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4000 - Advisory Opinions

Meaning of Term "Activity" Used in 12 C.F.R. §303.13(f) as Applied to DPC Activities


March 7, 1991

Pamela E.F. LeCren, Counsel

The following is in response to your January 23, 1991 letter to Mr. Alfred J. T. Byrne, General Counsel, FDIC, requesting an opinion on the meaning of the term "activity" as used in 12 C.F.R. 303.13(f) which requires that a savings association provide the FDIC 30 days advance notice before conducting any new activity in a subsidiary. Your question

arises in the context of the operation of a DPC subsidiary. Specifically you have inquired as to:

(1)  whether a savings association must provide the FDIC with notice of a new activity each time a "different type" of salvage activity is undertaken, e.g., the subsidiary undertakes to repair, rehabilitate or complete commercial DPC property when it had only done so with respect to residential DPC property; and

(2)  whether a savings association must provide the FDIC with notice of a new activity each time it undertakes "cosmetic repairs" to the same type of DPC property.

Lastly, you inquired as to whether the FDIC might impose monetary ceilings on any of the activities proposed by a DPC subsidiary for which the FDIC receives notice.

In general it has been the FDIC's posture to date that what constitutes a "new" activity must be decided on a case-by-case basis analyzing such things as the nature of the activities currently being conducted, the skills necessary to the conduct of the activity in question, management and operational expertise necessary to the conduct of the activity, the risk profile associated with the activity, necessary funding for the activity, etc. If the activity in question is functionally different in any of these or similar way from the activities already undertaken, then it is likely that it will be considered a new activity. We have not to my knowledge responded in writing to anyone regarding how this general guideline applies in the case of DPC activities.

Upon reflection, it is the position of the Legal Division and the Division of Supervision that a DPC subsidiary should provide the FDIC with a new activity notice whenever the expenditures associated with the salvage activities of the subsidiary are expected to be capitalized. Maintenance and other similar activities that are accounted for as expenses would not require a new activity notice. As a practical matter this will mean that in the event a DPC subsidiary handles more than one piece of DPC property, the savings association will need to provide notice with respect to each such property if it intends to undertake activities in connection with that property that must be capitalized unless it has previously notified the FDIC that the subsidiary will be undertaking the same type of expenditures in connection with the same type of DPC property. In determining whether an earlier notice obviates the need for a further notice, the savings association should be guided by the general criteria set forth above.

Lastly, the FDIC will not necessarily impose any monetary ceilings on salvage operations of DPC subsidiaries of savings associations. Such subsidiaries are first and foremost subject to the oversight of the Office of Thrift Supervision and must abide by whatever regulations, etc. that office enforces. The FDIC is not precluded, however, from doing so based upon its authority under section 18(m)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1828(m)(3)) or based upon its back-up supervisory authority under section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) if such action is considered warranted after reviewing a notice.

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