4000 - Advisory Opinions
To What Extent Will The FDIC Require a State Savings Association to Conduct Its Activities In The Precise Manner "Permissible" For a Federal Savings Association
July 6, 1990
Pamela E.F. LeCren, Counsel
I sincerely apologize for the delay in responding to your correspondence. The issue raised by your March 26 letter is an interesting one that has only recently been under discussion at the FDIC. If I might paraphrase your letter, you have essentially inquired as to what extent, for the purposes of section 303.13 of the FDIC's regulations (12 C.F.R. 303.13) will the FDIC require that a state chartered savings association conduct its activities in the precise manner in which a federal savings association must conduct the same activities under regulations promulgated by the Office of Thrift Supervision ("OTS") in order for the activity to be considered one that is "permissible" for a federal savings association. The companion issue is of course, to what extent, if any, may a service corporation of a state savings association differ in its conduct of activities from the conduct prescribed under OTS regulations for a service corporation owned by a federal savings association and the equity investment still be considered "permissible" for a federal savings association.
As you know, under section 28 of the FDI Act (12 U.S.C. 1831e) and section 303.13 of the FDIC's regulations, a state savings association may engage in an activity, or make an equity investment, without the need for the FDIC's approval if such activity or equity investment is "permissible" for a federal savings association. If the activity is not "permissible" for a federal savings association, the state savings association must obtain the FDIC's prior approval to engage in the conduct. The FDIC is required by statute, when processing requests for permission to engage in an activity that is impermissible for a federal savings association, to evaluate whether the conduct of the "impermissible" activity by the state savings association will pose a significant risk to the deposit insurance fund. The FDIC is constrained from granting approval to a state savings association that is not in compliance with the fully phased-in capital requirements imposed under section 5(t) of the Home Owners' Loan Act ("HOLA", 12 U.S.C. 1464(t)).
Equity investments are subject to a similar process with one exception. The statute only provides an avenue for a state savings association to obtain approval for an impermissible equity investment in a service corporation, i.e., to invest more in a service corporation than permissible for federals or to invest in a service corporation that engages in an activity that a service corporation owned by a federal could not engage in.
Based upon our reading of the language of section 28 of the FDI Act and its legislative history, it is our conclusion that it was the intent of Congress to put state and federally chartered savings associations on an equal footing insofar as their activities and equity investments are concerned. It was contemplated, however, that state savings associations could exercise a power, or make an equity investment, that a federal savings association could not, provided that the FDIC was satisfied that allowing a state savings association to do so would not pose a significant risk to the insurance fund.
The statutory reference to activities or equity investments that are "permissible" for federal savings associations is itself capable of different constructions. The legislative history clearly states, however, that an activity will not be considered permissible for a federal savings association if it is impermissible under regulations prescribed under section 5 of HOLA which sets forth the powers of federal associations. 135 Cong. Rec. S6914, daily ed. June 19, 1989, section by section analysis of S. 774. Thus, the conditions and restrictions to which a federal savings association is subject pursuant to OTS regulation when it engages in a particular activity, or makes a particular equity investment, are relevant in applying section 28. Our initial posture is therefore that a state association must meet those conditions and restrictions in order for the activity or equity investment to be permissible for a state savings association without the savings association first obtaining the FDIC's approval.
Likewise, if a federal savings association cannot engage in a particular activity, or make a particular equity investment, without the prior approval of the OTS, then the FDIC will not consider the activity or equity investment one that a state savings association can engage in or make without the FDIC's approval. It is only fitting that the propriety of a state savings association engaging in a particular activity, or making a particular equity investment, be reviewed at the federal level by the FDIC if a federal savings association's involvement in such activity or equity investment is subject to federal oversight.
While we will generally adopt the above described posture, we are not adverse to determining that an activity or equity investment is permissible without the need for the FDIC's prior approval despite the fact that there is some difference in the manner in which the state would allow its institutions (or their subsidiary service corporations) to conduct the activity or make the equity investment provided that the difference does not, in our opinion, materially alter the nature of the activity or the equity investment or the risk characteristics associated therewith. Our initial posture, however, is that an application should be filed with the FDIC whenever differences do exist.