Decisions on Bank Applications
First Hawaiian Bank
Mr. Neal K. Okabayashi
Vice President & Attorney
First Hawaiian Bank
P.O. Box 3200
Honolulu, Hawaii 96847
Dear Mr. Okabayashi:
The application for consent to establish a full service branch office to be located at Photo Town Building, Chalan San Antonio, Lot Number 2149-1-6, Unit Number 101, Tamuning, Guam, is hereby approved subject to the following condition:
1. That the applicant obtain all necessary and final approvals from the appropriate state authority or other appropriate authority.
In approving the application, the FDIC has reviewed and satisfactorily resolved the statutory factors. During the course of reviewing the application the issue has been raised whether Guam's laws prevent the establishment of the additional branch proposed by First Hawaiian Bank ("FHB").
Guam's intrastate branching laws are contained in Title 11 of the Guam Code. Guam has two intrastate branching provisions that purport to restrict the establishment of an additional branch in Guam by an out-of-State bank, i.e., 11 Guam Code Ann. §§ 106355 and 106601(c).
First, section 106355 provides generally that an out-of-State bank (either a national bank or a State bank) can not either (i) establish a de novo branch in Guam, or (ii) establish and operate a branch in Guam through the acquisition of a branch, unless it already operates a branch in Guam that it acquired through an interstate merger transaction with a bank whose home State is a State other than the out-of-State bank's home State. Guam law generally defines "interstate merger transaction" to mean a merger or consolidation of banks with different home States; the term does not include individual branch acquisitions. Second, section 106601(c) generally provides that an out-of-State bank (either a national bank or a State bank) that has a branch in Guam can not establish any additional branches in Guam until it engages in an interstate merger transaction with a Guam-chartered bank.
FHB has not engaged in an interstate merger transaction either with a bank that already had an existing Guam branch or with a Guam-chartered bank. Therefore, these intrastate branching laws would, if applicable, literally prohibit the establishment of an additional branch in Guam by FHB.
However, federal law determines the extent to which FHB is subject to Guam law. With regard to intrastate branching, 12 U.S.C. § 1831a(j)(1) generally provides that a host State's intrastate branching laws apply to a branch in the host State of an out-of-State, State-chartered bank, to the same extent that those laws apply to a branch of an out-of-State national bank.
Since a national bank is chartered by the federal government, federal law determines the powers that it may exercise and the activities that it may engage in. Those powers and activities, among other things, are described in the National Bank Act. With regard to intrastate branching, 12 U.S.C. § 36 sets forth the extent to which a national bank may establish branches in any state.
Generally, section 36(c) provides that a national bank that has a branch in a State may establish additional branches within the State to the same extent that a bank chartered by that State may establish additional branches within the State. Therefore, a national bank that has a branch in Guam can establish an additional branch in Guam to the same extent that a Guam bank is authorized under Guam law to establish additional branches in Guam.
Generally, a Guam bank may establish additional branches within Guam if it shows (1) that there is sufficient need for such branch(es), (2) that the proposed branch(es) has a reasonable opportunity to become self-sustaining, and (3) that the branch(es) will promote community reinvestment and fair lending. See 11 GUAM CODE ANN. § 106601(b). Except for those requirements a Guam bank may branch within Guam without restriction. Consequently, by operation of section 36(c), a national bank that has a branch in Guam and that satisfies the above three requirements may also establish additional branches in Guam without restriction.
The two Guam statutes discussed above, i.e., 11 GUAM CODE ANN. § 106601(c) and 11 GUAM CODE ANN. § 106355, are, by their express terms, inapplicable to a Guam bank. Each of the two statutes applies only to out-of-State banks, not to Guam banks. Consequently, by virtue of section 36(c), neither would apply to a national bank with a branch in Guam.
Since section 36(c) resolves the issue of the applicability of Guam law to an out-of-State national bank, there is no need to consider alternative authorities. However, we note that another section of the National Bank Act produces the same result. 12 U.S.C. § 36(f)(1)(A) generally provides that the host State's intrastate branching laws apply to a branch in the host State of an out of State national bank to the same extent as such laws apply to a branch of a bank chartered by that State, except when those laws are preempted or when those laws are found to have a discriminatory effect on national banks. Therefore, section 36(f)(1)(A) would also authorize a national bank to establish an additional branch in Guam to the same extent that a Guam bank could. Consequently, under either section 36(c) or section 36(f)(1)(A) the result would be the same, i.e., a national bank with a branch in Guam would be able to establish additional branches to the same extent as a Guam bank.
The next inquiry then is what law applies to FHB. As noted above, section 1831a(j)(1) generally provides that the host State's intrastate branching laws apply to a branch of an out-of-State, State-chartered bank to the same extent as such laws apply to a branch of an out-of-State national bank. This section essentially provides not only that certain host State laws would not apply to an out-of-State, State-chartered bank (because those laws do not apply to a branch of an out-of-State national bank), but also that the host State law that applies to a Guam-chartered bank (and, by virtue of section 36(c)(2), to an out-of-State national bank) also applies to an out-of-State, State-chartered bank. As applied to the instant case, section 1831a(j)(1) means that since the two Guam statutes that purport to prohibit additional branches by an out-of-State bank (i.e., 11 GUAM CODE ANN. §§ 106355 and 106601(c)) would not apply to a national bank, they also do not apply to FHB. Furthermore, the host State law that would apply is the Guam law that permits statewide branching by Guam-chartered banks and, by virtue of section 36(c)(2), national banks situated in Guam. The result is that pursuant to section 1831a(j)(1), an out-of-State, State-chartered bank with a branch in Guam, including specifically FHB, may establish additional branches in Guam to the same extent that a Guam-chartered bank may establish additional branches in Guam. This section provides interstate, State-chartered banks parity with national banks and preserves competitive equality between national banks and State banks.
Since this approval is based upon a determination that certain of Guam's statutes are preempted by federal law, the question arises whether the FDIC must follow the notice and comment procedures contained in 12 U.S.C. § 43. With certain exceptions, 12 U.S.C. § 43 generally requires the appropriate federal banking agency to publish notice in the Federal Register and solicit comment for 30 days before issuing any opinion letter or interpretive rule that concludes that Federal law preempts the application to a national bank of any State law regarding, among other things, the establishment of intrastate branches.
Section 43 concerns the issuance of "opinion letters" and "interpretive rules." This approval does not constitute an "opinion letter." Rather, it is the FDIC's final agency action on an application, and it is issued as a result of the filing of an application. This approval has not been prepared in response to a request for an opinion from outside the FDIC. Therefore, this approval is not an "opinion letter."
Furthermore, courts have generally viewed "interpretive rules" as those rules issued by an agency to advise the public of the agency's construction of the statutes and rules which it administers. As noted above, this approval is the FDIC's final agency action on an application. Consequently, it is not an "interpretive rule."
Nevertheless, if this approval were held to be an "opinion letter" or "interpretive rule," there is an exception to the notice and comment requirement that applies in this case. Section 43 contains an express exception for an opinion letter or interpretive rule that only raises issues of Federal preemption of State law that are essentially identical to those previously resolved by the courts or on which the agency has previously issued an opinion letter or interpretive rule.
The issue of whether section 36(c) preempts conflicting State law on intrastate branching has already been resolved by the courts and by the corporate decisions of the Office of the Comptroller of the Currency (the "OCC"). Courts have determined that host State branching laws are preempted if, as applied to national banks, they conflict with section 36(c). See, e.g., Seattle Trust & Savings Bank v. Bank of California, N.A., 492 F.2d 48, 51 (9th Cir. 1974), cert. denied, 419 U.S. 844 (1974). Furthermore, the OCC has previously issued Corporate Decisions that resolved the same issue. See, e.g., OCC Corporate Decision #96-48, August 28, 1996, Applications of Union Planters Bank, N.A., West Memphis, Arkansas, pp. 49-54. Consequently, even if this approval were held to constitute either an "opinion letter" or an "interpretive rule," it is exempt from the notice and comment requirements of section 43 because the federal preemption issue regarding section 36(c) has already been resolved by the courts and by prior OCC determinations.
Finally, notice of the filing of the branch application was published in a newspaper of general circulation in Guam, and the FDIC extended the comment period to more than thirty days to permit all interested parties to comment on the issues. The preemption issue was raised and argued at the public hearing held by the Guam Banking Board, in the Guam Superior Court, and again in correspondence submitted directly to the FDIC. Moreover, the FDIC has considered not only those comments received directly from interested parties, but also those made in the public hearing and the litigation. Therefore, even if notice and comment were required, the public hearing, the litigation, and the FDIC's procedures regarding FHB's application have provided ample notice and opportunity for comment and have otherwise satisfied that requirement. Therefore, compliance with section 43 procedures is not required.
Please notify the FDIC's San Francisco Regional Office of the exact date the transaction is consummated.
John M. Lane
Division of Supervision