Saturday, May 17, 2014

First Bank and Trust Co. v. Board of Governors of Federal Reserve System case brief summary

First Bank and Trust Co. v. Board of Governors of Federal Reserve System

605 F. Supp. 555 (E.D. Kent. 1984)
Facts:  Action concerns validity of the Monetary Control Act [MCA] of 1980.  MCA extended reserve requirements to ALL banks in United States whether bank was member of Federal Reserve System or not.  Prior to 1980, dual system of reserve requirements for banks was in existence.  Banks that were members of Federal Reserve were required to post reserves in accordance with regulations of Board.  Nonmember banks could keep reserves in accordance with state banking laws.  All nationally chartered banks were required to be members of Federal Reserve and comply with its reserve requirements.  State-chartered banks could be members of Federal Reserve, but if they were not, they did not have to comply with Board’s reserve requirements.*
Prior to 1980, plaintiff was nationally chartered bank.  Because of greater amount of idle reserves it had to hold being member of Federal Reserve, plaintiff’s Board of Directors in 1979, decided to withdraw from System and seek state charter.  Plaintiff’s shareholders approved decision and state charter was obtained on March 3, 1980, and on same day, plaintiff withdrew its reserve balances from Federal Reserve Bank of Cleveland, relinquishing its stock in system. 
Rising tide of “bank flight” from Federal Reserve System prompted Congress to pass the MCA (re-imposed mandatory reserve requirements) which was signed into law on March 31, 1980.  Pertinent provisions of MCA provided that non-member banks shall be allowed 8-year phase-in of mandatory reserve requirements.  Member banks, however, were not given any phase-in period and had to maintain reserves in accordance with federal regulations as always.
Plaintiff petitioned Board for determination that it had withdrawn from membership prior to July 1, 1979 so that pursuant to Board regulations it would be eligible for 8-year phase-in of reserve requirements or “hardship exemption” from immediate application of reserve requirements.  Board denied both requests and this appeal followed.
Holding:  Court affirmed Board’s determination and upheld validity of the MCA.
Reasoning:  Court relied upon legislative history and purpose of MCA in upholding its constitutional validity.  Court further found that Congress had rational purpose in picking date prior in time to statute’s enactment for determining which banks would be deemed member or nonmember banks for purposes of statute’s phase-in provision.  In plaintiff’s case, court reasoned that in attempting to curb bank flight, Congress was not going to reward banks such as plaintiff that had recently withdrawn from System in anticipation of Congress’ imposing mandatory reserve requirements.

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