High Court Ruling Is Major Victory for Non-Bank Banks

The Supreme Court on Monday cleared the way for the continued spread of limited-service banks, which have stirred widespread controversy in the financial services business because of their exemption from certain federal regulations.

The justices ruled that New York’s U.S. Trust Corp. may establish a subsidiary to run one of these limited-service banks--commonly called non-bank banks--in Palm Beach, Fla. Non-bank banks offer limited services--either checking accounts or commercial loans, but not both.

Such banks are springing up around the nation as major brokerage firms, such as Merrill Lynch, and leading corporations, such as J. C. Penney and Gulf & Western, enter the field.

The court ruled last year that non-bank banks are exempt from regulation under the Federal Bank Holding Company Act of 1956 because they do not meet the law’s definition of a bank.

U.S. Trust Corp.’s ownership of a non-bank bank was challenged on the grounds that it violates an amendment to the 1956 law generally prohibiting a bank holding company based in one state from acquiring a bank in another state.

The Conference of State Bank Supervisors, the Florida Bankers Assn. and the Florida Department of Banking and Finance contended that the 1956 law’s definition of bank does not govern regulatory powers under the Douglas Amendment.

The 11th U.S. Circuit Court of Appeals ruled in favor of U.S. Trust Corp.

Stating that its ruling was controlled by the Supreme Court’s 1986 decision, the appeals court said: “If the Federal Reserve Board is without regulatory jurisdiction to regulate non-bank banks as ‘banks’ under the (1956) act, then it is without regulatory jurisdiction to prevent the interstate proliferation of non-bank banks under the Douglas Amendment.”

The appeals court said Congress has the responsibility to decide “whether it wishes to shepherd the non-bank banks inside the regulatory pale.”

Bills are pending in Congress to curtail the spread of non-bank banks.

In other cases affecting business, the court:

- Refused to consider curbing the power of unions to hold strikes in support of other unions engaged in labor disputes.

The court rejected an appeal by John Morrell & Co., a meat processor with plants in Sioux Falls, S.D., and Arkansas City, Kan.

The case stems from a strike called by Local 340 of the United Food & Commercial Workers union at the Arkansas City plant. Local 340A of the union had a separate contract with the company at the Sioux Falls plant, but many of its members honored Local 340’s picket lines.

- Let stand a decision limiting the role of the federal courts in resolving disputes over rate increases sought by electric utility companies.

The court rejected an appeal by New Orleans Public Service. The utility, whose rate request was turned down by municipal authorities, unsuccessfully sought a federal court order to force officials to grant the request.

- Agreed to hear an appeal by a Texas oilman who says he should not have to bear full financial liability for selling unregistered oil and gas leases.

The court will determine whether federal securities law requires that a promoter of the deal who also bought securities may be forced to share liability.

The appeal was filed by Billy (B. J.) Pinter, head of Black Gold Oil Co., who sold oil and gas rights in Texas and Oklahoma to a group of investors in 1981.

Maurice Dahl, a California real estate broker, was instrumental in putting the deal together. Pinter claims that Dahl also is liable.