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4000 - Advisory Opinions


Insurance Fund Membership of Savings Bank Reorganizing Pursuant to § 10(o) of the Home Owners' Loan Act

FDIC--95--26

July 14, 1995

Valerie J. Best, Counsel

This letter confirms our telephone conversations concerning the insurance fund membership of ABC Savings Bank ("ABC") if it is authorized to reorganize pursuant to section 10(o) of the Home Owners' Loan Act ("HOLA"), 12 U.S.C. § 1467a(o), and 12 C.F.R. Part 575.

ABC is currently a Bank Insurance Fund ("BIF") member, having retained its BIF-member status under section 5(o) of the HOLA, 12 U.S.C. § 1464(o), when it converted from a state-chartered savings bank to a federally-chartered savings bank on January 1, 1995. It is also a so-called "Oakar" bank, having acquired deposits from a thrift insured by the Savings Association Insurance Fund ("SAIF") under 12 U.S.C. § 1815(d)(3).

ABC is a mutually-owned FSB. It has applied to the Office of Thrift Supervision ("OTS") to reorganize into a mutual holding company and simultaneously transfer substantially all of its assets and liabilities, including all deposits, to a newly created federally-chartered stock savings bank, also to be named ABC Savings Bank ("New ABC"). The new stock institution would then continue the business of the old mutual savings bank. As the existing institution becomes the mutual holding company in the reorganization, the interests of the savings bank's members transfer to the mutual holding company, which will be known as XYZ Bank. Application has been made to the FDIC for deposit insurance for the newly created federally-chartered stock savings bank.

In conjunction with the application for deposit insurance, we have been asked whether New ABC may be a BIF member, rather than a SAIF member, if the newly chartered FSB is a continuation of the BIF FSB. This letter sets out staff's interpretation of the provisions for designating SAIF or BIF fund membership in section 7 (l) of the Federal Deposit Insurance Act ("FDI Act"), read in light of the reorganization provision in section 10(o) of the HOLA.

Section 7(l) of the FDI Act provides that any savings association, other than any FSB chartered pursuant to section 5(o) of the HOLA, which "becomes an insured depository institution" shall be a SAIF member. 12 U.S.C. § 1817(l). Section 3(b) of the FDI Act provides that the term "savings association" includes any "Federal savings association". In turn, the term "Federal savings association" means "any Federal savings association or Federal savings bank which is chartered under section 5 of the [HOLA]." 12 U.S.C. § 1813(b).

Section 10(o)(1) of HOLA provides that a savings association may reorganize so as to become a mutual holding company by chartering an interim savings association.1 The resulting association2 would be required to obtain approval of insurance for its accounts from the FDIC in accordance with the FDI Act. Per section 7(l) of the FDI Act, a de novo savings association would ordinarily be designated a SAIF member.3

In FDIC Advisory Opinion 89--53 (Dec. 22, 1989), Legal Division staff reviewed a transaction wherein a savings association wished to convert its charter to a bank charter and retain its SAIF membership as permitted by section 5(d)(2)(G) of the FDI Act, 12 U.S.C. § 1815(d)(2)(G), but was limited to using a de novo bank to establish the new charter. FDIC staff was asked to interpret the conversion provisions in section 5(d)(2)(G) of the FDI Act in light of the provisions for designating SAIF or BIF fund membership in section 7(l) of the FDI Act. FDIC staff opined:

In a case such as this . . . where the de novo bank is used solely to effect a charter conversion permissible under section 5(d)(2)(G) of the FDI Act, and the resulting bank is merely a continuation of a SAIF member, there is no institution "becoming" insured. Instead there is the continuation of a SAIF insured member under a different charter pursuant to the permissive grant of section 5(d)(2)(G) which permits such charter changes providing no fund change occurs.

The reasoning set forth in FDIC Advisory Opinion 89--53 applies, by way of analogy, to this case. A copy of the Advisory Opinion is attached for your review.

OTS regulations provide that prior to consummation of the reorganization plan,4 the resulting association (whether chartered under federal or state law) shall constitute an interim savings association subsidiary of the reorganizing association (i.e., the mutual savings association that proposes to reorganize to become a mutual holding company pursuant to 12 C.F.R. Part 575) and shall not accept any deposits or engage in any other business activities except for those activities necessary to consummate the reorganization plan. If the reorganization plan is terminated for any reason, the charter of the resulting association shall immediately become null and void and any federal charter must be returned. 12 C.F.R. § 575.9(c)(4)(i). The reorganizing association will not continue to receive deposits or otherwise conduct the business of a depository institution.

At the time the required charter and bylaw amendments become effective, the substantial part of the assets and liabilities, including all deposit liabilities, of the reorganizing association would be transferred to the resulting association, which would thereupon become a full operational savings association. With certain limited exceptions, section 10(o) of the HOLA requires that members of a resulting association must receive the same membership rights in the mutual holding company as they previously possessed in the reorganizing association.

It is reasonable to conclude that where the de novo interim savings association is used solely to effect a reorganization permissible under section 10(o) of the HOLA, and the resulting association is merely a continuation of the BIF-member FSB, there is no institution "becoming" insured. Instead there is the continuation of a BIF insured member under a different charter. For these and other reasons, it is our opinion that New ABC may be designated a BIF member.

As a result of this designation, ABC's reorganization into a mutual holding company and the simultaneous transfer of all of its deposits to New ABC would not be regarded as a "conversion transaction," as that term is defined in section 5(d)(2)(B) of the FDI Act. Thus, an application pursuant to section 5(d)(3) of the FDI Act (the "Oakar" provision) would not be necessary to effectuate the transaction. We wish to emphasize that there is no choice of SAIF or BIF membership under section 7(l ) of the FDI Act for a de novo savings association which is not facilitating a mutual holding company reorganization pursuant to section 10(o) of HOLA.

1Section 10(o) of the HOLA provides, in part:
  (o)  Mutual Holding Companies.
  (1)  In General. A savings association operating in mutual form may reorganize so as to become a holding company by--
  (A)  chartering an interim savings association, the stock of which is to be wholly owned, except as otherwise provided in this section, by the mutual association; and
  (B)  transferring the substantial part of its assets and liabilities, including all of its insured liabilities, to the interim savings association.
  12 U.S.C. § 1467a(o)(1). Go back to Text

2 Under OTS regulations, the term "resulting association" means a savings association in the stock form that is organized as a subsidiary of a reorganizing association to receive the substantial part of the assets and liabilities (including all deposit accounts) of the reorganizing association upon consummation of the reorganization. 12 C.F.R. § 575.2(m). Go back to Text

3 Based upon our conversations with OTS staff, it is our understanding that the establishment of a section 5(o) HOLA-FSB is normally predicated upon the prior existence of a State-chartered savings bank that is a BIF member. Section 5(o) of HOLA provides, in part:
  (o)  Conversion of State Savings Banks. (1) Subject to the provisions of this subsection and under regulations of the Director [of OTS], the Director may authorize the conversion of a State-chartered savings bank that is a [BIF] member into a Federal savings bank, if such conversion is not in contravention of State law, and provide for the organization, incorporation, operation, examination, and regulation of such institution. Go back to Text

4 OTS regulations define the term "reorganization plan" to mean a plan to reorganize into the mutual holding company format containing the information required by 12 C.F.R. § 575.6. 12 C.F.R. § 575.2(k). Go back to Text


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