Canandaigua National Corp v Board of Governors of the Federal

On May 17, 2024, CNC applied for the Board’s approval to offer its Cash Guarantee Mortgage Program through its mortgage subsidiary. The program aims to allow mortgage-dependent buyers to compete with all-cash offers in Western New York housing market. Under the proposal, CNC would guarantee purchase of residential property if a preapproved borrower failed to obtain final mortgage approval.

CNC designed the program to limit risk by requiring earnest money deposits, capping real estate exposure at $5 million, and promptly reselling any acquired properties. CNC also cited data showing that only a small percentage of guaranteed transactions historically resulted in lender purchases. According to CNC, the program would enhance competition by enabling it to compete with nonbank lenders and credit unions offering similar products.

In October 2025, the Board denied the application after an extended review process involving multiple information requests and deadline extensions. The Board concluded that the program conflicted with longstanding limits on bank ownership of real estate and posed safety-and-soundness risks by exposing banking organizations to potential real estate losses. Although CNC argued that the program supports its mortgage lending business and promotes competition and consumer choice, the Board determined that risks outweighed potential benefits. CNC petitioned the Second Circuit for review.

In its brief, ABA argued that the Board’s analysis contains significant flaws. ABA contended that the Board’s safety-and-soundness analysis impermissibly narrowed complementary activities authority Congress granted financial holding companies under Gramm-Leach-Bliley Act by effectively treating limited real estate exposure as disqualifying. Congress designed complementary activities authority to permit financial holding companies to engage in activities beyond traditional banking powers where appropriate.

ABA also argued that the Board failed to adequately consider CNC’s risk-mitigation measures, including the $5 million cap on real estate holdings, requirements for rapid resale, and the low historical likelihood that CNC would acquire properties. ABA further asserted that the Board did not sufficiently explain how such a limited program could create the “substantial” safety-and-soundness risks necessary to justify denial.

Second, ABA urged the Second Circuit to resolve the case narrowly and avoid issuing a decision that could restrict future use of complementary activities authority. ABA emphasized that Congress enacted BHC Act, as amended by Gramm-Leach-Bliley Act, to allow financial holding companies to compete with evolving nonbank financial service providers and adapt to innovation.

ABA noted that CNC’s proposal is narrowly tailored, with limited exposure and minimal expected property acquisitions. According to CNC, the program would involve no more than $5 million in real estate holdings and only a small number of property purchases annually. ABA argued that the court can resolve the case by remanding for reconsideration under the correct legal framework without broadly defining limits of complementary activities authority.