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FDIC Federal Register Citations

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June 24, 2001

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/OES
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429

Via e-mail (comments@fdic.gov)

RE: Notice of Proposed Rulemaking
(re: General Counsel Opinion No. 12 and proposed new 12 CFR Section 303.14)

Dear Mr. Feldman:

I respectfully submit this comment letter in response to the Notice of Proposed Rulemaking published in the April 19, 2001 Federal Register by the Federal Deposit Insurance Corporation (the FDIC), concerning replacement of General Counsel Opinion No. 12 with a new regulation (proposed 12 CFR Section 303.14), clarifying the requirement that an FDIC-insured depository institution is "engaged in the business of receiving deposits other than trust funds" if the institution continuously maintains one or more non-trust deposit accounts in the aggregate amount of $500,000 or more. I submit these comments in my personal capacity only, and not on behalf of any client or colleague.

I support the proposed codification of General Counsel Opinion No. 12 into the FDIC's regulations within 12 CFR Part 303. As the FDIC has noted, both in its General Counsel Opinion No. 12 and in the Supplementary Information preceding the proposed new 12 CFR Section 303.14, the FDIC has approved deposit insurance requests from many nontraditional, limited purpose banks dating back to 1969, if not earlier. Moreover, due in large part to Congressional sanction of so-called "credit card banks," the availability of FDIC deposit insurance for such banks, and federal laws permitting FDIC-insured banks (including national banks) to "export" their home states' interest rates to other states, many states have deliberately enacted legislation designed to encourage the formation and relocation of credit card banks to their borders. The line of cases beginning with Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978), and including Smiley v. Citibank (South Dakota), N.A., 116 S. Ct. 1730 (1996) has further encouraged states to compete with each other as favorable locations for situating the headquarters of credit card banks as well as other limited purpose banks. The existing statutory, regulatory and case law framework for limited purpose FDIC-insured banks at both the federal and state levels would be subject to tremendous uncertainty if one's ability to continue to rely on General Counsel Opinion No. 12 were called into question.

Citibank (South Dakota), N.A., the defendant in the Smiley litigation referred to above, provides a good example of a fairly typical limited purpose credit card bank. The decision to headquarter this particular national bank in Sioux Falls, South Dakota appears to have been made predominantly due to favorable South Dakota statutes pertaining to permissible credit card interest rates and fees. (Other credit card banks are deliberately headquartered in states such as Delaware and Georgia for similar state law reasons.) The Office of the Comptroller of the Currency (OCC) noted in its 1999 and 1997 public disclosures of the Community Reinvestment Act Performance Evaluations of Citibank (South Dakota), N.A. that, although the bank's charter allows the bank to offer full banking services, the bank's management has elected to limit the bank's activities to the issuance of credit cards nationwide. In fact, the OCC has noted that Citibank (South Dakota), N.A. is the largest issuer of credit cards in the United States, with over 25 million cardholders nationally. The bank has accomplished this market share with one single office located in Sioux Falls, South Dakota, employing over 3,200 people, plus one small retail branch that is open to the public and offers FDIC-insured deposit products, although their availability is apparently not actively marketed. The OCC observed in its 1999 public disclosures of the Community Reinvestment Act Performance Evaluation of Citibank (South Dakota), N.A. that the availability of deposit products through the bank's single branch office location "is not marketed in the community," and that the branch "is almost exclusively used by employees." (Virtually identical remarks appear in the OCC's 1997 public disclosures of the Community Reinvestment Act Performance Evaluation of Citibank (South Dakota), N.A.) Citibank's web site only offers deposit account products through the affiliated FDIC-insured banks Citibank, F.S.B., Citibank (Nevada), Citibank (New York State), and Citibank, N.A.

The model followed by credit card banks such as Citibank (South Dakota), N.A., together with other limited-purpose banks, thus often includes making FDIC-insured deposits available upon request to eligible depositors, although the availability of such deposit products may not be actively marketed to the public. The trend towards special-purpose or limited-purpose FDIC-insured banks may be strengthened due to the passage of the Gramm-Leach-Bliley Act, which reduced pre-existing federal statutory barriers between the banking, securities and insurance industries, and thus may tend to encourage the formation of greater numbers of limited-purpose FDIC-insured banks affiliated with securities or insurance companies. We have not yet seen the full impact of Gramm-Leach-Bliley on the banking industry. It would be vastly preferable for all concerned (depositors as well as depository institutions) if the FDIC maintained regulatory status quo during this important transition period for the banking, securities and insurance industries, rather than inject unnecessary regulatory and litigation uncertainty with respect to a bank's eligibility for FDIC insurance.

It is also important to recall that an institution's eligibility for FDIC insurance affects the extent to which the institution may be required to apply for and obtain licenses from state regulatory agencies, and may have an important impact on the extent to which certain state laws and regulations apply to the institution. In short, as noted earlier in this letter, the existing statutory, regulatory and case law framework for limited purpose FDIC-insured banks at both the federal and state levels would be subject to tremendous uncertainty if one's ability to continue to rely on General Counsel Opinion No. 12 were called into question. I therefore support the proposed codification of General Counsel Opinion No. 12 into the FDIC's regulations within 12 CFR Part 303.

I thank you for the opportunity to present these comments to you. Please do not hesitate to contact me at (203) 776-1911 during regular business hours (Eastern Time) if you have any questions about any of the matters discussed in this letter or would like any further information.

Sincerely,
Elizabeth C. Yen

Last Updated 06/24/2001 regs@fdic.gov

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