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Federal Register Publications

FDIC Federal Register Citations

[Federal Register: April 1, 1997 (Volume 62, Number 62)]

[Notices]

[Page 15480-15482]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr01ap97_dat-84]

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FEDERAL DEPOSIT INSURANCE CORPORATION

Statement of Policy Regarding Liability of Commonly Controlled

Depository Institutions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Policy statement.

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SUMMARY: The FDIC is revising the statement of policy which sets forth

the procedures and guidelines the FDIC uses in assessing liability

against commonly controlled depository institutions under section 5(e)

of the Federal Deposit Insurance Act. The revised policy statement

provides guidance based on the FDIC's experience in administering the

provisions of section 5(e) of the Act and clarifies the authority

granted to the FDIC to issue assessments of liability or grant

conditional waivers of liability, the manner in which the FDIC will

assess the amount of loss incurred by the FDIC, and the manner in which

each liable institution's share of that loss will be determined. The

revised policy statement also addresses the potential liability of

depository institutions acquired by unaffiliated parties prior to any

occurrence establishing liability under section 5(e) of the Act.

EFFECTIVE DATE: April 1, 1997.

FOR FURTHER INFORMATION CONTACT: Cheryl Steffen, Special Situations and

Application Section, Division of Supervision, (202) 898-8768; Michael

J. Fanaroff, Division of Resolution and Receiverships, (202) 898-7122;

or Grovetta N. Gardineer, Counsel, Legal Division, (202) 736-0665,

Federal Deposit Insurance Corporation, 550 17th Street, NW.,

Washington, DC 20429.

SUPPLEMENTARY INFORMATION: On May 22, 1990, the Board of Directors of

the FDIC adopted a Statement of Policy Regarding Liability of Commonly

Controlled Depository Institutions. 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 FDIC has brought a number of actions since the enactment of

section 5(e). While the original statement of policy provided guidance

to the industry regarding the application of the statute at the time it

was published, the FDIC had not initiated any actions under the

statute. The revised policy statement attempts to provide guidance to

the industry based on actual practice with administering the statute.

The proposed policy statement contains information regarding the

content of requests for conditional waiver. Depending on decisions

affecting part 303 of the FDIC Rules and Regulations (Rules), this

information may also be addressed in the revised part 303 of the FDIC's

Rules regarding applications. Any changes in part 303 of the FDIC's

Rules may also necessitate further revisions to the policy statement.

The policy statement provides for the issuance of a Notice of

Assessment of

[[Page 15481]]

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 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 text of the revised policy statement follows:

Federal Deposit Insurance Corporation Statement of Policy Regarding

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 acquirer 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) Requests for waivers should be filed with the appropriate

Regional Director (Supervision).

(4) In the event an application for a conditional waiver of

liability is made, the applicant should provide the FDIC information

indicating the basis for requesting a waiver; the existence of any

significant events (e.g., change of control, capital injection, etc.)

that may have an impact upon the applicant or a potentially liable

institution(s); current and, if applicable, pro forma financial

information regarding the applicant and potentially liable

institution(s); and the benefits resulting from the waiver and any

related events. Additional information may be requested.

(5) In the event a conditional waiver of liability is issued,

failure to comply with the terms specified therein may result in the

termination of the conditional waiver of liability. The FDIC reserves

the right to revoke the conditional waiver of liability after giving

the applicant written notice of said revocation and a reasonable

opportunity to be heard on the matter.

(6) In cases where an insured depository institution is sold to an

acquirer 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 acquirer

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

[[Page 15482]]

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 25th day of March, 1997.

Federal Deposit Insurance Corporation

Robert E. Feldman,

Deputy Executive Secretary.

[FR Doc. 97-8254 Filed 3-31-97; 8:45 am]

BILLING CODE 6714-01-P

Last Updated 04/25/1997 regs@fdic.gov

Last Updated: August 4, 2024