The U.S. District Court here has ruled that banks converting to federal charters may retain businesses permitted only to state banks.
The ruling, announced Wednesday, upholds a 1995 decision by the Office of the Comptroller of the Currency allowing Magna Bank, St. Louis, to keep its insurance sales offices regardless of their location. National banks are required to base insurance operations in communities with fewer than 5,000 residents.
The case was brought by the American Council of Life Insurance last year.
The court's ruling gives the Comptroller's Office wide latitude to decide which activities are permitted to national banks after they convert from state charters.
"We're delighted," said OCC Chief Counsel Julie L. Williams. "The court recognized that federal statute explicitly gives discretion to the Comptroller of the Currency to determine the ability of converting banks to retain nonconforming assets."
The ACLI argued that national banks must eventually divest themselves of any prohibited businesses after switching charters. Off-limits activities may be retained only on a temporary basis to smooth the transition from a state charter, the group said.
But Judge June L. Green rejected that reasoning in her 19-page opinion. "The Comptroller has the express authority to permit a converting bank to retain its nonconforming assets subject to conditions he may prescribe," she wrote. Banking laws "do not suggest that ultimate divestiture of nonconforming assets is built-in."
ACLI officials would not comment Wednesday.
Bradford W. Koeneman, spokesman for Magna Corp., Magna Bank's parent company, praised the decision. "We agree with the court's order to recognize these businesses as appropriate for our bank," he said.
Banking lawyers argued that national banks may now enter new businesses simply by acquiring state-chartered institutions. "This provides a way for national banks to have parity with state banks," said David Roderer, partner with Goodwin, Procter & Hoar here.
But Ms. Williams cautioned, "We want to make sure we are comfortable with our ability to monitor and supervise any given activity."
The district court ruling is the latest in a string of legal decisions upholding the OCC's authority to expand national bank powers.
"This is a continuation of a long-standing trend," said Michael F. Crotty, deputy general counsel for litigation at the American Bankers Association.
Bankers can expect the courts to uphold future efforts by the Comptroller's Office to expand industry powers, Mr. Roderer said. "The court is embracing the OCC's stated policy that federal statutes must be interpreted flexibly to expand bank activities," he said.