Posted by Eric Posner:
What is a “financial institution”?
http://volokh.com/archives/archive_2008_12_14-2008_12_20.shtml#1229437549
If the Senate has nixed the auto bailout bill, how can Treasury
announce that it will nonetheless go ahead and bail out the
automakers? The answer turns on an interpretation of TARP, which
authorizes the government to purchase securities in �financial
institution,� defined as follows:
The term �financial institution� means any institution, including,
but not limited to, any bank, savings association, credit union,
security broker or dealer, or insurance company, established and
regulated under the laws of the United States or any State,
territory, or possession of the United States, the District of
Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern
Mariana Islands, Guam, American Samoa, or the United States Virgin
Islands, and having significant operations in the United States,
but excluding any central bank of, or institution owned by, a
foreign government.
[1]David Zaring says that �financial institution� is essentially
defined as any �institution,� given that the statute does not limit it
to banks and other firms that we ordinarily think of as �financial
institution.� Others, such as Mike [2]Rappaport, argue that the �not
limited to� language encompasses institutions like hedge funds or
other institutions �that deal[] with financial matters.�
But doesn�t an automaker deal with financial matters? They certainly
lend money; and they borrow money as well. Of course, the same can be
said about all business institutions. What matters currently is not
whether a firm borrows and lends, but whether it borrows or lends a
lot. The collapse of the automakers, which owe tens of billions of
dollars, matters more for the financial system than the collapse of
any number of tiny banks though the latter are indisputably financial
institutions.
In resolving statutory interpretation questions like this one, courts
don�t just read the dictionary; they also look at other statutes.
Consider 31 U.S.C. 5312, which also defines �financial institutions�:
(2) "financial institution" means-- (A) an insured bank (as defined in
section 3(h) of the Federal Deposit Insurance Act (12 U.S.C.
1813(h))); (B) a commercial bank or trust company; (C) a private
banker; (D) an agency or branch of a foreign bank in the United
States; (E) Any credit union; (F) a thrift institution��
[So far, so good. Rappaport-like in the narrowness of the definition.]
(G) a broker or dealer registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.); (H) a broker or dealer in securities or commodities; (I) an
investment banker or investment company; (J) a currency exchange; (K)
an issuer, redeemer, or cashier of travelers� checks, checks, money
orders, or similar instruments; (L) an operator of a credit card
system; (M) an insurance company; (N) a dealer in precious metals,
stones, or jewels;
[?? What�s this doing here?]
(O) a pawnbroker; (P) a loan or finance company; (Q) a travel agency;
[Travel agency?!]
(R) a licensed sender of money or any other person who engages as a
business in the transmission of funds, including any person who
engages as a business in an informal money transfer system or any
network of people who engage as a business in facilitating the
transfer of money domestically or internationally outside of the
conventional financial institutions system; (S) a telegraph company;
[Telegraph company?]
(T) a business engaged in vehicle sales, including automobile,
airplane, and boat sales;
[Hey!]
Of course, elsewhere in the U.S. Code the term is defined more
narrowly and intuitively; the point for present purposes is that how
Congress understands �financial institution� or any other term depends
on what it is trying to accomplish. This statute addresses financial
reporting, and Congress had in mind something about who should report
and who shouldn�t, rather than who is really a �financial institution�
and who is not. A court interpreting TARP will think in the same way.
A financial institution for TARP purposes is an institution that holds
financial assets (virtually all businesses) that have importance for
the credit crisis, with �importance� a matter of case-by-case
determination left to Treasury. Automakers collectively owe more money
than most individual banks do; their financial health clearly matters
to the resolution of the financial crisis, which is what TARP is for.
With Chevron deference to the Treasury�s reasonable interpretation,
this would not be a hard case.
***
There have been a number of recent posts on comments, and comments on
comments, almost all negative. For my part, comments have corrected
errors and directed me to valuable scholarship and commentary of
importance for my work. Thanks!
References
1. http://www.theconglomerate.org/2008/12/can-the-tarp-be.html
2.
http://rightcoast.typepad.com/rightcoast/2008/12/did-congress-save-the-daymike-rappaport.html
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