Security Bancorp, a California Corporation, Security National Bank, a National Banking Association v. Board of Governors of the Federal Reserve System

In these petitions for review we must decide whether the Federal Reserve Board properly denied an application to become a bank holding company pursuant to the Bank Holding Company Act, 12 U.S.C. §§ 1841-1849 , and its requirement of adequate “managerial resources.” 12 U.S.C. § 1842 (c). The Board of Governors of the Federal Reserve System held that the applicant did not have adequate “managerial resources” and denied the application based upon the dominant shareholder’s alleged past involvement in payments by American companies to foreign governments. 64 Fed. Res.Bull. 425 (1978). Because we believe that the Board interpreted “managerial resources” too broadly, we set aside its denial and order the Board to grant the application.

This case arises from an attempt to reorganize the Security National Bank of Walnut Creek, California. Ninety-seven percent of the stock in the bank is owned by Adnan M. Khashoggi. The management of the bank created another corporation, Security Bancorp, pursuant to a plan under which it would acquire all of the stock in the bank. Khashoggi would then become the principal shareholder in Security Ban-corp with approximately the same percentage ownership…