April 11, 1990
TO: BOARD OF GOVERNORS NO. 26-90
RE: D.C. CIRCUIT REJECTS SIA CHALLENGE TO RECENT SECTION
20 ORDERS
__________________________________________________________
The U.S. Court of Appeals for the District of Columbia
Circuit has denied a petition for review of the Securities
Industry Association, which challenged an order of the Federal
Reserve Board permitting five bank holding company affiliates to
underwrite and deal in corporate debt and equity securities,
subject to certain limitations. A copy of the court's decision
is attached.
The court held that the SIA's claims that the order
violated the Glass-Steagall Act were precluded by the doctrine of
collateral estoppel, under which a prior judicial determination
of an issue is binding. The court found that the issues raised
by the SIA with respect to corporate debt and equity securities
were identical to those previously decided in connection with
other types of securities. In 1988, the Court of Appeals for the
Second Circuit ruled that the Glass-Steagall Act did not prohibit
the limited underwriting and dealing by a bank holding company
affiliate of commercial paper, municipal revenue bonds, mortgage
related securities and consumer receivables related securities.
The court also rejected the SIA's claim that the order
violated the Bank Holding Company Act, which had not been
previously litigated. The court stated that it was obliged to
give "enormous deference" to the Board's determinations that the
proposed activities were "closely related to banking" and would
produce net benefits to the public.
Craig S. Tyle
Associate General Counsel
Attachment