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4000 - Advisory Opinions

Applicability of Change in Bank Control Act to Purchase of Asset by FDIC in Its Corporate Capacity


August 3, 1984

Pamela E. F. LeCren, Senior Attorney

The following is in response to your May 16, 1984 memorandum to Katharine Haygood requesting an opinion as to whether the Change in Bank Control Act would be triggered under the following circumstances. FDIC in its corporate capacity holds as an asset a loan in the approximate amount of $2.2 million to * * *, the holding company for * * *. The loan, which was originated by * * * was participated 100% to * * *. The loan, was collateralized by 3,946 shares of the stock of * * * or approximately 97% of the outstanding stock of the bank. * * * is presently insolvent and the loan is in default.

FDIC received a tentative offer for the loan which, as you indicated to me on the phone, has since been withdrawn. That offer did raise the issue, however, of whether or not any sale by FDIC of the referenced asset could trigger the Change in Bank Control Act inasmuch as the purchaser would in all likelihood foreclose on the collateral.

The Change in Bank Control Act which was enacted as an amendment to section 7 of the Federal Deposit Insurance Act (see section 7(j)) provides that no person may acquire control of any insured bank through a purchase, assignment, transfer, pledge or other disposition of voting stock of an insured bank unless the appropriate federal banking agency has been given 60 days prior written notice of the acquisition and within that time period (or within 90 days if the agency takes a 30-day extension permitted by the statute) the agency has not issued a notice disapproving the proposed acquisition. The time period for issuing a notice to disapprove may be further extended if the proposed acquirer has not furnished all the information required to be furnished under section 7(j)(6) or the agency has determined that any material information submitted to it is substantially inaccurate. Section 7(j)(8)(B) defines "control" to mean the power to, directly or indirectly, direct the management or policies of an insured bank or to vote 25% or more of any class of voting securities of an insured bank.

Section 303.15(c) of FDIC's regulations which implement section 7(j) of the Federal Deposit Insurance Act provides for certain exempt transactions, i.e., acquisitions that do not trigger the prior notice requirement. It is clear that, unless exempt, the acquisition of 97% of the stock of an insured bank triggers the prior notice requirements of the Change in Bank Control Act. The only exemption which may be applicable to the circumstance under consideration is section 303.15(c)(3). That section exempts the acquisition of shares in satisfaction of a debt previously contracted in good faith or through testate or intestate succession or bona fide gift, provided the acquirer advises the regional director within 30 days after the acquisition and provides such of the information specified in paragraph 6 of the Change in Bank Control Act as the regional director requests.

We do not feel, however, that the exemption is available in a circumstance where a loan collateralized by more than 25% of the stock of an insured bank is purchased and that loan is in default. In that instance, the acquisition of the loan and the acquisition of the shares is virtually inseparable due to the default status of the loan at the time of its purchase. The situation is to be distinguished from one in which, for example, individual X makes a loan to individual Y, the loan is collateralized by more than 25% of the stock of an insured bank, and a third party purchases the loan from X in good faith prior to any default on the loan. In that instance, we would feel that the third individual could take advantage of the exemption in section 303.15(c)(3) should the loan subsequently go into default and foreclosure on the collateral occur.

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