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

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4000 - Advisory Opinions


An "Oakar" Transaction Is Not Subject to Entrance and Exit Fees

FDIC 91-28 April 16, 1991 Valerie J. Best, Counsel

This letter confirms our telephone conversation of March 21, 1991, and responds to your letter dated March 29, 1991. You ask whether the merger of an affiliated bank and savings association under the provisions of section 5(d)(3) of the Federal Deposit Insurance Act ("FDI Act") (12 U.S.C. 1815(d)(3), an "Oakar" transaction) is subject to exit and entrance fees.

We agree with your conclusion that an Oakar transaction is not a conversion transaction, as defined under section 5(d)(2) of the FDI Act (12 U.S.C. 1815(d)(2)). Consequently, an Oakar transaction is not subject to exit and entrance fees.

Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), there is a five-year moratorium on conversion transactions, with limited exceptions for (1) conversion transactions that affect an insubstantial portion of the total deposits of each participating institution, and (2) certain conversions involving institutions in default or in danger of default. A conversion transaction is defined to include a change of status (by charter conversion or otherwise) from a Savings Association Insurance Fund ("SAIF") member to a Bank Insurance Fund ("BIF") member, or vice versa; the merger or consolidation of a SAIF member with a BIF member; the assumption of deposit liabilities of a SAIF member by a BIF member, or vice versa; and the transfer of assets in consideration of such a deposit assumption. The FDIC must approve any such excepted conversion. Section 5(d)(2)(E) of the FDI Act, as added by FIRREA, requires, among other things, that each insured depository institution participating in a conversion transaction pay an exit and entrance fee.

FIRREA also provides, however, for an optional conversion through merger or consolidation. Section 5(d)(3) of the FDI Act, as added by FIRREA, provides that the merger of a SAIF member into a BIF member bank is permitted, notwithstanding the moratorium, if the bank is a subsidiary of a bank holding company that controls the savings association. The Board of Governors of the Federal Reserve System, as well as the appropriate federal banking agency (as defined in the FDI Act), would have to approve the transaction. Exit and entrance fees are not assessed. However, the resulting or acquiring bank would have to continue to pay assessments to SAIF on that portion of its deposits that are attributable to the former savings association, under a formula prescribed in FIRREA which includes a minimum seven percent adjustment for growth. 12 U.S.C. 1815(d)(3)(C). See also 12 C.F.R. §§ 327.31-.33. The payment of assessments to SAIF could be discontinued if, after the five-year moratorium period expires, the FDIC approves an application by the bank to treat the merger transaction as a conversion and the bank pays any entrance and exit fees prescribed by the FDIC. Such a bank, however, is not required to convert its SAIF-assessed deposits to BIF-assessments after the expiration of the conversion moratorium.

Please call me at (202) 898-3812 if you have any questions.


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