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Inactive Financial Institution Letters 

Activities Of Insured State Depository Institutions

FIL-97-97
September 23, 1997

 

TO: CHIEF EXECUTIVE OFFICER
SUBJECT: FDIC Seeks Comment on Proposed Rule Governing Activities and Investments of Insured State Depository Institutions

The FDIC Board of Directors is seeking comment on the attached proposal to consolidate regulations governing activities and investments of insured state banks, savings associations and subsidiaries of state nonmember banks into a single section--Part 362 of the FDIC's rules and regulations. The new Part 362 would provide a comprehensive view of the FDIC's safety and soundness concerns relating to activities and investments of insured state depository institutions. The Board has withdrawn its proposed amendments to Part 362 published in the Federal Register on August 23, 1996, covering real estate and life insurance investment activities. These issues are covered in the new proposal.

Comments on the proposal are due by December 11, 1997.

The proposal contains major revisions to the regulations that would delete obsolete provisions, clarify language, and promote consistency within the regulations. The proposal does not grant new powers to insured state depository institutions. The regulation provides a framework under which the FDIC makes its determination on risks to the insurance funds as required by statute.

The proposal would:

  • establish a notice procedure to expedite processing of requests from banks that meet eligibility criteria;

  • add a new regulatory exception allowing a majority-owned subsidiary of an insured state depository institution to acquire and retain stock listed on a national securities exchange without prior notice; and

  • create safety and soundness standards for insured state nonmember banks that are engaging in real estate investment activities through a subsidiary when those activities are not permissible for a national bank, but are permissible for a subsidiary of a national bank. The proposal covers four major areas of activities that are not permissible for a national bank: real estate investment activities, insurance underwriting, securities underwriting and distribution, and investment in the equity securities of other companies.

To expedite and simplify processing, the information required for notices and applications would be identical under the proposal. If a depository institution qualifies for the notice procedure, consent would be granted 30 days after the FDIC receives a completed notice from the applicant, unless otherwise notified. If consent is requested through an application, the processing period would normally be 60 days.

Under the proposal, the regulation's standards would allow certain activities to be conducted after giving the FDIC notice. If the standards are not appropriate for a particular activity, the notice process may be converted into an application to be considered by the FDIC Board of Directors. The notice standards cover three broad areas:

  • Capital standards, which require that an insured depository institution be well-capitalized after deducting its investment in the subsidiary from capital.

  • Investment and transaction limits that are similar, but not identical, to the section 23A and 23B standards.

  • Core eligibility standards, which include eligibility standards for the depository institution and for the subsidiary. The subsidiary eligibility standards reflect many of the same separations contained in the 'bona fide' subsidiary definition currently in Part 362 and section 337.4.

The eligibility standards are designed specifically for the bank/subsidiary relationship. They provide for: separation between the insured depository institution and the subsidiary to lessen the possibility of piercing the corporate veil; deduction of the bank's investment in the subsidiary to segregate the capital supporting the bank from the capital supporting the subsidiary; and limitations on the bank's investment in the subsidiary and on transactions with the subsidiary that ensure transactions are "arms-length."

For further information, please contact Curtis L. Vaughn (202-898-6759) or John Jilovec (202-898-8958), Examination Specialists in the Division of Supervision; or Linda Stamp (202-898-7310), Counsel in the Legal Division.


Nicholas J. Ketcha Jr.
Director

Attachment: Federal Register, Vol. 62, No. 177

Distribution: FDIC-Supervised Banks (Commercial and Savings); Insured Savings Associations; Insured State Member Banks

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Last Updated 07/16/1999 communications@fdic.gov