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F ederal R eserve Bank
OF DALLAS
ROBERT
D. M c T E E R , J R .
P R E S ID E N T
AND
C H IE F
E X E C U T IV E
DALLAS, TEXAS 75222
O F F IC E R
October 23, 1992
Notice 92-101
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Request for Public Comment on a Proposed
Policy Statement Regarding Branch
Closings by State Member Banks
DETAILS
The Board of Governors of the Federal Reserve System is seeking
comment on a proposed policy statement regarding branch closings by state
member banks. The proposed policy statement provides guidance concerning the
branch closing provisions of section 228 of the Federal Deposit Insurance
Corporation Improvement Act, specifically the requirements that insured
depository institutions, including state member banks, adopt policies for
branch closings and provide notice before closing any branch.
The Board must receive comments by December 4, 1992. Comments
should be addressed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington,
D.C. 20551. All comments should refer to Docket No. R-0777.
ATTACHMENT
A copy of the Board’s notice (Federal Reserve System Docket No.
R-0777) is attached.
MORE INFORMATION
For more information, please contact Michael Johnson at (214)
922-6081. For additional copies of this Bank’s notice, please contact the
Public Affairs Department at (214) 922-5254.
Sincerely yours,
y&.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas:
Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162,
Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL RESERVE SYSTEM
[Docket No. R-0777]
Branch Closings
AGENCY: Board of Governors of the Federal
ACTION:
SUMMARY:
Reserve System.
Proposed policy statement.
The Board of Governors of the Federal Reserve System
(Board) is seeking comment on a proposed policy statement
regarding branch closings by state member banks.
The proposed
policy statement provides guidance concerning the branch closing
provisions of section 228 of the Federal Deposit Insurance
Corporation Improvement Act (FDICIA), specifically the
requirements that insured depository institutions,
including
state member banks, adopt policies for branch closings and
provide notice before closing any branch.
DATES:
Comments must be submitted on or before December 4,
1992 .
ADDRESSES:
Comments, which should refer to Docket No. R-0777,
may be mailed to Mr. William Wiles, Secretary, Board of Governors
of the Federal Reserve System, 20th and Constitution Avenue NW . ,
Washington, DC
20551.
Comments addressed to Mr. Wiles may also
be delivered to the Board's mail room between 8:45 a.m. and
5:15 p.m., and to the security control
hours.
room outside of those
Both the mail room and control room are accessible
from
the courtyard entrance on 20th Street between Constitution Avenue
and C Street, NW.
Comments may be inspected in room B-1122
between 9 a.m. and 5 p.m., except as provided in § 261.8 of the
Board's Rules Regarding Availability of Information,
12 CFR 261.8.
2
FOR FURTHER INFORMATION CONTACT:
Oliver I. Ireland, Associate
General Counsel (202/452-3625), Gregory A. Baer, Senior Attorney
(202/452-3236), Legal Division; Glenn E. Loney, Assistant
Director (202/452-3585), Beverly C. Smith, Review Examiner
(202/452-3946), Division of Consumer and Community Affairs, Board
of Governors of the Federal Reserve System.
For the hearing
impaired only. Telecommunication Device for the Deaf (TDD),
Dorothea Thompson (202/452-3544), Board of Governors of the
Federal Reserve System, 20th and C Streets, NW., Washington, DC
20551.
SUPPLEMENTARY INFORMATION:
Background Information
Section 228 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA) added a new section
39 to the Federal Deposit Insurance Act
(FDI A c t ) N e w
section 39 took effect upon enactment of FDICIA on December 19,
1991.
The law requires each insured depository institution,
including state member banks, to give 90 days prior written
notice of any branch closing to its federal regulator and to
branch customers,
to post notice at the branch site at least
30 days prior to closing, and to develop a policy with respect to
branch closings.
The notice to the regulator must include a
Due to an error in drafting, section 132 of FDICIA also
adds a new section 3 9 to the FDI Act.
The section 3 9 of the FDI
Act added by section 228 of FDICIA is codified at 12 U.S.C.
183l p .
-
3
detailed statement of the reasons for the decision to close the
branch and information in support of those reasons.
The Board has developed a proposed policy statement
applying section 3 9 to state member banks, and the Board is
seeking public comment on that proposal.
Because section 3 9
applies to all insured depository institutions, each of the
Federal banking agencies will be required to monitor compliance
with its requirements.
Accordingly the Board has worked with the
other Federal banking agencies to develop a consistent approach
to section 39, and these efforts will continue in developing a
final policy statement.
At the same time, however, each agency
also has existing rules, regulations, and policies that are
affected by section 39, and the policies of the agencies will
differ accordingly.
Issues for Specific Comment
The Board seeks comments on all aspects of its proposed
policy statement.
In addition, the Board invites comments on the
following specific issues:
1.
Definition of "branch."
Section 39 requires any
insured depository institution that propose to close a branch to
provide prior notice to its Federal banking agency and the
customers of the branch.
The proposed policy statement defines
"branch" in the same manner as the FDI Act defines "domestic
branch," thereby including any domestic facility of a state
member bank, other than its main office, where deposits are
received, checks are paid, or money is lent.
In addition to
4
traditional brick and mortar branches, the Board believes that
the law applies to closings of other types of domestic facilities
that constitute branches, including ATMs, drive-in facilities,
and mobile branches.
2.
Branch Relocations.
Because section 39 applies
only to plans to "close* a branch, the Board is not interpreting
section 39 to require notice in case of a branch relocation.
The
Board's regulations currently provide that an application to
establish a branch need not be filed in the case of a "mere
relocation of an existing branch in the immediate neighborhood
without affecting the nature of its business or customers
served."
See 12 CFR 208.9(b)(7); see also F.R.R.S. 3-419.
The
Board.is proposing to adopt the same test for relocation for
purposes of branch closings as it currently employs for
applications to establish branches.
Thus, if a branch relocation
occurs under circumstances such that no application to establish
a branch would be required, then no branch closing notice would
be required.
3.
Operation of Branches Purina Option Period.
Under
the standard agreements of the FDIC and RTC, an acquirer that
assumes some or all of the assets and liabilities of an
institution placed into conservatorship or receivership may also
operate one or more of the branches of the failed institution
temporarily until it decides, during an option period (generally
90-180 days), whether to purchase or lease the branch or to
transfer it back to the FDIC or RTC.
5
The question has arisen whether an acquirer that
decides not
to exercise such an
purposes of
section 39.
option has closed a branch
for
The language of the statute is ambiguous
on this point, and application of the notice requirement in such
cases would appear to defeat rather than serve the purposes of
the statute.
The RTC and FDIC encourage an acquirer to occupy
temporarily any branch that the acquirer is unsure about
acquiring permanently; this temporary arrangement not only may
lead the acquirer eventually
also serves
to
as a convenience to
decide to take the branch,
customers.
it
However, if
section 3 9 were interpreted to require an acquirer to remain in
the branch 90 days after a decision that it does not wish to
acquire the branch, then acquirers would be more reluctant to
occupy a branch temporarily, or would reprice their bids (at a
cost to the government)
to reflect the additional cost imposed by
the notice requirement.
Under the proposed policy statement, the 90-day notice
requirement does not apply when an acquiring state member bank
operates branches of a failed institution on an interim basis, -so
long as the branches are closed prior to expiration of the
acquirer's branch acquisition option period.
If a state member
bank were to exercise its branch acquisition option and acquire
such a branch,
the bank would be required to comply with the
statutory notice requirements if it later decided to close the
branch.
6
4.
Identifying Customers of the Branch.
The proposed
policy statement permits each state member bank to determine
which of its patrons will be identified as customers of a
particular branch.
The proposed policy statement requires a good
faith determination using a reasonable method developed by the
bank.
One reasonable method that a state member bank could use
is to allocate a customer to a branch based on where the customer
opened his or her deposit or loan account.
Proposed Policy Statement for State Member Banks
Concerning Branch Closing Notices and Policies
Purpose
This policy statement provides guidance to state member
banks concerning the statutory requirements that a bank provide
prior notice of any branch closing and establish internal
policies for branch closings.
Background
The Federal Deposit Insurance Corporation Improvement
Act of 1991
(FDICIA) was enacted on December 19, 1991.
Section 228 of the FDICIA adds a new section 3 9 to the Federal
Deposit Insurance Act
(FDI Act) and imposes notice requirements
on insured depository institutions-'' that propose branch
closings.
The provision became effective on December 19, 1991.
As the federal banking agency that supervises state member banks,
An insured depository institution means any bank or
savings association, as defined in Section 3 of the FDI Act, the
deposits of which are insured by the Federal Deposit Insurance
Corporation (FDIC).
The term includes state member banks.
7
the Board is charged with administering section 39 for those
institutions.
The law requires an insured depository institution to
submit a notice of any proposed branch closing to the appropriate
Federal banking agency no later than 90 days prior to the date of
the proposed branch closing.
The required notice must include a
detailed statement of the reasons for the decision to close the
branch and statistical or other information in support of such
reasons.
The law also requires an insured depository institution
to notify its customers of the proposed closing.
The institution
must mail the notice to the customers of the branch proposed to
be closed at least 90 days prior to the proposed closing.
The
institution also must post a notice to customers in a conspicuous
manner on the premises of the branch proposed to be closed at
least 3 0 days prior to the proposed closing.
Additionally, the law requires each institution to
adopt policies regarding closings of branches of the institution.
Applicability
Under section 3 of the FDI Act, a "branch" is defined
as any domestic facility of an insured depository institution,
other than its main office, where deposits are received, checks
are paid, or money is lent.
Thus, in addition to a traditional
brick and mortar branch, section 3 9 of FDICIA applies to the
closing of any facility that constitutes a branch, including an
8
automated teller machine (ATM), drive-in facility, and mobile
branch.
A state member bank must file a branch closing notice
for a branch closing occurring in the context of a merger,
consolidation or other form of acquisition, whether or not such
transaction is subject to expedited approval under the Bank
Merger Act
(12 U.S.C. 1828).
The parties to such a transaction
should determine which party will give the notice.
Thus, for
example, the purchaser may give the notice prior to consummation
of the transaction where the purchaser intends to close a branch
following consummation, or the seller may give the notice because
it intends to close a branch at or prior to consummation.
In the
latter example, if the transaction were to close ahead of
schedule, the purchaser,
if authorized by the Board, could
operate the branch to complete compliance with the 90-day
requirement without the need for an additional notice.
Section 3 9 would not apply to an interruption of
service caused by an event beyond the institution's control
{e.g _.,
act of God, fire), as the state member bank would not have
closed the branch.
Section 39 would apply, however, if the state
member bank were to decide to close or not reopen the branch
following the incident.
Although prior notice would not be
possible in such a case, the bank should notify the customers of
the branch and the Board in the manner specified by section 39 as
soon as possible after the decision to close the branch has been
made.
9
The law does not apply where a branch undergoes a
change in name, location, or services but continues to meet the
definition of branch and any change in location is within the
same immediate neighborhood and does not affect the nature of the
business or customers served.
Thus, the law does not apply to:
■ Mergers, consolidations, or other acquisitions,
including branch sales, which will not result in any branch
closings;
■ Change of services at a branch so long as the
remaining facility constitutes a branch,
such as where loan
services are removed from a branch that will continue to offer
deposit services, or where a traditional brick and mortar branch
is converted to an ATM;
■ A branch relocation, within the meaning of the
Board's existing regulation, 12 CFR 208.9(b)(7).
In addition,
section 3 9 does not apply when a branch
ceases operation but is not closed by a state member bank.
Thus,
the law does not apply to:
■ A temporary interruption of service caused by an
event beyond the institution's control, if the insured depository
institution plans to restore branching services at the site in a
timely manner;
■ Transferring back to the FDIC or Resolution Trust
Corporation, pursuant to the terms of an acquisition agreement, a
branch of a failed bank or savings association operated on an
10
interim basis in connection with the acquisition of all or part
of a failed bank or savings association.
Notice of Branch Closing to the Board
The law requires an insured depository institution to
give notice of any proposed branch closing to the appropriate
Federal banking agency no later than 90 days prior to the date of
the proposed branch closing.
The required notice must include
the following:
■ Identification of the branch to be closed;
■ The proposed date of closing;
■ A detailed statement of the reasons for the decision
to close the branch; and
■ Statistical or other information in support of such
reasons consistent with the institution's written policy for
branch closings.
If a state member bank believes certain information
included in the notice is confidential in nature, the bank should
prepare such information separately and request confidential
treatment.
The Board will decide whether to treat such
information confidentially under the Freedom of Information Act
(5 U.S.C. 552) .
Notice of Branch Closing to Customers
The law requires a state member bank that proposes to
close a branch to provide notice of the proposed closing to the
customers of the branch.
A customer of a branch is a patron of a
state member bank who has been.identified with a particular
11
branch by such institution through use, in good faith, of a
reasonable method for allocating customers to specific branches.
A state member bank that allocates customers to its branches
based on where a customer opened his or her deposit or loan
account will be presumed to have reasonably identified each
customer of a branch.
A state member bank need not change its
recordkeeping system in order to make a reasonable determination
of who is a customer of a branch.
If a state member bank cannot
reasonably identify the customers of a particular branch using
its current recordkeeping system, it may satisfy the requirements
of section 3 9 by notifying all of its deposit and loan customers.
Under section 39, the bank must include a customer
notice at least 90 days in advance of the proposed closing in at
least one of the regular account statements mailed to customers,
or in a separate mailing.
If the branch closing occurs after the
proposed date of closing, no additional notice is required to be
mailed to customers
(or provided to the Board)
if the state
member bank acted in good faith in projecting the date for
closing and in subsequently delaying the closing.
The mailed customer notice should state the location of
the branch to be closed, the proposed date of closing, and either
identify where customers may obtain service following the closing
date or provide a telephone number for customers to call to
determine such alternative sites.
Under section 39, a bank also must post notice to
branch customers in a conspicuous manner on the branch premises
12
at least 30 days prior to the proposed closing.
This notice
should state the proposed date of closing and identify where
customers may obtain service following that date or provide a
telephone number for customers to call to determine such
alternative sites.
A bank may revise the notice to extend the
projected date of closing without triggering a new 30-day notice
period.
In some situations, a bank, in its discretion and to
expedite transactions, may mail and post notices to customers of
a proposed branch closing that is contingent upon an event.
For
example, in the case of a proposed merger or acquisition, a bank
may notify customers of its intent to close a branch upon
approval by the appropriate Federal banking agency of the
proposed merger or acquisition.
Policies for Branch Closings
The law requires all insured depository institutions to
adopt policies for branch closings.
Each state member bank with
one or more branches must adopt such a policy.
If a bank
currently has no branches, it must adopt a policy for branch
closing before it establishes its first branch.
The policy
should be in writing and meet the size and needs of the state
member bank.
Each branch closing policy adopted pursuant to
section 3 9 should include factors for determining which branch to
close and which customers to notify, and procedures for providing
the notices required by the statute.
13
Compliance
As part of each Community Reinvestment Act (CRA)
examination, the Board will examine for compliance with
section 39 of FDICIA to determine whether the state member bank
has adopted a branch closing policy and whether the state member
bank provided the required notices when it closed a branch.
If a
state member bank fails to comply with section 39, the Board may
make adverse findings in the CRA evaluation or take appropriate
enforcement action.
Board of Governors of the Federal Reserve System,
October 1, 1992.
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
@FedFRASER