American Insurance Association v. Clarke

Under the National Bank Act, subsidiaries of national banks were subject to the same restrictions as national banks. Citibank, N.A. was a national bank. Citibank sought to establish a subsidiary for the purpose of offering municipal-bond insurance. Citibank submitted a proposal to the Office of the Comptroller of the Currency to form the American Municipal Bond Assurance Corporation (AMBAC) for offering of such insurance. Under the proposal, if a municipality wanted to issue municipal bonds, it would apply to AMBAC for insurance. AMBAC would then analyze the municipality’s creditworthiness. If the municipality had adequate credit, AMBAC would offer municipal-bond insurance in the form of a standby credit. In the event of a default by the bond issuer (i.e., the municipality), AMBAC would pay money owed to bondholders upon the presentation of documentary proof of nonpayment. Any insurance was to be for a definite term and limited in amount. The comptroller of the currency, Robert Clarke (defendant) approved Citibank’s proposal because it was sufficiently similar to other credit services normally offered by national banks. Specifically, the comptroller found that Citibank’s proposal was functionally equivalent to a standby letter of credit. The American Insurance Association (plaintiff) was a property-and-casualty-insurance trade group. The American Insurance Association sued the comptroller, seeking that the comptroller’s order approving AMBAC’s municipal-bond-insurance program be set aside. The district court found that the comptroller’s order did not violate the National Bank Act. The American Insurance Association appealed.