Second Circuit reversed the district court and upheld the Comptroller’s determination.
- The court held the Comptroller reasonably concluded the certificates were a permissible method of selling interests in loans the bank was authorized to make and sell.
- The court held the activity was not “underwriting” or “dealing in securities” in the sense prohibited by Glass–Steagall §§ 16 and 21.
- The court applied substantial deference to the Comptroller’s construction of the National Bank Act and Glass–Steagall.

## Legal Principles

- Courts generally give substantial deference to the Comptroller’s reasonable interpretations of statutes governing national banks, including the scope of “incidental powers” under 12 U.S.C. § 24 (Seventh).
- A national bank may use modern structures to fund or manage its lending business when the activity is closely related to authorized lending and loan-sale powers under 12 U.S.C. § 371(a).
- For Glass–Steagall purposes, selling pass-through interests in a bank’s own loan portfolio may be treated as a form of loan sale/participation rather than prohibited securities underwriting or dealing.
- Glass–Steagall’s underwriting and dealing prohibitions target investment-banking activities (notably distribution of third-party securities) and are construed in light of the statute’s risk-separation aims.

## Conclusion

The Second Circuit held that the Comptroller reasonably approved SPN’s mortgage pass-through certificate program as a permissible exercise of national banking powers tied to mortgage lending and loan sales, and not an unlawful entry into securities underwriting or dealing under Glass–Steagall.


Securities Indus. Ass’n v. Clarke, 885 F.2d 1034 (2d Cir. 1989)