#11144 - Bank Powers - Federal Banking Regulation

Bank Powers

1. Enumerated Powers

   1. National Banks are explicitly authorized to:

      1. receive deposits (12 U.S.C. § 24 (Seventh))

      2. discount and negotiate promissory notes and other evidence of debt (e.g., make unsecured loans) (12 U.S.C. § 24 (Seventh))

      3. make loans secured by personal property (12 U.S.C. § 24 (Seventh))

      4. invest in high-quality debt securities (12 U.S.C. § 24 (Seventh))

      5. broker securities for their customers (12 U.S.C. § 24 (Seventh))

      6. deal in foreign exchange (12 U.S.C. § 24 (Seventh))

      7. make loans secured by real property (12 U.S.C. § 371)

      8. lease-finance personal property (12 U.S.C. § 24 (Tenth))

      9. offer trust services (12 U.S.C. § 92a)

      10. act as insurance agents in small towns (12 U.S.C. § 92)

      11. make investments "designed primarily to promote the public welfare, including the welfare of low- and moderate-income communities or families" (12 U.S.C. § 24 (Eleventh))

   2. National Banks generally cannot:

      1. own real property (12 U.S.C. § 29)

      2. own corporate stock or underwrite corporate securities (12 U.S.C. § 24 (Seventh))

      3. underwrite insurance (15 U.S.C. § 6712(a))

      4. charge interest above the legal rate (12 U.S.C. § 85)

2. Incidental Powers

   1. The National Bank Act also allows National Banks "[t]o exercise . . . all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security, and by . . . circulating notes . . . ." 12 U.S.C. § 24 (Seventh).

      1. First part: the powers language itself (highlighted above)

         • Business of banking AND

         • Powers as shall be necessary to carry on the business of banking

      2. Second part: list of specifically authorized activities

         • This part is meant to be a guide for what types of activities might be permissible under the powers language.

   2. CASES

      1. Arnold Tours, Inc. v. Camps (before Chevron Deference)

         • "Necessary" as used in the statute means that which is "convenient or useful in connection with the performance of one of the bank's established activities pursuant to its express powers under the National Bank Act."

           • If this connection between an incidental activity and an express power does not exist, the activity is not authorized as an incidental power.

         • In this case, the court determined that operating a full scale travel agency, as was authorized by the OCC, was not "convenient or useful" to performing an established activity pursuant to an express power; therefore, the court determine that the bank did not have that power.

           • It was important to the court that "the agency and informational services a bank travel agency renders are pursuant to its own interest in making its travel department profitable, wholly apart from the bank's normal banking operations."

           • The court stated that "there is a difference between supplying customers with financial and informational services helpful to their travel plans and developing a clientele which looks to the bank as a source of general financial advice and support but as a travel management center."

      2. M & M Leasing Corp. v. Seattle First National Bank

         • The definition of the "business of banking" is not limited to the express powers in the National bank Act.

           • The court stated that "the powers of national banks must be construed so as to permit the use of new ways of conducting the very old business of banking.

         • In this case, the court determined that the lease of personal property to customers if the bank acquired the property upon the specific request and for the use of the customer was permissible BUT the court noted that such a lease of personal property is only permissible if the obligations of the lessee will provide for the entire return of the bank's advances.

           • The court stated that "a lease, which from its inception inevitably must be repeated or extended to enable the bank to recover its advances plus profit, is not 'a loan of money on personal security.'"

      3. NationsBank of North Carolina v. Variable Annuity Life Insurance Co.

         • "[T]he 'business of banking' is not limited to the enumerated powers in § 24 Seventh and . . . the Comptroller therefore has discretion to authorize activities beyond those specifically enumerated."

         • "The exercise of the Comptroller's discretion, however, must be kept within reasonable bounds."

      4. Office of the Comptroller of the Currency Interpretive Letter No. 875

         • This letter is a stark example of how the combination of (1) Chevron Deference and (2) Limited Judicial Review of Agency Decisions under Camp v. Pitts = ALMOST LIMITLESS POWERS FOR BANKS

         • In this letter, the OCC finds the following activities permissible:

           • ...