RE: Washington Mutual Savings Bank Seattle, Washington
Application for Consent to Indirectly Continue
Activity That May Not Be Permissible for a National Bank
Pursuant to the provisions of section 24(d) of the Federal Deposit Insurance Act and Part 362 of the Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations, an application has been filed with the FDIC by Washington Mutual Savings Bank, Seattle, Washington (the "Bank"). The Bank requests the FDIC's consent to continue certain limited travel service activities, as principal, through its wholly-owned subsidiary, Mutual Travel, Inc. (the "Subsidiary"). In almost all instances, the Subsidiary conducts its operations in an agency capacity, but on occasion purchases airline tickets for resale to the public and, on rare occasions, charters flights for special events.
Since 1972, national banks or their subsidiaries have been prohibited from acting as full-scale travel agents by the OCC as a result of two court cases which held that such activities were not authorized for national banks under the National Banking Act. Subsidiaries of state chartered, FDIC-insured banks may not engage as principal in an activity prohibited to subsidiaries of nationally chartered banks unless they obtain consent from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to, the appropriate deposit insurance fund. The State authority permits mutual savings banks to own travel agencies.
In 1985, the Bank acquired the Subsidiary which has established a record of profitable operations. The Subsidiary serves the general public as a full service travel agency and conducts business from 30 locations in Washington. The Subsidiary, as principal, purchases airline tickets for resale and charters aircraft for special events.
The Subsidiary's purchase of airline tickets, as principal, results in potential losses for Subsidiary in the amount of funds advanced for ticket purchases by physical loss of tickets or by failure to market tickets at an amount sufficient to cover costs. The Bank reports that the Subsidiary's ticket purchases as principal amounted to only about 0.2% of its annual ticket sales and that no material losses have ever been sustained as a result of this activity.
The Subsidiary's chartering of flights, as principal, also results in the potential for losses. First, the Subsidiary may lose its deposit for a chartered aircraft by failure to market tickets at an amount sufficient to cover costs. Second, the Subsidiary (and the Bank) could be liable for personal injuries suffered on a chartered flight. The Subsidiary, however, has established procedures to verify the adequacy of a carrier's insurance before entering into a charter agreement and maintains its own insurance coverage. In addition, the Subsidiary has not undertaken any role that would suggest that it, rather than the carrier, has control over the physical operation of a chartered flights, and in so doing has limited any potential liability stemming from its chartering activities. Furthermore, the Subsidiary's chartering services have sustained no losses as of this date and have been initiated on only three occasions.
While the FDIC acknowledges travel service activities contain certain inherent risks, the Subsidiary has profitably engaged in this activity for nine years. Based on the Subsidiary's operating experience, financial exposure as principal has been extremely limited and is supported by its capital position.
Having found that the activity in question involves the continuing operations of a full-service travel agency that did not require FDIC review or consent at inception, but that does so now because of statutory revision; that the activity is now and is expected in the future to be nominal in relation to capital; that the Bank's financial condition and management are adequate; that the State authority permits the activity; that the Subsidiary has taken numerous steps to limit the potential liability resulting from these activities as principal; and that the Bank is in compliance with applicable capital standards -the FDIC concludes that continuation of this activity pursuant to the request of the Bank to engage in this activity at current levels does not pose a significant risk to the Bank Insurance Fund and therefore may be and hereby is approved subject to the following restrictions.
The Bank shall notify the FDIC of any significant change in facts or circumstances including, among other things, if the percentage of the bank's Tier 1 capital invested in Mutual Travel, Inc. reaches five percent. If the facts or circumstances change significantly, the FDIC shall have the right to alter, suspend, or withdraw its approval. The Bank shall limit its travel services activities as principal to its wholly-owned subsidiary. The FDIC specifically notes that its consent action is unique to this case, that it was significantly influenced by acquisition pre-section 24 and that its view of a de novo request for such activity might well be different.