44764 Federal Register / Vol. 63, No. 161 / Thursday, August 20, 1998 / Notices
evidence that the mere possibility of
such entry tends to encourage
competitive pricing and to maintain the
quality of services offered by the
existing competitors in the market.
The FDIC will also consider the extent
to which the proposed merger
transaction likely would create a
stronger, more efficient institution able
to compete more vigorously in the
relevant geographic markets.
4. Consideration of the public interest.
The FDIC will deny any proposed
merger transaction whose overall effect
likely would be to reduce existing
competition substantially by limiting
the service and price options available
to the public in the relevant geographic
market(s), unless the anticompetitive
effects of the proposed merger
transaction are clearly outweighed in
the public interest by the convenience
and needs of the community to be
served. For this purpose, the applicant
must show by clear and convincing
evidence that any claimed public
benefits would be both substantial and
incremental and generally available to
seekers of banking services in the
relevant geographic market(s) and that
the expected benefits cannot reasonably
be achieved through other, less
anticompetitive means.
Where a proposed merger transaction
is the only reasonable alternative to the
probable failure of an insured
depository institution, the FDIC may
approve an otherwise anticompetitive
merger transaction. The FDIC usually
will not consider a less anticompetitive
alternative that is substantially more
costly to the FDIC to be a reasonable
alternative, unless the potential costs to
the public of approving the
anticompetitive merger transaction are
clearly greater than those costs likely to
be saved by the FDIC.
Prudential Factors
The FDIC does not wish to create
larger weak institutions or to debilitate
existing institutions whose overall
condition, including capital,
management, and earnings, is generally
satisfactory. Consequently, apart from
competitive considerations, the FDIC
normally will not approve a proposed
merger transaction where the resulting
institution would fail to meet existing
capital standards, continue with weak
or unsatisfactory management, or whose
earnings prospects, both in terms of
quantity and quality, are weak, suspect,
or doubtful. In assessing capital
adequacy and earnings prospects,
particular attention will be paid to the
adequacy of the allowance for loan and
lease losses. In evaluating management,
the FDIC will rely to a great extent on
the supervisory histories of the
institutions involved and of the
executive officers and directors that are
proposed for the resultant institution. In
addition, the FDIC may review the
adequacy of management’s disclosure to
shareholders of the material aspects of
the merger transaction to ensure that
management has properly fulfilled its
fiduciary duties.
Convenience and Needs Factor
In assessing the convenience and
needs of the community to be served,
the FDIC will consider such elements as
the extent to which the proposed merger
transaction is likely to benefit the
general public through higher lending
limits, new or expanded services,
reduced prices, increased convenience
in utilizing the services and facilities of
the resulting institution, or other means.
The FDIC, as required by the
Community Reinvestment Act, will also
note and consider each institution’s
Community Reinvestment Act
performance evaluation record. An
unsatisfactory record may form the basis
for denial or conditional approval of an
application.
IV. Related Considerations
1. Interstate bank merger transactions.
Where a proposed transaction is an
interstate merger transaction between
insured banks, the FDIC will consider
the additional factors provided for in
section 44 of the Federal Deposit
Insurance Act, 12 U.S.C. 1831u.
2. Interim merger transactions. An
interim institution is a state- or
federally-chartered institution that does
not operate independently, but exists,
normally for a very short period of time,
solely as a vehicle to accomplish a
merger transaction. In cases where the
establishment of a new or interim
institution is contemplated in
connection with a proposed merger
transaction, the applicant should
contact the FDIC to discuss any relevant
deposit insurance requirements. In
general, a merger transaction (other than
a purchase and assumption) involving
an insured depository institution and a
federal interim depository institution
will not require an application for
deposit insurance, even if the federal
interim depository institution will be
the surviving institution.
3. Optional conversion. Section
5(d)(3) of the Federal Deposit Insurance
Act, 12 U.S.C. 1815(d)(3), provides for
‘‘optional conversions’’ (commonly
known as Oakar transactions) which, in
general, are merger transactions that
involve a member of the Bank Insurance
Fund and a member of the Savings
Association Insurance Fund. These
transactions are subject to specific rules
regarding deposit insurance coverage
and premiums. Applicants may find
additional guidance in § 327.31 of the
FDIC rules and regulations (12 CFR
327.31).
4. Branch closings. Where banking
offices are to be closed in connection
with the proposed merger transaction,
the FDIC will review the merging
institutions’ conformance to any
applicable requirements of section 42 of
the FDI Act concerning notice of branch
closings as reflected in the Interagency
Policy Statement Concerning Branch
Closing Notices and Policies. See 2 FDIC
Law, Regulations, Related Acts 5391.
5. Legal fees and other expenses. The
commitment to pay or payment of
unreasonable or excessive fees and other
expenses incident to an application
reflects adversely upon the management
of the applicant institution. The FDIC
will closely review expenses for
professional or other services rendered
by present or prospective board
members, major shareholders, or other
insiders for any indication of self-
dealing to the detriment of the
institution. As a matter of practice, the
FDIC expects full disclosure to all
directors and shareholders of any
arrangement with an insider. In no case
will the FDIC approve an application
where the payment of a fee, in whole or
in part, is contingent upon any act or
forbearance by the FDIC or by any other
federal or state agency or official.
6. Trade names. Where an acquired
bank or branch is to be operated under
a different trade name than the
acquiring bank, the FDIC will review the
adequacy of the steps taken to minimize
the potential for customer confusion
about deposit insurance coverage.
Applicants may refer to the Interagency
Statement on Branch Names for
additional guidance. See FDIC,
Financial Institution Letter, 46–98 (May
1, 1998).
By order of the Board of Directors.
Dated at Washington, D.C., this 7th day of
July, 1998.
Federal Deposit Insurance Corporation.
James LaPierre,
Deputy Executive Secretary.
[FR Doc. 98–21489 Filed 8–19–98; 8:45 am]
BILLING CODE 6714–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
Liability of Commonly Controlled
Depository Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
evidence that the mere possibility of
such entry tends to encourage
competitive pricing and to maintain the
quality of services offered by the
existing competitors in the market.
The FDIC will also consider the extent
to which the proposed merger
transaction likely would create a
stronger, more efficient institution able
to compete more vigorously in the
relevant geographic markets.
4. Consideration of the public interest.
The FDIC will deny any proposed
merger transaction whose overall effect
likely would be to reduce existing
competition substantially by limiting
the service and price options available
to the public in the relevant geographic
market(s), unless the anticompetitive
effects of the proposed merger
transaction are clearly outweighed in
the public interest by the convenience
and needs of the community to be
served. For this purpose, the applicant
must show by clear and convincing
evidence that any claimed public
benefits would be both substantial and
incremental and generally available to
seekers of banking services in the
relevant geographic market(s) and that
the expected benefits cannot reasonably
be achieved through other, less
anticompetitive means.
Where a proposed merger transaction
is the only reasonable alternative to the
probable failure of an insured
depository institution, the FDIC may
approve an otherwise anticompetitive
merger transaction. The FDIC usually
will not consider a less anticompetitive
alternative that is substantially more
costly to the FDIC to be a reasonable
alternative, unless the potential costs to
the public of approving the
anticompetitive merger transaction are
clearly greater than those costs likely to
be saved by the FDIC.
Prudential Factors
The FDIC does not wish to create
larger weak institutions or to debilitate
existing institutions whose overall
condition, including capital,
management, and earnings, is generally
satisfactory. Consequently, apart from
competitive considerations, the FDIC
normally will not approve a proposed
merger transaction where the resulting
institution would fail to meet existing
capital standards, continue with weak
or unsatisfactory management, or whose
earnings prospects, both in terms of
quantity and quality, are weak, suspect,
or doubtful. In assessing capital
adequacy and earnings prospects,
particular attention will be paid to the
adequacy of the allowance for loan and
lease losses. In evaluating management,
the FDIC will rely to a great extent on
the supervisory histories of the
institutions involved and of the
executive officers and directors that are
proposed for the resultant institution. In
addition, the FDIC may review the
adequacy of management’s disclosure to
shareholders of the material aspects of
the merger transaction to ensure that
management has properly fulfilled its
fiduciary duties.
Convenience and Needs Factor
In assessing the convenience and
needs of the community to be served,
the FDIC will consider such elements as
the extent to which the proposed merger
transaction is likely to benefit the
general public through higher lending
limits, new or expanded services,
reduced prices, increased convenience
in utilizing the services and facilities of
the resulting institution, or other means.
The FDIC, as required by the
Community Reinvestment Act, will also
note and consider each institution’s
Community Reinvestment Act
performance evaluation record. An
unsatisfactory record may form the basis
for denial or conditional approval of an
application.
IV. Related Considerations
1. Interstate bank merger transactions.
Where a proposed transaction is an
interstate merger transaction between
insured banks, the FDIC will consider
the additional factors provided for in
section 44 of the Federal Deposit
Insurance Act, 12 U.S.C. 1831u.
2. Interim merger transactions. An
interim institution is a state- or
federally-chartered institution that does
not operate independently, but exists,
normally for a very short period of time,
solely as a vehicle to accomplish a
merger transaction. In cases where the
establishment of a new or interim
institution is contemplated in
connection with a proposed merger
transaction, the applicant should
contact the FDIC to discuss any relevant
deposit insurance requirements. In
general, a merger transaction (other than
a purchase and assumption) involving
an insured depository institution and a
federal interim depository institution
will not require an application for
deposit insurance, even if the federal
interim depository institution will be
the surviving institution.
3. Optional conversion. Section
5(d)(3) of the Federal Deposit Insurance
Act, 12 U.S.C. 1815(d)(3), provides for
‘‘optional conversions’’ (commonly
known as Oakar transactions) which, in
general, are merger transactions that
involve a member of the Bank Insurance
Fund and a member of the Savings
Association Insurance Fund. These
transactions are subject to specific rules
regarding deposit insurance coverage
and premiums. Applicants may find
additional guidance in § 327.31 of the
FDIC rules and regulations (12 CFR
327.31).
4. Branch closings. Where banking
offices are to be closed in connection
with the proposed merger transaction,
the FDIC will review the merging
institutions’ conformance to any
applicable requirements of section 42 of
the FDI Act concerning notice of branch
closings as reflected in the Interagency
Policy Statement Concerning Branch
Closing Notices and Policies. See 2 FDIC
Law, Regulations, Related Acts 5391.
5. Legal fees and other expenses. The
commitment to pay or payment of
unreasonable or excessive fees and other
expenses incident to an application
reflects adversely upon the management
of the applicant institution. The FDIC
will closely review expenses for
professional or other services rendered
by present or prospective board
members, major shareholders, or other
insiders for any indication of self-
dealing to the detriment of the
institution. As a matter of practice, the
FDIC expects full disclosure to all
directors and shareholders of any
arrangement with an insider. In no case
will the FDIC approve an application
where the payment of a fee, in whole or
in part, is contingent upon any act or
forbearance by the FDIC or by any other
federal or state agency or official.
6. Trade names. Where an acquired
bank or branch is to be operated under
a different trade name than the
acquiring bank, the FDIC will review the
adequacy of the steps taken to minimize
the potential for customer confusion
about deposit insurance coverage.
Applicants may refer to the Interagency
Statement on Branch Names for
additional guidance. See FDIC,
Financial Institution Letter, 46–98 (May
1, 1998).
By order of the Board of Directors.
Dated at Washington, D.C., this 7th day of
July, 1998.
Federal Deposit Insurance Corporation.
James LaPierre,
Deputy Executive Secretary.
[FR Doc. 98–21489 Filed 8–19–98; 8:45 am]
BILLING CODE 6714–01–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
Liability of Commonly Controlled
Depository Institutions
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
44765Federal Register / Vol. 63, No. 161 / Thursday, August 20, 1998 / Notices
ACTION: Statement of policy.
SUMMARY: The FDIC is revising its
Statement of Policy on Liability of
Commonly Controlled Depository
Institutions (Statement of Policy) which
sets forth the procedures and guidelines
the FDIC uses in assessing or waiving
liability against commonly controlled
depository institutions under section
5(e) of the Federal Deposit Insurance
Act. The revised Statement of Policy
removes the application procedures for
requesting a conditional waiver of the
cross-guaranty liability from the
Statement of Policy and incorporates
those same procedures into § 303.245 of
the FDIC’s Rules published elsewhere in
today’s Federal Register.
EFFECTIVE DATE: October 1, 1998.
FOR FURTHER INFORMATION CONTACT:
Jesse G. Snyder, Assistant Director,
Division of Supervision (202) 898–6915,
or Grovetta N. Gardineer, Counsel, Legal
Division, (202) 898–3728, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION: In
accordance with section 303(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994 (12
U.S.C. 4803(a)), the FDIC conducted a
systematic review of its regulations and
written policies and determined that it
was appropriate to revise the Statement
of Policy. As a result of this review, the
Board of Directors of the FDIC revised
the Statement of Policy Regarding
Liability of Commonly Controlled
Depository Institutions to move the
application procedures for requesting a
conditional waiver of cross guaranty
liability from the Statement of Policy to
part 303 (12 CFR part 303). Specifically,
the contents of an application for
requesting a conditional waiver of
liability will be located in § 303.245.
The purpose of this revision is to place
virtually all of FDIC’s application
procedures into one regulation to
facilitate ease of use.
The FDIC received two comments
regarding the revision to the Statement
of Policy. Both of the commenters
supported the FDIC’s proposal to revise
the Statement of Policy.
For the above reasons, the FDIC is
adopting the following revision to the
Statement of Policy:
Liability of Commonly Controlled
Depository Institutions
Introduction
Section 5(e) of the Federal Deposit
Insurance Act (12 U.S.C. 1815(e)), as
added by section 206(a)(7) of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, creates
liability for commonly controlled
insured depository institutions for
losses incurred or reasonably
anticipated by the Federal Deposit
Insurance Corporation (FDIC) in
connection with (i) the default of a
commonly controlled insured
depository institution; or (ii) any
assistance provided by the FDIC to any
commonly controlled insured
depository institution in danger of
default. In addition to certain statutory
exceptions and exclusions contained in
sections 5(e)(6), (7) and (8), the FDI Act
also permits the FDIC, in its discretion,
to exempt any insured depository
institution from this liability if it
determines that such exemption is in
the ‘‘best interests of the Bank Insurance
Fund or the Savings Association
Insurance Fund.’’
The liability of an insured depository
institution attaches at the time of default
of a commonly controlled institution. It
is completely within the discretion of
the FDIC whether or not to issue a
notice of assessment to the liable
institution for the estimated amount of
the loss incurred or reasonably
anticipated to be incurred by the FDIC.
Guidelines for Conditional Waiver of
Liability
The FDIC may, in its discretion,
choose not to assess liability based upon
analysis of a particular situation, and it
may entertain requests for waivers from
affiliated or unaffiliated parties of an
institution in default or in danger of
default. The determination of whether
an exemption is in the best interests of
either insurance fund rests solely with
the Board of Directors of the FDIC
(Board). Should the Board make such a
determination, a waiver will be issued
setting forth terms and conditions that
must be met in order to receive an
exemption from liability (conditional
waiver of liability). The following
guidelines apply to conditional waivers
of liability under the provisions of this
section:
(1) A conditional waiver of liability
will be considered in those cases where
the waiver facilitates an alternative that
would be in the best interests of the
FDIC. For example, a conditional waiver
may be granted when requisite
additional capital and managerial
resources are being provided which
substantially lessen the exposure of the
affected insurance fund. When a
conditional waiver is granted to an
unaffiliated acquirer of an institution in
default or in danger of default it will be
granted for a fixed period, generally not
to exceed a period of time reasonably
required for existing problems to be
identified and resolved.
(2) If one or more institutions in a
commonly controlled relationship is
otherwise solvent, well-managed and
viable, it may be in the best interest of
the FDIC to waive or reduce claims
against such entities. In determining
whether a conditional waiver is
appropriate, consideration will be given
to actions of a holding company which
may contribute to or diminish the
FDIC’s losses, as well as proposals to
strengthen other weakened institutions,
if any.
(3) Procedures to request a
conditional waiver of liability are
contained in § 303.245 of the FDIC’s
Rules and Regulations, 12 CFR 303.245.
(4) In cases where an insured
depository institution is sold to an
acquirer with no financial interest,
directly or indirectly, in the institution
prior to the acquisition, it is the general
policy of the FDIC to forego the issuance
of a notice of assessment to the acquirer
and its affiliated institutions in the
event of a default of an insured
depository institution formerly affiliated
with the acquired institution. The FDIC
will review all such transactions prior to
making a final determination to forego
the issuance of the notice of assessment.
Guidelines for Assessment of Liability
Whenever the FDIC determines that
assessment of liability in connection
with a commonly controlled insured
depository institution(s) is appropriate,
a Notice of Assessment of Liability,
Findings of Fact and Conclusions of
Law, Order to Pay, and Notice of
Hearing (Notice of Assessment) will be
served upon the liable institution. In
assessing the amount of the FDIC’s loss
and the liable institution(s’’) method of
payment, the following guidelines shall
apply:
(1) A good faith estimate of the
amount of loss the FDIC shall incur
shall be based upon (a) the actual sale
or calculation of loss from a review by
the FDIC of the assets and liabilities of
the institution prior to default or the
granting of assistance; or (b) any other
cost estimate bases as explained in the
Notice of Assessment.
(2) If there is more than one
commonly controlled depository
institution to be assessed, each such
institution is jointly and severally liable
for all losses; however, the FDIC shall
make a good faith estimate of the
liability of each institution as
determined by (a) first assessing an
initial amount on a pro rata capital basis
that brings about parity in the capital
ratios of the liable institutions, and (b)
then apportioning any residual
assessment on a pro-rata size basis
utilizing the most recent Report of
ACTION: Statement of policy.
SUMMARY: The FDIC is revising its
Statement of Policy on Liability of
Commonly Controlled Depository
Institutions (Statement of Policy) which
sets forth the procedures and guidelines
the FDIC uses in assessing or waiving
liability against commonly controlled
depository institutions under section
5(e) of the Federal Deposit Insurance
Act. The revised Statement of Policy
removes the application procedures for
requesting a conditional waiver of the
cross-guaranty liability from the
Statement of Policy and incorporates
those same procedures into § 303.245 of
the FDIC’s Rules published elsewhere in
today’s Federal Register.
EFFECTIVE DATE: October 1, 1998.
FOR FURTHER INFORMATION CONTACT:
Jesse G. Snyder, Assistant Director,
Division of Supervision (202) 898–6915,
or Grovetta N. Gardineer, Counsel, Legal
Division, (202) 898–3728, Federal
Deposit Insurance Corporation, 550 17th
Street, N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION: In
accordance with section 303(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994 (12
U.S.C. 4803(a)), the FDIC conducted a
systematic review of its regulations and
written policies and determined that it
was appropriate to revise the Statement
of Policy. As a result of this review, the
Board of Directors of the FDIC revised
the Statement of Policy Regarding
Liability of Commonly Controlled
Depository Institutions to move the
application procedures for requesting a
conditional waiver of cross guaranty
liability from the Statement of Policy to
part 303 (12 CFR part 303). Specifically,
the contents of an application for
requesting a conditional waiver of
liability will be located in § 303.245.
The purpose of this revision is to place
virtually all of FDIC’s application
procedures into one regulation to
facilitate ease of use.
The FDIC received two comments
regarding the revision to the Statement
of Policy. Both of the commenters
supported the FDIC’s proposal to revise
the Statement of Policy.
For the above reasons, the FDIC is
adopting the following revision to the
Statement of Policy:
Liability of Commonly Controlled
Depository Institutions
Introduction
Section 5(e) of the Federal Deposit
Insurance Act (12 U.S.C. 1815(e)), as
added by section 206(a)(7) of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, creates
liability for commonly controlled
insured depository institutions for
losses incurred or reasonably
anticipated by the Federal Deposit
Insurance Corporation (FDIC) in
connection with (i) the default of a
commonly controlled insured
depository institution; or (ii) any
assistance provided by the FDIC to any
commonly controlled insured
depository institution in danger of
default. In addition to certain statutory
exceptions and exclusions contained in
sections 5(e)(6), (7) and (8), the FDI Act
also permits the FDIC, in its discretion,
to exempt any insured depository
institution from this liability if it
determines that such exemption is in
the ‘‘best interests of the Bank Insurance
Fund or the Savings Association
Insurance Fund.’’
The liability of an insured depository
institution attaches at the time of default
of a commonly controlled institution. It
is completely within the discretion of
the FDIC whether or not to issue a
notice of assessment to the liable
institution for the estimated amount of
the loss incurred or reasonably
anticipated to be incurred by the FDIC.
Guidelines for Conditional Waiver of
Liability
The FDIC may, in its discretion,
choose not to assess liability based upon
analysis of a particular situation, and it
may entertain requests for waivers from
affiliated or unaffiliated parties of an
institution in default or in danger of
default. The determination of whether
an exemption is in the best interests of
either insurance fund rests solely with
the Board of Directors of the FDIC
(Board). Should the Board make such a
determination, a waiver will be issued
setting forth terms and conditions that
must be met in order to receive an
exemption from liability (conditional
waiver of liability). The following
guidelines apply to conditional waivers
of liability under the provisions of this
section:
(1) A conditional waiver of liability
will be considered in those cases where
the waiver facilitates an alternative that
would be in the best interests of the
FDIC. For example, a conditional waiver
may be granted when requisite
additional capital and managerial
resources are being provided which
substantially lessen the exposure of the
affected insurance fund. When a
conditional waiver is granted to an
unaffiliated acquirer of an institution in
default or in danger of default it will be
granted for a fixed period, generally not
to exceed a period of time reasonably
required for existing problems to be
identified and resolved.
(2) If one or more institutions in a
commonly controlled relationship is
otherwise solvent, well-managed and
viable, it may be in the best interest of
the FDIC to waive or reduce claims
against such entities. In determining
whether a conditional waiver is
appropriate, consideration will be given
to actions of a holding company which
may contribute to or diminish the
FDIC’s losses, as well as proposals to
strengthen other weakened institutions,
if any.
(3) Procedures to request a
conditional waiver of liability are
contained in § 303.245 of the FDIC’s
Rules and Regulations, 12 CFR 303.245.
(4) In cases where an insured
depository institution is sold to an
acquirer with no financial interest,
directly or indirectly, in the institution
prior to the acquisition, it is the general
policy of the FDIC to forego the issuance
of a notice of assessment to the acquirer
and its affiliated institutions in the
event of a default of an insured
depository institution formerly affiliated
with the acquired institution. The FDIC
will review all such transactions prior to
making a final determination to forego
the issuance of the notice of assessment.
Guidelines for Assessment of Liability
Whenever the FDIC determines that
assessment of liability in connection
with a commonly controlled insured
depository institution(s) is appropriate,
a Notice of Assessment of Liability,
Findings of Fact and Conclusions of
Law, Order to Pay, and Notice of
Hearing (Notice of Assessment) will be
served upon the liable institution. In
assessing the amount of the FDIC’s loss
and the liable institution(s’’) method of
payment, the following guidelines shall
apply:
(1) A good faith estimate of the
amount of loss the FDIC shall incur
shall be based upon (a) the actual sale
or calculation of loss from a review by
the FDIC of the assets and liabilities of
the institution prior to default or the
granting of assistance; or (b) any other
cost estimate bases as explained in the
Notice of Assessment.
(2) If there is more than one
commonly controlled depository
institution to be assessed, each such
institution is jointly and severally liable
for all losses; however, the FDIC shall
make a good faith estimate of the
liability of each institution as
determined by (a) first assessing an
initial amount on a pro rata capital basis
that brings about parity in the capital
ratios of the liable institutions, and (b)
then apportioning any residual
assessment on a pro-rata size basis
utilizing the most recent Report of