Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders




FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{7-31-95 p.A-2523}}
   [5223] In the Matter of The Bank of Hartford, Hartford, Conn., FDIC Docket No. 92-212kk (4-11-95)

   FDIC finds that bank is liable for the losses incurred by the FDIC in connection with the default of its two commonly controlled insured depository institutions and orders an assessment of $281,873,492 against the bank. Bank's holding company has no standing to participate in the assessment proceeding. Issues raised by the bank are not proper subjects of the administrative proceeding.

   [.1] Bank Insolvency—Cross-Guarantee—Standing of Holding Company
   Holding company has no standing to participate in cross-guarantee assessment proceeding in which the assessed institution is open and actively participating in the proceeding. The only exception to the rule of no standing to a holding company is where the assessed institution is in receivership and the receiver neither challenged the assessment nor determined whether a challenge would be worthwhile.

   [.2] Bank Insolvency—Cross-Guarantee—Scope of Proceeding
   Constitutionality of cross-guarantee statute is not a proper subject of administrative proceeding. Adjudication of the constitutionality of congressional enactments generally has been held to be beyond the jurisdiction of administrative agencies.

   [.3] Bank Insolvency—Cross-Guarantee—Scope of Proceeding
   Denial of bank's request for waiver of cross-guarantee liability is not a proper issue for administrative proceeding. It is not one of the three statutorily prescribed subjects of the hearing, and the FDIC's determination to grant or deny a waiver is wholly within its discretion and not reviewable by a court.

   [.4] Bank Insolvency—Cross-Guarantee—Scope of Proceeding
   The cross-guaranty statute makes clear that FDIC consultation with the state banking agency cannot affect the liability of an institution. Hence, a failure by the FDIC to comply with the consultation provision of the statute would not nullify an institution's cross-guarantee liability and the question of whether the FDIC complied with that provision is not a proper subject of the administrative proceeding.

In the Matter of
THE BANK OF HARTFORD, INC.
HARTFORD, CONNECTICUT
(Insured State Nonmember Bank)
DECISION AND ORDER
FDIC-92-212kk

I. INTRODUCTION

   This proceeding arises out of an assessment by the Federal Deposit Insurance Corporation ("FDIC") against The Bank of Hartford, Inc., Hartford, Connecticut ("Respondent" or "Bank"), pursuant to the cross-guaranty provisions of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1815(e). Under the Notice of Assessment of Liability, Findings of Fact and Conclusions of Law, Order to Pay, and Notice of Hearing dated January 26, 1993 ("Notice"), Respondent was assessed $285,848,000 for losses incurred or estimated to be incurred by the FDIC in connection with the default of {{7-31-95 p.A-2524}}two commonly controlled depository institutions, the Maine Savings Bank, Portland, Maine ("Maine Savings") and the Southstate Bank for Savings, Brockton, Massachusetts ("Southstate Savings"). The two institutions had failed in February 1991, and April 1992, respectively.
   The Notice initially provided that Respondent would not be required to pay the assessment until Respondent was sold or June 30, 1993, whichever occurred first. The payment date was later extended by the FDIC to November 15, 1993, in order to allow for completion of settlement negotiations.
   Respondent appeared and participated actively in this proceeding through counsel, from the filing of an Answer in February 1993, through the submission of written testimony in lieu of a hearing in April 1994.
   In addition to asserting that the crossguaranty statutory provision is an unconstitutional taking of property without just compensation and without due process, Respondent defended against the assessment on the grounds that (1) the FDIC failed to comply with its own Statement of Policy regarding the waivers of liability for assessment requested by Respondent, and (2) the FDIC failed properly to consult with the State chartering agency, as required by 12 U.S.C. § 1815(e)(2)(B), prior to the issuance of the Notice. The only other relief requested by Respondent was an adjustment in the amount of the initial assessment. On that issue, the parties stipulated on March 14, 1994, that the amount of loss will be calculated as of September 30, 1993, and the current losses as to Maine Savings and Southstate Savings are estimated to be $255,000,000 and $26,873,492, respectively, as of that date.
   Respondent's parent holding company, The One Bancorp ("TONE"), moved to intervene in the proceeding, asserting that it is an "interested person" within the meaning of section 6(a) of the Administrative Procedure Act ("APA"), 5 U.S.C. § 555(b).1 The motion to intervene was denied by Administrative Law Judge Arthur L. Shipe ("ALJ") by Order dated March 19, 1993, citing In the Matter of Maine National Bank, Portland, Maine, 1 P-H FDIC Enf. Dec. ¶ 5178 (1992).
   In April 1994, Respondent and FDIC Enforcement Counsel each filed written testimony in lieu of oral hearing. FDIC Enforcement Counsel also filed written rebuttal testimony, after which the evidentiary record was closed. Thereafter, FDIC Enforcement Counsel filed proposed findings of fact, conclusions of law and a brief; counsel for Respondent did not.
   On June 10, 1994, upon application of the Banking Commissioner for the State of Connecticut, Respondent was declared critically undercapitalized and closed. On September 15, 1994, counsel for the FDIC as Receiver for the Bank filed notice of appearance and moved for substitution as counsel of record for Respondent, which was granted by the ALJ.
   On August 22, 1994, the ALJ directed the parties to file supplemental briefs on whether the decision in Branch v. United States, 31 Cl.Ct. 626 (Cl. Ct. 1994), appeal granted, 42 F.3d 1409 (Fed. Cir. 1994), might affect the constitutional application of the cross-guaranty provision in the instant proceeding. Both parties filed briefs arguing that the Branch decision does not preclude the proposed assessment in this matter.
   Concurring with that position, the ALJ issued a Recommended Decision, dated December 21, 1994, that Respondent be assessed $281,873,492 in connection with the failures of Maine Savings and Southstate Savings. The Recommended Decision concludes that the two nonconstitutional issues raised by Respondent—whether the FDIC acted improperly in denying Respondent's application for waiver, and whether the FDIC failed to properly consult with the State of Connecticut prior to the issuance of the Notice—are not properly the subject of cross-guaranty proceedings pursuant to subsection 5(e)(3)(B) of the FDI Act, citing In the Matter of Maine National Bank, supra. The ALJ further concludes that, considering for the sake of argument the merits of the two issues raised by Respondent, "the assessment, as made, is administratively and legally proper." Recommended Decision at 8. Neither party filed Exceptions to the Recommended Decision.
   After careful review of the entire record in this proceeding, the Board of Directors ("Board") of the FDIC adopts the ALJ's Recommended Decision, with modifications discussed below.


1 Section 6(a) of the APA provides in part that
So far as the orderly conduct of public business permits, an interested person may appear before an agency or its responsible employees for the presentation, adjustment, or determination of an issue, request, or controversy in a proceeding, whether interlocutory, summary, or otherwise, or in connection with an agency function.

{{7-31-95 p.A-2525}}
II. Discussion

A. Denial of TONE's Motion to Intervene.

   [.1] The is the first cross-guaranty case to raise the issue of standing of a holding company in which the assessed institution is open and actively participating in the administrative proceeding. For the reasons set forth in In the Matter of First City, Texas - Austin, National Association, Austin, Texas, et al., FDIC-92-316kk, 1 P-H FDIC Enf. Dec. ¶ 5209 at A-2380, A-2381 (1993), the Board agrees with the ALJ that Respondent's parent holding company, TONE, has no standing to participate in this proceeding and was properly denied leave to intervene.2

B. Refusal to Hear and Determine
Respondent's Constitutional Challenges to
the Cross-Guaranty Statute
.
   By Prehearing Order dated December 8, 1993, the ALJ granted FDIC Enforcement Counsel's motion to strike Respondent's affirmative defenses that the cross-guaranty statute, 12 U.S.C. § 1815(e), violates the Fifth Amendment of the Constitution by permitting the taking of property without just compensation and without due process of law. The ALJ concluded that the constitutional challenge to the cross-guaranty provision "must be litigated in an appropriate court, and is quite simply beyond the scope of this administrative proceeding," noting that Respondent had properly preserved the issue for future challenge.

   [.2] The Board agrees that the constitutionality of the cross-guaranty statute is not a proper subject of this proceeding. Adjudication of the constitutionality of congressional enactments has generally been held to be beyond the jurisdiction of administrative agencies. See Public Utilities Comm'n of State of California v. United States, 355 U.S. 534 (1958); Johnson v. Robison, 415 U.S. 361 (1974); Weinberger v. Salfi, 422 U.S. 749 (1975); American Stevedores, Inc., v. Salzano, 538 F.2d 933 (2d Cir. 1976); Buckeye Industries, Inc. v. Secretary of Labor, 587 F.2d 231 (5th Cir. 1979). The Board has so held in previous cases, see FDIC Docket No. FDIC-86-56e, Bound Volume 1 P-H FDIC Enf. Dec. ¶ 5110 at A-1201 (1988), including the Maine National Bank case, 1 P-H FDIC Enf. Dec. ¶ 5178 at A-1981, with respect to the cross-guaranty statute.

C. The FDIC's Denial of Respondent's
Request for Waiver of Cross-Guaranty
Liability
.

   [.3] The Board is of the view that the agency's denial of Respondent's request for waiver of cross-guaranty liability is not a proper issue in this proceeding. First, it is not relevant to the subjects of an administrative cross-guaranty hearing set forth in the statute. Second, the FDIC's determination to grant or deny a waiver is wholly within its discretion and not reviewable by a court; hence, there is no legal requirement to create a formal administrative hearing record on that issue.3

1. Waiver of Liability is Not a Proper Subject of a Cross-Guaranty Hearing

   Subsection (5)(A) of the cross-guaranty statute, 12 U.S.C. § 1815(e)(5)(A), provides:

       The Corporation, in its discretion, may exempt any insured depository institution from the provisions of this subsection if the Corporation determines that such exemption is in the best interest of the Bank Insurance Fund or the Savings Association Insurance Fund.

   Respondent requested waiver of liability by letters dated January 31, 1991, regarding Maine Savings, and April 24, 1992, regarding Southstate Savings, Respondent's Written Testimony in Lieu of Oral Hearing ("Respondent's Written Testimony"), Jensen Affidavit, ¶ 4. The Board in its discretion declined to exempt Respondent from liability by Order dated August 25, 1992, concluding that waiver would not be in the best interest of the Bank Insurance Fund, Respondent's Written Testimony, Exhibit 2(c).
   Respondent argued that in denying the Bank an exemption, the FDIC failed to comply with its Statement of Policy Regarding Liability of

2 The ALJ relies on the Board's decision in he Maine National Bank case, cited earlier. That decision has, since the date of the ALJ's Order, been supplemented by the Board's decision in the First City case, which generally confirms the holding in the Maine National Bank case but recognizes an exception to the rule of no standing to a holding company in the limited circumstance where the assessed institution is in receivership and the receiver neither challenged the assessment nor determined whether or not a challenge would be worthwhile. 1 P-H FDIC Enf. Dec. at A-2381. That limited exception does not apply here.
3 Respondent had amply opportunity to present his arguments regarding waiver, and they received full consideration. The request was denied by the Board on August 25, 1992.

{{7-31-95 p.A-2526}}Commonly Controlled Depository Institutions, 55 Fed. Reg. 21935, May 30, 1990 ("Statement of Policy"). The ALJ concluded that the issue is not properly the subject of this proceeding, but adopted Findings of Fact on the issue and also concluded that the granting of any exemption from liability is within the discretion of the FDIC, that the Statement of Policy constitutes general guidance to the public and is not binding as law upon the FDIC, and that the Statement of Policy provides that waiver determinations rest solely with the Board. Recommended Decision at 13, 17. While agreeing with the ALJ's conclusions, the Board wishes to emphasize that the Board's action in granting or denying an exemption from liability is not a proper subject of a cross-guaranty administrative hearing. Hence, the findings of fact on this issue are unnecessary.4
   The Board has previously held that the cross-guaranty statute strictly limits the subjects of the administrative hearing.5 See the Maine National Bank decision, 1 P-H FDIC Enf. Dec. at A-1989, and the First City decision, 1 P-H FDIC Enf. Dec. at A-2376 - A-2379. The propriety of the Board's determination whether a grant or deny an exemption is not one of the three prescribed subjects of hearing.
   This holding is consistent with the Board's conclusion that the action of the Corporation in granting or denying a waiver of or exemption from cross-guaranty liability to any insured depository institution constitutes action committed to agency discretion by law and hence is not reviewable, under section 701(a) of the APA.6 Subsection 5(e)(5)(A) of the cross-guaranty statute clearly and specifically provides that exemptions are discretionary action by the FDIC.7 Because the Board's decisions granting or denying exemptions from liability are not reviewable, there is no need to create a formal hearing record on the issue.

2. FDIC's Consultation with the State
Chartering Agency
.

   Respondent claimed that the FDIC did not properly consult with the Connecticut Department of Banking as provided in subsection 5(e)(2)(B) of the cross-guaranty statute,8 Respondent's Written Testimony, Jensen Affidavit, ¶ 8. The ALJ found and concluded that the issue was not properly the subject of this proceeding; that prior to the denial of exemption to Respondent, the FDIC had consulted by telephone and in person with the office of the Banking Commissioner for the State of Connecticut regarding assessment of liability and the waiver; and that there is no requirement in the FDI Act, regulations or Policy Statement that consultations with the State banking agency concerning cross-guaranty liability must be in writing, Recommended Decision at 7, 13, and 17. The Board agrees with the ALJ's findings of fact on this issue, but does not adopt them because the issue is not a proper subject of a cross-guaranty hearing.9

   [.4] As an initial matter, the issue whether the FDIC properly consulted with the state


4 Findings of Fact 15 through 21 in the Recommended Decision are not adopted by the Board.
5 Subsection 5(e)(3)(B) of the statute provides for a hearing on the record for the review of (i) the amount of any loss incurred by the Corporation in connection with any insured depository institution; (ii) the liability of individual commonly controlled depository institutions for the amount of such loss; and (iii) the schedule of payments to be made by such commonly controlled depository institutions.
6 Subsection 5(e)(3)(A) of the cross-guaranty statute, 12 U.S.C. § 1815(e)(3)(A), provides that actions of the Corporation shall be reviewable pursuant to chapter 7 of Title 5, the chapter of the APA providing for judicial review. Section 701 thereof provides in part that
(a) This chapter applies, according to the provisions thereof, except to the extent that—
(1) statutes preclude judicial review; or
(2) agency action is committed to agency discretion by law.
7 Moreover, case law has established two circumstances in which courts will consider agency action to be not reviewable under section 701(a) even absent a clear statutory directive such as subsection 5(e)(5)(A): First, where a statute provides no clear guidelines for a court to follow in reviewing the action, FDIC v. Bank of Coushatta, 930 F.2d 1122 (5th Cir.), cert. denied, 112 S. Ct. 170 (1991); and second, where the very nature of the agency action implies that review would not be appropriate, American Bank v. Clarke, 933 F.2d 899 (10th Cir. 1991). Both circumstances are directly applicable to the granting and denying of cross-guaranty liability exemptions.
8 That section, 12 U.S.C. § 1815(e)(2)(B), provides:
The Corporation, after consultation with the appropriate Federal Banking agency and the appropriate State chartering agency, shall—
(i) on a case-by-case basis, establish the procedures and schedule under which any insured depository institution shall reimburse the Corporation for such institution's liability ... or
(ii) require any insured depository institution to make immediate payment of the amount of such institution's liability ...
9 The Board does not adopt Finding of Fact 14.

{{7-31-95 p.A-2527}}banking agency appears to be relevant to or subsumed in the issue of the liability of the insured depository institution, a proper subject of the hearing. However, the cross-guaranty statute makes clear that such consultation cannot affect the liability of an institution, which is established by the clear and mandatory language of subsection 5(e)(1)(A) of the cross-guaranty statute: "Any insured depository institution shall be liable for any loss incurred ... in connection with ... the default of a commonly controlled insured depository institution..." (emphasis added). There are no qualifying words or phrases, such as, "subject to the provisions of this subsection." Hence, a failure by the FDIC to comply with the consultation provisions of subsection 5(e)(2)(B) would not nullify an institution's cross-guaranty liability, and consequently the question whether the FDIC did comply with that subsection is not a subject to be considered in this proceeding. The ALJ is correct that the record in this proceeding fully supports the finding that the FDIC complied with that subsection, which does not require written consultation. However, as stated above, the ALJ's findings on this issue are not adopted by the Board because the issue is not a proper subject of this proceeding.

D. The Loss Date for Purposes of the
Order
.

   The parties agreed that the amount of loss will be calculated as of September 30, 1993 ("Loss Date"), and that the current total loss for Maine Savings and Southstate Savings as of the Loss Date equals $281,873,492 as set forth on Attachments 1 and 2 to the Joint Stipulations. The ALJ adopted the amount of loss agreed by the parties, but changed the Loss Date to December 31, 1993. The Board can find nothing in the record to indicate that the estimated current loss on December 31, 1993 was identical to that calculated as of September 30, 1993. The Board therefore adopts a Loss Date of September 30, 1993, as stipulated by the parties.10
   In summary, after careful review of the entire record of this proceeding, the Board adopts the Recommended Decision, with the modifications discussed above.

ORDER

   The Board of the FDIC, having considered the entire record of this proceeding including the Notice, finds that pursuant to section 5(e) of the FDI Act, 12 U.S.C. § 1815(e), The Bank of Hartford, Inc. (In Receivership) is liable for the losses incurred by the FDIC in connection with the default of its two commonly controlled insured depository institutions, Maine Savings Bank, Portland, Maine, and Southstate Bank for Savings, Brockton, Massachusetts.
   After consideration of the foregoing, it is
   ORDERED, that by reason of the factors set forth in the Notice and the Joint Stipulations of the parties hereto, the amount of $281,873,492 is hereby assessed against The Bank of Hartford, Inc. (In Receivership), pursuant to section 5(e)(2)(A) of the FDI Act, 12 U.S.C. § 1815(e)(2)(A), and is due and payable immediately pursuant to section 5(e)(2)(B)(ii) of the FDI Act, 12 U.S.C. § 1815(e)(2)(B)(ii).
   IT IS FURTHER ORDERED, that the Executive Secretary, or his designee, is instructed to execute and serve copies of this Decision and Order on all parties to this proceeding, the Administrative Law Judge, and the Banking Commissioner for the State of Connecticut.
   By direction of the Board of Directors
   Dated at Washington, D.C., this 11th day of April, 1995.
   /s/ Robert E. Feldman
   Acting Executive Secretary

__________________________________________

RECOMMENDED DECISION

In the Matter of
The Bank of Hartford, Inc.
Hartford, Connecticut
Related to
Maine Savings Bank
Portland, Maine
and
Southstate Bank for Savings
Brockton, Massachusetts
FDIC 92-212kk


10 The Board also modifies Finding of Fact 9 in the Recommended Decision to add the penultimate phrase, "a finding that the FDIC failed to consult with the state chartering authority before denying Respondent's request for waiver and issuing the Notice of Assessment."

{{7-31-95 p.A-2528}}
Arthur L. Shipe, Administrative Law Judge

PROCEDURAL BACKGROUND

   This proceeding arises from a Notice of Assessment of Liability, issued by the Federal Deposit Insurance Corporation upon the Bank of Hartford, Inc., ("Hartford") pursuant to Section 5(e) of the Federal Deposit Insurance Act, 12 U.S.C. § 1815(e) ("the Act").
   The Notice assesses liability against Hartford in the amount of $285,848,000, for losses incurred by the FDIC in connection with the default of two commonly controlled depository institutions, the Maine Savings Bank, Portland, Maine ("MSB"), and the Southstate Bank for Savings, Brockton, Massachusetts ("SBS").
   The Bank of Hartford initially appeared in this proceeding through counsel, answered the allegations set forth in the Notice, asserted numerous defenses to the assessment, and engaged in extended discovery concerning these allegations.
   The institution's parent holding company, The One Bancorp ("TONE"), likewise appeared in the proceeding by motion to intervene. The holding company sought intervention in this matter so as to participate and fully represent its interests, contending to be an "interested person" within the meaning of 6(a) of the Administrative Procedures Act, 5 U.S.C. § 555(b).
   By ruling dated March 19, 1993, I denied the holding company's request to intervene, consistent with the FDIC precedent established In the Matter of Maine National Bank, 2 P-H FDIC Enf. Dec. ¶ 5178 (1992). Hartford, through its counsel, proceeded to represent the interests of the bank throughout this matter.
   On July 6, 1993, the FDIC Board of Directors amended the order to pay the assessment, as a result of certain negotiations with representatives of the bank regarding settlement of the cross-guaranty claim. Payment of the claim would have resulted in the immediate insolvency of the bank, and the FDIC determined that an extension of the date for final payment would be in the best interest of the Bank Insurance Fund. Accordingly, the final payment was extended until September 30, 1993.
   On September 30, 1993, pursuant to delegated authority, the FDIC Director of Supervision again extended the date for final payment until November 15, 1993, in order to allow for the completion of on-going negotiations concerning settlement.
   The parties sought repeated continuance and delay of the Oral Hearing, presumably as a result of the above discussions. After granting several of these delay requests, I eventually scheduled the Oral Hearing to convene on March 29, 1994.
   On March 14, 1994, counsel for both parties filed a Joint Motion for Written Testimony in Lieu of Oral Hearing, requesting that written stipulations, testimony, and exhibits, be admitted into the record pursuant to FDIC Practice Rule 308.106 (12 C.F.R. § 308.106) in lieu of an evidentiary hearing. I granted the request for this procedure on March 15, 1994, and established a schedule by which the evidence, to include any rebuttal, was to be submitted by the respective parties.
   Counsel each submitted their respective testimony, and briefly litigated the admissibility of some of the proffered evidence, after which the evidentiary record in the proceeding was closed.
   The post-hearing briefing schedule was issued on May 17, 1994, and directed the filing of Proposed Findings of Fact, Conclusions of Law, and briefs. Enforcement Counsel for the FDIC filed the initial post-hearing pleadings, whereas counsel for Bank of Hartford filed none.
   The record reflects that on June 10, 1994, upon application of the Banking Commissioner of the State of Connecticut, Hartford was declared critically undercapitalized and closed. The FDIC was appointed receiver of the bank pursuant to 12 U.S.C. § 1821(c)(3), whereupon the Federal Deposit Insurance Corporation as Receiver for the bank ("FDICReceiver") succeeded to "all rights, titles, powers and privileges of the insured depository institution ..." 12 U.S.C. § 1821(d)(2)(A).
   On September 15, 1994, counsel for FDICReceiver filed notice of appearance in this proceeding, and moved for substitution as counsel of record, which motion I granted on September 19, 1994.
   On August 22, 1994, as a result of a recent decision rendered by the United States Court of Federal Claims in Branch v. United States, ____ Fed. Cl. ____, 1994 WL 38093 (Cl. Ct. 1994), I directed counsel for both parties to file supplemental briefs on whether the decision in Branch might affect the constitutional application of the cross guaranty provision in the instant proceeding.
{{7-31-95 p.A-2529}}
   Counsel for both parties filed briefs on this issue, concluding that the holding set forth in Branch does not and would not preclude the proposed assessment, with which conclusion I concur.
   Accordingly, considering the totality of the circumstances, to include the briefs, arguments, and evidence of record, I recommend a final assessment be made in the amount of $281,873,492.

DISCUSSION

   Before its closure by state regulators earlier this year, the Bank of Hartford was a state banking association, doing business under the laws of the State of Connecticut. At all times pertinent to this proceeding the bank was owned and controlled by The One Bancorp, Inc., ("TONE") a multi-bank holding company doing business under the laws of the Commonwealth of Massachusetts.
   For purposes of this proceeding TONE owned and controlled two other depository institutions, the Maine Savings Bank, of Portland, Maine ("MSB"), and the Southstate Bank for Savings, of Brockton, Massachusetts ("SBS"). By virtue of the corporate ownership of these various entities, each of the banks subject of this action (Hartford, MSB, and SBS) were "commonly controlled" depository institutions as defined by Section 5(e)(9) of the Act, 12 U.S.C. § 1815(e)(9).
   On or about February 1, 1991, and April 24, 1992, the respective state regulators declared MSB and SBS insolvent, whereupon the FDIC was appointed receiver for both institutions which were then closed. As a result of the receivership of MSB and SBS, the FDIC entered into various transactions concerning the disposition of the assets and liabilities of the two banks. The FDIC-Receiver ultimately incurred substantial loss by virtue of the above defaults, initially estimated in the amount of $285,848,000. It is this loss which gives rise to the instant proceeding.
   Section 5(e) of the Act, the provision under which this matter arises, provides in pertinent part as follows:

    1 (A) Liability Established
    Any insured depository institution shall be liable for any loss incurred by the Corporation, or any loss which the Corporation reasonably anticipates incurring, after August 9, 1989, in connection with —
         (i) the default of a commonly controlled insured depository institution; or
         (ii) any assistance provided by the Corporation to any commonly controlled insured depository institution in danger of default.

   In the instant proceeding it is not disputed that Hartford is a commonly controlled insured depository institution with MSB and SBS. Nor is it disputed that MSB and SBS are institutions in "default" within the meaning of Section of 5(e)(1)(A)(i), for which the FDIC has incurred loss.
   Rather, the only two issues which have been the subject of this proceeding are: 1.) whether the FDIC acted improperly in denying Hartford's application for waiver of the above assessment; and 2.) Whether the FDIC failed to properly consult with the State of Connecticut prior to the issuance of the Notice of Assessment.

   [.1] After careful consideration, it is my conclusion that neither issue would invalidate the assessment, nor for that matter, is either issue properly the subject of these cross guaranty proceedings pursuant to subsection 5(e)(3)(B) of the Act.1
   Even considering these issues for the sake or argument, however, one would still reach, in my opinion, a similar conclusion: the assessment, as made, is administratively and legally proper.
   In furtherance of this conclusion, consider the FDIC Policy Statement concerning guidelines for liability waiver, which provides as follows:

       The FDIC may unilaterally choose not to assess liability based upon an analysis of a particular situation, and it may entertain requests for waivers or liability reductions from affiliated or unaffiliated parties of an insti-


1 The cross-guaranty statute in subsection 5(e)(3)(B) provides for a hearing on the record to review (i) the amount of any loss incurred by the Corporation in connection with any insured depository institution; (ii) the liability of individual commonly controlled depository institutions for the amount of such loss; and (iii) the schedule of payments to be made by such commonly controlled depository institutions. 12 U.S.C. § 1815(e)(3). See Also In the Matter of Maine National Bank, 1 P-H FDIC Enf. Dec. ¶ 5178 at A-1989 (1992) (Congress could have provided for a broader hearing had it simply ended section 5(e)(3)(B) after requiring a hearing on the record. Instead, it consciously limited the scope of the hearing by setting forth the three items which are subject to review at a hearing on the record.)

{{7-31-95 p.A-2530}}
    tution in default or in danger of default. The following guidelines apply to exempting any insured depository institution from liability or possible liability incurred under the provisions of this section:
       (1) The determination of whether an exemption is in the best interests of either insurance funds rests solely with the Board of Directors of the FDIC.

Statement of Policy Regarding Liability of
Commonly Controlled Depository Institutions
, 21 Fed. Reg. 21,934, 21,935 (1990).

   [.2] It is clear from the face of the above policy that the determination whether to grant a waiver is purely discretionary. The policy statement sets forth the clear standard for the grant of such waivers—the best interest of the insurance fund—and this determination can only properly be made by the FDIC itself.
   Absent some showing of arbitrary or capricious action on the part of the FDIC, which in this case there is none, the exercise of agency discretion cannot be disturbed.
   With respect to Hartford's contention that the FDIC failed to meet the statutory requirement of consultation with the appropriate state regulator, we return to Section 5(e) which provides in pertinent part as follows:

    The Corporation, after consultation with the appropriate Federal banking agency and the appropriate State chartering agency, shall —
    (i) on a case-by-case basis, establish the procedures and schedule under which an insured depository institution shall reimburse the Corporation for such institution's liability under paragraph (1) in connection with any commonly controlled insured depository institution; or
    (ii) require any insured depository institution to make immediate payment of the amount of such institution's liability under paragraph (1) in connection with any commonly controlled insured depository institution.

12 U.S.C. § 1815(e)(2)(B).
   The bank's principal argument on this issue is that representatives of the FDIC did not properly "consult" with state regulators by providing written notification of the specific intent to issue the assessment notice.

   [.3] While nothing in the law requires a written notice, the record does reflect ample consultation by representatives of the FDIC prior to the issuance of the instant claim. For these reasons, I conclude that the argument of Hartford concerning improper consultation must be denied.
   Consistent with the FDIC decision In the Matter of First City, 1 FDIC Enf. Dec. ¶ 5209, at A-2376 (1994), the record in this proceeding reflects an appropriate "Loss Date" as established FDIC's Division of Finance, and further reflects a detailed statement of the method by which the total loss was calculated in this matter.2
   Given these circumstances, I enter the following Findings of Fact, Conclusions of Law, and Proposed Order.

PROPOSED FINDINGS OF FACT

   1. Hartford is a State banking association doing business under the laws of the State of Connecticut, having its principal place of business in Hartford, Connecticut.
   2. Maine Savings Bank, Portland, Maine ("MSB"), was a State banking association doing business under the laws of the State of Maine, having its principal place of business in Portland, Maine.
   3. Southstate Bank of Savings, Brockton, Massachusetts ("SBS"), was a State banking association doing business under the laws of the Commonwealth of Massachusetts, having its principal place of business in Brockton, Massachusetts.
   4. On or about February 1, 1991, the Superintendent of the Bureau of Banking for the State of Maine deemed MSB to be insolvent, and appointed the FDIC as receiver of MSB after which MSB was closed.
   5. On or about April 24, 1992, the Commissioner of Banks for the Commonwealth of Massachusetts deemed SBS to be insolvent, and appointed the FDIC as receiver of SBS after which SBS was closed.
   6. At all times pertinent to this proceeding, Hartford, MSB, and SBS, were owned and controlled by the same holding company, The One Bancorp, Brockton, Massachusetts.
   7. In its capacity as receiver of the failed Banks, the FDIC transferred certain of the assets of MSB and SBS to an acquiring institution in return for the assumption by the acquiring institution of that Bank's deposit and certain other liabilities. The transaction concerning MSB was a Service Agreement/


2 Note that Counsel for Bank of Hartford stipulated to the accuracy and admissibility of the selected "Loss Date" and total losses incurred.

{{7-31-95 p.A-2531}}Purchase and Assumption and Small Loan Purchase Transaction. The transaction concerning SBS was a Purchase and Assumption Transaction.
   8. Pursuant to a Notice of Assessment of Liability, Findings of Fact and Conclusions of Law, Notice of Hearing and Order to Pay dated January 26, 1993, the FDIC provided written notice to Hartford pursuant to section 5(e) of the Act, 12 U.S.C. § 1815(e), that the FDIC had assessed the amount of $285,848,000 against Hartford for losses incurred or reasonably anticipated to be incurred by the FDIC in connection with the default of MSB and SBS.
   9. The only relief sought at the administrative hearing is an adjustment in the amount of the assessment, and a finding as to whether the FDIC complied with its own Statement of Policy regarding a waiver of cross guaranty liability.
   10. For purposes of the administrative hearing, the figure for the amount of loss will be calculated as of December 31, 1993 ("Loss Date").
   11. With regard to MSB, the current loss as of the Loss Date is estimated to be $255,000,000.
   12. With regard to SBS, the current loss as of the Loss Date is estimated to be $26,873,492.
   13. The Bank of Hartford requested waiver of liability by letters dated January 31, 1991 (regarding MSB) and April 24, 1992 (regarding SBS).
   14. Prior to the denial of Hartford's request for a waiver of cross guaranty liability, and the issuance of the Notice of Assessment, the FDIC through its Executive Director and its Deputy Regional Director, had more than one conversation both by telephone and in person with the Banking Commissioner for the State of Connecticut, in which the waiver and assessment of the cross guaranty against Hartford, including the amount of the liability, its effect upon the capital of Hartford, its timing, and the potential closing of Hartford, were discussed.
   15. An in-depth financial analysis of the condition and viability of Hartford was conducted by the FDIC regarding whether the granting of a waiver to Hartford would be in the best interest of the insurance fund.
   16. In determining whether to grant a waiver, the FDIC considered the condition of Hartford, which was deteriorating, its ability to recapitalize, and its capacity for resale to a third-party acquiror.
   17. Among other things, poor asset quality resulted in a need for large provisions for loan losses, increased levels of overhead, and a weak net interest margin; Hartford required a significant capital injection to assure its continued viability.
   18. At the time Hartford's request for a waiver was denied, Hartford was subject to a cease and desist order, demonstrating the need for Hartford to develop sufficient policies and procedures to address the continued deterioration of its capital condition.
   19. With regard to the application for waiver, Hartford never submitted any concrete proposal to the FDIC which would demonstrate that Hartford could recapitalize and remain viable, while offsetting the FDIC's loss from the defaults of MSB and SBS.
   20. Hartford's holding company provided no additional capital support for the institution.
   21. After careful analysis, the FDIC concluded that granting a waiver to Hartford would not be in the best interest of the insurance fund.
   22. On August 25, 1992, the FDIC's Board of Directors denied Hartford's request for waiver. At the same time, the Board authorized the issuance of an Assessment of Liability, but stayed the issuance for at least 45 days to allow Hartford and the FDIC to negotiate a potential settlement.
   23. Even after the Notice of Assessment was issued, the FDIC attempted to provide Hartford additional time to recapitalize or find a buyer before the cross guaranty liability would have to be booked on its records.
   24. While Hartford was never successful in presenting a proposal to recapitalize, the FDIC issued a "comfort letter" to Hartford to assist in its marketing efforts, indicating that should a sale of Hartford result in a transaction that would be in the best interest of the insurance fund, the FDIC would seriously consider settling the cross guaranty claim.

PROPOSED CONCLUSIONS OF LAW

   Pursuant to the Joint Stipulations, Conclusions of Law 1 through 7 are uncontested. The remainder were the subject of the administrative hearing conducted through written testimony and documents.
   1. Hartford is, and has been, at all times pertinent to this proceeding, an insured State {{7-31-95 p.A-2532}}savings bank subject to the Act, 12 U.S.C. §§ 1811-1831t, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of Connecticut.
   2. MSB was, at all times pertinent to this proceeding, an insured State savings bank subject to the Act, 12 U.S.C. §§ 1811-1831t, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the State of Maine.
   3. SBS was, at all times pertinent to this proceeding, an insured State savings bank subject to the Act, 12 U.S.C. §§ 1811-1831t, the Rules and Regulations of the FDIC, 12 C.F.R. Chapter III, and the laws of the Commonwealth of Massachusetts.
   4. At all times pertinent to this proceeding, SBS, MSB, and Hartford were each "insured depository institutions" as defined in section 3(c)(2) of the Act, 12 U.S.C. § 1813(c)(2).
   5. Hartford, MSB, and SBS are commonly controlled, insured depository institutions, as defined in section 5(e)(9) of the Act, 12 U.S.C. § 1815(e)(9).
   6. The FDIC has jurisdiction over the Liable Institution and the subject matter of this proceeding.
   7. By virtue of the insolvency and receivership of the MSB and SBS, the institutions were in "default" as that term is defined in section 3(x)(1) of the Act, 12 U.S.C. § 1813(x)(1).
   8. Section 5(e)(5)(A) of the Act provides that the granting of any exemption from cross guaranty liability is within the discretion of the FDIC, and depends upon whether the exemption is in the best interest of the insurance fund.
   9. The FDIC's Statement of Policy provides on this issue that determinations regarding whether a waiver of cross guaranty liability is in the best interests of the insurance funds rests solely with the Board of Directors of the FDIC.

   [.3] 10. There is no requirement in the Act, regulations or Policy Statement, that consultations with the state regarding cross guaranty liability must be in writing.

   [.4] 11. The Statement of Policy constitutes general guidance to the public and is not binding as law upon the FDIC.
   12. Hartford is liable for the loss the FDIC has incurred, or reasonably anticipates incurring, in connection with the default of MSB.
   13. With regard to MSB, Hartford is currently liable for the FDIC's loss as of the Loss Date which is estimated to be $255,000,000.
   14. Hartford is liable for the loss the FDIC has incurred or reasonably anticipates incurring in connection with the default of SBS.
   15. With regard to SBS, Hartford is liable for the FDIC's loss as of the Loss Date which is estimated to be $26,873,492.
   16. In total, Hartford is liable for the FDIC's losses incurred in connection with the default of MSB and SBS in the amount of $281,873,492.

PROPOSED ORDER

   The Board of Directors of the Federal Deposit Insurance Corporation, having considered the entire record of this proceeding including the Notice of Assessment, finds that pursuant to Section 5(e) of the Federal Deposit Insurance Act, 12 U.S.C. § 1815(e), the Bank of Hartford, Inc., in receivership, is liable for the losses incurred by the Corporation in connection with the default of its two commonly controlled insured depository institutions, The Maine Savings Bank, Portland, Maine, and The Southstate Bank for Savings, Brockton, Massachusetts.
   After consideration of the foregoing, and such other matters as justice may require, it is:
   ORDERED, that by reason of the factors set forth in the Notice of Assessment, the amount of $ 281,873,492 is hereby assessed against the Bank of Hartford, Inc. (In Receivership), pursuant to Section 5(e)(2)(A) of the Act, 12 U.S.C. § 1815(e)(2)(A), is due and payable immediately pursuant to Section 5(e)(2)(B)(ii) of the Act, 12 U.S.C. § 1815(e)(2)(B)(ii).

ED&O Home | Search Form | Text Search | ED&O Help

Last Updated 6/6/2003 legal@fdic.gov