[Federal Register: October 9, 1997 (Volume 62, Number 196)]
[Notices]
[Page 52884-52886]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc97-162]
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FEDERAL DEPOSIT INSURANCE CORPORATION
Liability of Commonly Controlled Depository Institutions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Proposed statement of policy.
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SUMMARY: The FDIC is revising the Statement of Policy on Liability of
Commonly Controlled Depository Institutions (Statement of Policy) which
sets forth the procedures and guidelines the FDIC uses in assessing or
waiving liability against commonly controlled depository institutions
under section 5(e) of the Federal Deposit Insurance Act. The revised
Statement of Policy removes the application procedures for requesting a
conditional waiver of the cross-guaranty liability and incorporates
those same procedures into a proposed section of the FDIC's
applications regulation published for comment elsewhere in today's
Federal Register.
DATES: Comments must be received by January 7, 1998.
ADDRESSES: Send written comments to Robert E. Feldman, Executive
Secretary, Attention: Comments/OES, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429. Comments may be
hand delivered to the guard station located at the rear of the 17th
Street building (located on F Street), on business days between 7 a.m.
and 5 p.m. (FAX number (202) 898-3838; Internet address:
comments@FDIC.gov). Comments may be inspected and photocopied at the
FDIC Public Information Center, Room 100, 801 17th Street NW,
Washington, DC, between 9 a.m. and 4:30 p.m. on business days.
FOR FURTHER INFORMATION CONTACT: Jesse Snyder, Assistant Director of
Operations, Division of Supervision (202) 898-6915, or Grovetta N.
Gardineer, Counsel, Legal Division, (202) 736-0665, Federal Deposit
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION: Effective April 1, 1997, the Board of
Directors of the FDIC revised the Statement of Policy Regarding
Liability of Commonly Controlled Depository Institutions, 62 FR 15480.
Such liability is a consequence of section 5(e) of the Federal Deposit
Insurance Act (Act), 12 U.S.C. 1815(e), which was added by the passage
of section 206(a)(7) of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989. Section 5(e) created liability for
commonly controlled insured depository institutions for losses incurred
or anticipated by the FDIC in connection with (i) the default of a
commonly controlled insured depository institution; or (ii) any
assistance provided by the FDIC to any commonly controlled insured
depository institution in danger of default. The purpose of section
5(e) is to ensure that the assets of healthy depository institution
subsidiaries within the same holding company structure, or of a healthy
institution which controls a failing institution, will be available to
the FDIC to help offset the cost of resolving the failed subsidiary.
While the FDIC seeks to recover its losses associated with failing
institutions, it also seeks to encourage the acquisition of troubled
institutions by those capable of rehabilitating them and to avoid
instances in which the assessment of liability against an otherwise
healthy institution will cause its failure, thus exposing the FDIC and
the insurance funds to greater loss.
The revised Statement of Policy contained information regarding the
content of requests for conditional waiver of cross guaranty liability.
The revised Statement of Policy also indicated that any changes in part
303 of the FDIC's rules may necessitate further revisions to the policy
statement. The decision has been made by the FDIC that all information
regarding applications be addressed in revised part 303 of the FDIC
Rules and Regulations (Rules). Accordingly, the application procedures
for requesting a conditional waiver of cross guaranty liability are
being moved to part 303. The appropriate section of part 303 that
discusses conditional waiver applications will be referenced in the
revised Statement of Policy.
The Statement of Policy provides for the issuance of a Notice of
Assessment of Liability, Findings of Fact and Conclusions of Law, an
Order to Pay and a Notice of Hearing, a good faith estimate of the
FDIC's loss, and the determination of the method and schedule of
repayment. The liability under the statute attaches at the time of
default of a commonly controlled depository institution. The FDIC, in
its discretion, may assess liability for the losses incurred by the
default or for any assistance provided by the FDIC to a commonly
controlled institution in danger of default. Generally, liability
[[Page 52885]]
will be assessed against an institution except in instances of the
acquisition of a distressed institution by an unaffiliated entity prior
to the default of a commonly controlled institution. A conditional
waiver of the liability will be considered when, as determined within
the sole discretion of the Board of Directors of the FDIC, the
exemption is in the best interests of either of the insurance funds
administered by the FDIC or where a waiver facilitates an alternative
that is in the best interests of the FDIC. Institutions that believe
that an assessment of liability would be inappropriate are required to
submit supporting documentation. The contents of an application for
requesting a conditional waiver of liability will be located in
proposed Sec. 303.245 of the FDIC's Rules, 12 CFR 303.245. Commenters
are invited to review the proposed Statement of Policy in conjunction
with proposed Sec. 303.245 published elsewhere in today's Federal
Register.
For the above reasons, the FDIC proposes the following Statement of
Policy:
Liability of Commonly Controlled Depository Institutions
Introduction
Section 5(e) of the Federal Deposit Insurance Act, as added by
section 206(a)(7) of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, creates liability for commonly controlled
insured depository institutions for losses incurred or anticipated by
the Federal Deposit Insurance Corporation (FDIC) in connection with:
(i) The default of a commonly controlled insured depository
institution; or (ii) any assistance provided by the FDIC to any
commonly controlled insured depository institution in danger of
default. In addition to certain statutory exceptions and exclusions
contained in sections 5(e)(6), (7) and (8), the Act also permits the
FDIC, in its discretion, to exempt any insured depository institution
from this liability if it determines that such exemption is in the
``best interests of the Bank Insurance Fund or the Savings Association
Insurance Fund''.
The liability of an insured depository institution attaches at the
time of default of a commonly controlled institution. It is completely
within the discretion of the FDIC whether or not to issue a notice of
assessment to the liable institution for the estimated amount of the
loss incurred by the FDIC.
Guidelines for Conditional Waiver of Liability
The FDIC may, in its discretion, choose not to assess liability
based upon analysis of a particular situation, and it may entertain
requests for waivers from affiliated or unaffiliated parties of an
institution in default or in danger of default. The determination of
whether an exemption is in the best interests of either insurance fund
rests solely with the Board of Directors of the FDIC (Board). Should
the Board make such a determination, a waiver will be issued setting
forth terms and conditions that must be met in order to receive an
exemption from liability (conditional waiver of liability). The
following guidelines apply to conditional waivers of liability under
the provisions of this section:
(1) A conditional waiver of liability will be considered in those
cases where the waiver facilitates an alternative that would be in the
best interests of the FDIC; for example, the conditional waiver may be
granted when requisite additional capital and managerial resources are
being provided which substantially lessen exposure to the affected
insurance fund. When conditional waivers are granted to an otherwise
unaffiliated acquire of a failing or failed institution they will be
granted for a fixed period, generally not to exceed a period of time
reasonably required for existing problems to be identified and
resolved.
(2) If one or more institutions in a commonly controlled
relationship is otherwise solvent, well-managed and viable, it may be
in the best interest of the FDIC to waive or reduce claims against such
entities. In determining whether a conditional waiver is appropriate,
consideration will be given to actions of a holding company which
contribute to or diminish the FDIC's losses, as well as proposals to
strengthen other weakened institutions, if any.
(3) Procedures to request a conditional waiver of liability are
contained in Sec. 303.245 of the FDIC's Rules and Regulations, 12 CFR
303.245.
(4) In cases where an insured depository institution is sold to an
acquire with no financial interest, directly or indirectly, in the
institution prior to the acquisition, it is the general policy of the
FDIC to forego the issuance of a notice of assessment to the acquire
and its affiliated institutions in the event of a default of an insured
depository institution formerly affiliated with the acquired
institution. The FDIC will review all such transactions prior to making
a final determination to forego the issuance of the notice of
assessment.
Guidelines for Assessment of Liability
Whenever the FDIC determines that assessment of liability in
connection with a commonly controlled insured depository institution(s)
is appropriate, a Notice of Assessment of Liability, Findings of Fact
and Conclusions of Law, Order to Pay, and Notice of Hearing (Notice of
Assessment) will be served upon the liable institution. In assessing
the amount of the FDIC's loss and the liable institution(s) method of
payment, the following guidelines shall apply:
(1) A good faith estimate of the amount of loss the FDIC will incur
shall be based upon (a) the actual sale or calculation of loss from a
review by the FDIC of the assets and liabilities of the institution
prior to default or the granting of assistance; or (b) any other cost
estimate bases as explained in the Notice of Assessment.
(2) If there is more than one commonly controlled depository
institution to be assessed, each such institution is jointly and
severally liable for all losses; however, the FDIC shall make a good
faith estimate of the liability of each institution as determined by
(a) first assessing an initial amount on a pro rata capital basis that
brings about parity in the capital ratios of the liable institutions
and (b) then apportioning any residual assessment on a pro-rata size
basis utilizing the most recent Report of Condition. Any final
assessment can be based on the estimated liability of each institution
by the FDIC and/or negotiations with the liable institutions.
(3) In the event that any liable institution is closed prior to
paying an assessment, the amount assessed or to have been assessed
against that institution may be assessed against the remaining liable
institution(s).
(4) The FDIC, after consulting with the appropriate Federal and
State financial institutions regulatory agencies, shall establish in
each case a schedule for payment which may include a lump sum
reimbursement, as well as procedures for receipt of such payment.
(5) Once liability has attached, the FDIC will consider information
similar to that provided with a request for a conditional waiver of
liability in determining the amount of the estimated loss to be
assessed. Such information may also include suggested payment plans.
By order of the Board of Directors.
Dated at Washington, DC, this 23rd day of September, 1997.
[[Page 52886]]
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 97-26231 Filed 10-8-97; 8:45 am]
BILLING CODE 6714-01-P
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