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

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Bank of Vermont


RE: Bank of Vermont Burlington, Vermont

Application Pursuant to Section 24(d)1) of the Federal Deposit Insurance Act to Conduct Activities Through a Wholly-Owned Subsidiary That May Not Be Permissible for a Subsidiary of a National Bank


Pursuant to the provisions of section 24 of the Federal Deposit Insurance Act, an application has been filed with the Federal Deposit Insurance Corporation by Bank of Vermont, Burlington, Chittenden County, Vermont. The applicant requests the Corporation's consent to retain and acquire equity investments through its wholly-owned subsidiary, Vermont Realty, Inc. The equity investments consist of limited partnership interests in Vermont Venture Capital Fund ("Vermont Venture") and North Atlantic Venture Fund ("North Atlantic").

Generally speaking, national banks and their subsidiaries are not permitted to hold equity securities unless acquired in good faith by way of compromise of a doubtful claim or to avoid a loss in connection with a debt previously contracted. State chartered, FDIC-insured banks may not engage as principal in an activity prohibited to 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 deposit insurance fund. Vermont General Laws permit these types of investments in an amount not to exceed 5% of the bank's total assets.

Bank of Vermont acquired these investments to provide capital for business growth and job creation in Vermont and contiguous areas. They are regarded as community investment activities consistent with the Community Reinvestment Act.

The primary issue in this case involves the appropriate FDIC regulatory treatment for investments of this nature held by a wholly-owned subsidiary of a State-chartered bank when similar investments may not be permitted for a national bank. These investments are subject to the same credit policies used to evaluate loans to companies similarly situated and have never been criticized at past examinations. Bank of Vermont, which meets the definition of "well capitalized" within the meaning Part 325 of the Federal Deposit Insurance corporation's rules and regulations, is in compliance with applicable capital standards. These investments represent 1.2% of the bank's Tier 1 leverage capital and the limited amount of the equity investments do not appear to pose a significant risk to the Bank Insurance Fund. Furthermore, the State authority has not objected to the retention of these investments. For these reasons, the FDIC concludes that it should not automatically impose a prohibition for national banks on a state bank but instead should look at the specifics of the case.

Having found that the activity in question involves the retention of investments that did not require FDIC review or consent at inception, but does so now because of statutory revision; that the investments are nominal in relation to capital and will be limited to the investments presently held, Vermont Venture and North Atlantic and shall be limited to their book values at the time of application, $250,000 and $489,319 respectively; that the institution's financial condition and management are satisfactory; that the State authority does not object to the investment; that the retention of the investment is not economically unsound in terms of safety, rate of return, or other considerations and that the bank is in compliance with applicable capital standards -- the FDIC concludes that the continuation of this activity pursuant to the request of Bank of Vermont does not pose a significant risk to the deposit insurance fund and therefore may be and hereby is approved. 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.


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