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4000 - Advisory Opinions

An "Oakar" Bank May Not Use Secondary Reserve Credits to Offset Payments to SAIF


September 13, 1991

Jules Bernard, Counsel

In your letter of July 24, 1991, you describe a transaction in which a federal savings-and-loan association has been merged into a national bank. You cite 12 U.S.C. 215a as the authority pursuant to which the merger was effected. I take it that the surviving bank is a so-called "Oakar bank"--i.e., one that is obliged to make payments both to the Bank Insurance Fund and to the Savings Association Insurance Fund ("SAIF").

You further indicate that, prior to the merger, the association had been credited with a secondary reserve credit, which the association had been eligible to use as an offset to assessments imposed on the association by the SAIF. You write:

Therefore, we request a written, legal determination as to the FDIC's standing on the transfer of secondary reserve credit to the surviving bank of a thrift into bank merger.

As a preliminary matter, I must caution you that the views I express in this letter are those of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal interpretations of its rules, but only pursuant to rule-making proceedings. See, e.g., 12 C.F.R. § 330.101 (interpreting insurance rules). The FDIC does not issue formal interpretations in the form of individual letters or rulings on particular cases.

I believe the FDIC's current position is that an Oakar bank may not use secondary reserve credits for the purpose of offsetting payments that the bank is required to make to the SAIF.

For one thing, section 7(m) of the Act specifies that only savings associations--not banks--may use secondary reserve credits to offset assessments. For another, section 7(m) limits the use of offsets to assessments levied pursuant to section 7(b). The payments that Oakar banks must make to the SAIF are levied pursuant to an entirely different provision: namely, section 5(d)(3).

In any event, section 7(m)(4) states the presumption that the secondary reserve credits may not be transferred in the context of merger transactions unless the FDIC specifically authorizes the transfer. The FDIC has not done so with respect to the merger transaction that is the subject of your inquiry. Moreover, the FDIC staff opposes such assessment-credit transfers.

You suggest that section 563--16.2(b) of the regulations of the Federal Savings and Loan Insurance Corporation ("FSLIC")--temporarily preserved as section 385.8(b) of the FDIC's regulations--provides the required authorization. That section has no bearing on this case, however. Section 563-16.2(b) only spoke of cases in which "an insured institution" merged into another "another insured institution." Section 561.1 of the FSLIC's regulations specified that the term "insured institution" was limited to FSLIC-insured institutions.1 Here the acquiring institution is a national bank that is a member of the Bank Insurance Fund.

If you have any further questions about this matter, or if I can help you in any other way, please call me at (202) 898-3731.

1Although section 561.1 included FDIC-insured federal savings banks in the term "insured institution," it is not clear section 563-16.2(b) likewise embraced them when it used this term. But that point is not at issue here. Go back to Text

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