SECURITIES INDUSTRY ASSOCIATION, ET AL., PETITIONERS V. BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM, ET AL.

   No. 82-1766

   In the Supreme Court of the United States

   October Term, 1983

   On Writ of Certiorari to the United States Court of Appeals for the
District of Columbia Circuit

   Brief for the Respondents

            TABLE OF CONTENTS
   Opinions below
   Jurisdiction
   Statutory provisions involved
   Statement
   Summary of argument
   Argument:
      Short-term, large-denomination commercial paper
      placed with large, financially sophisticated purchasers
      in the recognized commercial paper market is not a
      "security" within the meaning of the Glass-Steagall Act
      A. The language and structure of the Glass-Steagall
         Act demonstrate that the statute covers only instruments
         representing investments, not notes evidencing commercial
         transactions
      B. The legislative history demonstrates that when
         commercial paper is purchased by a bank for its own account
         it is not a "security" for purposes of the Glass-Steagall
         Act
      C. Commercial paper retains the characteristics of a
         commercial loan when it is purchased by large, financially
         sophisticated institutions other than banks; the bank's role
         in the transaction does not give rise to the "hazards"
         against which the Glass-Steagall Act was directed
      D. The Board's determination that the commercial paper
         involved here is not a "security" within the meaning of
         Glass-Steagall Act is entitled to substantial deference
   Conclusion
   Appendix

                            OPINIONS BELOW

   The opinion of the court of appeals (J.A. 220A-257A) is reported at
693 F.2d 136.  The opinion of the district court (J.A. 194A-219A) is
reported at 519 F.Supp. 602.  The statement of the Board of Governors
of the Federal Reserve System denying the petitions to initiate
enforcement action (J.A. 122A-143A) is not reported.  The Board's
Policy Statement Concerning the Sale of Third Party Commercial Paper
by State Member Banks (J.A. 183A-189A) is reported at 46 Fed. Reg.
29333.

                             JURISDICTION

   The judgment of the court of appeals was entered on November 2,
1982.  A petition for rehearing was denied on February 2, 1983 (J.A.
258A-261A).  The petition for a writ of certiorari was filed on April
29, 1983, and was granted on October 3, 1983.  The jurisdiction of
this Court is invoked under 28 U.S.C. 1254(1).

                     STATUTORY PROVISIONS INVOLVED

   1. Section 16 of the Banking Act of 1933, ch. 89, 48 Stat. 184 (the
Glass-Steagall Act), as amended, now codified at 12 U.S.C. 24
(Seventh), provides in pertinent part:

      The business of dealing in securities and stock by the (national
      bank) shall be limited to purchasing and selling such securities
      and stock without recourse, solely upon the order, and for the
      account of, customers, and in no case for its own account, and
      the (national bank) shall not underwrite any issue of securities
      or stock;  provided, that the (national bank) may purchase for
      its own account investment securities under such limitations and
      restrictions as the Comptroller of the Currency may by
      regulation prescribe.  * * *

   2. Section 21 of the Glass-Steagall Act, 48 Stat. 189, as amended,
now codified at 12 U.S.C. 378(a)(1), provides in pertinent part:

      (I)t shall be unlawful * * * (f)or any person, firm,
      corporation, association, business trust, or other similar
      organization, engaged in the business of issuing, underwriting,
      selling, or distributing * * * stocks, bonds, debentures, notes,
      or other securities, to engage at the same time to any extent
      whatever in the business of receiving deposits * * *:  Provided,
      That the provisions of this paragraph shall not prohibit
      national banks or State banks * * * from dealing in,
      underwriting, purchasing, and selling investment securities, or
      issuing securities, to the extent permitted to national banking
      associations by (Section 16 of the Glass-Steagall Act) * * *.

                          QUESTION PRESENTED

   Whether the court of appeals correctly upheld a ruling by the Board
of Governors of the Federal Reserve System that commercial paper --
short-term promissory notes issued by large, financially sound
businesses in very large denominations to meet their current needs and
sold to a small number of financially sophisticated purchasers that
regularly purchase short-term credit instruments -- is not a security
for purposes of the Glass-Steagall Act.

                               STATEMENT

   1. Commercial paper refers to unsecured, large-denomination
promissory notes that are of prime quality, bear very short
maturities, and are issued by large, well-known, and financially
strong corporations to obtain funds for seasonal or other current
needs.  /1/ The commercial paper market is part of the Nation's
wholesale money market in which a variety of low-risk, short-term,
highly liquid obligations are sold.  /2/ Examples of other short-term,
large-denomination instruments that are sold in the wholesale money
market are bankers' acceptances and bank certificates of deposit.  /3/

   Only about 1,200 firms borrow money in the commercial paper market,
/4/ either by placing their paper directly or through dealers.  /5/
Commercial paper placed through dealers usually matures in 60 days or
less;  a large portion of such paper has maturities of less than 30
days.  The minimum denomination of dealer-placed paper is very large,
averaging $1 or $2 million per note and almost never less than
$100,000.  /6/

   Because it is a wholesale market, commercial paper is not
distributed or advertised for sale to the general public.  Instead,
commercial paper is purchased by large, financially sophisticated
purchasers, predominantly institutions such as money market mutual
funds, trust departments of banks and, to a lesser extent, life
insurance companies, pension funds, nonprofit organizations and
nonfinancial corporations.  Banks also hold a small amount of
commercial paper for their own accounts.  /7/

   Although commercial paper is unsecured, the market has developed a
number of mechanisms to ensure that the obligations are repaid at
maturity.  Borrowers in the market maintain lines of credit, usually
in an amount equal to 100% of their outstanding paper, on which they
may draw to repay the paper if they are otherwise unable to do so.
/8/ Commercial paper also is rated by five independent rating
services;  unrated or low-rated paper is not readily accepted in the
market.  /9/ Since the default by Penn Central in 1970 on its
outstanding commercial paper, which resulted in the widespread
establishment of such mechanisms as backup lines of credit, there has
not been a single default of substance in the commercial paper market.
 /10/ Reflective of the low risk of paper purchased in the market
today is the fact that rates currently paid on commercial paper exceed
only slightly those paid on short-term United States government
obligations.  /11/

   In sum, commercial paper is a well defined, well recognized
instrument, as is evidenced by its exemption from the registration
requirements of the Securities Act of 1933, 15 U.S.C. 77c(a)(3), /12/
and its exclusion from the definition of the term "security" in the
Securities Exchange Act of 1934, 15 U.S.C. 78c(a)(10).  /13/ Firms
serving exclusively as dealers in commercial paper also are not
subject to the broker/dealer registration requirements of the 1934
Act, 15 U.S.C. 78o(a)(1).  The commercial paper market, like the
markets for bankers' acceptances and third-party certificates of
deposit, is thus largely self-regulating.  /14/

   2. During 1978, Bankers Trust Company (Bankers Trust), a New York
chartered member bank of the Federal Reserve System, began serving as
the agent of several of its corporate customers in placing their
commercial paper in the commercial paper market.  J.A. 123A,
223A-224A.  Petitioners, the Securities Industry Association (SIA), a
securities industry trade association, and A.G. Becker, Inc. (Becker),
a commercial paper dealer, informally expressed concern to the Board
of Governors of the Federal Reserve System about Bankers Trust's
commercial paper activities.  SIA and Becker subsequently petitioned
the Board, among other things, to issue a ruling to the effect that
Bankers Trust's activities are unlawful.  J.A. 122A.

   On September 26, 1980, after considering information obtained
through informal discussions with, and written submissions by, the
interested parties, as well as through an on-site examination by the
Board staff of Bankers Trust's commercial paper activities (J.A.
105A-106A), /15/ the Board issued a statement in response to the
petitions of SIA and Becker.  J.A. 122A-143A.  The statement explained
the reasons for the Board's conclusion that the commercial paper
placed by Bankers Trust is not a security for purposes of the
Glass-Steagall Act and therefore is not subject to the Act's
prohibitions against underwriting and dealing in securities.  /16/

   The Board first observed that Congress did not intend every
instrument that could be characterized as a note or security to be
subject to the Act's prohibitions on underwriting and dealing (J.A.
126A-135A).  Based on the language, legislative history and
administrative interpretation of the Act, as well as the underlying
legislative purpose to separate commercial and investment legislative
purpose to separate commercial and investment banking, the Board found
that Congress could not reasonably have viewed instruments with which
banks routinely deal as a part of their commercial banking business as
the type of "securities" covered by the prohibitions enacted to effect
the intended separation.  Ibid.  Accordingly, the Board concluded
(J.A. 135A) that "if a particular kind of financial instrument
evidences a transaction that is more functionally similar to a
traditional commercial banking operation than to an investment
transaction, then fidelity to the purposes of the Act would dictate
that the instrument should not be viewed as a security."

   Applying this standard to the commercial paper placed by Bankers
Trust, the Board concluded that these obligations represent a
transaction closer to commercial lending than to the sale of an
investment.  The Board recognized that, by contrast to the commercial
paper market as it existed at the time the Glass-Steagall Act was
passed, here the paper was being purchased primarily by institutions
other than banks.  In the Board's view, however, this fact alone did
not alter the commercial lending nature of the transaction.  Like the
traditional commercial loan from a bank, commercial paper is very
short-term.  Moreover, the paper is purchased in denominations larger
than an average investor can afford ($1 million on the average) by a
small number of financial institutions and others that, like banks,
are sophisticated financially and regularly purchase other types of
short-term obligations.  The role of Bankers Trust in this case, the
Board therefore found, is similar to that of the lead bank in a loan
participation or syndication, a traditional function of commercial
banks.  J.A. 135A-136A.

   The Board subsequently issued a policy statement setting forth
guidelines designed to ensure that the placement of commercial paper
by state member banks would be consistent with the principles of safe
banking (the Guidelines) (J.A. 183A-189A).  As the court of appeals
explained (J.A. 226A n.17), "the guidelines in essence describe
Bankers Trust's activities." They thus limit a bank's activities in
this area to the recognized commercial paper market by providing that
a bank may place only prime quality paper, in large denominations, and
only with financially sophisticated customers, and may not advertise
any commercial paper for sale to the general public.  J.A. 187A.  /17/

   3. Petitioners sought judicial review of the Board's ruling
concerning the applicability of the Glass-Steagall Act to the
commercial paper placed by Bankers Trust.  The district court rejected
the Board's interpretation, finding instead that any obligation that
may be characterized as a note is a security for purposes of the Act.
J.A. 194A-219A.

   The court of appeals reversed (J.A. 220A-257A).  It noted at the
outset (J.A. 226A) that the district court "gave insufficient weight
to the expertise of the Federal Reserve Board -- as the agency
responsible for administering the nation's banking system -- in
interpreting the provisions of the Glass-Steagall Act." In the view of
the appellate court (J.A. 227A-229A), deference was due to the Board's
construction of the statute because of that body's broad authority in
numerous areas of banking regulation, its expertise in banking
matters, the necessity in this case of applying general, undefined
terms -- notes and securities -- to particular facts, and the thorough
nature of the investigation undertaken by the Board and the findings
made by it as well as their consistency with previous rulings.

   The court of appeals did not, however, "rest merely on the
deference to the conclusions of the Federal Reserve Board" (J.A.
230A).  Instead, recognizing that the courts are the final arbiters of
the meaning of a statute, the court of appeals undertook an
independent analysis of the application of the Glass-Steagall Act to
the facts of this case.  Based on its own examination of the language
of Sections 16 and 21 of the Act, the relevant legislative history,
and the fundamental purposes underlying the Act, the court of appeals
found "essentially correct" (ibid.) the Board's conclusion that only
notes with the characteristics of an investment are securities for
purposes of the Act and that the commercial paper placed by Bankers
Trust is not such an instrument.

   The court observed first (J.A. 231A;  footnote omitted) that
"Congress'(s) principal concern in (enacting the Glass-Steagall Act)
was to protect the solvency and integrity of the banks themselves."
The court then turned to an examination of the statutory language,
recognizing (J.A. 232A;  footnote omitted) that if it "clearly evinces
a congressional determination to prohibit the activities in which
Bankers Trust has engaged (the) inquiry necessarily comes to an end."
To the contrary, however, the court of appeals concluded that both the
statutory language and the legislative history "strongly suggest that
commercial paper should be viewed as a loan rather than as a
'security' for the purposes of the Act" (J.A. 241A;  see also J.A.
235A, 236A).  The court determined, for example, that Congress' use of
the word "notes" in conjunction with other terms with more specific
meanings in the investment banking industry ("stocks," "bonds," and
"debentures") strongly implies that notes that lack the investment
characteristics of such securities, like commercial paper, were not
intended to be covered by the Act (J.A. 232A-236A).  /18/

   In accordance with the approach taken by this Court in Investment
Company Institute v. Camp, 401 U.S. 617, 635-638 (1971) (ICI I), the
court of appeals then examined the purposes of the Act in order to
determine whether this type of bank involvement with commercial paper
would result in the hazards and abuses the Act was designed to
eliminate (J.A. 241A-249A).  Like the Board, the court of appeals
concluded that the commercial paper placed by Bankers Trust has the
characteristics of a short-term commercial loan.  The court relied on
the following factors:  the default rate on commercial paper placed in
the established market is extremely low, the maturities are short, and
the paper is purchased by large institutions and others that have the
resources independently to verify representations by and about the
issuers.  J.A. 244A-246A.  While the commercial paper placed by
Bankers Trust differs from traditional lending by commercial banks in
that funds are provided by other institutions rather than by the bank
itself, the court determined that the bank's marketing of commercial
paper would not convert the transaction into the sale of an investment
since the bank's role does not give rise to the risk of loss and
conflicts of interest that the prohibition against bank involvement in
the investment banking business was designed to eliminate (J.A.
246A-247A).  Based on the absence of serious risk of loss and the
ability of purchasers to "fend for themselves," the court of appeals
concluded that the bank's marketing of commercial paper would not
result in the funds of bank depositors being tied up in speculative
investments or result either in the bank's abuse of its reputation for
prudence or in its provision of unreliable financial advice (J.A.
247A-249A).  /19/

   Senior Circuit Judge Robb dissented (J.A. 250A-257A).  Although he
purportedly would have left the question of whether the bank was
engaged in underwriting to the Board and the district court on remand
(J.A. 257A), in fact his analysis depended almost entirely on the role
of the bank (J.A. 251A):  "(T)he difference between the bank's role as
'purchaser' in a commercial loan transaction and its role as 'seller'
in a third-party commercial paper transaction * * * is determinative
under the Act.  * * * The critical distinction between commercial
banking and investment banking is the bank's role in the transaction."

                          SUMMARY OF ARGUMENT

                                  A.

   Petitioners' argument, simply put, is that because Section 21 of
the Glass-Steagall Act refers to "stocks, bonds, debentures, notes,
and other securities" (emphasis added) , the Act's prohibitions on the
activities of banks must apply to every instrument that is denominated
a "note." It is common ground that commercial paper consists of
negotiable promissory notes.  Hence, petitioners contend, it is within
the reach of the Act.

   The dispositive answer to this textual argument is quickly stated.
Commercial paper cannot be a "note" or "security" within the
prohibition of Sections 16 and 21 of the Act unless it also qualifies
as an "investment security," as defined in Section 16.  That is so
because, on the one hand, the cited sections forbid a commercial bank
even to buy for its own account any covered security, except only
"investment securities," and, on the other hand, it is unassailably
clear that commercial banks may purchase commercial paper for their
own account, as they always have done without objection.  Thus,
petitioners are relegated to one of two alternative propositions:
Either they must assert, against the understanding of everyone in the
field, that commercial paper, in all circumstances, fits within the
special category of "marketable obligations evidencing indebtedness"
that are "commonly known as investment securities," or they must say
that commercial paper, although not by nature an investment security,
becomes so when a commercial bank performs an intermediary role in
placing it.  Whatever may be said in favor of the latter argument, it
obviously does not turn on the "plain meaning" of the terms "notes"
and "securities" in the Glass-Steagall Act.

   The provision of the Glass-Steagall Act that is most relevant to
this case is Section 16, since it is the section expressly directed to
the activities of banks.  Our construction of that provision is
confirmed when we look at the text as enacted in 1933.  Whatever
ambiguities there may be in the original language of Section 16, its
constant reiteration of the phrase "investment securities" makes it
plain that Congress was focusing solely on dealings in instruments
bearing the characteristics of an investment.  Nor has that focus
changed.  The amendments effected by the Banking Act of 1935 were
labelled "technical" and no one suggests that they substantively
altered Section 16.  Now, as before, the provision is not concerned
with instruments that do not bear the characteristics of an
investment.

   Petitioners' exclusive reliance on Section 21 is misplaced, not
only because Section 16 is the provision of the Act that is directed
at the activities of banks, but also because the proviso to Section 21
makes clear that nothing permitted to commercial banks under Section
16 is prohibited to them by Section 21.  But even if we look to
Section 21, its terms confirm that the Act is concerned only with bank
dealings in instruments bearing the characteristics of an investment.
To be sure, the word "note" could embrace any written obligation to
pay money, but its context indicates otherwise.  Since the term is
accompanied in Section 21 by other terms denoting specific,
well-recognized types of permanent or long-term securities, Congress
also must have used the word "note" in Section 21 in its more
specialized, investment sense.

                                  B.

   Our analysis is fully supported by the relevant legislative
history.  As the Court has noted (Board of Governors of the Federal
Reserve System v. Investment Company Institute, 450 U.S. 46, 70 (1981)
(ICI II)), the Glass-Steagall Act was designed to "separat(e) as
completely as possible commercial from investment banking." The Act,
however, "surely was not intended to require banks to abandon * * *
accepted banking practice(s)." Id. at 63.

   More specifically, the legislative history of the 1927 McFadden
Act, which first contained the narrow definition of "investment
securities" re-enacted in Glass-Steagall, makes clear beyond
peradventure that commercial paper was not an "investment security" as
narrowly defined in Section 16.

   Furthermore, the history of the Glass-Steagall Act reveals a
distinction in the minds of its draftsmen between commercial paper
"notes" on the one hand and "securities" or "investment securities" on
the other.  Indeed, the draftsmen regarded the purchase of commercial
paper by a bank as the equivalent of a commercial loan, a traditional
banking function to which the Act was intended to encourage banks to
return.  This legislative history demonstrates beyond doubt that the
sponsors of the Glass-Steagall Act were not targeting the purchase of
commercial paper by covered banks.

                                  C.

   The commercial paper market has changed markedly since the
enactment of the Glass-Steagall Act in 1933.  Banks are no longer
virtually the only purchasers of commercial paper;  the vast bulk of
the commercial paper outstanding today is held by nonbank purchasers.
Nevertheless, commercial paper held by large, financially
sophisticated institutions other than banks continues to function as
the equivalent of a commercial loan to the issuer of the paper.
Accordingly, it is immaterial whether the bank, in placing the paper,
is engaged in an activity that, if conducted with respect to a
security, would be prohibited by the Act.  In any event, the role
played by the bank in placing the paper is consistent with the view
that the paper represents a commercial lending transaction.  Because
the bank places commercial paper only with large, financially
sophisticated purchasers that routinely purchase other short-term
credit instruments, the bank in effect is simply arranging a
commercial loan from the purchasers to the issuer.  Moreover, this
activity of the bank gives rise to none of the "hazards" against which
the Glass-Steagall Act was directed.

                                  D.

   Contrary to petitioners' assertions, the Board is not attempting to
"regulate" the underwriting by banks of instruments that are
"securities" within the meaning of the Glass-Steagall Act.  Rather,
the Board's ruling represents a determination that the commercial
paper involved here is not a "security" for purposes of the Act and
for that reason is not subject to the legislation's prohibitions.
Properly viewed as the construction of the statute by the agency
charged with its administration, the Board's ruling is entitled to
considerable deference.

                               ARGUMENT

 SHORT-TERM, LARGE-DENOMINATION COMMERCIAL PAPER PLACED WITH LARGE,
FINANCIALLY SOPHISTICATED PURCHASERS IN THE RECOGNIZED COMMERCIAL
PAPER MARKET IS NOT A "SECURITY" WITHIN THE MEANING OF THE
GLASS-STEAGALL ACT

   The Glass-Steagall Act, originally enacted in 1933 and amended in
1935, prohibits commercial banks from engaging in certain dealings in
"securities." Even if we assume that the placing of any debt
instrument with a very restricted group of third-party purchasers
would qualify as "underwriting" or some other covered activity (a
question not decided below and not presented to this Court), the
threshold inquiry is whether short-term, large-denomination commercial
paper that is bought only by large, financially sophisticated
purchasers in the recognized commercial paper market, constitutes a
"security" within the meaning of the Act.  If not, the case is at an
end.

   Petitioners' argument, as we understand it, is that the "plain
language" of the statute covers every instrument that can be
characterized as a "note" or "security," regardless of its investment
or commercial nature.  We answer that contention with our own textual
analysis.  But, more fundamentally, our submission is that the
purposes of the Glass-Steagall Act, as summarized in this Court's
decisions and reflected in the legislative history, make plain that
commercial paper was never the subject of the legislation and is not
brought within its ambit merely because a commercial bank performs an
intermediary role in placing it with other purchasers.

 A. The Language And Structure Of The Glass-Steagall Act Demonstrate
That The Statute Covers Only Instruments Representing Investments, Not
Notes Evidencing Commercial Transactions

   All too seldom can a complex issue be decided merely by parsing the
bare words of a statute.  Nevertheless, obeying the Court's familiar
injunction, we begin with the statutory language.  As we shall see,
that approach does not yield the result urged by petitions.  On the
contrary, focusing only on the text, we are immediately put on guard
that the Glass-Steagall Act does not prohibit commercial banks from
all dealings in "notes" and "securities" of every description.  And,
once we trace the operative language through the Statutes at Large, we
are very quickly led to the conclusion that instruments bearing the
characteristics of an investment alone are the target of the
legislation.

   1.  The most obviously relevant provision of the Glass-Steagall Act
is Section 16 -- the only provision that directly addresses the
prohibited and permissible securities dealings of commercial banks.
/20/ The Section /21/ first reaffirms the powers of national banks as
including, among other things, "discounting and negotiating promissory
notes * * * and other evidences of debts." /22/ Then, Section 16
addresses "(t)he business of dealing in securities and stock by
(national banks)." Generally, covered banks are prohibited from
"purchasing and selling such securities * * * for (the bank's) own
account" and from "underwrit(ing) any issue of securities." There
follows a proviso permitting commercial banks (subject to regulation
by the Comptroller of the Currency) to purchase for their own account
limited amounts of "investment securities," defined as "marketable
obligations evidencing indebtedness * * * commonly known as investment
securities." Redundantly, a national bank is expressly forbidden to
buy "any shares of stock of any corporation" for its own account.
And, finally, a further stipulation exempts certain governmental
obligations from "(t)he limitations and restrictions herein contained
as to dealing in, underwriting and purchasing for its own account,
investment securities."

   This is no model of drafting.  Yet, some conclusions may be drawn
from the face of the text, even if we confine ourselves to the method
of English Judges and treat Section 16 as an orphan with no known
family history.

   We first notice that covered banks are permitted, subject to
quantitative limitations, to purchase for their own account specially
defined "investment securities." Presumably, this is a particular
species belonging to the broader family of "securities and stock"
which banks are otherwise forbidden from acquiring except for
customers.  The excluded species -- which covered banks cannot buy for
their own account -- must be securities, including equity, that are
more speculative and involve a greater risk of loss than the approved
"investment securities." /23/ We could, of course, stop here, having
divided the entire universe of financial instruments into two
categories:  relatively "safe" debt obligations in which banks may
invest, and more speculative securities that are barred to them.  But
this is immediately unsatisfactory.

   The problem is that we have not accounted for high quality,
low-risk obligations that are not "commonly known as investment
securities" because of their very short maturities or their appeal to
only a select market -- such as commercial paper.  We know that
commercial banks have always purchased this kind of paper and there is
no reason why they ought not be free to do so, given that they may buy
some other fluctuating long-term "investment securities" for their own
account.  Yet, covered banks now are prohibited from acquiring these
short-term obligations if they must be subsumed within the family of
"securities and stock" addressed in Section 16.  The only rational
explanation is that the Glass-Steagall Act does not reach such
obligations at all -- because the statute is only concerned to
regulate bank dealings in instruments representing investments.

   In sum, the universe of debt obligations is divided into three, not
two parts:  (1) speculative securities that (like stock) commercial
banks cannot touch except as agents for their customers;  (2) special
"investment securities" that they may purchase for their own account
but cannot otherwise deal in;  and (3) other obligations (including,
but not limited to, commercial loan notes) that commercial banks are
free to buy and sell or place for others.  /24/ Since it is common
ground that banks may purchase commercial paper, it cannot fall within
the first category.  /25/ And yet, as we show in a moment, commercial
paper does not qualify as an "investment security," as narrowly
defined in Section 16.  Hence, commercial paper must be in the last of
our categories, unregulated by the Glass-Steagall Act.

   2. Our reading of Section 16 as it now appears in the statute book
is confirmed if we look at the original text enacted in 1933, before
its amendment by the Banking Act of 1935.

   In the Glass-Steagall Act of 1933, the relevant portion of Section
16 was addressed exclusively to national bank involvement with what
were termed "investment securities"(emphasis added).  That term was
repeated no less than six times in the 1933 Section.  It was obviously
carried forward from the McFadden Act of 1927, ch. 191, 44 Stat. 1224
et seq., itself an amendment to the National Bank Act, which
authorized covered banks to engage, in a limited way, in "the business
of buying and selling investment securities." Now, in 1933, that
authorization was cut back.  But the focus remained the same:  the
connection between national banks and instruments bearing the
characteristics of investment.

   To be sure, "investment securities," as used in the original
Glass-Steagall Act, was perhaps too narrow if the term was always to
be understood in the restrictive sense of the definition provided in
Section 16.  And that presumably explains why the word "investment"
was omitted when the expression was replaced by "securities and stock"
in 1935.  See Banking Act of 1935, ch. 614, Section 308(a), 49 Stat.
709.  Henceforth, the term "investment securities" was reserved as a
definition of the restricted category of securities that national
banks may purchase for their own account.  There is, however, no basis
for reading more in the 1935 amendments than an intent to tidy a
careless text.

   In light of the legislative history of these amendments, no such
claim has or could be made.  /26/ There is, in any event, internal
evidence against reading the amendments as working a change of law.
They are expressly labelled "technical amendments," and, without going
afield, we can discern the need for them by noting the imperfections
of the 1933 text.  We are, moreover, given another internal clue in
the formulation of the new proviso added to Section 21.  See First
Proviso added by Section 303(a) of the Banking Act of 1935, 49 Stat.
707.  There, Section 16 is described as granting commercial banks
limited permission to deal in "investment securities" (emphasis
added).  This may be a partial lapse in view of the linguistic
revisions now made to Section 16.  But it is hardly credible that the
old terminology would have been retained if those revisions had been
understood to effect a major substantive change.  /27/

   The upshot is that the Glass-Steagall Act, before and after its
amendment, focused solely on dealings in instruments bearing the
characteristics of an investment, whether in the narrow sense of the
specially defined "investment securities" or more broadly.  And, as we
demonstrate in a moment, commercial paper simply does not fit that
mold.

   3. Recognizing, apparently, that commercial paper is within neither
the "investment security" nor the other "security" prong of Section
16, petitioners rely instead on Section 21, arguing that because
commercial paper consists of promissory notes it is within that
Section's ban on the issuance, underwriting, selling or distributing
of "stocks, bonds, debentures, notes, or other securities." 12 U.S.C.
378(a)(1).  The full answer, it would seem, is in the proviso to
Section 21 added in 1935, which makes clear that nothing permitted to
commercial banks under Section 16 is prohibited to them by Section 21.
 That is what we would expect:  After all, Section 16 is the provision
of Glass-Steagall that is specifically addressed to banks and it would
be peculiar if greater restrictions on their activities were to be
found in a provision that was directed at non-banking institutions.
Indeed, petitioners themselves concede that the two provisions are
"co-extensive" (Becker Br. 24;  see also SIA Br. 14;  ICI am. br. 8).

   But if, notwithstanding the proviso, we look to the terms of
Section 21, no different conclusion emerges.  Section 21's
prohibitions apply to "stocks, bonds, debentures, notes, or other
securities" (emphasis added).  When this provision is read together
with Section 16 (as petitioners acknowledge it should be (SIA Br. 14;
see also Becker Br. 24-26)), it strongly suggests that only those
instruments that are "securities" ("investment" or other) for purposes
of Section 16 will also be covered by Section 21's prohibitions.  In
any event, when the term "notes" is properly read in the context of
the provision as a whole, it is clear that the reference is only to
notes representing investments.

   The words "stocks," "bonds," and "debentures" all refer to
specific, well recognized types of permanent or long-term securities.
Stocks, of course, represent ownership interests in a corporation.
/28/ Bonds are secured debt instruments, issued under a trust
indenture agreement, that are sold to the public generally in small
denominations (usually $1,000) and that bear maturities of from five
to 30 years or longer.  /29/ "Debentures" are debt instruments similar
to bonds in all respects except that they are unsecured.  /30/ Public
issues of stocks, bonds, and debentures typically are registered with
the Securities and Exchange Commission.

   The word "notes," however, is susceptible to more than one meaning.
 On the one hand, the term is used in the investment banking industry
to refer to debt obligations that, like bonds and debentures, are
distributed to the public in small denominations under an indenture
agreement, but that bear shorter maturities than bonds or debentures
-- usually from one to five years.  /31/ On the other hand, the term
also is used in a generic fashion to refer to any written obligation
to pay money.  /32/ When employed in this latter sense, the word
"notes" encompasses a broad universe of instruments that have no close
relationship to investment banking:  handwritten I.O.U.'s, Federal
Reserve notes (currency), bank deposit receipts, loan notes for the
purchase of consumer goods, or notes representing a loan to a
business.

   Where a word "capable of many meanings" is used in conjunction with
words of more limited meaning, it is limited and qualified by the
specific words surrounding it "in order to avoid the giving of
unintended breadth to the Acts of Congress." Jarecki v. G.D. Searle &
Co., 367 U.S. 303, 307 (1961).  /33/ Hence, the fact that Congress
included the word "notes" in a list of other terms, each of which
refers to a specific type of investment instrument, makes clear that
Congress used the term "notes" in Section 21 of the Act not to connote
all instruments that can be characterized as notes, but only notes of
an investment character.  Indeed, if the broad, generic meaning of
"notes" were intended, it would have been unnecessary for Congress to
specify "bonds" or "debentures" in the statute, since "notes" would
have encompassed all debt securities.  /34/

   By using the words "notes" and "securities" in Section 21 in
conjunction with other terms that refer to specific types of long-term
investments, Congress indicated on "the face of the statute" (Jarecki
v. G.D. Searle & Co., 367 U.S. at 307-308) that these words should be
interpreted in accordance with their specialized, investment meanings.
 Contrary to petitioners' contentions, the Board's interpretation does
not result in engrafting nonstatutory limitations into the Act;  the
limitations on "notes" and "securities" are inherent in the manner in
which the words are arranged in the statute.  The statutory text
itself directs us to examine the particular instrument to determine
whether it shares that characteristic of an investment that is the
common feature of each of the other enumerated instruments.  The
construction urged by petitioners, which would bring every instrument
that can be characterized as a note within the ambit of the Act's
prohibition, wrenches isolated words both from the statutory context
in which Congress used them and from the underlying congressional
purpose to separate investment banking from commercial banking (see
pages 24-25, infra).  /35/

   Moreover, petitioners' overbroad construction of the Act would bar
many other commonly accepted banking functions.  Since enactment of
the Glass-Steagall Act banks have continued to engage in the marketing
of notes not having the characteristics of an investment.  For
example, banks in effect sell note obligations to other lenders in
arranging loan participations and buy and sell as dealers certificates
of deposit and bankers' acceptances issued or accepted by other
financial institutions.  If petitioners were correct in arguing that
every note is a "security" for purposes of the Glass-Steagall Act,
these activities also would be prohibited by the Act.

 B. The Legislative History Demonstrates That When Commercial Paper Is
Purchased By A Bank For Its Own Account It Is Not A "Security" For
Purposes Of The Glass-Steagall Act

   The textual exegesis we have just undertaken, if not dispositive,
carries us a long way to the conclusion that bank dealings in
commercial paper were never intended to be inhibited by the
Glass-Steagall Act, as originally enacted in 1933 or as amended in
1935.  But any lingering doubts are put to rest when we leave the text
and notice the legislative history of the relevant sections.

   1. The central purpose of the Glass-Steagall Act has long since
been identified by the Court itself and we need not retrace that
ground in more than a few words.  The statute was passed in reaction
to the recent financial disaster that had included the failure of many
banks and the ruin of their depositors.  Congress believed that
commercial banks had significantly contributed to this result by their
securities dealings, especially "perilous underwriting operations" and
"stock speculation," and, accordingly, was determined to "separate( )
as completely as possible commercial from investment banking." ICI II,
450 U.S. at 61-62, 70.

   The particular concerns that animated Congress in divorcing
commercial banks from the investment securities business have been
fully catalogued.  ICI II, 450 U.S. at 66-67;  ICI I, 401 U.S. at
630-633.  The most obvious threat to bank solvency was that, through
misjudgment or misfortune, a bank might be forced to commit its own
assets to hold illiquid and unmarketable securities.  The "more
subtle" dangers included the possibility that if investments sold by
the bank proved unsuccessful, the bank, fearing loss of public
confidence and good will, might make unsound loans to shore up its own
securities operation or the businesses whose securities the bank was
selling.  There was also concern that banks would use their credit
facilities to support speculative investment in securities, rather
than for the service of "agriculture and commerce and industry." ICI
I, 401 U.S. at 632 n.29.  Finally, Congress feared that involvement in
the investment banking business would prejudice a commercial bank's
ability to provide reliable investment advice or might tempt it to
unload securities it was unable to sell in accounts the bank managed
as trustee.

   In sum, the focus of the Glass-Steagall Act was on the perils of
permitting commercial banks to return to the investment securities
business.  This alone strongly suggests that Congress was not
addressing transactions in commercial paper, which were never viewed
as the source of the problem.  But we need not guess about it.  There
is ample indication in the legislative history that involvement in
commercial paper was deemed a proper part of the commercial banking
business.

   2. Bank involvement in the commercial paper market can be traced
back to the first banks organized in this country.  A. Greef, The
Commercial Paper House in the United States 6-7, 15-18 (1938).  Before
the banking system developed extensive branching systems, the transfer
of surplus, loanable funds from banks in one geographic locale to
banks in other areas was difficult.  Thus, borrowers whose local bank
had no lendable funds at a certain time would place their loan notes,
often through middlemen, with banks in capital surplus areas.  /36/

   Although banks purchased such obligations in the open market,
through middlemen or directly, commercial paper held by a bank for its
own account traditionally was treated for bank regulatory purposes as
the making of a commercial loan by the bank, not as the purchase of an
investment.  Throughout this period and continuing to the present time
commercial paper purchased by banks has been reported in the bank's
public report of condition as a commercial loan, not as the purchase
of a security.  Greef, supra, at 173;  J.A. 130A.

   In 1927, Congress amended the National Bank Act of 1864 by enacting
the McFadden Act, which recognized the legality of the then existing
practice of national banks of dealing in and underwriting corporate
bonds.  /37/ The Act provided that the business of buying and selling
investment securities by a national bank "shall hereafter be limited
to buying and selling without recourse marketable obligations
evidencing indebtedness of any person, copartnership, association, or
corporation, in the form of bonds, notes and/or debentures, commonly
known as investment securities" subject to certain limitations based
on the bank's capital.  /38/ The legislation's sponsor made crystal
clear that the term "investment securities" as used in the Act did not
include commercial paper, which was subject to the separate
limitations on the amount of a bank's commercial loans.  /39/

   As discussed more fully above (pages 15-20, supra), when Congress
again amended the National Bank Act six years later by passing the
Glass-Steagall Act, it restricted dramatically the authority of
national banks to deal in bonds and debentures.  However, banks
continued to be permitted to purchase certain "investment securities"
for their own accounts and this definition was not changed by the
Glass-Steagall Act or by the 1935 amendments.  /40/ Accordingly,
commercial paper is no more an "investment security" within the
proviso to Section 16 today than it was in 1927 or 1933.  Because
commercial paper plainly is not a "security" other than an "investment
security" (see pages 17-18, supra), it follows that commercial paper,
at least when it is purchased by a bank, is not a "security" for
purposes of the Act.

   In addition, the legislative history of the Glass-Steagall Act
itself recognizes the distinction between commercial paper "notes" on
the one hand and "securities" or "investment securities" on the other.
 Indeed, the draftsmen of the Glass-Steagall Act regarded the purchase
of commercial paper by a bank as the equivalent of a commercial loan,
a traditional banking function to which the Act was intended to
encourage banks to return.  For example, the Senate Report decried "a
loose banking policy which had turned from the making of loans on
commercial paper to the making of loans on security." /41/ In a
similar vein, Senator Walcott, a manager of the bill that became the
Act, stated:

         (F)rom 1924 or 1925 to 1929 * * * a complete change in our
      banking system (occurred) in the respect that business
      enterprises all over the United States began to finance their
      requirements by the sale of their own securities rather than by
      borrowing at the commercial banks upon their commercial paper --
      that is, upon their notes.  * * *

         The commercial banking business in consequence of this
      extraordinary volume of security business declined.  The banks
      had to change to a large extent their method of handling
      business.  There was no longer the great demand for borrowing on
      commercial paper.  /42/

   Senator Glass, the chief draftsman of the Act, /43/ also contrasted
commercial paper with investment securities:

      In their open-market operations (the Federal Reserve Banks) have
      never bought a dollar of commercial paper.  * * * They have
      bought investment securities.  /44/

   In sum, the criticism was that commercial banks had abandoned
commercial paper in favor of investment in "securities." And what the
Act was designed to end was bank dealings in long-term obligations.
Thus, the Senate Report on the proposed legislation described as "a
very fruitful cause of bank failures * * * the fact that the funds of
various institutions have been so extensively 'tied up' in long-term
investments." /45/ Similarly, in his lengthy explication of the
securities prohibitions of the Act, Senator Bulkley defined the
affiliates targeted by the Act as corporations "operating in the
long-term capital market in competition with the investment houses.'
/46/ He also identified investment banking as "the mechanism for the
supply of long-term funds to industry and to Government borrowers"
/47/ and spoke of the evils and hazards that result when a securities
affiliate "hold(s) long-term securities" of a kind which the bank is
not permitted to hold.  /48/ He further decried banks venturing forth
into the "long-term capital market" /49/ and encouraging borrowers
seeking to raise "long-term funds" to issue securities to be sold to
the depositors of the bank.  /50/ By contrast, the legislative history
is devoid of any congressional concern about bank involvement with
short-term notes in general or with commercial paper in particular.

   3. It is telling that petitioners' description (SIA Br. 17-21;
Becker Br. 29-35) of the legislative history largely ignores the
Glass-Steagall Act itself and relies instead on the history of other
legislation, most of which was enacted by subsequent Congresses.  /51/

   Petitioners' reliance on various provisions of the Securities Act
of 1933, the Securities Exchange Act of 1934, and the Public Utility
Holding Company Act of 1935, suffers from the same infirmity:  all of
these laws were enacted for reasons far different from the
considerations that underlay the enactment of the Glass-Steagall Act.
/52/ As noted above, the Glass-Steagall Act was designed to protect
banks and their depositors from insolvencies "partially attributable
to the connection between commercial banking and investment banking."
ICI II, 450 U.S. at 61.  By contrast, the "primary purpose" of the
securities legislation of 1933 and 1934 was to eliminate abuses from
"the capital market of the enterprise system" and "to prevent fraud
and to protect the interests of investors." United Housing Foundation,
Inc. v. Forman, 421 U.S. 837, 849 (1975) (emphasis added);  see also
Marine Bank v. Weaver, 455 U.S. 551, 555 (1982) (the 1934 Act "was
adopted to restore investors' confidence in the financial markets")
(emphasis added).  /53/ In short, the Glass-Steagall Act and the
securities laws were intended to serve widely divergent aims;  /54/
the scope of what constitutes a "security" for each therefore need not
be the same in order to accomplish the congressional objectives.  Even
where they are enacted by the same Congress as part of a comprehensive
legislative effort, separate statutes that "play different roles in
achieving * * * broad, common goals" are not construed similarly or in
pari materia.  Erlenbaugh v. United States, 409 U.S. 239, 245 (1972).
Accordingly, the legislative history on which petitioners rely is not
determinative or even reliable evidence in construing the
Glass-Steagall Act.  /55/

   Reference to the securities laws definitions for purposes of
construing the word "security" in the Glass-Steagall Act is
inappropriate for another reason as well.  The 1933 Act, the 1934 Act
and the Public Utility Holding Company Act of 1935 all define the term
"security" as meaning, unless the context otherwise requires, "any
note * * *." 15 U.S.C. 77b(1), 78c(a)(10), 79b(a)(16).  On its face,
such language is more encompassing than the word "notes" as it is used
in Section 21, i.e., in a list of specific, long-term debt securities.

   Finally, it is not even clear that the commercial paper involved
here would constitute a security within the meaning of the securities
laws provisions on which petitioners rely.  Following this Court's
lead, /56/ the lower courts now uniformly look to the economic
realities underlying the particular transaction in order to determine
whether an instrument denominated as a note is a "security" within the
meaning of the securities acts.  Indeed, several courts have employed
precisely the investment/commercial distinction that was applied by
the Board and court below;  on that basis, they have found long-term
notes of a commercial nature not "securities" within the meaning of
the securities laws and short-term notes of an investment nature
covered by those laws, notwithstanding the express exclusion from the
1934 Act and the registration requirements of the 1933 Act for
short-term notes only (see notes 12 & 13, supra).  /57/

 C. Commercial Paper Retains The Characteristics Of A Commercial Loan
When It Is Purchased By Large, Financially Sophisticated Institutions
Other Than Banks;  The Bank's Role In The Transaction Does Not Give

               Rise To The "Hazards" Against Which The Glass-Steagall

               Act Was Directed

   What we have said demonstrates beyond doubt that the sponsors of
the Glass-Steagall Act were not targeting the purchase of commercial
paper by covered banks.  Accordingly, the Act did not intend to
embrace commercial paper as a "security," dealing in which was
prohibited to commercial banks.  That was, of course, at a time when
banks were virtually the only purchasers of commercial paper /58/ and
only very seldom acted as intermediaries for other buyers of this
paper.  The situation is now markedly changed.  Today, the vast bulk
of the commercial paper outstanding is held by money market mutual
funds, bank trust departments and, to a lesser extent, life insurance
companies, pension funds, nonprofit organizations and nonfinancial
corporations.  The argument is therefore made that the role of the
bank in placing this paper with these other purchasers somehow changes
its character and brings it within the category of "securities" that
the Glass-Steagall Act forbids commercial banks from dealing in.  We
now address that contention by showing that commercial paper held by
large, financially sophisticated institutions other than banks
continues to function as the equivalent of a traditional commercial
loan to the issuer and the bank's role in the transaction is in no way
inhibited by the Glass-Steagall Act.

   1. A commercial loan, in its traditional form, represents a
short-term extension of credit to a business to finance short-term
needs.  /59/ By contrast, as we explained above (page 21, supra), a
debt security such as a bond, debenture or note, ordinarily is
distributed to the public, in small denominations, pursuant to a trust
indenture, and for relatively long periods of time.  The commercial
paper involved here exhibits all of the essential criteria of the
quintessential commercial loan and bears none of the significant
characteristics of a debt security.  /60/

   First, the commercial paper placed by Bankers Trust matures on the
average in 60 days (J.A. 105A);  most of the paper placed through
dealers has a maturity of 30 days or less.  /61/ These maturities
accord generally with the maturity of a traditional commercial loan
from a bank.  /62/

   As a consequence of its very short maturities, commercial paper,
like a commercial loan, generally is held to maturity;  there is
virtually no secondary commercial paper market.  /63/ Moreover, also
because of its short maturities, the purchasers of commercial paper
bear a significantly different kind of risk than do investors.
Whereas investors must be concerned with the overall, long-term
prospects of the issuing business, holders of commercial paper need
only be satisfied that the borrowing corporation has sufficient
liquidity to meet its current liabilities.  In addition, because there
is no effective secondary market, holders of commercial paper, like
other short-term lenders, generally are not affected by fluctuations
in interest rates or other changes in economic conditions that may
affect an investor's ability to resell a security.  In sum, the risk
associated with the purchase of commercial paper in the recognized
market is not indicative of an investment transaction.  /64/

   A final consequence of the very short maturities of commercial
paper is that issuers use the proceeds for the same seasonal,
temporary purposes as they would use the proceeds of bank loans.  /65/
The well recognized fact that large corporations issue commercial
paper as a substitute for seeking bank credit is additional evidence
that commercial paper is the functional equivalent of a commercial
loan.  /66/

   Furthermore, unlike bonds and debentures, commercial paper is sold
only in very large denominations -- $1,000,000 on the average;  /67/
Bankers Trust does not sell commercial paper in denominations of less
than $100,000 (J.A. 105A).  The consequence of the very large
denominations in which commercial paper is issued is that it is not
affordable by the average investor;  /68/ Bankers Trust, for example,
sells to no individuals (J.A. 106A).  Rather, the paper is placed only
with large, financially sophisticated institutions (J.A. 106A).  The
most significant purchasers of commercial paper today are money market
mutual funds, which, as of May 1983, held approximately $50 billion in
commercial paper, about 30% of the total outstanding.  /69/ The
remaining two-thirds is purchased by bank trust departments and, to a
lesser extent, life insurance companies, pension funds, nonprofit
organizations, and nonfinancial corporations.  /70/

   These institutions, like banks, routinely make large purchases of
short-term credit instruments as part of a regular business.  /71/ For
example, money market mutual funds are investment companies that,
among other things, provide expedited means for making purchases and
redemptions of their shares.  /72/ The funds therefore invest the
proceeds from sales of their shares in a variety of short-term credit
instruments, such as bankers' acceptances and certificates of deposit
as well as commercial paper.  /73/ Indeed, the Federal Reserve Board
determined that money market mutual funds were "creditors" for
purposes of the credit control regulations (see 45 Fed. Reg. 17930
(1980)) issued pursuant to the Credit Control Act, 12 U.S.C. 1901 et
seq. (repealed).  /74/ Moreover, because they have substantial
resources, and have access to professional advice on the money
markets, nonbank purchasers of commercial paper, like commercial banks
making commercial loans, are able themselves to evaluate the risk of
the purchase and to verify representations about the borrowing
corporation.  /75/ Money market funds, for example, have access to a
staff of specialists, usually an external adviser, to assist the fund
in evaluating the risks of placing funds in particular instruments.
/76/

   2. Because commercial paper is a unique instrument representative
of a commercial loan transaction rather than an investment, it is not
a security for purposes of the Glass-Steagall Act.  It is therefore
immaterial whether the bank, in placing the paper, is engaged in an
activity that, if conducted with respect to a security, would be
prohibited by the Act.  In any event, the role played by Bankers Trust
is consistent with the view that commercial paper represents a
commercial lending transaction.  Since the bank places the paper only
with a small number of large, financially sophisticated institutions
that routinely purchase short-term credit instruments, it in effect is
arranging a commercial loan from the purchasers to the issuer.  Banks
traditionally have performed virtually the same function in arranging
loan participations or syndications.  /77/

   In arranging a loan participation or syndication, the lead bank
solicits other lenders wishing to provide funds to a particular
borrower and conveys financial information concerning the borrower to
the other prospective lenders.  The lead bank earns a fee, usually
based on the size of the loan, contingent on successful arrangement of
the participation.  /78/ Lenders other than commercial banks
frequently are parties to loan participation and syndication
transactions.  /79/ Loan participations and syndications have long
been considered part of traditional commercial banking practice and
generally are not deemed to involve "securities" even under the
securities laws.  /80/

   3. The bank's role in placing commercial paper involves none of the
"hazards" that this Court identified in determining that equity
interests in a mutual fund were "securities" for purposes of the
Glass-Steagall Act in ICI I, 401 U.S. at 629-634, 635-638.  The
principal reason is simply that dealings in commercial paper are
relatively risk free.

   This lack of significant risk is the product of many factors.
First, corporations that borrow in the commercial paper market are
rated by five independent credit rating services, which conduct
thorough periodic investigations of the issuer's financial condition
and liquidity.  /81/ Paper with no rating or a low rating cannot
easily be placed in the market.  /82/ Accordingly, only the largest
and financially strongest corporations are able to borrow funds in the
commercial paper market.  /83/ Today, only about 1,200 firms have
ratings from the three major credit rating services, thus defining the
outer limit of corporations that are able to borrow in the commercial
paper market.  /84/

   Second, the short maturities of the paper provide substantial
protection against loss.  The large, well-known corporations that use
commercial paper to obtain funds are unlikely to deteriorate in 30 to
90 days.  Even if financial difficulties do develop, purchasers of the
paper, unlike the holders of bonds or debentures, can demand payment
before the incipient problems worsen.  /85/

   Moreover, virtually all commercial paper issuers follow a policy of
maintaining lines of credit from a commercial bank equal to 100% of
the amount of their commercial paper outstanding.  /86/ Issuers can
draw on these "back-up" lines of credit to repay their outstanding
obligations if they encounter financial difficulties.  The use of bank
letters of credit also is becoming more widespread in the market.  If
commercial paper is backed by a letter of credit from a bank or other
financial institution, the guarantor agrees to repay the holder of the
paper directly if the issuer is unable to do so.  /87/

   The ultimate test of risk, of course, is the rate of default on
commercial paper.  Historically, the number of defaults by issuers of
commercial paper has been nominal, even during the years of the Great
Depression.  /88/ Indeed, even the 1970 failure of the Penn Central
Transportation Company to repay its outstanding commercial paper
resulted in the widespread establishment of procedures to assure that
borrowers repay their obligations at maturity.  /89/ Due primarily to
the increased surveillance of issuers in the wake of Penn Central,
since 1970 there has been no default of significance in the market;
the risk of holding commercial paper clearly is no greater now than
when the Act was adopted in 1933.  /90/

   Largely for these reasons, a bank's role in placing commercial
paper in the recognized market does not give rise to the hazards
against which the Act was directed.  First, there is no danger that as
a result of its commercial paper operations Bankers Trust might be
induced to use its depositors' funds to purchase "frozen" or
"imprudent stock or security investments." See ICI I, 401 U.S. at 630.
 Although a bank ordinarily would not purchase with its own funds the
paper it places -- acting instead as the agent of the issuer -- where
the bank does purchase the paper for its own account such short-term
paper clearly is not a frozen or imprudent security investment.
Indeed, as we showed above (pages 25-29, supra), banks have purchased
commercial paper for their own accounts since the beginning of banking
in this country;  the Act was intended, among other things, to
encourage banks to purchase precisely the type of obligation that is
involved here.

   The low-risk nature of commercial paper also minimizes the
possibility of there arising a perceived need for the bank to make a
loan to the issuer.  In addition, the nature of the commercial paper
market reduces the possibility that the bank's involvement in placing
the paper would "impair the ability to function as an impartial source
of credit." ICI I, 401 U.S. at 631.  The short-term nature of
commercial paper combined with the rating mechanism virtually assures
that as soon as a corporation begins to experience financial
difficulties it will be unable to continue to borrow in the commercial
paper market.  Accordingly, there would be little incentive for the
bank to "shore up" an issuer in order to be able to continue to place
its paper.

   Nor is there temptation for a bank to make a loan in order to
facilitate the purchase of commercial paper.  Because the interest
rate on bank loans exceeds the return on commercial paper, /91/ it is
not profitable to purchase commercial paper with borrowed funds.  /92/

   The uniform financial strength of corporations that issue
commercial paper also minimizes the likelihood that purchasers will
suffer losses resulting in the bank's "loss of customer good will,"
that "public confidence in the bank might be impaired," or that the
bank's "reputation for prudence and restraint would be damaged" (ICI
I, 401 U.S. at 631-632).  Moreover, not only the financial strength of
the issuer, but the nature of commercial paper purchasers as well,
render it highly unlikely that a bank would give unreliable investment
advice (ICI I, 401 U.S. at 633).  As we have noted, commercial paper
is not offered for sale to the public at large or even to the bank's
customers generally, but only to large, financially sophisticated
purchasers that regularly purchase in the established short-term
credit market.  These purchasers have the resources to assess
independently any risk posed by the paper.  /93/

   Finally, the high degree of promotional pressure that is associated
with investment banking is not present in the commercial paper market.
 Rather, fees earned on the placement of commercial paper are
relatively modest (usually one-eighth of one percent per year or $1250
per million per year).  /94/ The placement of commercial paper is by
no means a major source of profit, but represents instead a means of
encouraging issuers to use the other, more profitable services offered
by the placing banks.  /95/

 D. The Board's Determination That The Commercial Paper Involved Here
Is Not A "Security" Within The Meaning Of The Glass-Steagall Act Is
Entitled To Substantial Deference

   Petitioners contend (Becker Br. 23;  see also SIA Br. 33-35;
Becker Br. 20-24) that the court of appeals "abdicated its
responsibility and extended unprecedented judicial deference to the
Board's 'adaptation' of the Glass-Steagall Act." To the contrary, the
court of appeals expressly declined (J.A. 230A) to "rest merely on the
deference to the conclusions of the Federal Reserve Board." Rather, as
detailed in the statement above (pages 9-11, supra), the court
undertook its own independent, extensive analysis of the language,
legislative history, and underlying purposes of the Act.  As a result,
the court concluded (J.A. 230A) that the Board's determination that
the commercial paper involved here is not a "security" for purposes of
the Act is "essentially correct." But, in any event, the Board's views
are entitled to substantial deference.

   1. We respond first to petitioners' contention (Becker Br. 8-9,
11-20, 41-42;  SIA Br. 9, 11-17) that the Board's ruling is entitled
to no deference because it represents an impermissible exercise of
regulatory authority.  Contrary to petitioners' assertions, the Board
is not attempting to "regulate" the underwriting by banks of
instruments that are securities within the meaning of the
Glass-Steagall Act.  Rather, as is evident from both the language and
the reasoning employed by the Board, its ruling represents a
determination that the commercial paper involved here is not a
"security" for purposes of the Act and for that reason is not subject
to the legislation's prohibitions.  See, e.g., J.A. 126A ("(b)ased on
a review of all the relevant arguments and the facts of record, the
Board is of the opinion that, as a legal matter, the stronger argument
is that commercial paper is not a 'security' within the intendment of
the Glass-Steagall Act").  /96/

   Such administrative line-drawing is inherently the function of an
agency charged with the administration of a statute, especially one
that contains such broad terms as "securities" and "notes." /97/
Petitioners' contention that the Board lacks the authority to perform
this function is thus nothing more than a restatement of their
argument on the merits that every instrument that is denominated a
note is a "security" within the meaning of the Glass-Steagall Act.
/98/

   2. Properly viewed as the construction of the statute by the agency
charged with its administration, the Board's ruling is entitled to
considerable deference.  /99/ Administration of the Glass-Steagall Act
is shared between the Board, which enforces the Act with respect to
state-chartered banks that are members of the Federal Reserve System,
and the Office of the Comptroller, which enforces the Act with respect
to national banks.  /100/ In addition to the significant authority and
experience in administering the Glass-Steagall Act in particular,
/101/ as the Nation's central bank the Board has broad
responsibilities in overseeing the entire operation of the country's
banking system.  /102/ Particularly in a case such as this one, where
there is no evidence that the transaction at issue was engaged in at
the time the controlling legislation was enacted, the Board has the
expertise to examine the economic realities of the transaction in
order to determine whether the transaction is one that Congress would
have intended to reach.  /103/

   In ICI II this Court quoted with approval Justice Rutledge's
description of the deference that is due the Board's construction of
the Glass-Steagall Act in view of its "specialized experience" (450
U.S. at 56-57 n.21, quoting Board of Governors of the Federal Reserve
System v. Agnew, 329 U.S. 441, 450 (1947) (concurring opinion)
(emphasis added):

      Not only because Congress has committed the system's operation
      to their (the Board of Governors of the Federal Reserve System)
      hands, but also because the system itself is a highly
      specialized and technical one, requiring expert and coordinated
      management in all of its phases, I think their judgment should
      be conclusive upon any matter which * * * is open to reasonable
      difference of opinion.  Their specialized experience gives them
      an advantage judges cannot possibly have, not only in dealing
      with the problems raised for their discretion by the system's
      working, but also in ascertaining the meaning Congress had in
      mind in prescribing the standards by which they should
      administer it.  Accordingly their judgment in such matters
      should be overturned only where there is no reasonable basis to
      sustain it or where they exercise it in a manner which clearly
      exceeds their statutory authority.

   In ICI I, 401 U.S. at 626-627, as well, the Court recognized the
"great weight" that generally is due "any reasonable construction" of
the Act by the agencies charged with its enforcement.  To be sure, in
that case the Court refused to defer to the Comptroller's construction
of Sections 16 and 21.  But that was because he had "adopted no
expressly articulated position at the administrative level as to the
meaning and impact of (those provisions)." 401 U.S. at 627.  By
contrast, here the Board promulgated a statement explaining in detail
the reasons for its construction of the Act, "recogniz(ing) and
address(ing) the concerns that led to the enactment of the
Glass-Steagall Act." ICI II, 450 U.S. at 68.  This construction, which
was entirely consistent with prior rulings concerning commercial
paper, /104/ is entitled to substantial deference.

                              CONCLUSION

   The judgment of the court of appeals should be affirmed.

   Respectfully submitted.

   REX E. LEE

      Solicitor General

   RICHARD K. WILLARD

      Acting Assistant Attorney General

   LOUIS F. CLAIBORNE

      Deputy Solicitor General

   BARBARA E. ETKIND

      Assistant to the Solicitor General

   ANTHONY J. STEINMEYER

      Attorney

   MICHAEL BRADFIELD

      General Counsel

   RICHARD M. ASHTON

      Assistant General Counsel Board of Governors of the Federal
      Reserve System

   JANUARY 1984

   /1/ Hurley, The Commercial Paper Market, 63 Fed. Res. Bull. 525,
527-528 (1977);  Hurley, The Commercial Paper Market Since the
Mid-Seventies, 68 Fed. Res. Bull. 327, 328 (1982);  Lowenstein, The
Commercial Paper Market and the Federal Securities Laws, 4 Corp. L.
Rev. 128, 129 (1981);  M. Stigum, The Money Market 626, 632 (rev. ed.
1983).

   /2/ Lowenstein, supra, at 129;  Stigum, supra, at 1, 625.

   /3/ Stigum, supra, at 1, 35-36, 39-40.  A certificate of deposit is
a note evidencing a bank's obligation to pay a specified sum at a
fixed maturity.  G. Munn & F. Garcia, Encyclopedia of Banking and
Finance 173-174 (8th ed. 1983).  A bankers' acceptance is an order
drawn on a bank to pay a specified sum on a specified date (usually
several months in the future) that the drawee bank has accepted, i.e.,
agreed to pay at maturity.  Stigum, supra, at 39-40, 602.

   /4/ The Commercial Paper Market Since the Mid-Seventies, supra, at
327.

   /5/ As of September 1983, more than one-half of the commercial
paper outstanding was placed directly by issuers.  69 Fed. Res. Bull.
A24 (Nov. 1983).  This case, of course, involves only dealer-placed
commercial paper.

   /6/ Lowenstein, supra, at 147;  The Commercial Paper Market, supra,
at 525, 528, 530;  Stigum, supra, at 626, 631.  Paper that is placed
directly by the issuer may be available in smaller denominations.
Hence, it sometimes is purchased by individuals.  The Commercial Paper
Market, supra, at 529;  The Commercial Paper Market Since the
Mid-Seventies, supra, at 334.

   /7/ The Commercial Paper Market Since the Mid-Seventies, supra, at
327, 333-334;  The Commercial Paper Market, supra, at 529.

   /8/ Stigum, supra, at 39, 332;  The Commercial Paper Market, supra,
at 530;  The Commercial Paper Market Since the Mid-Seventies, supra,
at 328, 333;  Goldman, Sachs am. br. 11.

   /9/ The Commercial Paper Market, supra, at 528-529;  The Commercial
Paper Market Since the Mid-Seventies, supra, at 331-332;  Stigum,
supra, at 635-636.  See also pages 40-41, infra.

   /10/ See note 90, infra.

   /11/ Stigum, supra, at 638;  The Commercial Paper Market, supra, at
530.

   /12/ Section 77c(a)(3) exempts from the registration requirements
of the 1933 Act "(a)ny note, draft, bill of exchange, or banker's
acceptance which arises out of a current transaction or the proceeds
of which have been or are to be used for current transactions, and
which has a maturity at the time of issuance of not exceeding nine
months, exclusive of days of grace, or any renewal thereof the
maturity of which is likewise limited." See also SEC Securities Act
Release No. 4412 (Sept. 20, 1961);  26 Fed. Reg. 9158 (1961)
(commercial paper that is not registered under the 1933 Act must be of
prime quality, not ordinarily purchased by the general public, and
issued to facilitate well-recognized types of current operational
business transactions).

   /13/ Section 78c(a)(10) excludes from the definition of "security"
for purposes of the 1934 Act "any note, draft, bill of exchange, or
banker's acceptance which has a maturity at the time of issuance not
exceeding nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited."

   /14/ The commercial paper at issue in this case is entirely
different from the type of obligation that was involved in John Nuveen
& Co. v. Sanders, 425 U.S. 929 (1976), vacating and remanding 524 F.2d
1064 (7th Cir. 1975).  Although labelled "commercial paper," the notes
involved in Sanders were "offered and sold to the general public" in
small amounts (as low as $3,000) and were not of "prime quality."
Sanders v. John Nuveen & Co., 463 F.2d 1075, 1079 & n.14 (7th Cir.),
cert. denied, 409 U.S. 1009 (1972).  Moreover, the large majority of
purchasers were individuals.  Id. at 1080 n.18.  By contrast, paper
placed in the established market is not offered to the general public,
sold in small denominations or purchased primarily by individuals.
See, e.g., Zeller v. Bogue Electric Manufacturing Corp., 476 F.2d 795,
800 (2d Cir.), cert. denied, 414 U.S. 908 (1973) (referring to the
"general notion of 'commercial paper' reflected in (SEC Release 4412)"
(see note 12, supra));  see also C.N.S. Enterprises, Inc. v. G. & G.
Enterprises, Inc., 508 F.2d 1354, 1359 (7th Cir.), cert. denied, 423
U.S. 825 (1975).

   /15/ The staff's examination revealed that Bankers Trust's
activities were confined to the recognized, wholesale commercial paper
market.  The bank was not offering commercial paper to the public but
ordinarily placed the paper with institutions that purchase other
short-term instruments sold by Bankers Trust.  The paper placed by the
bank had average minimum denominations of $1 million, matured in
approximately 60 days and was purchased by no more than 15
institutions at a time.  J.A. 105A-106A.

   /16/ In view of the Board's disposition of the "securities" issue,
it did not reach the question whether Bankers Trust's method of
placing commercial paper constituted "underwriting" or other activity
prohibited by the Act with respect to securities (J.A. 140A).  The
courts below also did not reach this question and it is not at issue
in this Court.

   /17/ The Guidelines also admonish banks to maintain a complete
credit analysis of the corporation issuing the paper, to exercise due
diligence in investigating the corporation's financial condition, to
maintain adequate records of the bank's operations, not to place paper
with fiduciary accounts, and to provide adequate and accurate
information to the purchaser concerning the paper being placed (J.A.
187A-189A).

   /18/ The court of appeals also agreed with the Board that the
definition of a security in the federal securities laws is not
determinative of what constitutes a security for purposes of the
Glass-Steagall Act since the laws were enacted for fundamentally
different purposes.  As the court of appeals explained (J.A.
239A-241A), the securities laws were enacted for the protection of
investors, while the Glass-Steagall Act was intended to protect banks
and their depositors.

   /19/ The court of appeals emphasized (J.A. 250A) that the rationale
of its holding necessarily does not apply to other obligations with
different characteristics, such as smaller denominations, or that are
offered to the public.  Such obligations, the court noted, even if
referred to as "commercial paper," might be securities under the Act.
See also note 14, supra.

   /20/ Although by its terms Section 16 applies only to national
banks, Section 5(c) of the Glass-Steagall Act, 12 U.S.C. 335, provides
that state member banks of the Federal Reserve System are subject to
the same limitations and conditions that Section 16 imposes on
national banks "with respect to the purchasing, selling, underwriting,
and holding of investment securities and stock."

   /21/ For the Court's convenience, we reproduce in an Appendix,
infra, 1a-4a, the text of 12 U.S.C. 24 (Seventh), as it stood
immediately after its revision by Section 16 of the Glass-Steagall
Act, together with the text of the Section as amended by the Banking
Act of 1935.

   /22/ This authority has been part of the National Bank Act since
1864.  See the Act of June 3, 1864, ch. 106, Section 8, 13 Stat. 101.

   /23/ Indeed, exercising the authority expressly given him in
Section 16, the Comptroller of the Currency has further defined
"investment securities" as excluding investments that are
"predominantly speculative in nature." 12 C.F.R. 1.3(b).

   /24/ We put to one side the government securities mentioned in
Section 16 that commercial banks may purchase without limit.  For
present purposes, it is irrelevant whether these are viewed as a
subclass of category (2) "investment securities" or a distinct fourth
category.

   /25/ Although the authority of national banks to continue to
purchase commercial paper for their own accounts might be predicated
on the pre-existing power, conferred by the National Bank Act of 1864,
to "discount( ) and negotiat(e) promissory notes" (12 U.S.C. 24
(Seventh)), that authorization does not extend to state-chartered
member banks.  Even if state law afforded state banks analogous
"discount and negotiate" power, such authority would have been
preempted by the Glass-Steagall Act's proscription on banks purchasing
securities for their own accounts if commercial paper constituted a
"security." Accordingly, the fact that state-chartered as well as
national banks continued to buy commercial paper for their own
accounts after enactment of Glass-Steagall demonstrates that such
paper plainly is not a "security" other than an "investment security"
within the meaning of the Act.

   /26/ Straying a moment from the statutory text, we note that the
hearings and reports on the 1935 amendments to Section 16 and 21 of
the Glass-Steagall Act indicate only one purpose:  to make clear that,
although commercial banks may not purchase stock for their own account
or deal in it, they may act as stock brokers for their customers.  See
H.R. Rep. 742, 74th Cong., 1st Sess. 18 (1935);  Banking Act of 1935:
Hearings on H.R. 5357 Before the House Comm. on Banking and Currency,
74th Cong., 1st Sess. 663 (1935);  Banking Act of 1935:  Hearings on
S. 1715 and H.R. 7617 Before a Subcomm. of the Senate Comm. on Banking
and Currency, 74th Cong., 1st Sess. 114, 153 (1953).  There is no hint
of any larger purpose, as petitioners apparently recognize.  See,
e.g., H.R. Rep. 742, supra, at 2 ("amendments make no fundamental
changes in the existing banking laws").

   /27/ Likewise, Section 5(c) of the Glass-Steagall Act, 12 U.S.C.
335, which makes state member banks of the Federal Reserve System
subject to the same limitations and conditions with respect to
"investment securities and stock" as are imposed on national banks by
Section 16 (see note 20, supra), has never been amended to reflect the
changes in terminology wrought by the 1935 Act.

   /28/ 1 A. Dewing, The Financial Policy of Corporations 55 (5th ed.
1953).

   /29/ Dewing, supra, at 168, 171-174, 176-179.

   /30/ W. Husband & J. Dockeray, Modern Corporation Finance 170 (6th
ed. 1966).

   /31/ Dewing, supra, at 178.

   /32/ G. Munn & F. Garcia, Encyclopedia of Banking and Finance 724
(8th ed. 1983).

   /33/ See also Third National Bank v. IMPAC, Ltd., 432 U.S. 312, 322
(1977) (citing the "familiar principle of statutory construction that
words grouped in a list should be given related meaning");  Jarecki v.
G.D. Searle & Co., 367 U.S. at 307 ("a word is known by the company it
keeps").

   /34/ For the same reasons, the term "other securities" also was not
meant to refer to all notes.  SIA's suggestion (Br. 12) that the
juxtaposition of the words "notes" and "other securities" in Section
21 indicates that commercial paper, because it consists of promissory
notes, must also be a "security" rests on petitioners' erroneous
assumption that the term "notes" in Section 21 encompasses every
instrument that may be denominated a note regardless of its commercial
or investment nature.

   /35/ Particularly with respect to Glass-Steagall, this Court has
recognized that words in the Act gather meaning from other words in
the statute as well as from the underlying legislative purpose.  See
Board of Governors of the Federal Reserve System v. Agnew, 329 U.S.
441, 447-449 (1947) (meaning of the phrase "engaged primarily" in
Section 32 of the Act, 12 U.S.C. 78, determined by reference to the
meaning of the phrase "engaged principally" in Section 20 of the Act,
12 U.S.C. 377, as well as to "the evil at which the section was
aimed").  See also Philbrook v. Glodgett, 421 U.S. 707, 713 (1975),
quoting United States v. Heirs of Boisdore, 49 U.S. (8 How.) 113, 122
(1849).

   The construction adopted by the Board and the court of appeals,
moreover, is not inconsistent with the views expressed by this Court
in ICI I, 401 U.S. at 635.  In ICI I, it was unnecessary for the Court
to reach the question of the extent to which debt obligations are
covered by the Act, since that case involved equity interests in "the
business of buying, holding, and selling stocks for investment." Ibid.
 Furthermore, the Court's dictum (ibid.) to the effect that the word
"securities," as used in the Act, is broad enough to include
"securities representing debt" does not suggest that all debt
instruments are securities within the meaning of the Act.

   /36/ There is some evidence that banks also served as dealers in
commercial paper well before their entrance into the investment
banking business in the 1920s.  Before 1840, banks in various parts of
the country were buying and selling commercial paper notes, either
directly or through brokers.  Greef, supra, at 15-18.  "During the
later years of (1861 to 1914) * * * some few banks even acted as
regular dealers in commercial paper." Id. at 63.

   /37/ McFadden Act of 1927, ch. 191, Section 2, 44 Stat. 1226-1227;
see H.R. Rep. 83, 69th Cong., 1st Sess. 3-4 (1926).

   /38/ Section 2(b), 44 Stat. 1226.

   /39/ The following colloquy between Representatives McFadden and
Wainwright is reported at 67 Cong. Rec. 3232 (1926) (emphasis added):

         MR. WAINWRIGHT:  * * * I would like to ask the chairman of
      the committee about this limitation, which seems to be new, of
      25 per cent of capital and surplus to be invested in any one
      security.  How does it affect the limitation of 10 per cent
      provided in section 5200 of the Revised Statutes of the amount
      of any loan to any one interest or any one maker?

         MR. McFADDEN.  This is an investment section and attempts to
      legalize that which the banks are doing now without authority of
      law.  It does put a limitation on the amount of money they can
      use for investment purposes, such as underwritings, and we felt
      that there should be this limitation.  I do not think it has any
      application to the question the gentleman raises provided for in
      section 5200 of the Revised Statutes.

         MR. WAINWRIGHT:  Let me ask the gentleman whether commercial
      paper, as generally understood and accepted, is regarded as
      investment security.

         MR. McFADDEN.  No;  it is not.  Commercial paper comes under
      the limitation of section 5200 in the Revised Statutes.  I never
      have known of commercial paper being construed as investment
      securities.

   Section 5200, now codified at 12 U.S.C. 84, continues to subject a
bank's purchase of commercial paper for its own account to its lending
limits.

   /40/ Compare 44 Stat. 1226 with 48 Stat. 185 and 49 Stat. 709.

   /41/ S. Rep. 77, 73d Cong., 1st Sess. 4 (1933).

   /42/ 75 Cong. Rec. 9904 (1932) (emphasis added).

   /43/ 75 Cong. Rec. 10072 (1932) (remarks of Sen. Glass).

   /44/ 75 Cong. Rec. 9885 (1932).

   Numerous other statements made during the hearings and floor debate
on the legislation indicate an understanding that commercial paper is
not a "security." E.g., Operation of the National and Federal Reserve
Banking Systems:  Hearings on S. 4115 Before the Senate Comm. on
Banking and Currency, 72d Cong., 1st Sess., Pt. I, 146 (1932) (remarks
of Sen. Glass) (banking system has favored bonds and securities rather
than commercial paper);  id. at 66-67 (remarks of President of
American Bankers Association) (distinction between credit on notes and
accommodation on marketable securities);  Operation of the National
and Federal Reserve Banking Systems:  Hearings Pursuant to S. Res. 71
Before a Subcomm. of the Senate Comm. on Banking and Currency, 71st
Cong., 3d Sess., App. Pt. VII, 1006-1019 (1931).

   /45/ S. Rep. 77, supra, at 8 (emphasis added).

   /46/ 75 Cong. Rep. 9909 (1932) (emphasis added).

   /47/ 75 Cong. Rec. 9909 (1932) (emphasis added).

   /48/ 75 Cong. Rec. 9909 (1932) (emphasis added).

   /49/ 75 Cong. Rec. 9910 (1932) (emphasis added).

   /50/ 75 Cong. Rec. 9912 (1932) (emphasis added).

   /51/ "(T)he views of a subsequent Congress form a hazardous basis
for inferring the intent of an earlier one." Consumer Product Safety
Commission v. GTE Sylvania, 447 U.S. 102, 117 (1980), quoting United
States v. Price, 361 U.S. 304, 313 (1960).

   /52/ The fact that Congress declined to include in the Banking Act
of 1935 a proposal to permit banks to underwrite and sell "bonds,
debentures and 'notes'" under regulations prescribed by the
Comptroller of the Currency (see Becker Br. 31;  S. Rep. 1007, 74th
Cong., 1st Sess. 16 (1935)) is entitled to no probative weight since
there is no evidence that the proposed amendment was intended to apply
to short-term notes like commercial paper.

   /53/ The Public Utility Holding Company Act of 1935, 15 U.S.C. 79
et seq., was designed to protect investors, consumers, and the general
public from the false or misleading solicitation for securities of
public utilities and from the adverse economic effects resulting from
their complex and inefficient organizational structure.  See 15 U.S.C.
79a(b).

   /54/ As Senator Bulkley explained (75 Cong. Rec. 9913-9914

   (1932)):

      (T)he purpose of (the Glass-Steagall Act) does not extend to
      safeguarding purchasers of securities as such.  The purpose of
      this bill is to improve the operation of the Federal reserve
      system and the banks which are members of it.  The object of the
      inhibitions which I am discussing here is not primarily to
      protect the investing public, although that is a worthy purpose,
      but our field is to protect the operations of the banking system
      itself, and to protect the depositors and customers of the banks
      so that they shall have the service from national and State
      member banks which they are entitled to expect.

   /55/ In construing the meaning of the word "security" as used in
Sections 16 and 21 in ICI I, this Court made no reference to the
securities laws definitions.

   /56/ See, e.g., Marine Bank v. Weaver, supra;  United Housing
Foundation, Inc. v. Forman, supra.

   /57/ See American Bank & Trust Co. v. Wallace, 702 F.2d 93, 96-97
(6th Cir. 1983);  Williamson v. Tucker, 645 F.2d 404, 426-429 (5th
Cir. 1981);  National Bank of Commerce v. All American Assurance Co.,
583 F.2d 1295, 1300-1302 (5th Cir. 1978);  Emisco Industries, Inc. v.
Pro's, Inc., 543 F.2d 38, 40-41 (7th Cir. 1976);  C.N.S. Enterprises,
Inc. v. G. & G. Enterprises, Inc., 508 F.2d 1354, 1359-1363 (7th
Cir.), cert. denied, 423 U.S. 825 (1975);  Zabriskie v. Lewis, 507
F.2d 546, 550-552 (10th Cir. 1974);  McClure v. First National Bank,
497 F.2d 490, 492-495 (5th Cir. 1974), cert. denied, 420 U.S. 930
(1975);  Bellah v. First National Bank, 495 F.2d 1109, 1111-1114 (5th
Cir. 1974);  Lino v. City Investing Co., 487 F.2d 689, 694-696 (3d
Cir. 1973);  Zeller v. Bogue Electric Manufacturing Corp., 476 F.2d
795, 799-800 (2d Cir.), cert. denied, 414 U.S. 908 (1973);  Sanders v.
John Nuveen & Co., 463 F.2d at 1077-1080.  See also Amfac Mortgage
Corp. v. Arizona Mall of Tempe, Inc., 583 F.2d 426, 431-434 (9th Cir.
1978);  Great Western Bank & Trust v. Kotz, 532 F.2d 1252, 1256-1260
(9th Cir. 1976).

   Petitioners rely (Becker Br. 30-31) on the fact that the securities
acts and the Public Utility Holding Company Act of 1935 contain
specific exemptions from some or all of their provisions for
commercial paper as evidence that commercial paper is not excluded
from the term "security" as used in the Glass-Steagall Act.  But it
was Senator Glass himself, the principal draftsman of the
Glass-Steagall prohibition on securities activities, that made the
proposal to amend the definition of "security" in the 1933 Act to
exclude short-term notes on the ground that they did not constitute
securities.  See Securities Act:  Hearings on S. 875 Before the Senate
Comm. on Banking and Currency, 73d Cong., 1st Sess. 98 (1933).
Contrary to the implication drawn by petitioners, in light of Senator
Glass's view, his failure to seek to amend the Glass-Steagall Act to
exclude short-term notes from its coverage strongly suggests that he
viewed such an amendment as unnecessary because the Act was never
intended to cover such instruments.

   /58/ During the 1930s, banks purchased approximately 95% of the
commercial paper sold.  A. Greef, The Commercial Paper House in the
United States 293-297 (1938).  Insurance companies, bank trust
departments and nonfinancial corporations purchased almost all of the
remaining five percent.  Id. at 303-304.

   /59/ United States v. Connecticut National Bank, 418 U.S. 656, 665
(1974) ("(c)ommercial loans, generally speaking, are relatively
short-term loans to business enterprises of all sizes, usually for
purposes of inventory or working capital").  See also D. Hayes, Bank
Lending Policies 89-91 (2d ed. 1977);  J. Culbertson, Money and
Banking 308-309 (2d ed. 1977).  The lower courts have relied on
similar criteria to distinguish notes representing commercial loans
from "securities" for purposes of the securities acts.  See, e.g.,
American Bank & Trust Co. v. Wallace, 702 F.2d 93, 96-97 (6th Cir.
1983);  American Fletcher Mortgage Co. v. United States Steel Credit
Corp., 635 F.2d 1247, 1254 (7th Cir. 1980), cert. denied, 451 U.S. 911
(1981);  C.N.S. Enterprises, Inc. v. G. & G. Enterprises, Inc., 508
F.2d 1354, 1359-1361 (7th Cir.), cert. denied, 423 U.S. 825 (1975).

   /60/ A text on investment banking written by one of the major
participants in the drafting of the Glass-Steagall legislation (see 75
Cong. Rec. 10070-10072 (1932) (remarks of Sen. Glass)) states that the
most common factor used in approximating the distinction between
commercial and investment banking is time -- commercial banking
involving short-term advances to borrowers and investment banking
consisting of long-term advances, usually represented by securities.
H. Willis & J. Bogen, Investment Banking 5 (1936).  See also Great
Western Bank & Trust v. Kotz, supra, 532 F.2d at 1257.  While we would
not single out one isolated characteristic as the determinative
indicia of a commercial transaction or an investment, our submission
is that the "cluster" of characteristics of which commercial paper
partakes is representative of a traditional commercial loan rather
than an investment transaction.

   /61/ Lowenstein, supra, at 147;  The Commercial Paper Market,
supra, at 530;  Stigum, supra, at 632.

   /62/ See Terms of Lending at Commercial Banks (August 1-5, 1983),
69 Fed. Res. Bull. A25 (Nov. 1983) (weighted average maturity of
short-term commercial and industrial loans 1.2 months).  The average
maturity of commercial paper obligations at the time the Act was
passed was approximately five months.  Greef, supra, at 231.

   /63/ The Commercial Paper Market, supra, at 529;  Lowenstein,
supra, at 142;  The Commercial Paper Market Since the Mid-Seventies,
supra, at 331;  Stigum, supra, at 641.

   /64/ Indeed, the risk of loss resulting from the purchase of
commercial paper is significantly less even than the risk inherent in
ordinary commercial loans extended by banks.  See pages 40-42, infra.

   The "short-term" bonds pointed to by petitioners (SIA Br. 16;
Becker Br. 38) have longer maturities than much of the paper placed in
the commercial paper market today.  More importantly, these bonds bear
several other characteristics of a security, including distribution to
the public in small denominations or issuance under a trust indenture,
characteristics not shared by commercial paper.

   /65/ The Commercial Paper Market, supra, at 529;  Lowenstein,
supra, at 131-132.  The virtual impossibility of tracing the proceeds
of commercial paper (or of a commercial loan) to specific uses (SIA
Br. 16) does not mean that commercial paper proceeds may be channeled
into long-term assets.  Because the purchasers of commercial paper can
demand payment within a very short time, a corporation with commercial
paper outstanding must maintain sufficient liquidity to meet any
short-term demand for payment if, as frequently happens (see pages 4,
supra & 40-41, infra), the corporation's rating is lowered or removed
and it can no longer continue to borrow funds in the market.

   Moreover, since commercial paper is sold in the recognized market
without the registration statement and prospectus otherwise required
by the 1933 Act, it must be used to facilitate current business
transactions and must have short maturities (less than nine months),
be of prime quality, and not ordinarily be sold to the public.  See 15
U.S.C. 77c(a)(3);  SEC Securities Act Release No. 4412, supra.  A bank
that attempts to distribute as "commercial paper" third party notes
that do not have the economic characteristics relied on by the Board
thus would be subject to significant risk of criminal and civil
liability under the securities laws.  See 15 U.S.C. 77l(1), 77x.  In
addition, such a bank would violate the Board's Guidelines and incur
the risk of Board supervisory action.  See J.A. 187A.

   /66/ The Commercial Paper Market, supra, at 525, 527;  Lowenstein,
supra, at 130.  See also American Banker, Sept. 27, 1983, at 3, col. 1
(citing a study finding competition between commercial paper and bank
loans as sources of corporate borrowing).

   /67/ The Commercial Paper Market, supra, at 528.

   /68/ The Commercial Paper Market Since the Mid-Seventies, supra, at
333-334.

   /69/ American Banker, July 18, 1983, at 7, col. 1;  69 Fed. Res.
Bull. A26 (Oct. 1983).  See also The Commercial Paper Market Since the
Mid-Seventies, supra, at 333.

   /70/ See The Commercial Paper Market, supra, at 525, 529;  The
Commercial Paper Market Since the Mid-Seventies, supra, at 327,
333-334.

   /71/ See, e.g., American Fletcher Mortgage Co., v. United States
Steel Credit Corp., 635 F.2d 1247 (7th Cir. 1980), cert. denied, 451
U.S. 911 (1981) (commercial loan participation involving bank and
nonbank lenders);  Robbins v. First American Bank, 514 F. Supp. 1183,
1186 (N.D. Ill. 1981) (loan participations involving pension funds);
Prudential, Travelers Follow Banks' Path with Short-Term Loans to
Corporations, Wall St. J., Jan. 27, 1983, at 32, col. 2 (short-term
commercial loans by insurance companies).

   /72/ Report of the Staff of the Division of Investment Management
of the Securities and Exchange Commission, reprinted in Money Market
Mutual Funds:  Hearings Before the Subcomm. on Financial Institutions
of the Senate Comm. on Banking, Housing, and Urban Affairs, 96th
Cong., 2d Sess. 31, 35 (1980).

   /73/ See Report of the Staff of the Division of Investment
Management of the Securities and Exchange Commission, supra, at 32.

   /74/ The Credit Control Act authorized the Board, at the direction
of the President, to "regulate and control any or all extensions of
credit" in order to control inflation.  12 U.S.C. 1904 (repealed).

   /75/ Lowenstein, supra, at 143-144, 150, 152 ("(f)rom the viewpoint
of a commercial paper purchaser, he is making a short-term commercial
loan").  On the other hand, investors ordinarily lack the resources
and expertise to make such determinations themselves.  Cf. SEC v.
Ralston Purina Co., 346 U.S. 119, 124-125 (1953).

   /76/ See Report of the Staff of the Division of Investment
Management of the Securities and Exchange Commission, supra, at 33-34.

   Another indicia of a commercial loan is collateralization.  See
American Bank & Trust Co. v. Wallace, 702 F.2d at 96;  Great Western
Bank & Trust v. Kotz, 532 F.2d at 1258.  While commercial paper is not
collateralized per se, the existence of backup bank lines of credit in
the amount of the issuer's outstanding commercial paper (see pages 4,
supra, and 41-42, infra) provides a degree of assurance of repayment
not available in the case of an investment.

   /77/ In a syndication, all participating lenders receive a note of
the borrower.  In a loan participation, the lead lender usually
retains the note and issues a separate participation certificate to
the other lenders.

   /78/ See Note, Loan Participation Agreements as Securities:
Judicial Interpretations of the Securities Act of 1933 and the
Securities Exchange Act of 1934, 24 Wm. & Mary L. Rev. 295, 296-297
(1983);  Pollock, Notes Issued in Syndicated Loans -- A New Test to
Define Securities, 32 Bus. Law. 537, 538 (1977);  Comment,
International Loan Syndications, the Securities Acts, and the Duties
of a Lead Bank, 64 Va. L. Rev. 897, 899-900 (1978).

   /79/ See, e.g., American Fletcher Mortgage Co. v. United States
Steel Credit Corp., 635 F.2d at 1248-1249 (commercial loan
participation involving bank and nonbank lenders).

   /80/ See, e.g., Union Planters National Bank v. Commercial Credit
Business Loans, Inc., 651 F.2d 1174, 1179-1185 (6th Cir.), cert.
denied, 454 U.S. 1124 (1981);  American Fletcher Mortgage Co. v.
United States Steel Credit Corp., 635 F.2d at 1253-1255;  United
American Bank v. Gunter, 620 F.2d 1108, 1115-1119 (5th Cir. 1980)
(disapproving Lehigh Valley Trust Co. v. Central National Bank, 409
F.2d 989, 992 (5th Cir. 1969), the only court of appeals decision to
have construed the securities laws to reach loan participations).

   The fact that in arranging for the purchase of commercial paper by
other lenders a bank may not purchase the paper for its own account
does not alter the underlying character of the bank's activity (in
fact, on occasion, Bankers Trust in effect does purchase some of the
commercial paper it places by extending a loan to the issuer at or
near the commercial paper rate in an amount representing a small
portion of the unsold amount of the issue (J.A. 123A)).  As we showed
above (pages 37-38, supra), nonbank purchasers of commercial paper
have the financial sophistication to assess the risks of short-term
extensions of credit without relying on the judgment of third parties.

   /81/ The Commercial Paper Market Since the Mid-Seventies, supra, at
331;  Stigum, supra, at 635-637.  The rating services are Moody's
Investors Service, Standard & Poor's Corporation, Fitch Investor's
Service, Duff and Phelps, Inc., and McCarthy, Crisanti, Maffei, Inc.
Moody's and Standard & Poor's are the two largest agencies.

   /82/ The Commercial Paper Market Since the Mid-Seventies, supra, at
327;  Stigum, supra, at 635-637.  During the past year, a relatively
large number of corporations received lower ratings or lost their
ratings altogether.  From November 1982 to November 1983, Standard &
Poor's lowered the rating of 68 corporations and no longer rated an
additional 115 firms.  Standard & Poor's Corp., Commercial Paper
Ratings Guide vi-xvi (Nov. 1983).

   /83/ The Commercial Paper Market, supra, at 525, 527-528;
Lowenstein, supra, at 129;  The Commercial Paper Market Since the
Mid-Seventies, supra, at 328.

   /84/ The Commercial Paper Market Since the Mid-Seventies, supra, at
327, 331.  By contrast, approximately 3,000 corporations issue
securities that are listed on the Nation's stock exchanges.  1982 SEC
Ann. Rep. 106.

   /85/ For example, the D.H. Baldwin Co., an insurance company that,
along with several affiliates, filed for bankruptcy in September 1983
(N.Y. Times, Sept. 27, 1983, at 1, col. 1), at one time was a rated
commercial paper issuer.  As it developed financial problems, however,
Baldwin's rating was lowered in March 1983 and removed in May 1983.
Standard & Poor's Corp., Commercial Paper Ratings Guide, supra, at
xii, x.  Thus, assuming Baldwin's paper bore the usual, short
maturities characteristic of commercial paper, the paper would have
matured before Baldwin's bankruptcy.

   /86/ The Commercial Paper Market, supra, at 530;  Goldman, Sachs
am. br. 11.

   /87/ The Commercial Paper Market Since the Mid-Seventies, supra, at
332.

   /88/ Greef, supra, at 311-314.  For example, from 1922 to 1935 less
than one percent of the firms using the market were unable to repay
their paper.  Id. at 313-314.

   /89/ Stigum, supra, at 635;  Lowenstein, supra, at 141;  see also
The Commercial Paper Market Since the Mid-Seventies, supra, at 327.

   /90/ The Penn Central default thus cannot be regarded as
representative of the risk associated with the commercial paper market
as it operates today.  The four other defaults that have occurred
since 1970 are de minimis as compared with the total amount of paper
outstanding.  See Stigum, supra, at 635.  Moreover, at least one
defaulting issuer did not issue the kind of commercial paper involved
here, but rather sold obligations to the public generally in
denominations as small as $3,000.  Sanders v. John Nuveen & Co., 463
F.2d 1075, 1079-1080 (7th Cir.), cert. denied, 409 U.S. 1009 (1972).

   SIA's contention (Br. 17) that the Act provides no exclusion for
low-risk securities begs the question.  As this Court indicated in ICI
I, 401 U.S. at 630, risk is one criterion (albeit not the only one) of
whether a particular obligation is a "security." Thus, if a low-risk
obligation bears other indicia of an investment -- for example, if a
long-term obligation is distributed to the public in small
denominations -- the instrument may be treated as a security.  Baker,
Watts & Co. v. Saxon, 261 F. Supp. 247 (D.D.C. 1966), aff'd sub nom.
Port of New York Authority v. Baker, Watts & Co., 392 F.2d 497 (D.C.
Cir. 1968), on which SIA relies (Br. 17 n.19), is inapposite;  no
claim was made in that case that the obligations at issue were not
"securities."

   /91/ Lowenstein, supra, at 130.

   /92/ J.A. 185A.  During its investigation of Bankers Trust's
commercial paper activities, the Board staff found "no evidence that
purchasers used borrowed funds to buy the commercial paper" (J.A.
106A).

   /93/ Bankers Trust does not place commercial paper with fiduciary
accounts to which the bank provides investment advice.  J.A. 106A.

   /94/ Stigum, supra, at 639;  Lowenstein, supra, at 132.

   /95/ See Lowenstein, supra, at 132.

   /96/ Nor do the Board's Guidelines amount to regulation of activity
that was intended to be prohibited by the Act.  As the court of
appeals noted (J.A. 226A n.17), "the guidelines in essence describe
Bankers Trust's activities." Accordingly, the additional restrictions
imposed by the Board on banks making similar placements (see note 17,
supra) represent an attempt by the Board to regulate activities
outside the reach of the Glass-Steagall Act "(p)ursuant to its
authority to restrain unsafe or unsound banking practices" (J.A.
183A).

   /97/ Cf. United Housing Foundation, Inc. v. Forman, 421 U.S. 837,
847-848 (1975) (because Congress "did not attempt to articulate the
relevant economic criteria for distinguishing 'securities' from
'nonsecurities'" for purposes of the securities laws, "(t)he task has
fallen to the Securities and Exchange Commission (SEC), the body
charged with administering the Securities Acts, and ultimately to the
federal courts to decide which of the myriad financial transactions in
our society come within the coverage of these statutes").  See also
Unemployment Compensation Commission v. Aragon, 329 U.S. 143, 153
(1946).

   Commencing with interpretations contemporaneous with the enactment
of Glass-Steagall, the Board has applied the Act on a case-by-case
basis depending on the particular facts surrounding individual types
of obligations.  For example, in 1934, the Board issued an opinion
stating that "it is not possible to lay down any general rule as to
whether or not certificates of participation based on mortgages, notes
issued in series, and other similar obligations secured by mortgages *
* * are included within the provisions (of the Glass-Steagall Act)
since such obligations vary so widely in character." 20 Fed. Res.
Bull. 302 (1934).  The Board explained (ibid.) that questions
concerning the applicability of the Act to these kinds of instruments
"must be determined as and when they arise in particular cases
according to the facts involved therein." Over the years, the Board
has continued to resolve questions involving the coverage of the Act
on a case-by-case basis depending on the economic reality of the
transaction.  See, e.g., 12 C.F.R. 218.109 (short-term unsecured
negotiable notes issued by large banks not "securities").

   /98/ Because the Board has not attempted to "regulate" activities
that are covered by the Act, petitioners' reliance (Becker Br. 12-16;
SIA Br. 22-24) on occasions on which Congress has withheld regulatory
authority from the administrative agencies is misplaced.  A fortiori,
Becker's contention that the Board has unconstitutionally exercised
legislative power is frivolous.  Moreover, the legislative proposals
that preceded enactment of the Glass-Steagall legislation would have
required either "federal inspection and constant examination of the
affiliates (of banks) and * * * the control of relationships between
the parent banks and its associate companies" or federal incorporation
(chartering) of affiliates, and had nothing to do with the nature of
the activities in which such affiliates could engage.  See H. Willis &
J. Chapman, The Banking Situation 68 (1934).  The unsuccessful
attempts to amend the Act cited by petitioners (SIA Br. 24;  Becker
Br. 15) uniformly were intended to permit public underwriting of broad
classes of securities that undisputedly were subject to the Act.  The
failure of Congress to enact such proposals has no bearing on the
Board's authority to determine whether a particular instrument is
covered by the Act.

   /99/ See, e.g., FEC v. Democratic Senatorial Campaign Committee,
454 U.S. 27, 31-32, 37-39 (1981);  Ford Motor Credit Co. v. Milhollin,
444 U.S. 555, 566 (1980);  Udall v. Tallman, 380 U.S. 1, 16 (1965).

   /100/ See ICI I, 401 U.S. at 626-627;  Port of New York Authority
v. Baker, Watts & Co., 392 F.2d at 499.  The Federal Deposit Insurance
Corporation supervises state-chartered banks that are not members of
the Federal Reserve System.

   /101/ For example, the Board is authorized to assess civil
penalties for violations of Section 20 of the Act, 12 U.S.C. 377,
relating to affiliations between member loans and securities firms,
and to provide by regulation for exceptions from the prohibitions of
Section 32, 12 U.S.C. 78, relating to officer, director, or employee
interlocks between a member bank and a securities firm.  Becker thus
errs in asserting (Br. 22) that the Act is a self-enforcing criminal
statute;  only one provision, Section 21, of the four key provisions
is a criminal statute.

   /102/ The Board, through the Federal Reserve Banks, examines,
supervises and enforces applicable laws with respect to
state-chartered member banks as well as bank holding companies.  12
U.S.C. 325, 504, 505, 1818(b) (e), 1844 and 1847.  The Federal Reserve
System also takes action to control the growth of reserves held by
depository institutions, 12 U.S.C. 263 and 461, and extends funds to
member banks and other depository institutions, 12 U.S.C. 343 et seq.,
352, 357, 461(b)(7).

   /103/ Petitioners err in suggesting that the Board employed its
expert knowledge of economic activities to permit an activity that was
prohibited at the time of enactment.  As we discussed above, at the
time the Glass-Steagall Act was passed banks were virtually the only
purchasers of commercial paper;  there is no evidence of banks placing
third-party commercial paper with other purchasers.  The Board's
expertise is thus put to use in determining whether, on the basis of
the economic realities of the transaction in question, it is one that
Congress would have intended to prohibit.  By contrast, if
petitioners' views were accepted, the universe of financial
transactions would be frozen as of the enactment of Glass-Steagall;
notwithstanding the considerable expertise and experience available to
the Board it would be precluded from determining that any "note"
transaction was not within the reach of the Act.

   /104/ Although this is the first occasion afforded the Board to
rule on the precise question presented here, as early as 1971 the
Office of the Comptroller had opined that because commercial paper is
not a "security" within the meaning of Glass-Steagall, that Act does
not prohibit a national bank from acting as a commercial paper dealer.
 See J.A. 28a-31A.

   It is manifest that the recent rulings by agencies other than the
Board concerning other types of instruments and activities on which
petitioners rely (Becker Br. 17-19;  SIA Br. 35) have no significant
bearing on the lawfulness vel non of the Board's action here.  In any
event, the legality of these other rulings has yet to be finally
determined.  Indeed, two courts have upheld administrative decisions
permitting banking organizations to offer brokerage services.  See SIA
v. Board of Governors of the Federal Reserve System, 716 F.2d 92 (2d
Cir. 1983), petition for cert. pending, No. 83-614;  SIA v. Conover,
No. 82-2865 (D.D.C. Nov. 2, 1983).

                               APPENDIX

   Appendix material is not available on JURIS.