Wilshire Oil Co. v. Board of Governors of the Federal Reserve System

The Bank Holding Company Act of 1956 (the act) restricted the nonbanking activities of bank holding companies. The Board of Governors of the Federal Reserve System (the board) (defendant) oversaw bank holding companies. Initially, the act did not apply to companies that controlled only one bank. In 1970, Congress amended the act to apply to holding companies with just one bank. The one-bank holding companies were given until December 31, 1980, to implement one of two options. The one-bank holding companies could divest themselves of their nonbanking operations or stop being a bank holding company. Wilshire Oil Company of Texas (Wilshire) (plaintiff) was an oil-and-gas company. Trust Company of New Jersey (Trust Company) was a subsidiary of Wilshire. Trust Company was a bank under the act’s definition, which defined a bank as any institution that accepted deposits that the depositor had a legal right to withdraw on demand and that engaged in the commercial-loan business. Thus, Wilshire was a bank holding company because it controlled a bank. As a result, Wilshire was required to either divest its oil-and-gas business or stop being a bank holding company by the statutory deadline. In November 1980, Wilshire finally attempted to comply with the act by changing Trust Company into a nonbank under the act. Trust Company sent a notice to its depositors that it was reserving the right to require 14 days’ notice prior to withdrawal from transactional accounts but that it had no intention of exercising this right. Wilshire argued that Trust Company was no longer a bank as defined by the act because its depositors no longer had a legal right to withdraw deposits on demand. The board instituted a formal administrative hearing against Wilshire to determine whether Wilshire would be in violation of the act when the deadline passed. The board determined that Trust Company was a bank under the act despite the letter regarding its new policy requiring notice for withdrawals and issued a cease-and-desist order against Wilshire. Wilshire filed a petition for review of the cease-and-desist order.