NEW YORK -- Because the world -- much less the pursuit of profit -- does not stop for legislative deliberation, the nation's courts have had to assume much of the burden this year for shaping the financial services industry.
The result, as one might expect, has been a haphazard, confusing, and controversial mix of law that has increased pressure for Congress to enact responsive banking legislation before the entire structure breaks down.
With cases still pending in areas such as interstate banking and racketeering, courts are hopeful that Washington lawmakers will move quickly. But observers say the chances for new banking rules next year are slim. Thus, it appears likely the courts will have to continue laying down the ground rules in their scattershot way.
The following is a brief rundown of the significant banking cases settled this year, as well as issues the court may tackle next year.
* Interstate banking: In September, the U.S. Court of Appeals for the Second Circuit affirmed decisions by the Federal Reserve Board approving mergers of Connecticut, Rhode Island, and Massachusetts firms. Citicorp and Northeast BankCorp. had challenged the approvals and, in particular, regional interstate banking laws.
Those laws permit mergers across state lines, but only between states with similar laws. Most New England states have regional interstate banking laws, as do several states in the Southeast. Virtually every region in the country is now considering interstate banking in some form or another.
Citicorp and the New Haven, Conn.-based Northeast have appealed to the Supreme Court, maintaining that regional interstate laws are part of an interstate compact that has not been approved by Congress. The panel has yet to decide whether it will hear the case.
* Nonbank banks: Under Regulation Y of the Bank Holding Company Act, a bank is defined as an institution that both accepts demand deposits and makes commercial loans. A nonbank bank, then, is a firm that engages in only one of those activities.
The Federal Reserve Board, seeking greater control over nonbank banks, tried to alter the legal definition of a bank when it revised Reg Y last year. It said demand deposits included NOW accounts, and commercial lending included such activities as the purchase of certificates of deposit. Because nonbank banks engage in those activities, the Fed would have had jurisdiction over them.
In February, the U.S. Court of Appeals for the Tenth Circuit overruled the Fed and said NOW accounts were not to be considered demand deposits. Later, in a separate case before the same court, the FED lost again when the Court said it exceeded its authority in redefining Reg Y.
* Discount Brokerage: The Supreme court unanimously upheld on June 23 a Fed decision allowing BankAmerica Corp. to acquire Charles Schwab & Co., a discount brokerage firm. The ruling established the discount brokerage business as a permissible banking activity under the Bank Holding Company Act.
* Commercial paper: The Supreme Court ruled on July 23 that commercial paper is a security subject to the underwriting prohibitions of the Glass-Steagall Act. Under the act, banks are prohibited from underwriting securities, so, in effect, banks may not underwrite commercial paper.
The Supreme Court received the case after the Securities Industry Association appealed a Fed decision calling commercial paper deals the "functional equivalent" of a commercial loan.
However, the high court did not rule on the total merits of the case, leaving the appeals courts to determine whether a bank's dealing in commercial paper constitutes underwriting. …