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4000 - Advisory Opinions


Section 5(d)(3) of the FDI Act, as Amended by Section 501 of FDICIA, is Not Retroactive

FDIC-92-19

April 6, 1992

Valerie J. Best, Counsel

Regional Director Nicholas J. Ketcha, Jr. has asked me to respond to your letter dated January 23, 1992. I am also responding to your letter dated January 31, 1992, which you forwarded to my attention. You contend that section 5(d)(3) of the Federal Deposit Insurance Act ("FDIA"), as amended by section 501 of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), should be applied retroactively. We disagree. Section 501 of FDICIA does not relieve institutions that participated in conversion transactions consummated prior to December 19, 1991 (the date of enactment of FDICIA) of their obligation to pay exit and entrance fees.

Description of the Conversion Transactions

In your letters you describe the following transactions:

(a)  [Savings bank "A"], acquired two branch offices of [S&L "X"] from the Resolution Trust Corporation ("RTC") as receiver, pursuant to a purchase and assumption agreement. The acquisition was authorized by the FDIC through an Order dated August 9, 1991. The acquisition was consummated on August 9, 1991.

(b)  [Savings bank "B"] acquired three branch offices of [S&L "Y"] from the RTC as receiver, pursuant to a purchase and assumption agreement. The acquisition was authorized by the FDIC through an Order dated August 30, 1991. The acquisition was consummated on August 30, 1991.

(c)  [Savings bank "C"] acquired [S&L "Z"], from the RTC as receiver, pursuant to a purchase and assumption agreement. Contemporaneous therewith, [Savings bank "C"] transferred, respectively, one and two branch offices of [S&L "Z"] to [Savings bank "B"] and [Savings bank "A"]. The acquisitions by [Savings banks "A," "B"] and ["C"] were authorized by the FDIC through Orders dated September 20, 1991. The acquisitions were consummated on September 20, 1991.

[Savings banks "A," "B"] and ["C"] are members of the Bank Insurance Fund ("BIF"). [S&Ls "X," "Y"] and ["Z"] were members of the Savings Association Insurance Fund ("SAIF"). All of the above-described acquisitions were approved as conversion transactions by the FDIC pursuant to section 5(d)(2)(C)(ii) of the FDIA. Consistent with the requirements of section 5(d)(2)(E) of the FDIA, the FDIC Orders approving the conversion transactions required [Savings banks "A," "B"] and ["C"] to pay exit and entrance fees. You are writing on behalf of [Savings banks "A"] and ["B"].

The Conversion Transactions were Consummated Prior to the Enactment of FDICIA

You write that [Savings banks "A"] and ["B"] "desire not to consummate a conversion transaction" and that they "seek application of section 5(d)(3) of the FDIA, as amended" with respect to the above-described transactions. You ask us to concur that your clients "are not required to consummate the insurance conversion with respect to the Transactions."

We cannot accede to your request because the above-described conversion transactions have, in fact, already been consummated. Based upon the statutory definition of "conversion transaction," it is clear that the conversion transactions occurred--and [Savings banks "A," "B"] and ["C"] incurred a legal obligation to pay exit and entrance fees--the moment that they assumed the deposit liabilities of the failed SAIF-member thrifts.

The term "conversion transaction" is defined, in relevant part, to mean:

(iii)  the assumption of any liability by--

(I)  any Bank Insurance Fund member to pay any deposits of a Savings Association Insurance Fund member;

. . . .

(iv)  the transfer of assets of--

. . . .

(II)  any Savings Association Insurance Fund member to any Bank Insurance Fund Member in consideration of the assumption of liabilities for any portion of the deposits of such Savings Association Insurance Fund member.

12 U.S.C. 1815(d)(2)(B).

The date that the deposit liabilities were assumed is not in dispute. We know of no mechanism by which the deposits can be returned to the RTC as receiver, at this point in time, and the acquisitions nullified.

A Participating Party may not "Deem" a Transaction to have been Approved Pursuant to Section 5(d)(3) of the FDIA

In your letter dated January 31st, I understand you to take the alternative position that your clients may elect to pay insurance assessments to the SAIF on the assumed deposits rather than pay the exit and entrance fees, without the FDIC's approval. You argue that the requirements of section 5(d)(3) of the FDIA can be deemed to have been satisfied, suggesting that Orders from the FDIC approving the acquisitions pursuant to section 5(d)(3) are unnecessary. This argument disregards the fact that institutions may participate in section 5(d)(3) transactions only with the "prior written approval" of the responsible agency under 18(c)(2) of the FDIA. 12 U.S.C.A. 1815(d)(3)(A)(i) (West Supp. 1992). In the absence of a written Order from the FDIC authorizing a section 5(d)(3) transaction, the parties may not acquire deposits pursuant to section 5(d)(3).

Amendments made by Section 501 of FDICIA are not Retroactive

Finally, you argue that section 501 of FDICIA should be applied retroactively. You contend that the text of section 501(b) of FDICIA supports your argument.1

Section 501(b) of FDICIA does not serve to make the section 501 amendments retroactive. Rather, it prevents institutions that participated in transactions prior to FDICIA from rolling-back their AADA in light of the new requirements of FDICIA. Prior to FDICIA, the AADA was calculated by imputing an annual rate of growth based on actual growth or a seven percent "deemed" growth rate, whichever was greater. FDICIA eliminated the minimum seven percent growth rate requirement. Section 501(b) was added to FDICIA to prevent institutions from deducting from their AADA any increases attributable to the minimum seven percent growth rate.

Section 501(b) of FDICIA also prevents the midstream disruption of the calculation of the AADA by institutions that participated in section 5(d)(3) transactions prior to FDICIA. It would have been cumbersome to apply a minimum seven percent growth rate up until the date of enactment of FDICIA and, thereafter, an actual growth rate. Section 501(b) allows the FDIC and banks that participated in section 5(d)(3) transactions prior to FDICIA to make a smooth transition from the pre-FDICIA requirements to the post-FDICIA requirements pertaining to the AADA.

You also argue that section 501 of FDICIA is remedial in nature. We do not agree. Remedial statutes provide a "remedy, or improve or facilitate remedies already existing for enforcement of rights and redress of injuries."2 Section 5(d)(3) as originally enacted by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was intended to give bank holding companies an incentive to invest in failing thrifts.3 Section 5(d)(3), as amended by FDICIA, does not provide a method whereby a wrong may be redressed and relief obtained.4 It simply expands the universe of institutions that may participate in a section 5(d)(3) transaction. Section 501 of FDICIA allows savings associations, as well as banks without a holding company, to acquire deposits pursuant to section 5(d)(3), for the first time. The FDIC has been collecting exit and entrance fees for the benefit of SAIF and BIF since the enactment of FIRREA. The interests of SAIF and BIF could be harmed if section 501 was given retroactive effect.

You state that if the FDIC is of the view that section 5(d)(3) should not be applied retroactively to all conversion transactions consummated since the enactment of FIRREA, then the FDIC should apply section 5(d)(3) to those transactions where (1) no fees had been paid as of the enactment of FDICIA, and (2) the assuming institution has notified the FDIC of its election not to consummate the conversion transaction prior to making any such payments. Institutions that did not meet these criteria would be required to pay exit and entrance fees. Such disparate treatment underscores the inequity of applying the section 501 amendments retroactively--there is nothing in section 501 of FDICIA that supports special treatment for the class of institutions you describe.

Institutions Must Pay the Fees Mandated by Law

[Savings banks "A," "B"] and ["C"] must comply with the law that was in effect at the time the deposit liabilities were assumed. The above-described acquisitions were allowed only because they were approved by the FDIC as permissible conversion transactions; absent the FDIC's approval, the acquisitions would have been illegal. The unequivocal mandate of the FDIA is that permissible conversion transactions are subject to exit and entrance fees. Consistent with the requirements of the FDIA, the FDIC Orders approving the acquisitions required [Savings banks "A," "B"] and ["C"] to pay exit and entrance fees. Section 5(d)(3) of the FDIA, as amended by section 501 of FDICIA, is not retroactive. Consequently, the FDIC does not have the authority to treat the transactions as if they had been consummated pursuant to section 5(d)(3) of the FDIA, as amended.

Based on the foregoing, the FDIC cannot grant your request that the above-described acquisitions be approved pursuant to section 5(d)(3) of the FDIA, as amended by FDICIA, nor can the FDIC delete from the Orders the requirement that exit and entrance fees be paid. Accordingly, your clients are required to pay exit and entrance fees. They are required to complete and return the Certified Statement of Entrance and Exit Fees previously sent to them by the FDIC, if they have not already done so. They are also required to remit payment to the FDIC pursuant to the invoice mailed to them by the FDIC.

Please advise us promptly of your clients' intentions in this matter.

1Section 501(b) of FDICIA provides:
  (b)  EFFECTIVE DATE.--The amendment made by subsection (a) to section 5(d)(3)(C) of the Federal Deposit Insurance Act shall apply with respect to semiannual periods beginning after the date of the enactment of this Act.
  Section 5(d)(3)(C) of the FDIA, referred to in the above quoted provision, sets out the methodology for calculating the "adjusted attributable deposit amount" (the "AADA"). The AADA is based on the deposits attributable to the former SAIF-member depository institution and is used to determine the amount of assessments payable to SAIF. Go back to Text

2Black's Law Dictionary 1293 (6th ed. 1990). Go back to Text

3135 Cong. Rec. H4998-99 (daily ed. August 3, 1989) (statement of Rep. Oakar). Go back to Text

4After the expiration of the five-year moratorium on conversion transactions imposed by FIRREA, an institution that acquired deposits pursuant to section 5(d)(3) may treat the transaction as a conversion transaction pursuant to section 5(d)(2), provided that (1) the FDIC approves the conversion, and (2) the institution pays exit and entrance fees. 12 U.S.C.A. 1815(d)(3)(I) (West Supp. 1992). In other words, an institution may switch the insurance fund coverage of its AADA after the moratorium expires. Go back to Text


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