Since my post last Friday on whether the automobile companies fit within the definition of “financial institution” in the bailout legislation, there have been a number of posts pursuing this question. David Zaring largely agrees, I think, with my original analysis, in which I suggested that the statute offered sufficient ambiguity to allow treasury to move forward. Mike Rappaport thinks that I am clearly wrong, while Eric Posner seems to believe Treasury can act, especially in a world of Chevron deference. And Rick Hills believes that, given all of this, there is little reason to search for a proper legal answer; instead the question is one of trust: do we think that the courts will get it right or that Treasury will.
We should review the bidding. If the bailout legislation simply referred to “financial institution” without providing a definition of that term, we would expect the agent charged with implementing the statute to create a definition. That would almost certainly be Treasury in the first instance, and we might conclude, as Eric does, that Treasury would be well within its statutory authority to cover the automobile companies, especially given Chevron.
In contrast, if the statute actually provides a definition, then presumably we are stuck with that definition. If the statute said that “financial institution means Randy Picker, professor at the University of Chicago Law School” I guess I’d have to take the $700 billion. That would be an odd statute to be sure, but it would be the statute written by Congress. The definition is the definition.
Focus again on the definition given to us. Start by asking whether the placeholder for the definition itself matters. That is to say, if instead of using the term “financial institution” we did a search and replace on the statute, and replaced “financial institution” with, with a nod to Fred Kahn, “banana” or instead the unpronounceable symbol formerly embraced by the artist now again known as Prince, would the analysis be any different? I don’t think so. The defined term itself does no independent work in the statute. We should be able to replace the defined term in each place with the definition provided and reach the same result. “Banana” or “financial institution” the question is what does the definition itself say, not what symbol is used as the placeholder for the definition.
That means that the word “financial” is irrelevant as it isn’t part of the actual definition of that term, which, uses, instead, only institution. Again, as I said in my first post, I could imagine a court looking for a limiting principle to glom onto the institutions listed and thereby limit the reach of institution, though that might or might not exclude General Motors (see Eric’s post on this).
Consider another thought, raised by Eric in his post. Should we consider other definitions of the term “financial institution” in the United States Code? It is certainly interesting to see how the term is used elsewhere in the statutes, but as Eric suggests, there is no reason to believe that its use in one particular statute has anything to do with its use in a second statute. The statutes may be addressing fundamentally different issues while using the same placeholder. And there is nothing to suggest that Congress intended to embrace another definition of “financial institution” somewhere else in the United States Code. The easy way to do that would have been via incorporation, but they didn’t do that; instead, Congress defined the term in the bailout bill itself.
That takes us back to the original definition in the bailout bill where the operative term is any “institution” and if we pay careful attention to the commas, “any institution ... established and regulated under the laws of the United States or any State … and having significant operations in the United States.” As I suggested in my first post, plausibly broad enough for the automobile companies, but also probably not broad enough for individual states. Robert Reich has suggested that the states will seek funds under the TARP, but if we think of the states is being in existence prior to the United States itself and therefore not established and regulated under the laws United States or any state, the states should not be eligible, though we could imagine that subunits of the states would be.