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4000 - Advisory Opinions


Oakar Transaction: Whether Deposits of Agency Offices Should Be Treated as SAIF or BIF Insured Deposits After Transfer

FDIC--94--48

September 8, 1994

Valerie J. Best, Counsel

I was asked to review your letter dated July 12, 1994 to verify that your interpretation of 12 U.S.C. 1815(d)(3) comports with advisory opinions previously issued by the FDIC.

The July 12th letter transmitted to the FDIC an Application for Merger or Other Transaction (the "Application"). The Application seeks approval for the transfer of deposits of three agency offices of XYZ Services ("XYZ"), to B Bank ("B"). The agency offices involved (the "Agency Offices") are those whose deposits the Federal Reserve Bank of St. Louis has required XYZ to divest itself of as a condition to its approval of the merger of LMN Inc. ("LMN") with and into C Bank. LMN is the sole shareholder of XYZ, C Bank is the sole shareholder of ABC Association ("ABC").

As a part of the LMN integration into the ABC system, ABC has applied to the Office of the Comptroller of the Currency for approval of the merger of XYZ with and into ABC. Because MBSL is a member of the Bank Insurance Fund ("BIF") and XYZ is a member of the Savings Association Insurance Fund ("SAIF"), the transaction will be consummated pursuant to 12 U.S.C. 1815(d)(3) (an "Oakar" transaction). After the merger is consummated, the deposits of XYZ will become deposits of ABC. It is my understanding that the deposits of the Agency Offices will not be transferred to B until after the XYZ/ABC merger has been consummated.

Since B is a BIF member, the question has arisen whether, upon divestiture, the deposits of the Agency Offices should be treated as SAIF-insured deposits or as BIF-insured deposits.

The FDIC has previously had occasion to consider the treatment, for insurance fund purposes, of branch deposits divested pursuant to regulatory order (letter dated 3--30--93, copy attached). In that earlier case, we opined that the divested branch deposits should be treated as SAIF-insured deposits. We believed that it could reasonably be said that the Bank in that case was acting as a conduit for the SAIF-member deposits--the Bank would not have been permitted to acquire the branch deposits but for the timely resale of those deposits. Our conclusion was based, in part, on the fact that the BIF-member Bank was required to commit to divest the specified branches as a condition for regulatory approval of the acquisition of the SAIF-member thrift; the commitment was enforceable; the divestiture was required to occur within six months after the initial acquisition was consummated, otherwise the branches were required to be turned over to an independent trustee for immediate sale.1

The situation you describe falls squarely within the parameters of the above-described case. You indicate, however, that our earlier opinion appeared to give the selling institution the option to treat the deposits as deposits which are insured by the SAIF, rather than requiring the institution to treat the deposits as deposits which are insured by the SAIF. Although it was not made clear in our earlier letter, we did require the selling and buying institutions in that case to treat the divested branch deposits as deposits which are insured by the SAIF. You also reference advisory opinions issued by the FDIC wherein we stated that, if the aggregate of all deposits being transferred to BIF-member banks by a BIF-member Oakar bank will not reduce the Oakar bank's total deposit base below the amount of its "adjusted attributable deposit amount" (the "AADA"), the transfer of deposits would be a transfer of BIF-insured deposits and, therefore, would not be regarded as a conversion transaction. FDIC--92--80; FDIC--90--22; letter dated 8--23--90. Those cases can be readily distinguished from your situation in that the institutions involved were not required to divest the subject funds as a condition for regulatory approval of the initial acquisition. Consistent with our earlier interpretation, the deposits of the Agency Offices should be treated as deposits which are insured by the SAIF.

Our interpretation in this case should not impede the divestiture of the deposits. Subject to the necessary regulatory approvals, the acquiring party has the option of acquiring the Agency Offices pursuant to Oakar (12 U.S.C. 1815(d)(3))--thereby avoiding exit/entrance fees--or pursuant to a conversion transaction (12 U.S.C. 1815(d)(2)(A)--(F))--thereby converting the deposits from SAIF to BIF.

We appreciate your cooperation in this matter. I apologize for any misunderstanding I may have caused you during our earlier telephone conversations concerning Oakar transactions.

1Prior to 1992, a divestiture intended to meet objections under the antitrust laws was generally required to take place on or before the date of consummation of the acquisition (e.g., Barnett Banks of Florida, Inc., 68 Fed. Res. Bulletin 190 (1982); Interfirst Corporation, 68 Fed. Res. Bulletin 243 (1982). However, under a change in policy that was formalized in August of 1992, the Federal Reserve Board determined that applicants may be given up to six months after consummation to complete a divestiture provided that, prior to consummation, the applicant entered into a binding agreement with another party to acquire the relevant offices. If the divestiture is not accomplished within this time frame, the branches to be divested must be placed with an independent trustee for immediatesale. Federal Reserve Press Release with "Invitation for Comment," issued August 25, 1992, pg. 18--19. This change in policy reflected a change in the Board's position on the timing of divestitures in a series of Board Orders: First Union Corporation, 76 Fed. Res. Bulletin 83, 85 (1989); United New Mexico Financial Corporation, 77 Fed. Res. Bulletin 484, 485 (1991); BankAmerica Corporation, 78 Fed. Res. Bulletin 338, 340 (1992). Go back to Text


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