4000 - Advisory Opinions
Notice to FDIC Involving Transfer of Assets Between FDIC-Insured and FSLIC-Insured Institutions
January 21, 1988
J. William Via, Jr. Counsel
This is in response to your memorandum of December 14, 1987, transmitting a copy of a letter (dated December 3, 1987) from the Federal Home Loan Bank Board *** and, raising questions about this subject.
Section 18(c)(12) of the FDI Act, as amended by CEBA, § 504(b), requires that an insured bank involved in a transaction encompassed by that provision notify the FDIC in writing at least 30 days prior to consummation of the transaction. The question raised is whether this notification should be made to the appropriate FDIC regional office of (I surmise) to FDIC's principal office. This issue, of course, is not addressed by the statute, and the FDIC appears to have no regulatory provision that clearly applies (see 12 C.F.R., Part 303 and § 303.5). In the circumstances, an affected bank that gives timely notice in good faith to either office would, in my judgment, most likely be held to have complied (or substantially complied) with the requirement. Of course, if the FDIC wants such notices to be sent to one of these offices to the exclusion of the other it is empowered to impose such a requirement through regulation.
Section 18(c)(12), as amended, states in effect that the provisions of section 18(c) of the FDI Act, popularly known as the Bank Merger Act, "shall not apply to any transaction where the acquiring, assuming, or resulting institution is an [FDIC] insured Federal savings bank or an institution insured by the Federal Savings and Loan Insurance Corporation", but imposes on "any insured bank involved in the transaction" the notice requirement discussed in the preceding paragraph, and also stipulates that, "if any approval by the Federal Home Loan Bank Board or the Federal Savings and Loan Insurance Corporation is required [under laws administered by those entities] in connection therewith", then the cognizant entity must provide the FDIC with notification of the application for approval, consult with the FDIC before disposing of the application, and notify the FDIC of its disposition. The question raised is, what kinds of applications trigger these notification and consultation requirements for the FHLBB or the FSLIC. The answer is that section 18(c)(12) encompasses every transaction that, but for the exclusionary language of its first clause, would be subject to the bank merger provisions of section 18(c); the notification and consultation requirements for the FHLBB or the FSLIC apply in the case of any such transaction that requires any approval by either of those entities (under laws administered by them).
As anticipated by the letter from the FHLBB, the rub is that, except in the case of a merger or consolidation (or a complete "purchase and assumption" transaction), it is sometimes difficult to ascertain whether or not the bank merger provisions of section 18(c) apply to a given transaction. The letter cites, for example, the case of the "transfer" by an insured bank of some, but not all, of its assets to (i) an FSLIC-insured institution or (ii) a Federal savings bank.
In the first instance, section 18(c)(1) would apply (but for the exclusion in section 18(c)(12)) if the transfer of assets were "in consideration of the assumption of liabilities [by the FSLIC-insured institution] for any portion of the deposits made in such [asset transferring] insured bank" (per section 18(c)(1)(C)), and not otherwise, in general. However, a transfer of assets, or series of such transfers, even though unaccompanied by any deposit liability assumption, might be of sufficient magnitude to cause the FDIC to assert that the insured bank is attempting a de facto merger and to claim jurisdiction under section 18(c)(1)(A) (if the exclusion in paragraph (12) does not apply), lest the purposes of the bank merger provisions be subverted, but just what is a sufficient magnitude for this purpose is necessarily subject to judgment on a case-by-case basis. While such cases should be rare, the practical step, I suggest, is to alert the FHLBB-FSLIC to this possibility and request that the FDIC be notified even in questionable cases. The notices after all have some potential utility, I take it, for the FDIC's deposit insurance function and supervisory responsibility, especially concerning a bank's managerial and financial resources and prospects, whenever there is a transfer of a "significant" volume of its assets, albeit less than all or less than half or even less than one-quarter, perhaps (but I do not feel confident in suggesting a minimum). This potential utility, I suspect, is a principal reason Congress imposed the notice requirement.
As for the second case cited in the FHLBB letter, section 18(c)(2)(C) would apply (but for the exclusion in paragraph (12)) if a Federal savings bank should, "either directly or indirectly, acquire the assets of . . . any other insured bank", but (as in the first case) this leaves open the question of whether the section applies if some, but not all, of the assets are acquired. The FDIC has heretofore claimed jurisdiction under this section when less than all of the assets of the selling bank were being acquired, if there was a (perceived) plausible basis for concluding that the acquisition would have potential significance under one or more of the relevant statutory factors, so that not claiming jurisdiction could effectively undermine the bank merger provisions (e.g., Bank A proposes to buy Bank B's entire loan portfolio or Bank A proposes to buy, let us say, the real estate loans of every other insured bank in its market). ***.
In sum (and in partial reiteration), I suggest that the FDIC *** be notified by the FHLBB-FSLIC of every transaction (including those involving only partial asset acquisitions) that even remotely appear to the FHLBB-FSLIC as possibly falling within the purview of section 18(c)(12), assuming, of course, as the statute requires, that FHLLB or FSLIC approval of the transaction is required.
The final question raised by the FHLBB letter is whether section 403(e) of the National Housing Act, as added by CEBA, § 504(a), requires the FSLIC to notify and consult with the FDIC only when an FDIC-insured savings bank converts to FSLIC insurance or does it apply also to such conversions by other FDIC-insured banks. The answer (though the statute is not well written) is that it applies to all such conversions by FDIC-insured banks.
The first sentence of section 403(e) provides that if a savings bank that is an "insured bank" as defined in section 3(b) of the FDI Act converts to a type of institution that is eligible to be insured by the FSLIC and such insurance is granted, then when such insurance becomes effective (as stipulated by the FSLIC) the institution automatically loses its status as an "insured bank". The obligation of the FSLIC to notify and consult with the FDIC is found in the second sentence of section 403(e), the language of which effectively embraces (not only the savings bank case of the first sentence, but also) all conversions by FDIC-insured banks to FSLIC insurance (just as all such conversions prior to CEBA, § 504(a),(b)(2) were conversions to the status of a noninsured bank or institution under FDI Act § 18(i)(3)). This conclusion is buttressed by the language used in the discussion of CEBA, § 504 at page 175 of the accompanying Conference Report (notwithstanding that the caption speaks only of conversions by FDIC-insured savings banks).