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4000 - Advisory Opinions

Conversion Transactions: Deposit Transfer to SAIF-Member Depository Institution by Oakar Thrift Following its Acquisition or BIF-Member Savings Bank


January 29, 1993

Valerie J. Best, Counsel

This letter confirms our telephone conversation of January 12, 1993 and responds to your correspondence of January 12, 14, and 29, 1993. The information contained in your letter of January 29, 1993 is essentially correct.

You described a situation wherein a federal savings bank that is a member of the Savings Association Insurance Fund ("SAIF") has acquired a state savings bank that is a member of the Bank Insurance Fund ("BIF"), pursuant to 12 U.S.C. 1815(d)(3). The SAIF-member depository institution (referred to herein as an "Oakar" thrift) subsequently transfers some of its deposits to another SAIF-member depository institution. You ask us to clarify the status of deposit accounts following the subsequent transfer. That is, whether such a transfer would be regarded as a conversion transaction, whether it would be subject to the "insubstantial portion" test that limits the amount of deposits that may be transferred from one insurance fund to the other, whether entrance and exit fees would be required, and whether the transfer would have any effect on the Oakar thrift's payments to the BIF.

By way of background, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") imposed a five-year moratorium on "conversion transactions," with limited exceptions for (1) conversions that affect an insubstantial portion of the total deposits of each participating institution, and (2) certain conversions involving institutions in default or in danger of default. A provision commonly referred to as the "Oakar Amendment," provided an additional exception to the moratorium. The Oakar Amendment permitted a bank holding company to merge a thrift under its control into its subsidiary bank, notwithstanding the conversion transaction moratorium, provided certain statutory conditions were met and certain approvals obtained.

The original Oakar Amendment did not authorize the merger or consolidation of a BIF-member bank into a SAIF-member thrift. The FDIC Improvement Act of 1991 ("FDICIA") amended the Oakar Amendment to allow a bank or thrift that otherwise meets certain statutory conditions and obtains certain approvals, to merge or consolidate with, or assume the deposit liabilities of, any other insured depository, institution, notwithstanding the moratorium on conversion transactions. As a result of this change, transactions such as the one described in your letter where a BIF-member bank is merged into a SAIF-member thrift, have been permitted since December 19, 1991, the conversion transaction moratorium notwithstanding.1

With regard to the transaction you describe, if the aggregate of all deposits being transferred to SAIF-member depository institutions by the SAIF-member Oakar thrift will not reduce the Oakar thrift's total deposit base below the amount of its "adjusted attributable deposit amount" ("AADA"), it is the opinion of the Legal Division staff that the transfer of deposits would be a transfer of SAIF-insured deposits and, therefore, would not be regarded as a "conversion transaction" as defined in 12 U.S.C. 1815(d)(2)(B). As a consequence, the "insubstantial portion" test would not apply, conversion fees would not be required, and the transfer would not result in any reduction or adjustment of the Oakar thrift's AADA. However, it is also the opinion of staff that if any deposit transfer by a SAIF-member Oakar thrift to another SAIF-member reduces the Oakar thrift's total deposit base below the amount of its AADA, such a transfer may be regarded as a conversion transaction and, as such subject to FDIC approval, the "insubstantial portion" test, and entrance and exit fees.2

Absent the Oakar provision, any merger or consolidation of a BIF-member with a SAIF-member, or the assumption of deposit liabilities of a SAIF-member by a BIF-member, or vice versa, and the transfer of assets in consideration of such a deposit assumption, would be considered a conversion transaction. Any depository institution desiring to consummate a transaction pursuant to the Oakar provision must obtain prior written approval from the appropriate federal regulator (and the Board of Governors of the Federal Reserve System if the acquiring, assuming, or resulting depository institution is a BIF-member which is a subsidiary of a bank holding company.) Certain conditions must be met and procedures followed before any application for a proposed transaction under the Oakar provision may be approved. For these reasons, it is my view that the application and order must show that the transaction is being effectuated through the Oakar provision. Absent such documentation, the transaction will be regarded as a conversion transaction.

In this instance, the Office of Thrift Supervision order you submitted recites that the "transaction will be consummated in accordance with Section 5(d)(3) of the FDIA, as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991." The order also recites that the acquiring institution will pay premiums to the BIF on the deposits acquired from the BIF-member bank. In my opinion, this is sufficient to demonstrate that the transaction has been effectuated through the Oakar provision. Accordingly, the transaction will be treated as such for assessment purposes.

Please call me at (202) 898-3812 if you have any questions.

1Section 5(d)(3) of the Federal Deposit Insurance Act, as amended by section 501 of FDICIA, is not applied retroactively. Section 501 of FDICIA does not relieve institutions that participated in conversion transactions consummated prior to December 19, 1991 (the date of enactment of FDICIA) of their obligation to pay exit and entrance fees. FDIC Advisory Opinion 92--19, dated April 6, 1992. Go back to Text

2In this regard, it should be noted that the five-year moratorium on conversion transactions established by FIRREA has not been modified in any way by FDICIA. 12 U.S.C. 1815(d)(2). Go back to Text

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