SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is proposing
to issue a rule implementing the requirements of the Resolution Trust
Corporation Completion Act of 1993 that assets held by the FDIC in the
course of liquidating any federally insured institution not be sold to
persons who, in ways specified in the Act, contributed to the demise of
an insured institution. The proposed rule establishes a self-
certification process that is a prerequisite to the purchase of assets
from the FDIC and provides definitions that effectuate the intent of
Congress regarding the scope of the statutory prohibitions.
DATES: Written comments must be received on or before December 20,
ADDRESSES: Written comments should be addressed to Robert E. Feldman,
Executive Secretary, Attention: Comments/OES, Federal Deposit Insurance
Corporation, 550 17th St., N.W., Washington, D.C. 20429.
Comments may be hand-delivered to the guard station at the rear of the
550 17th Street Building (located on F street), between the hours of
7:00 a.m. and 5:00 p.m. on business days. (Fax number (202) 898-3838;
Internet: comments@FDIC.gov). Comments will be available for inspection
and photocopying in the FDIC Public Information Center, Room 100, 801
17th Street, N.W., Washington, D.C., between 9:00 a.m. and 4:30 p.m. on
FOR FURTHER INFORMATION CONTACT: Steven K. Trout, Senior Resolutions
Specialist, Division of Resolutions and Receiverships, 202-898-3758, or
Elizabeth Falloon, Counsel, Legal Division, 202-736-0725, Federal
Deposit Insurance Corporation, 550 17th Street, N.W., Washington, D.C.
20429. These are not toll-free numbers.
Section 20 of the Resolution Trust Corporation Completion Act of
1993 (RTCCA or Act) amends section 11(p) of the Federal Deposit
Insurance Act (FDI Act) by adding a provision that restricts the class
of persons eligible to purchase assets held by the FDIC in the course
of liquidating depository institutions. The Act amended the FDI Act by
requiring the FDIC to promulgate regulations which, at a minimum,
prohibit the sale of an asset of a failed financial institution to
certain individuals or entities who may have contributed to the demise
of that institution and prohibit the sale of an asset using FDIC
financing to persons who have defaulted and engaged in fraudulent
activities with respect to a loan from the institution. The FDIC has
adopted policies beginning in 1991 that addressed various statutory
goals as well as other policy concerns. The proposed regulation will
meet the requirements of the statute, and the FDIC will continue to
have other policies regarding purchaser eligibility, such as policies
regarding purchase by individuals and entities who are delinquent in
payment of obligations to the FDIC and purchase by FDIC contractors.
The FDIC's implementation of the requirements of the statute
expands upon the minimum established by statute in several respects.
Under the regulation, prospective purchasers will be restricted from
buying assets from failed financial institutions for which the FDIC is
conservator or receiver in the following circumstances:
Under Sec. 340.3 of the proposed regulation, if a person or entity
(or its associated person, as that term is defined) has defaulted on
obligations owed to failed financial institutions and the FDIC that
aggregate over $1 million, and made fraudulent misrepresentations in
connection with any one of those obligations, such a person or entity
is prohibited from purchasing any assets of failed financial
institutions using FDIC financing. Although the statute would restrict
only the sale of assets from the failed financial institution that held
the defaulted obligation of the proposed purchaser, restrictions
contained in the regulation apply regardless of which failed
institution's assets are being sold. Because assets are passed through
various institutions from time to time before and after the
institutions are placed in receivership and are sometimes acquired from
institutions in their corporate capacity, it can be difficult to
ascertain which institution may have sustained a loss associated with a
particular asset, or which institution held the asset in question at
various points in time. Also, assets are sometimes sold in bulk,
combining assets from several failed financial institutions. These
factors would make it cumbersome to limit the restriction to the assets
of the particular institution that incurred the loss. Moreover, the
FDIC believes adopting this more stringent approach is consistent with
the Act as the statute sets only the minimum standards that the FDIC
must set in its rule.
Section 340.4(a)(1) of the regulation provides that if a person
participated as an officer or director of a failed financial
institution or of a related entity in a material way in one or more
transactions that resulted in a substantial (i.e., greater than
$50,000) loss to that failed financial institution, the person would
not, using any source of payment or financing (i.e., whether or not the
FDIC provides financing), be permitted to purchase an asset of any
failed institution from the FDIC. The proposed rule establishes
parameters to determine whether a person or entity has ``participated
in a material way in a transaction that caused a substantial loss to a
failed institution'', as this phrase is not defined in the statute.
This definition includes anyone who has been found by a court or
tribunal (or, in certain circumstances, has been alleged in formal
legal proceedings) in connection with a substantial loss to a failed
institution to have (i) violated any federal banking laws or to have
breached a written agreement with a federal banking agency or with the
failed financial institution; (ii) engaged in an unsafe or unsound
practice in conducting the affairs of the failed institution; or (iii)
breached a fiduciary duty to the failed institution.
Under Sec. 340.4(a)(2), if a person has, by federal regulatory
action, been removed from or barred from participating in the affairs
of any failed financial institution, the person would not, using any
source of payment or financing, be permitted to purchase an asset of
any failed financial institution from the FDIC.
Under Sec. 340.4(a)(3), if a person or related entity has
demonstrated a pattern or practice of defalcation, as defined in the
proposed rule, regarding an obligation to a failed financial
institution, the person would be barred from purchasing any asset or
assets of any failed institution from the FDIC, regardless of the
intended source of financing or payment. The definition of ``pattern or
practice of defalcation'' requires more than one incident involving
either intent or reckless disregard for whether a loss was caused and
requires that the resulting loss be ``substantial''.
Finally, under Sec. 340.4(a)(4), no person who has defaulted on an
obligation to a failed institution and has been convicted of
committing, or conspiring to commit, any offense under section 215,
656, 657, 1005, 1006, 1007, 1014, 1032, 1341, 1343 or 1344 of Title 18
of the United States Code (having generally to do with financial
crimes, fraud and embezzlement) affecting any failed institution will
be permitted to purchase any asset of any failed institution from the
In promulgating this regulation, the FDIC does not intend to imply
that it will provide seller financing in connection with any asset
sales nor that, if it determines to provide seller financing, it will
do so to a person who does not meet other criteria, such as
creditworthiness, as the FDIC may lawfully impose. Further, the FDIC
expressly reserves its authority to promulgate other policies and rules
restricting purchaser eligibility to buy assets from the FDIC.
The proposed rule provides for implementation of the restrictions
set forth above through a self-certification process. All purchasers of
assets covered by the regulation, other than federal, state and local
governmental agencies and instrumentalities and government-sponsored
entities such as Government National Mortgage Association, Fannie Mae
and Freddie Mac, will be required to execute a Purchaser Eligibility
Certification in the form established by the FDIC. Because of the
nature of these entities, including their organizational purposes or
goals and the fact that they are subject to strict
governmental control or oversight, it is reasonable to presume
compliance without requiring self-certification. However, authority is
given to the Director of the FDIC's Division of Resolutions and
Receiverships, or his designee, to require a certification from any of
these entities if facts exist that suggest that such a prospective
purchaser would fall within the restricted categories. Comment is
expressly sought about the nature and scope of this aspect of the
The prohibitions do not apply to a sale or transfer of assets that
is part of a workout or settlement of obligations to a failed
Paperwork Reduction Act
As indicated by Sec. 340.7 of the proposed rule, the FDIC intends
to develop a purchaser eligibility certification relating to this rule.
If the certification is covered by the Paperwork Reduction Act, the
FDIC will publish Federal Register notices and make submissions to the
Office of Management and Budget consistent with the requirements of 5
Regulatory Flexibility Act
The only burden imposed by this regulation is the completion of a
certification form described above in the Paperwork Reduction Act
section. The burden produced by this requirement does not require the
use of professional skills or the preparation of special reports or
records and has a minimal impact, economic and time-wise, on those
individuals and entities that seek to purchase assets from the FDIC.
Moreover, this minimal burden is imposed only on those entities
voluntarily seeking to purchase assets from the FDIC. Accordingly, the
Board hereby certifies that the proposed rule would not have a
significant economic impact on a substantial number of small entities
within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.). The provisions of the Regulatory Flexibility Act relating to an
initial and final regulatory flexibility analysis (5 U.S.C. 603 and
604) are not applicable.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families.
The FDIC has determined that this proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat.
List of Subjects in 12 CFR Part 340
Asset disposition, Banks, banking.
For the reasons set out in the preamble, the FDIC hereby proposes
to amend chapter III of title 12 of the Code of Federal Regulations by
adding a new part 340 as follows:
PART 340--RESTRICTIONS ON SALE OF ASSETS BY THE FEDERAL DEPOSIT
340.1 Authority, purpose, scope and preservation of existing
340.3 Restrictions on the sale of assets by the FDIC in conjunction
with a loan or extension of credit.
340.4 Restrictions on the sale of assets by the FDIC regardless of
the method of financing.
340.5 Independent determination of eligibility for seller
340.6 Certain asset sales unaffected by this part.
340.7 Certification required.
340.8 Workout, resolution, or settlement of obligations.
Authority: 12 U.S.C. 1819 (Tenth), 1821(p).
Sec. 340.1 Authority, purpose, scope and preservation of existing
(a) Authority. This part is issued by the Federal Deposit Insurance
Corporation (FDIC) pursuant to section 11(p) of the Federal Deposit
Insurance Act (FDI Act), 12 U.S.C. 1821(p), as added by section 20 of
the Resolution Trust Corporation Completion Act (Pub. L. 103-204, 107
Stat. 2369 (1993).
(b) Purpose. The sale by the FDIC of assets of any failed financial
institution to certain persons who profited or engaged in wrongdoing at
the expense of an insured institution, or seriously mismanaged an
insured institution, is prohibited.
(c) Scope. The restrictions of this part generally apply to assets
owned or controlled by the FDIC in any capacity, even though the assets
are not owned by the insured institution that the prospective purchaser
injured. Unless the FDIC determines otherwise, this part shall not
apply to the sale of securities in connection with the investment of
corporate and receivership funds pursuant to the Investment Policy for
Liquidation Funds managed by the FDIC as the same shall be in effect
from time to time. These restrictions shall not apply to any sale by a
trust or other entity of securities backed by a pool of assets that may
include assets of failed institutions to a purchaser other than the
underwriter purchasing in an initial offering.
(d) Preservation of existing authority. Neither section 11(p) of
the FDI Act nor this part in any way limits the authority of the FDIC
to establish policies prohibiting the sale of assets to prospective
purchasers who have injured any FDIC-insured institution or to other
prospective purchasers, such as certain employees or contractors of the
FDIC, or individuals who are not in compliance with the terms of any
debt or duty owed to the FDIC. Any such policies may be independent of,
in conjunction with, or in addition to the restrictions set forth in
Sec. 340.2 Definitions.
(a) Associated person of an entity or individual shall mean:
(1) With respect to an individual:
(i) That individual's spouse or dependent child or any member of
that individual's immediate household;
(ii) A partnership of which that individual is or was a general or
limited partner; or
(iii) A corporation of which that individual is or was an officer
(2) With respect to a partnership, a managing or general partner of
the partnership; or
(3) With respect to any entity, an individual or entity who, acting
individually or in concert with one or more individuals or entities,
owns or controls 25 percent or more of the entity.
(b) Default shall mean any failure to comply with the terms of an
obligation to such an extent that:
(1) A judgment has been rendered in favor of the FDIC or a failed
institution; or (2) In the case of a secured obligation, the property
securing such obligation is foreclosed on.
(c) FDIC shall mean the Federal Deposit Insurance Corporation.
(d) Failed institution shall mean any bank or savings association
that has been under the conservatorship or receivership of the FDIC or
RTC. For the purpose of this part, ``failed institution'' shall be
deemed to include any entity owned and controlled by a failed
(e) Obligation shall mean any debt or duty to pay money owed to the
FDIC or a failed institution, including any guarantee of any such debt
(f) Person shall mean an individual, or an entity with a legally
independent existence, including, without limitation, a trustee; the
beneficiary of at least a 25 percent share of the proceeds of a trust;
a partnership; a corporation; an association; or other organization or
(g) RTC shall mean the former Resolution Trust Corporation.
(h) Substantial loss shall mean:
(1) An obligation that is delinquent for ninety (90) or more days
and on which there remains an outstanding balance of more than $50,000;
(2) An unpaid final judgment in excess of $50,000 regardless of
whether it becomes forgiven in whole or in part in a bankruptcy
(3) A deficiency balance following a foreclosure of collateral in
excess of $50,000, regardless of whether it becomes forgiven in whole
or in part in a bankruptcy proceeding;
(4) Any loss in excess of $50,000 evidenced by an IRS Form 1099-C
(Information Reporting for Discharge of Indebtedness).
Sec. 340.3 Restrictions on the sale of assets by the FDIC in
conjunction with a loan or extension of credit.
A person shall not, in purchasing one or more assets from the FDIC
or any failed institution, receive a loan, advance, or other extension
of credit from the FDIC or any failed institution, if:
(a) There has been a default with respect to one or more
obligations totaling in excess of $1,000,000 owed by that person or its
associated person; and
(b) Such person or its associated person shall have made any
fraudulent misrepresentations in connection with any such
Sec. 340.4 Restrictions on the sale of assets by the FDIC regardless
of the method of financing.
(a) No person may acquire any assets from the FDIC or from any
failed institution if the person or its associated person:
(1) Has participated, as an officer or director of a failed
institution or of an affiliate of a failed institution, in a material
way in one or more transaction(s) that caused a substantial loss to
that failed institution;
(2) Has been removed from, or prohibited from participating in the
affairs of, a failed institution, pursuant to any final enforcement
action by the Office of the Comptroller of the Currency, the Office of
Thrift Supervision, the Board of Governors of the Federal Reserve
System, the FDIC, or the successors of any of them;
(3) Has demonstrated a pattern or practice of defalcation regarding
obligations to any failed institution; or
(4) Has been convicted of committing or conspiring to commit any
offense under section 215, 656, 657, 1005, 1006, 1007, 1014, 1032,
1341, 1343 or 1344 of title 18 of the United States Code affecting any
failed institution and there has been a default with respect to one or
more obligations owed by that person or its associated person.
(b) For purposes of paragraph (a) of this section, a person has
participated ``in a material way in a transaction that caused a
substantial loss to a failed institution'' if, in connection with a
substantial loss to a failed institution, the person has been found in
a final determination by a court or administrative tribunal, or is
alleged in a judicial or administrative action brought by the FDIC or
by any component of the government of the United States or of any
(1) To have violated any law, regulation, or order issued by a
federal or state banking agency, or breached or defaulted on a written
agreement with a federal or state banking agency, or breached a written
agreement with a failed institution;
(2) To have engaged in an unsafe or unsound practice in conducting
the affairs of a failed institution; or
(3) To have breached a fiduciary duty owed to a failed institution.
(c) For purposes of paragraph (a) of this section, a person or its
associated person shall have demonstrated a pattern or practice of
defalcations regarding obligations to a failed institution if the
person or associated person has engaged in the following:
(1) The person or associated person has engaged in more than one
transaction which created an obligation on the part of such person or
its associated person with intent to cause a loss to any financial
institution insured by the FDIC or with reckless disregard for whether
such transactions would cause a loss to any such insured financial
(2) Such transactions, in the aggregate, caused a substantial loss
to one or more failed institution(s).
Sec. 340.5 Independent determination of eligibility for seller
The absence of any disqualification under the restrictions set
forth in this part does not create any right to obtain a loan or
advance by or through the FDIC or remove the right of the FDIC to make
an independent determination, based upon all relevant facts of the
offeror's financial condition and history, of the offeror's eligibility
to receive any such loan or advance.
Sec. 340.6 Certain asset sales unaffected by this part.
The effectiveness of this part shall not affect the enforceability
of a contract of sale and/or agreement for seller financing in effect
prior to [insert effective date of final rule].
Sec. 340.7 Certification required.
(a) Except as provided in paragraph (b) of this section, no person
shall purchase any asset from the FDIC, unless that person shall have
certified, under penalty of perjury with notice that a false
certification may lead to punishment under 18 U.S.C. 1001, 1007, 1014
and 1621, in such form as may be established by the FDIC, that none of
the restrictions contained in this part applies to such purchase.
(b) Notwithstanding paragraph (a) of this section, no certification
shall be required of a state or political subdivision thereof, a
federal agency or instrumentality, the Government National Mortgage
Association, Fannie Mae, or Freddie Mac; provided however, that the
Director of the FDIC's Division of Resolutions and Receiverships, or
his designee, may, in his discretion, require a certification of any
Sec. 340.8 Workout, resolution, or settlement of obligations.
The restrictions of Secs. 340.3 and 340.4 shall not apply if the
sale or transfer of an asset resolves or settles, or is part of the
resolution or settlement of, one or more obligations, regardless of the
amount of such obligations.
By Order of the Board of Directors.
Dated at Washington, D.C. this 31st day of August, 1999.
Federal Deposit Insurance Corporation.
James D. LaPierre,
Deputy Executive Secretary.
[FR Doc. 99-24541 Filed 9-20-99; 8:45 am]
BILLING CODE 6714-01-P