Petition for Review of an Order of the Board of Governors of the Federal Reserve System.
Cummings and Ripple, Circuit Judges, and Eschbach, Senior Circuit Judge.
The issue in this case is whether an employee stock ownership plan is a "company" for purposes of the Bank Holding Company Act (BHCA), 12 U.S.C. § 1841(a). Because we conclude that an ESOP is a "business trust" or "similar organization," the decision of the Board of Governors of the Federal Reserve System is affirmed.
The First National Bank of Blue Island Employee Stock Ownership Plan (ESOP or Plan) asks this Court to review a decision of the Board of Governors of the Federal Reserve System (Board) denying its application to become a bank holding company under 12 U.S.C. § 1841. The ESOP was organized to provide deferred compensation to employees of the First National Bank of Blue Island (Blue Island Bank) and the Community Bank of Homewood-Flossmoor (Community Bank). The ESOP is located and has its principal place of business in Blue Island, Illinois. As described in the Board's order of August 22, 1985, an ESOP is in general:
an employee compensation and benefit program established and maintained by an employer corporation, that distributes benefits to the company's employees primarily in the form of stock of the employee corporation (or the cash value of the stock). An ESOP includes an underlying trust designed to invest primarily in the shares of the employer corporation. A trustee is designated by the employer to administer the plan according to the trust agreement. A leveraged ESOP is one in which debt is incurred to acquire the employer's shares for the ESOP; the trust's debt is to be repaid from subsequent employer contribution to the ESOP. (August 22, 1985 Order of the Board of Governors of the Federal Reserve System at p. 2, reprinted in Board's Appendix "A")
On May 3, 1985, the ESOP filed its application with the Board for approval of its plan to acquire 54.1% of the voting shares of Great Lakes Financial Resources (GLFR), the parent and holding company of both Blue Island Bank and Community Bank. In its application, however, the ESOP argued that it was not subject to regulation under the BHCA because it was not a company within the meaning of the Act.
On August 22, 1985, the Board denied the ESOP application, holding that because the ESOP was established for a business purpose it qualified as a business trust or similar organization. Thus it was a "company" within the definition of 12 U.S.C. § 1841(b), infra, and therefore subject to the requirements of the BHCA. The two dissenters*fn1 disagreed, reasoning that the ESOP was not organized to operate a business, but to conserve and invest shares of GLFR for later distribution to the subsidiary banks' employees. This function, according to the dissent, was more analogous to a usual personal trust than to a business trust. On September 23, 1985, the petition for review was filed. The sole issue on appeal is whether the ESOP is a company within the meaning of 12 U.S.C. § 1841(a). We agree with the Board that the ESOP has a sufficient business function to be a business trust or similar organization and therefore affirm.
The Board's interpretation of the BHCA, if consistent with its language and purpose, is entitled to "the greatest deference." Securities Industry Ass'n v. Board of Governors, 468 U.S. 207, 104 S. Ct. 3003, 3009, 82 L. Ed. 2d 158 (quoting Board of Governors v. Investment Co. Institute, 450 U.S. 46, 56, 67 L. Ed. 2d 36, 101 S. Ct. 973). Courts are to defer to the Board's construction of terms because Congress designated it to administer the Act and because of its expertise in administration of the banking laws. See Securities Industry Ass'n, 104 S. Ct. at 3009; Whitney Nat'l Bank v. Bank of New Orleans & Trust Co., 379 U.S. 411, 420-421, 13 L. Ed. 2d 386, 85 S. Ct. 551; Huston v. Board of Governors, 758 F.2d 275, 282 (8th Cir. 1985). In addition, Section 9 of the BHCA provides that "the findings of the Board as to the facts, if supported by substantial evidence, shall be conclusive." 12 U.S.C. § 1848; see Board of Governors v. First Lincolnwood Corp., 439 U.S. at 253.
B. Bank Holding Company Act
The Bank Holding Company Act, 12 U.S.C. §§ 1841-1850, is a comprehensive federal statutory scheme designed to regulate bank holding companies.*fn2 The BHCA requires Board approval before a "company" takes any action to become a bank holding company. 12 U.S.C. § 1842. Section 1842 sets out minimal ...