4000 - Advisory Opinions
Applicability of FDIC or FSLIC Insurance Regulation/Interpretations to De Novo Savings Associations & Former Savings Associations That Have Converted to SAIF-Member Banks
January 9, 1990
Alan J. Kaplan, Senior Counsel
The question has arisen whether FDIC insurance rules and interpretations or FSLIC insurance rules and interpretations would govern insurance coverage determinations for (1) de novo savings associations established after the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), and (2) savings associations that were insured by FSLIC prior to enactment of FIRREA, but which subsequently converted to bank charters while remaining members of SAIF.
Section 402(c)(3) of FIRREA requires the FDIC to review its own deposit insurance regulations, principles, and interpretations and those of FSLIC and to prescribe uniform rules governing deposit insurance coverage in all insured depository institutions (banks and savings associations) within 270 days after the enactment of FIRREA. Until the effective date of those uniform rules, however, section 402(c)(1) of FIRREA provides that FSLIC insurance regulations and interpretations in effect on August 8, 1989 (the day before the date of enactment of FIRREA) shall govern insurance determinations for "any depository institution which becomes an insured depository institution as a result of the amendment made to section 4(a) of the Federal Deposit Insurance Act by section 205(1) of this Act [FIRREA] . . . ." Section 205(1) of FIRREA in turn provides that each savings association that was insured by FSLIC on August 8, 1989 shall automatically (i. e., by operation of law, and without any application or approval) become an insured depository institution under the Federal Deposit Insurance Act. (Under section 208 of FIRREA, such savings associations would be members of SAIF.)
In short, FIRREA provides that until the FDIC's uniform insurance regulations take effect, insurance determinations for savings associations formerly insured by FSLIC on August 8, 1989 would be governed by FSLIC insurance rules and interpretations in effect on August 8. It seems clear enough that this provision was meant to assure depositors in FSLIC-insured savings associations that the rules governing insurance of their accounts would not be abruptly changed without adequate notice to them. This result should not be affected merely because the savings association concerts to a bank charter as permitted by FIRREA, since the bank would simply be a continuation of the former FSLIC-insured (now SAIF-insured) savings association. On the other hand, unless a savings association had been insured by FSLIC prior to the enactment of FIRREA, there would be no reason to "grandfather" the applicability of FSLIC insurance rules and interpretations to that institution.
Accordingly, our position is that, until the effective date of the FDIC's uniform insurance rules, (1) except as provided below, insurance determinations for de novo savings associations established on or after the effective date of FIRREA (August 9, 1989) are governed by FDIC insurance regulations and interpretations (not those of FSLIC), and (2) insurance determinations for savings associations that were insured by FSLIC as of August 8, 1989, but which subsequently converted to bank charters while remaining members of SAIF, will continue to be governed by FSLIC insurance regulations and interpretations in effect on August 8, 1989.
Similarly, for purposes of determining which set of insurance regulations apply, if a de novo SAIF-insured bank or savings association is organized or chartered in order to acquire a savings association that was insured by FSLIC as of August 8, 1989, we would regard the resulting institution merely as the continuation of the former FSLIC-insured association and accordingly would continue to apply the FSLIC insurance rules and interpretations to insurance determinations involving the resulting savings association until the new uniform insurance rules become effective. However, absent the actual assumption of the deposit liabilities by the de novo institution (whether through merger, consolidation, purchase and assumption transaction, or other form of deposit assumption), we would not continue to apply the FSLIC rules and interpretations. Thus, for example, where a de novo SAIF-insured institution is established in order to act as paying agent for the FDIC in an insured deposit transfer transaction involving a failed savings association that was insured by FSLIC as of August 8, 1989, any deposits ultimately retained by the transferee institution would be governed by FDIC, not FSLIC, insurance regulations and interpretations. In such cases, steps should be taken to ensure that depositors who elect to remain with the transferee institution are advised that FDIC insurance rules and interpretations, not those of FSLIC, will thereafter govern their insurance determinations. In some instances, this may affect whether those depositors wish to remain with that institution.
In the event of a deposit assumption, section 8(q) of the Federal Deposit Insurance Act (12 U.S.C. § 1818(q)) provides that whenever the liabilities of an insured depository institution for deposits are assumed by another insured depository institution, whether by way of merger, consolidation, other statutory assumption, or pursuant to contract, the separate insurance of all deposits so assumed shall terminate at the end of six months from the date the assumption takes effect or, in the case of any time deposit, the earliest maturity date after the six-month period. We interpret this provision to mean that the deposits assumed will be insured during the period described above to the same extent and in the same manner as they would have been insured as deposits in the originating institution. Thus, where the institution from which the deposits are assumed is a savings association that was insured by FSLIC on August 8, 1989, those deposits assumed will be insured in accordance with FSLIC insurance rules and interpretations during the "separate insurance" period and in accordance with FDIC insurance rules and interpretations thereafter (if the assuming institution was not insured by FSLIC on August 8, 1989).