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AT-/OSM
FEDERAL RESERVE BANK
OF NEW YORK
August 6, 1992
Proposed FDIC Regulation Restricting Equity
investments at insured State-Chartered Banks
To All State Member Banks
in the Second Federal Reserve District:
The Federal Deposit Insurance Corporation (FDIC) has proposed a new regulation that will im
plement certain provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) designed to ensure that State-chartered insured banks are not exposed to undue risk as
a result of their activities and investments, which could threaten the deposit insurance funds. In a
related action, the FDIC has also issued a separate proposal designed to eliminate certain provisions
of the agency’s regulations pertaining to State-chartered banks that are members of the Savings As
sociation Insurance Fund.
Enclosed — for State member banks — are copies of the FDIC’s proposals, which have been
reprinted from the Federal Register, together with a letter from the FDIC to all insured Statechartered banks supervised by that agency. The Board of Governors of the Federal Reserve System
has requested that we make these documents available to all State member banks in this District.
C h e st e r
B. F e l d b e r g ,
Executive Vice President.
FDIC
Federal Deposit Insurance Corporation
Office of Executive Director
Supervision and Resolutions
Washington, DC 20429
FIL-52-92
July 15, 1992
EQUITY INVESTMENTS
TO:
CHIEF EXECUTIVE OFFICER
SUBJECT:
Proposed Restrictions on Equity Investments of State Banks
The FDIC Improvement Act of 1991 (FDICIA) added Section 24 to the Federal
Deposit Insurance Act imposing new restrictions on activities and investments
of insured state-chartered banks, including limitations on the type and amount
of equity investments.
In response, the FDIC Board of Directors has issued
for public comment a proposed regulation that would implement provisions of
the law restricting the ability of state banks to own corporate stock and
mutual fund shares or to have equity ownership in other investments such as
real estate development projects.
A copy of the preposed rule is enclosed.
Comments will be accepted until August 10, 1992
The new law prohibits equity investments of a kind not permitted for national
banks but provides a partial exception for an institution meeting two
conditions:
(1) the bank had ownership of qualifying stocks or mutual funds
during the 14-month period from September 30, 1990, through November 26, 1991;
and (2) the bank's state permitted such investments as of September 30, 1991.
The proposal establishes the procedures whereby an institution that meets
these two conditions and wants to retain or acquire new qualifying stock or
mutual
fund shares provides the necessary notice to the FDIC of its
intention.
The notice is specified by the law and, as such, may be submitted
before a final regulation is issued.
For further guidance on the notice
requirement, please contact the appropriate regional office for the FDIC's
Division of Supervision (DOS) as listed in this mailing.
The FDIC, in making its determination whether to approve an institution's
request to retain or acquire stock or mutual fund shares, is required to look
at any significant risk to the insurance fund. A bank receiving FDIC approval
to continue making these investments is subject to a limit under the statute
tied to its level of capital. The proposal would define the limits on types
of investments and would provide guidance to calculate the capital limitation.
The proposal also would require reports from state-chartered banks on two
other matters.
First, an institution with equity investments not exempted
from the prohibition would be required to submit to the FDIC a plan to divest
such holdings as quickly as can be prudently done but no later than December
19, 1996. Second, a bank that was lawfully engaging in insurance underwriting
as principal on November 21, 1991, or a bank that had a subsidiary that was
lawfully providing insurance as principal on that date, is exempt from the
general prohibition on these activities but would be required to give notice
of its activity to the FDIC.
-2The same statute also imposes restrictions on the corporate activities of
state banks, effective in December 1992. However, the attached proposal deals
only with equity investment limits because they went into effect December 19,
1991, and there is a need to clarify hew the FDIC will implement these
restrictions.
The FDIC in the near future intends to issue a separate
proposal relating to the restrictions on state bank activities that will
become effective in December.
In a related action, the FDIC Board has issued a separate proposal to
eliminate parts of Section 333.3 of the agency's regulations regarding state
banks that are members of the Savings Association Insurance Fund (SAIF). The
current regulation provides that these SAIF-member banks are under the same
prohibitions against equity investments that apply to savings associations.
By proposing to eliminate this part of the regulation, the effect would be to
put SAIF-member banks under the same restrictions on equity investments that
apply to banks that are members of the Bank Insurance Fund (i.e., those in the
first proposal outlined here).
A copy of this separate proposal also is
attached. Comments will be accepted until August 10, 1992.
Questions about the two proposals on equity investments should be directed to
Curtis L. Vaughn, a DOS examination specialist at 202-898-6759, or Pamela E.F.
LeCren, Counsel in the Legal Division at 202-898-3730.
Attachments
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
RT705&/
Federal Register / V ol 57, No. 132 / Thursday, July 8, 1992 / Proposed Rales
12 CFR Part 362
RIN 3064-AA29
Activities and Investments of Insured
State Banks
AGENCY: Federal Deposit Insurance
Corporation (FDIC).
ACTION: Proposed rule.______________
s u m m a r y : The FDIC is proposing to add
new regulations governing the activities
and investments of insured state banks.
The proposal implements a portion of
new section 24 of the Federal Deposit
Insurance Act (FDI Act). Under die
proposal, insured state banks are
prohibited, subject to certain exceptions,
from making equity investments of a
type, or in an amount, that are not
permissible for a national bank. The
proposal requires banks to file with the
FDIC their plan for the divestiture of any
prohibited equity investments; it
establishes procedures regarding notices
to the FDIC pertaining to excepted
equity investments; delegates authority
to act on notices and divestiture plans
from the FDICs Board of Directors to
the Director of the Division of
Supervision and to regional directors,
and requires that certain information be
provided to the FDIC regarding existing
insurance underwriting activities that
the law allows to be continued.
DATES: Comments must be received by
August 10.1992.
ADDRESSES: Send comments to Hoyle L.
Robinson, Executive Secretary, Federal
Deposit Insurance Corporation, 55017th
Street NW„ Washington. DC 20429.
Comments may be hand delivered to
room F-402,1776 F Street NW„
Washington, DC on business days
between &30 am. and 5 p.m. Comments
may also be inspected in room F-402
between 8:30 am. and 5 p.m. on
business days. [FAX number. (202) 8963638.]
FOR FURTHER INFORMATION CONTACT.
Curtis L Vaughn, Examination
Specialist. (202) 896-6759, Shirley K.
Basse, Review Examiner. (202) 896-6815,
or Cheryl A. Steffen, Review Examiner,
(202) 898-6768, Division of Supervision,
FDIC, 550 17th Street, NW„ Washington,
DC 20429; Pamela ELF. LeCren, Counsel
(202) 898-3730. or Grovetta N.
Gardineer, Senior Attorney, (202) 8963905, Legal Division, FDIC, 550 17th
Street, NW„ Washington. DC 20429;
Victor L Saulsbury, Financial Analyst,
(202) 898-3950, or David K. Horne,
Financial Economist, (202) 898-3981,
Division of Research and Statistics,
FDIC, 550 17th Street NW„ Washington,
DC 20429.
30435
any of their subsidiaries as of November
21,1991. The information will allow the
FDIC to properly discharge its
responsibilities under section 24 of the
Federal Deposit Insurance Corporation
Act as amended by section 303 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDIC1A, 12
U.S.C. 1831a). The information in the
divestiture plans and notices will be
used by the FDIC for assuring
compliance with the law and as part of
the process of determining risk to the
applicable insurance fund and for
granting exceptions, if warranted, to the
restrictions contained in section 24 of
SUPPLEMENTARY MFORMATtON:
the Federal Deposit insurance
Paperwork Redaction Act
Corporation Act
The estimated annual reporting
The collection of information
contained in this proposed rule has been burden for the collection of information
submitted to the Office of Management requirement in the regulation is
summarized as follows:
and Budget for review pursuant to
section 3504(h) of the Paperwork
Plan for Divestiture of Prohibited Equity
Reduction Act (44 U.S.G 3501 et seq.).
Investments
Comments on the collection of
Number of Respondents: 1879.
information should be directed to the
Number of Responses Per Respondent:
Office of Information and Regulatory
1.
Affairs, Office of Management and
Total Annual Responses: 1879.
Budget. Washington. DC, 20503,
Hours Per Response: 16.
Attention: Desk Officer for the Federal
Total Annual Burden Hours: 30,064.
Deposit Insurance Corporation, with
copies of such comments to be sent to
Notice of Intent To Invest in Common or
Steven F. Hanft, Office of the Executive Preferred Stock or Shares of an
Secretary, room F-453, Federal Deposit Investment Company
Insurance Corporation, 55017th Street
Number of Respondents: 1038.
NW., Washington, DC 20429. The
Number of Responses Per Respondent:
collection of information in this
1.
regulation is found in | 362_3(c),
Total Annual Responses: 1038.
| 36EL3(d), and | 382.4 and takes the
Hours Per Response: 8.
form of (1) a requirement to submit a
divestiture plan covering the disposition Total Annual Burden Hours: 8,304.
of equity investments that may no
Notice of Insurance Activities
longer be retained, (2) a requirement to Number of Respondents: 10.
file a notice of intent to retain and
Number of Responses Per Respondent:
acquire common or preferred stock
1.
listed on a national securities exchange
Total
Annual Responses: 10.
or shares of an investment company
Hours
Per Response: 8.
registered under the Investment
Total
Annual
Burden Hours: 80.
Company Act of 1940 (15 U.S.C. 80a),
Background
and (3) a notice concerning certain
insurance activities conducted by wellOn December 19,1991, the Federal
Deposit Insurance Corporation
capitalized insured state banks and/or
30436
Federal Register / Vol. 57, No, 132 / Thursday, July 9, 1992 / Proposed Rules
Improvement Act of 1991 (FDICLA) (Pub.
L. 102-242,105 Stat. 2236) was signed
into law. Section 303 of FDICLA added
section 24 to he Federal Deposit
Insurance Corporation Act, “Activities
of Insured State Banks” (FDI Act) (12
U.S.C. 1831a). With certain exceptions,
section 24 of the FDI Act limits the
activities and equity investments of
state chartered insured banks to
activities and equity investments that
are permissible for national banks.
While much of section 24 does not
become effective until December 19,
1992, the provisions of section 24 that
deal with equity investments were
effective upon enactment, December 19,
1991.1
Paragraph (c) of section 24 (12 U.S.C.
1831a(c)), “Equity Investments by
Insured State Banks", provides that no
insured state bank may directly, or
indirectly acquire or retain any equity
investment of a type that is not
permissible for a national bank. This
paragraph became effective December
19,1991. Several exceptions to the
general prohibition to making or
retaining equity investments are found
in paragraph (c) itself and in subsequent
paragraphs of section 24. In addition,
paragraph (c) provides a “transition
rule" that requires i lsured state banks
to divest prohibited equity investments
as quickly as can be prudently done but
in no event any later than December 19,
1996. The FDIC is given the authority to
establish conditions and restrictions
governing the retention of the prohibited
investments during the divestiture
period. Paragraph (c) expressly provides
for an exception for the retention or
acquisition of equity investments in
1 Unlike paragraphs (a) and (d), of section 24.
paragraphs (c) and (f) do not contain any language
delaying their effectiveness until December 19,1992.
Nor does the delayed effectiveness of paragraph (a)
which concerns “activities" of insured state banks
control the timing of paragraphs (c) and (f) even
though “activity" is defined to include acquiring or
retaining any investment. As paragraphs (c) and (f)
distinguish between other types of investments and
investments that are equity investments, the specific
treatment accorded equity investments under the
statute governs. In short, equity investments are set
apart and treated separately under the statute. This
is consistent with the same treatment accorded
equity investments by state savings associations
under section 28 of the FDI Act (12 U.S.C. 1831(e))
as added by the Financial Institutions Reform.
Recovery, and Enforcement Act of 1989 ("FIRREA",
Pub. L 101-73.103 Stat. 183). Section 28(a)
prohibited state savings associations from engaging
in certain activities after January 1,1990. Section
28(c) prohibited state savings associations from
making certain equity investments. Section 28 also
defines "activity" to incjude acquiring or retaining
any investment. The section's legislative history
clearly indicates that paragraph (c) was
immediately effective upon enactment, i.e.. making
it clear that making an equity investment is not an
"activity". (135 Cong. Rec. S10203 (daily ed. August
4.1989)).
majority owned subsidiaries and equity
investments in qualified low income
housing.
Section 24(f) (12 U.S.C. 1831a(f))
“Common and Preferred Stock
Investment”, also effective upon
enactment of FDICIA, provides that no
insured state bank may directly or
indirectly acquire or retain any equity
investment of a type, or in an amount,
that is not permissible for a national
bank and is not otherwise permitted
under section 24. Like paragraph (c),
paragraph (f) contains several
exceptions to the general prohibition.
Paragraph (f)(2) creates a limited
“grandfather" for investments in
common or preferred stock listed on a
national securities exchange or shares
of registered investment companies. The
exception allows insured state banks
that (a) are located in a state that as of
September 30,1991 permitted the bank
to invest in common or preferred stock
listed on a national securities exchange
("listed stock") or shares of an
investment company registered under
the Investment Company Act of 1940 (15
U.S.C. 80a-l et seq.) (“registered
shares"), and (b) which made or
maintained investments in listed stock
or registered shares during the period
from September 30,1990 to November
26,1991, to acquire and retain, subject to
the FDIC's approval, listed stock or
registered shares to the same extent to
which the bank did so during the period
from September 30,1990 to November
26.1991 (“relevant period”) up to an
aggregate maximum of 100 percent of
the bank’s capital. A bank must file a
written notice with the FDIC of its intent
to take advantage of the exception and
must receive the FDIC’s approval before
it can lawfully retain or acquire listed
stock or registered shares pursuant to
the exception provided by paragraph
(f)(2). If a bank made investments in
listed stock or registered shares during
the relevant period that exceed in the
aggregate 100 percent of the bank’s
capital as measured on December 19.
1991, the bank must divest the excess
over the three year period beginning on
December 19,1991 at a rate of no less
than Vs of the excess each year. (The
FDIC's option as to the scope and
applicability of the “grandfather”
provided for by section 24(f)(2) is
discussed at length below.)
Paragraph (d)(2) provides an
exception for the retention of an equity
interest in a subsidiary that was
engaged "in a state" in insurance
activities “as principal" on November
21.1991 so long as the subsidiary’s
activities continue to be confined to
offering the same type of insurance to
residents of the state, individuals
employed in the state and any other
person to whom the subsidiary provided
insurance as principal without
interruption since such person resided in
or was employed in the state.
Paragraph (e) indicates that nothing in
section 24 shall be construed as
prohibiting an insured state bank in
Massachusetts, New York or
Connecticut from owning stock in a
savings bank life insurance company
provided that consumer disclosures are
made.
Section 24(g) grants the FDIC the
authority to make determinations under
section 24 by regulation or order and
section 24(i) indicates that nothing in
section 24 shall be construed as limiting
the authority of the FDIC to impose
more stringent restrictions than those
set out in section 24.
It is the FDIC’s opinion that an
insured state bank which prior to
December 19,1991 entered into
commitments to acquire equity
investments at some time after
December 19,1991 of a type, or in an
amount, which are now prohibited to
insured state banks pursuant to section
24 may not proceed with the acquisition.
Generally speaking, banks in this
circumstance should have a defense to a
breach of contract claim on the basis of
impossibility of performance (i.e.,
performance under the contract would
be illegal as a result of subsequently
enacted legislation). See Connolly v.
Pension Benefit Guaranty Corporation,
475 U.S. 211 (1986); Omnia Commercial
Co. v. U.S., 261 U.S. 502, 511 (1923);
Louisville and Nashville R.R. Co. v.
Mottley, 219 U.S. 467 (1911). In short, the
FDIC is adopting the position that, with
regard to a fully executory contract,
there had been no “acquisition” of an
equity investment prior to December 19,
1991 which is eligible for retention over
the divestiture period. Partially
performed contracts will need to be
reviewed on the facts in order to
determine whether it can be said that an
equity investment was "acquired"
before December 19.1991. Insured state
banks should be reminded, however
that, even if it is determined that the
completion of a partially performed
contract does not violate the prohibition
of section 24, the equity investment must
be divested if it is a nonconforming
investment. Insured state banks should
note that this position is the same that
the FDIC adopted in 1989 regarding state
savings associations. (See, 54 FR 53545,
December 29,1989).
The FDIC is proposing to add a new
part to its regulations that would
implement those portions of section 24
ifT-10501
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules________ 3 0 4 3 7
that are presently in effect, i.e., the
provisions described above. It is the
agency’s intent to at a later date propose
amendments addressing the remainder
of section 24, i.e., the provisions of
section 24 concerning activities of
insured state banks and their
subsidiaries. Those provisions do not
take effect until December 19,1992.
A description of the proposal, as well
as a request for specific comments,
follows.
Elsewhere in today’s Federal Register
the FDIC is proposing to amend § 333.3
of the FDIC's regulations (12 CFR 333.3)
“Savings Association Insurance Fund
(SAIF) member state banks formerly
savings associations." This amendment
would relieve SAIF member state banks
from the restrictions of section 333.3 in
so far as that regulation makes SAIF
member state banks subject to the
equity investment restrictions applicable
to savings associations found in § 303.13
of the FDIC’s regulations. (12 CFR
303.13). The effect of the amendment
would be to eliminate what is currently
a disparate treatment among banks as to
their equity investments based upon
their deposit insurance fund
membership. It is the FDIC’s present
intent to consider whether or not to
modify or eliminate the remainder of
§ 333.3 at the same time additional
regulations implementing the remainder
of section 24 of the FDI Act are
considered.
Scope and Applicability of Exception
Created by Section 24(f)(2)
The FDIC has preliminarily reached
several conclusions concerning the
interpretation of section 24(f) and the
“grandfather” conferred thereby. These
conclusions form the basis of the portion
of proposed regulation which deals with
equity investments in stock listed on a
national securities exchange and shares
of investment companies. We recognize
that the language of the statute may be
susceptible to a different interpretation,
however, at this time it is the FDIC’s
opinion that the interpretation discussed
below is the interpretation that is the
most consistent with the overall intent
of section 24. We specifically invite
comment on our interpretation and the
proposal’s reliance thereon.
The FDIC is preliminarily of the
opinion that:
1.
The exception afforded by
paragraph (2) of section 24(f) applies
only to an insured state bank (an
"Eligible Bank”) which (a) is located in a
state that permitted, as of September 30,
1991, investment in common or preferred
stock listed on a national securities
exchange or shares of an investment
company registered under the
Investment Company Act of 1940 2
("Listed Stock” and “Registered
Shares”, respectively) and (b) made or
maintained investments in. Listed Stock
or Registered Shares during the period
beginning on September 30,1990 and
ending on November 26,1991 (the
"Relevant Period”); provided that under
no circumstances does section 24(f)
allow the aggregate amount of
investments in Listed Stock and
Registered Shares to exceed 100 percent
of the Eligible Bank’s capital; and
provided further that the Eligible Bank
has filed a notice with, and obtained the
approval of, the FDIC concerning its
intentions to acquire or retain
investments in Listed Stock or
Registered Shares.
2. An Eligible Bank may, subject to
approval of the FDIC, retain, or acquire
in the future, investments in Listed Stock
or Registered Shares in an amount not to
exceed the percentage of the Eligible
Bank’s capital that was invested in
Listed Stock or Registered Shares during
the Relevant Period.
3. An Eligible Bank must obtain the
approval of the FDIC in order lawfully
to retain, or acquire in the future, Listed
Stock or Registered Shares. Any such
approval may be granted only after
receipt by the FDIC of written notice
from the Eligible Bank concerning its
intention to acquire or retain the
investments. The approval may contain
such conditions or restrictions (including
ordering divestiture of some or all of the
investments) as the FDIC determines is
appropriate to avoid significant risk to
the insurance fund of which the Eligible
Bank is a member or to avoid any
adverse effect on the safety and
soundness of the bank.
Analysis of Exception
Section 24(f)(2) provides an exception
to the general prohibition to making or
retaining equity investments that are not
permissible investments for national
banks. The exception has limited
applicability to specified investments by
a potentially small group of state banks.
A two part test applies. First, the bank
must be an Eligible Bank. (See section
24(f)(2)(A) and 24(f)(2)(B).) Second, it
must notify the FDIC of its intent to
effect investments pursuant to the
exception in paragraph (0(2) and receive
FDIC approval to do so. (See section
24(0(6).)
Once eligibility has been determined,
and provided that FDIC grants its
approval,8 the Eligible Bank may retain
* 15 U.S.C. B0a-1 et seq.
* The authority of the FDIC to grant or deny
approval carries with it the implied authority to
condition or restrict approval.
the Listed Stock or Registered Shares,
and continue to make investments of the
same type as it made during the
Relevant Period, in an aggregate amount
not exceeding the percentage of the
Eligible Bank’s capital represented by
such investment made during the
Relevant Period.
For example, if during the Relevant
Period the bank had 30 percent of its
capital invested in Listed Stock and 45
percent of its capital invested in
Registered Shares, it is limited to a
maximum investment of 30 percent of
capital in Listed Stock and a maximum
investment of 45 percent of capital in
Registered Shares in the future under
section 24(f)(2).4*
Also by way of example, if the bank
had invested 50 percent of its capital in
Registered Shares, but did not make or
maintain any investment in Listed Stock,
it would not be eligible to invest in
Listed Stock in the future pursuant to
section 24(f), and its maximum
investment in Registered Shares would
be limited to 50 percent of capital.
The FDIC may decline approval for
any Eligible Bank to continue to make
the same type of investments up to the
same level of capital made during the
Relevant Period if to do so may pose a
significant risk to the deposit insurance
fund. The FDIC also may order any
Eligible Bank to divest some or all of its
investments made during or subsequent
to the Relevant Period if continue
ownership of such investments would
have an adverse effect on its safety and
soundness.®
Any bank which invested during the
Relevant Period in Listed Stock or
Registered Shares in excess of 100
percent of its capital, as measured on
December 19,1991, is required to divest
the excess investments over the three
year period beginning December 19,
1991.
The purpose of section 24 is to ensure
that state banks are not exposed to
undue risk as a result of their activities
4 The Bank may sell any investment and replace
it with another investment of the same type. The
bank is not limited to buying common or preferred
stock or shares of investment companies in which it
previously invested, i.e., stock or shares of the same
issuer.
• The language of section 24(f)(7) does not limit
the authority of the FDIC to order divestiture of
stock or shares acquired’between September 30.
1990 and November 26,1991. Moreover, section 24(i)
expressly indicates that section 24 shall not
construed to limit the authority of the appropriate
Federal banking agency to impose more stringent
restrictions than those contained in section 24. The
FDIC therefore would be able, for example, to
exercise its cease-and-desist authority if it
determines that continued exercise of any
“grandfathered" Investment authority presents a
safety and soundness concern.
30438
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
and investments which would threaten
the deposit insurance funds. In view of
this purpose, the FDIC concludes that
the exception contained in section
24(f)(2) should be read narrowly. To
read the exception broadly would be
inconsistent with general tenets of
statutory construction 6 and generally
accepted notions of the purpose of
statutory ‘‘grandfather provisions” such
as the exception set forth in section
24(f). Such provisions frequently are
included in legislation to avoid harsh,
unfair or disruptive results on business
relationships or activities undertaken
prior to a change in the law.
The FDIC’s reading of section 24(f)(2)
allows Eligible Banks that were engaged
in the business of making investments in
Listed Stock or Registered Shares prior
to enactment of the statute, to continue
to do so to the same extent after
enactment subject to FDIC approval. It
is the FDIC’s present opinion that this
reading will not be disruptive to banks
already engaged in these investments
and that to read section 24(f) as outlined
above is consistent with the purpose of
the limited exceptior. A contrary
interpretation could permit banks to
expand their investments or initiate
such investments for the first time
which, in the FDIC's present opinion,
does not seem justified in the face of the
Congressional ban on such investments
which is applicable to all other insured
state banks.
Description of Proposal and Request for
Comments
As reflected in § 362.1 of the proposal,
it is the FDIC’s intent in adopting part
362 to implement the provisions of
section 24 of the FDI Act and to ensure
that activities and investments
undertaken by insured state banks (1)
do not present a risk to either the
Savings Association Insurance Fund
(SAIF) or the Bank Insurance Fund (BIF),
(2) are safe and sound, (3) are consistent
with the purposes of federal deposit
insurance, and (4) are consistent with
the law. For the most part, the proposed
regulation closely follows the equity
investment provisions of section 24.
Relevant definitions have been added as
has a provision requiring that divestiture
plans be submitted covering prohibited
equity investments. In addition, a
provision has been added requiring that
information be filed with the FDIC that
will enable the FDIC to monitor
compliance with section 24(d)(2)(B) of
the FDI Act. That provision creates a
6 2A C Dallas Sands. Sutherland Statutory
Construction i 47.11 (4th ed 1984); Commissioner of
Internal Revenue v. CJark. 109 S.Ct 1465.1483
(1989).
limited “grandfather” for certain state
banks and/or their subsidiaries that
were engaging in certain insurance
activities as of November 21,1991.
Lastly, the proposal contains
delegations of authority from the Broad
of Directors to the Director of the
Division of Supervision. The Director
may in turn delegate that authority to
the regional directors.
i. Definitions.
Company
The term "company” is defined in the
proposal as any corporation,
partnership, business trust, association,
joint venture, pool, syndicate or other
similar business organization. The term
is intended to include entities organized
to conduct a specific business or
businesses but does not include sole
proprietorships.
Control
"Control" as defined in the proposal
has the same meaning as set forth in
§ 303.13(a)(2) of the FDIC’s regulations.
As defined therein, “control” means the
power to directly or indirectly vote 25
percent or more of the voting stock of a
bank or company, the ability to control
in any manner the election of directors
or trustees, or the ability to exercise a
controlling influence over the
management and policies of a bank or
company.
Convert its Charter
The phrase "convert its charter” as
used in the proposal refers to any
instance in which a bank undergoes any
transaction which causes the bank to
operate under a different form of charter
than that under which it operated as of
December 19,1991. The definition is
intended to encompass any transaction
as a result of which a bank will from
that point forward conduct business
pursuant to a type of charter created by
state statute that is new as to the
particular bank. For example, if a bank
that is operating under a savings bank
charter begins to operate under a
commercial bank charter, the savings
bank will be said to have converted its
charter regardless of how the
transaction is accomplished.
Depository Institution
The term "depository institution" as
used in the proposal has the meaning set
out in section 3(c)(1) of the FDI Act, i.e.,
any bank or savings association.
Equity Interest in Real Estate
As defined under the proposal "equity
interest in real estate” means any form
of direct or indirect ownership of any
interest in real property, whether in the
form of an equity interest, partnership,
joint venture or other form, which is
accounted for as an investment in real
estate or real estate joint ventures under
generally accepted accounting principles
or is otherwise determined to be an
investment in a real estate venture
under Federal Financial Institutions
Examination Council Call Report
Instructions. These instructions require
that the following direct and indirect
investments be included as real estate
ventures:
(1) Any real estate acquired, directly
or indirectly, and held for development,
resale, or other investment purposes, but
does not include real estate acquired in
any manner for debts previously
contracted.
(2) Any debt or equity investments by
the bank in real estate subsidiaries that
have not been consolidated; associated
companies; and corporate joint ventures,
unincorporated joint ventures, and
general and limited partnerships over
which the bank exercises significant
influence if such investors are primarily
engaged in the holding of real estate for
development, resale, or other Investment
purposes.
(3) Real estate acquisition,
development or construction
arrangements which are accounted for
as direct investments in real estate or as
real estate joint ventures in accordance
with guidance prepared by the
American Institute of Certified Public
Accountants in Notices to Practitioners '
issued in November 1983, November
1984, and February 1986.
(4) Real estate acquired and held for
investment that has been sold under
contract and accounted for under the
deposit method of accounting in
accordance with FASB Statement No.
66. "Accounting for Sales of Real
Estate".
(5) Receivables resulting from sales of
real estate acquired and held for
investment accounted for under the
installment cost recovery, reduced
profit or percentage-of-completion
method of accounting in accordance
with FASB Statement No. 66,
"Accounting for Sales of Real Estate"
when the buyer's initial investment is
less than 10 percent of the sales value of
the real estate sold.
(6) Any other loans secured by real
estate and advanced for real estate
acquisition, development, or investment
purposes if the insured depository
institution has virtually the same risks
and potential rewards as an investor in
the borrower’s real estate venture.
Characterization as an investment
under item 6 above might include
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Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules________ 30439
instances in which the insured
depository institution: (a) Provides all or
substantially all necessary funds to
acquire, develop or construct the
property and the borrower has little or
no equity in the property, (b) funds the
commitment or origination fees, or both,
by including them in the amount of the
loan, (c) funds all or substantially all
interest and fees during the term of the
loan by adding them to the loan balance,
(d) has no security other than the
acquisition, construction or development
project, (e) structures the arrangement
so that foreclosure during development
is unlikely because the borrower is not
required to make any payments until the
project is complete, or (f) finds that in
order to recover the investment in the
project, the property must be sold to
independent third parties, the borrower
must obtain refinancing from another
source, or the property must be placed
in service and generate sufficient net
cash flow to service the debt principal
and interest.
In general, the FDIC intends to treat
loans as investments in real estate on
the basis of item 6 when the depository
institution participates in the residual
profits of the project and one or more of
the other five characteristics of a direct
investment in real estate or a real estate
joint venture is present.
As bank lending standards have
evolved over the past several years, in
many cases bank assets which are
carried as loans on the bank’s books
have taken on more characteristics
associated with investments rather than
loans. Accounting for income from real
estate loans and for real estate
investment is substantially different and
the improper classification of these
assets can distort an institution’s
earnings picture. Accounting convention
recognizes that, depending upon the
circumstances, there is little substantive
difference between certain loans and
direct investments in real estate and
that in those instances the loans should
in fact be accounted for as direct real
estate investments. The proposed
regulation adopts this approach.
Comment is specifically requested on
he propriety of doing so.
The proposal contains three
exclusions from the definition of ‘‘equity
interest in real estate": (1) Real property
used, or intended to be used, as offices
or related facilities for the conduct of
the bank’s or its subsidiaries’ business,
(2) an interest in real estate that arises
out of a debt previously contracted
(“dpc property") provided that the real
estate is not held any longer than the
shorter of the period allowed for holding
such real estate under state law or the
time period national banks may hold
such property, and (3) interests that are
primarily in the nature of charitable
contributions to community
development corporations provided
contributions to any one community
development corporation do not exceed
2 percent of the bank’s tier one capital
and total contributions to all such
corporations do not exceed 5 percent of
the bank’s tier one capital. These
exclusions parallel § 7.3005, 7.3020,
7.3025 and 7.7480 of the Office of the
Comptroller of the Currency’s
regulations. (12 CFR 7.3005, 7.3020,
7.3025, 7.7480). Insured state nonmember
banks should note that, under the
proposed exclusion, if state law allows a
bank to hold dpc property for a longer
period of time than a national bank is
permitted to hold such property, the
state bank must have divested the dpc
property to or before the time that a
national bank would be required to have
divested the property or the dpc
property will be considered to be an
equity investment.
Equity Investment
Section 24(c)(1) of the FDI Act
provides that an insured state bank may
not, directly or indirectly, acquire or
retain any equity investment of a type
that is not permissible for a national
bank and section 24(f)(1) provides that
an insured state bank may not, directly
or indirectly, acquire or retain any
equity investment of a type, or in an
amount, that is not permissible for a
national bank. The FDIC is proposing to
define equity investment for purposes of
the proposal to mean any equity
security, partnership interest, any equity
interest in real estate and any
transaction which in substance falls
within any of these categories, even
though it may be structured as some
other form of business transaction. This
broad definition of equity investment is
consistent with the FDIC’s treatment of
a similar prohibition for savings
associations found under section 28 of
the FDI Act. (See also § 303.13(a)(4) of
the FDIC's regulations.)
Equity Security
"Equity security” is defined under the
proposal as any stock, certificate of
interest or participation in any profitsharing agreement, collateral trust
certificate, pre-organization certificate
or subscription, transferable share,
investment contract, or voting-trust
certificate; any security immediately
convertible at the option of the holder
without payment of substantial
additional consideration into such
security; any security carrying any
warrant or right to subscribe to or
purchase any such security; and any
certificate of interest or participation in,
temporary or interim certificate for, or
receipt for any of the foregoing unless it
is acquired through foreclosure or
settlement in lieu of foreclosure. The
definition is the same as that used in
§ 303.13(a) of the FDIC’s regulations.
Equity Investment Permissible for a
National Bank
The phrase “equity investment
permissible for a national bank" is
defined to mean any equity investment
expressly authorized for national banks
under the National Bank Act or any
other federal statute, regulations issued
by the Office of the Comptroller of the
Currency pursuant to the authority of
the National Bank Act or other federal
statute, and any formal interpretation or
order issued by the Office of the
Comptroller of the Currency.
It may be difficult to define with
certainty those equity investments that
are permissible for a national bank if
orders and interpretations issued by the
Comptroller of the Currency are
recognized. Orders and interpretations
represent an ongoing process that
continually refines the definition of
permissible investments, at times tied to
narrow circumstances. It may, therefore,
be inappropriate to recognize orders and
interpretations. Additionally, staff
opinions issued by the Office of the
Comptroller of the Currency, including
its Chief Counsel, have been held as not
binding on the agency in that they do
not constitute final agency action.
(American Land Title Association v.
Clarke, 743 F.Supp. 491 (W.D.Tex.
1989)). In view of all of the foregoing, the
FDIC requests comments on the
propriety of including equity
investments authorized by an order or
formal interpretation of the Office of the
Comptroller of the Currency as
"permissible for the purposes of this
proposal. If it is appropriate to recognize
interpretations of the Office of the
Comptroller of the Currency, what
should the FDIC consider to constitute a
formal interpretation? Lastly, insured
state banks should be advised that
regardless of how the FDIC defines
"permissible for a national bank”,
insured state banks should be prepared
to document to the FDIC’s satisfaction
that their equity investments are
permissible for a national bank.
Lower Income
One of the exceptions under the
proposal to the general prohibition on
acquiring equity investments not
permissible for a national bank allows
insured state banks to become limited
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Federal Register / VoL 57, No. 132 / Thursday, July 8, 1992 / Proposed Rules
partners in partnerships that develop
housing projects designed to primarily
benefit “lower income” persons. “Lower
income” is defined for the purposes of
the proposal to mean an income that is
less than or equal to the median income
(as determined by state or federal
statistics) for the area in which the
housing project is located. The “area" in
which a housing project is located shall
be understood to refer to the relevant
Metropolitan Statistical area (MSA) if
the project is located within an MSA. If
the project is not located in an MSA, the
median income of the "area" shall be
understood to refer to the median
income of the state or territory as a
whole exclusive of the designated
MSA's. The FDIC invites comment
generally on the issue of what state or
federal statistics the FDIC should
recognize for the purposes of applying
this definition; how the term “area"
should be construed for the purposes of
applying the definition; and what federal
and state statistics are readily available
to insured state banks.
Significant Risk to the Deposit Insurance
Fund
“Significant risk to the deposit
insurance fund" will be considered to be
present whenever it is likely that either
of the deposit insurance funds
administered by the FDIC may suffer
any loss whatever. Although die statute
and the regulation use the term
"significant” in confunction with the
word "loss", the test of significant risk is
met if there is a likelihood of any loss
whatsoever to either of the funds
regardless of how small. Therefore, the
amount, or the relative or absolute size
of the loss that may result to either of
the funds from an insured state bank
engaging in an activity is not probative.
What is relevant, rather, is the
likelihood that some loss to either of the
funds may occur. Additionally, it is not
necessary that making the equity
investment will result in the failure or
threatened failure of an insured state
bank before a significant risk of loss to
either fund is considered to be present.
The proposed defmition is the same that
is used in section 303.13(a) of the FDICs
regulations and is consistent with
National Securities Exchange
passages of the legislative history of
The term “national securities
section 24. (See, S. Rep. No. 102-167,
exchange" has been defined under the
102d Cong., 1st Sess. 54 (1991)).
proposal to mean an exchange that is
Subsidiary
registered as a national securities
The term “subsidiary" is defined as
exchange by the Securities and
any company directly or indirectly
Exchange Commission pursuant to
section 6 of the Securities Exchange Act controlled by an insured state bank.
This term has the same meaning as
of 1934 (15 U.S.C. 78f) and the National
found in section 337.4 of the FDIC’s
Market System. The National Market
System refers to the top tier of the three regulations.
tiers of over-the-counter securities
Tier One Capital
traded through the National Association
‘Tier one capital" as defined in the
of Securities Dealers Automated
proposal
the same meaning as found
Quotation system (NASDAQ). The FDIC in Part 325has
of the FDIC’s regulations
is of the opinion that if a security is
when that term is used with reference to
listed on a registered exchange or is
an insured state nonmember bank and
traded in the National Market System
any other insured bank for which the
the security will be more liquid due to a FDIC is the appropriate federal banking
wide market sufficient information will agency. The term shall be understood to
be available about the security and the
refer to “Tier one capital" as defined by
issuer for the market to make informed
the Board of Governors of the Federal
pricing decisions about the security, and Reserve System when the term is used
the opportunities for fraud and
in reference to an insured state member
manipulation of the security are
bank. At this time Part 325 defines “tier
minimized. Comment is requested on
one capital" as common stockholders'
equity, noncumulative perpetual
whether the FDIC should recognize
other exchanges and quotation services preferred stock and minority interests in
as national securities exchanges. Should consolidated subsidiaries, minus all
intangible assets other than mortgage
securities quoted on the bottom two
servicing rights eligible for inclusion in
tiers of NASDAQ be considered to be
listed on a national securities exchange? core capital and supervisory goodwill
eligible for inclusion in core capital. The
Should the FDIC adopt a different
Board of Governors of the Federal
approach entirely to defining what
Reserve System defines tier one capital
constitutes a national securities
in appendix A to 12 CFR Part 208. As
exchange? If so, what approach is
defined therein tier one capital generally
recommended?
means common stockholders' equity,
qualifying noncumulative perpetual
preferred stock (including related
surplus) plus minority interests in the
equity accounts of consolidated
subsidiaries minus goodwill. Only those
capital elements that technically meet
the definition of tier one capital can be
included as tier one capital for the
purposes of this proposal.
Well-capitalized
A "well-capitalized" insured state
bank is defined in the proposal to mean
an insured state bank that has a ratio of
total capital to risk-weighted assets of
not less than 10.0 percent; a ratio of Tier
1 capital to risk-weighted assets of not
less than 6.0 percent; a ratio of Tier 1
capital to total book assets of not less
than 5.0 percent; and which has not
been notified that it is in a “troubled
condition" for purposes of section 32 of
the Federal Deposit Insurance Act That
section requires prior notice of a change
in directors or senior executive officers
in certain circumstances, including an
instance in which the bank is in a
troubled condition. An insured state
bank will not be considered to be “wellcapitalized" unless the above capital
levels are not exclusive of the bank'B
investment in any subsidiary or
department that engages in any activity
that is not permissible for a national
bank. The bank's "investment" in its
subsidiary will be considered to equal
the amount invested in the subsidiary's
equity securities plus any debt issued by
the subsidiary that is held by the bank.
The bank’s investment in a department
will be considered to equal the total of
any funds transferred to the department
which is represented on the
department's accounts and records as
an accounts payable, a liability, or
equity of the department except that
transfers Of funds to the department in
payment of services rendered by the
department will not be considered an
investment in the department.
With regard to the requirement that
the ratio of Tier 1 capital to riskweighted assets be not less than 6.0
percent, readers should note that the
FDIC does not intend to suggest that as
a bank's total risk-based capital ratio
increases that its Tier 1 capital must
always increase proportionately so that
60 percent of a bank’s total risk-based
capital is always Tier 1 capital. For
example, a bank with 11 percent total
risk-based capital would not be required
to have a 6.6 percent Tier 1 capital ratio
in order to qualify as well-capitalized.
RatheT, the minimum ratio of Tier 1
capital to risk-weighted assets would
still be 6.0 percent.
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Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules _______ 30441
If a bank has been required pursuant
to an order, directive, or a consent
agreement to raise its capital to a higher
level than that described above, the
bank will not be considered to be “wellcapitalized” unless the bank meets such
higher level.
Whether or not the bank is in a
“troubled condition” has been included
as part of the definition of “wellcapitalized" in recognition of the fact
that the capital cushion cannot be
judged to be more than adequate unless
all the facts and circumstances are
taken into account. Likewise, the
proposed definition requires that the
bank’s activities that are not permissible
for a national bank be in effect
separately capitalized, i.e., the bank
must be in a position that it could
entirely lose its investment in the
subsidiary or department and such loss
will not cause its capital to fall below a
level that is significantly above the level
of capital that is considered to be the
minimum necessary for the sound
operation of a bank.
Comment is specifically requested on
the specific capital level or levels that
the FT)IC should consider necessary in
order for a bank to be well-capitalized
for the purposes of part 362. Comment is
also specifically requested on whether
excluding the investment in certain
subsidiaries or departments is
warranted and whether the term
“investment” as used herein is
appropriate.
The FDIC expects to eventually
conform the meaning of “wellcapitalized” as used in part 362 with the
meaning of “well-capitalized” as used
for the purposes of section 38 of the FD1
Act, “Prompt Corrective Action”. Final
rules have yet to be issued by the FDIC
defining “well-capitalized” for the
purposes of section 38. The FDIC wishes
to make clear that proposing to adopt
the definition of well-capitalized as set
out herein should not be read as limiting
in any way the FDIC’s discretion in
formulating a proposed definition of that
term for purposes of section 38. If a
different meaning of the term “wellcapitalized" is adopted for purposes of
administering the prompt corrective
action provisions of the FDI Act, the
FDIC will propose amending the
definition as used in part 362. Comment
is requested on whether it is appropriate
that the term be defined the same in the
both contexts.
Insured State Bank
“Insured state bank” as used in the
proposal refers to any^tate bank,
whether or not a member of the Federal
Reserve System, that is insured by the
FDIC. The term should be understood to
divestiture.7 Majority ownership for thip
exception is understood to mean
ownership of greater than 50% of the
outstanding voting stock of the
subsidiary.
The exception for majority owned
subsidiaries is itself limited. Insured
state banks should note that section
24(d) provides that no subsidiary of an
insured state bank may engage, after
December 19,1992, in any activity that is
prohibited to a subsidiary of a national
bank unless the bank meets its
applicable capital requirements and the
FDIC determines that the conduct of the
activity in question by the subsidiary
will not pose a significant risk to the
deposit insurance fund. The FDIC will
consider further proposed rulemaking to
implement the requirement that
activities by majority owned
subsidiaries be approved by the FDIC.
That rulemaking will consider such
things as whether the FDIC should
establish parameters for operations of
majority owned subsidiaries, e.g.,
structural and/or operational
restrictions to ensure that the conduct of
the activity in question will not present
a significant risk to the insurance fund.
Section 362.3(b)(1) of the proposal
indicates that an insured state bank will
not be permitted to retain its majority
interest in a subsidiary pursuant to this
exception if the bank was required
under § 333.3 of the FDIC’s regulations
to request the FDIC’s permission to
retain that investment and the
application was denied. Section 333.3
applies to state banks that are members
of SAIF. Under $ 333.3. a SAIF member
state bank may not acquire or retain an
equity investment that is not permissible
for a federal savings association. An
institution that meets its capital
requirements may apply for permission
to retain an interest in a subsidiary that
would otherwise be prohibited. In order
2. Exceptions to General Prohibition on for the application to be approved, the
Acquiring or Retaining Prohibited
FDIC must determine that retaining the
Equity Investments
equity investment in the subsidiary will
not pose a significant risk to SAIF.
Majority Owned Subsidiary
Although the FDIC is proposing to delete
Section 24(c) of the FDI Act
the above described portion of § 333.3
notwithstanding, an insured state bank
(See proposed rule published elsewhere
is not prohibited from acquiring or
in today’s Federal Register), it is the
retaining a majority stock interest in a
FDIC’s belief that any denial previously
subsidiary even if the stock investment
made by the FDIC pursuant to regulation
in that subsidiary is one that would not
operates to limit the exception as the
be permissible for a national bank. This FDIC has already determined that
exception is contained in section
retaining the investment will pose a
362.3(b)(1) of the proposal. If an insured significant risk to SAIF. It would
state bank holds less than a majority
interest in the subsidiary, and that
7 It ia our understanding that national banka may
own a minority interest in certain types of
equity investment is of a type that
Therefore, an insured state bank may
would be prohibited to a national bank, subsidiaries.
hold a minority interest in a subsidiary (i.e., is not
the exception does not apply and the
required to hold at least 80% of the stock of the
company) if a national bank could do so.
equity investment is subject to
include any insured branch of a foreign
bank that is not a federal branch.
The FDI Act does not contain a
definition of the term “insured state
bank". It does, however, define "state
member bank", “state nonmember
bank", “insured bank" and “state
depository institution". “Insured bank”
is defined to mean any bank the
deposits of which are insured by the
FDIC. It is logical to assume that in
enacting section 24 Congress was aware
of the distinction between member and
nonmember banks and that by using the
term state bank it meant to include both
types of state banks. What is more,
since the FDI Act does not when
defining the term insured bank
distinguish between insured banks that
are member banks and insured banks
that are nonmember banks, it follows
once again that the reference in section
24 to insured state banks was meant to
encompass all types of state banks that
are insured regardless of membership in
the Federal Reserve System. It also
follows that section 24 was thought to
encompass state branches of foreign
banks as the term “state depository
institution" as defined in the FDI Act
specifically includes any insured branch
which is not a federal branch.
The amendment to section 9 of the
Federal Reserve Act (12 U.S.C. 330}
enacted by section 303(b) of FDICIA
does not dictate another reading of the
plain language of section 24.
That amendment is merely a technical
amendment which makes clear that the
Federal Reserve Board may impose
conditions and restrictions upon
membership in the Federal Reserve
System that are consistent with the
requirements and restrictions of section
24.
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Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
jeopardize SAIF to hold otherwise as it
would in effect allow the bank to retain
an investment expected to adversely
affect the fund only to require the bank
to later seek the FDIC’s permission ^o
retain the investment pursuant to
whatever procedures the FDIC adopts to
implement the portion of section 24
dealing with activities of subsidiaries. If
the SAIF member state bank must divest
its interest in a subsidiary, the
divestiture must be in accordance with
whatever conditions and restrictions
which were previously established by
the FDIC.
Qualified Housing Projects
The proposed regulation recites the
exception for qualified housing projects
found in section 24(c)(3) of the FDI Act.
Under that exception, an insured state
bank is not prohibited from investing as
a limited partner in a partnership, the
sole purpose of which is direct or
indirect investment in the acquisition,
rehabilitation, or new construction of a
residential housing project intended to
primarily benefit lower income persons
throughout the period of the bank’s
investment so long as the investments,
when aggregated with any existing
equity investment in such a partnership
or partnerships, does not exceed 2
percent of the bank’s total assets. The
proposed regulation indicates that banks
are to take as the measure of their total
assets the figure reported on the bank's
most recent consolidated report of
condition. The FDIC has chosen the
most recent report of condition as the
comparison point in an attempt to
provide a more stable asset base against
which the bank’s investments can be
measured. If an investment in a
qualified housing project does not
exceed the limit at the time the
investment is made, the investment shall
be considered to be a legal investment
even if the bank's total assets
subsequently decline. In that event,
however, no further investments in
qualified housing projects would be
permissible until the bank’s total assets
increase.
Comment is requested on how the
FDIC should construe the terms
“primarily” and "residential” as used in
this exception (i.e., how much
commercial activity can go on in a
building before it is no longer residential
or no longer is intended to primarily
benefit lower income persons); whether
or not the FDIC should inclode unfunded
commitments as part of the bank’s
investment in partnership under this
exception; and what problems if any the
exception as written poses for banks
meeting their Community Reinvestment
Act obligations.
Insured state banks should note that
because the definition of equity
investment does not include an interest
in community development corporations
up to an aggregate of 5% of a bank's tier
one capital, (see discussion of “equity
investment in real estate” definition)
insured state banks may, under the
proposal, invest in qualified housing
projects excepted by section 362.3(b)(2)
up to 2% of their total assets in addition
to investing in community development
corporations up to an aggregate
maximum of 5% of tier one capital.
Savings Bank Life Insurance
Under the proposal an insured state
bank is not prohibited from owning
stock in a savings bank life insurance
company if the bank is located in
Massachusetts, New York or
Connecticut provided that the savings
bank life insurance company
prominently discloses to purchasers of
life insurance policies and annuities that
these instruments are not insured by the
FDIC, are not obligations of, and are not
guaranteed by, any insured state bank.
Section 24(e)(1)(B) of the FDI Act
provides that this exception shall only
apply if the bank meets the consumer
disclosure provision of section 18(k) of
the FDI Act. Section 18(k) does not
contain any consumer disclosure
provisions. In the absence of any other
guidance in the statute’s legislative
history, the FDIC is proposing that the
following or a similar disclosure will
suffice to meet the statutory obligation
to make consumer disclosures: "This
[policy/annuity/insurance product] is
not a federally insured deposit and is
not an obligation of, nor is it guaranteed
by, any federally insured bank.” The
proposal does not establish a specific
time frame in which the disclosure must
be made nor is the disclosure required to
be on a specific form. The FDIC requests
comments relating to the specific timing
of these disclosures and to the necessity
of having the disclosures given to the
customer separately or printed on or in
the insurance documents. Should
customers be required to acknowledge
receipt of the disclosures with their
signature?
The FDIC is required under section 24
to make a finding whether savings bank
life insurance activities of insured state
banks pose, or may pose, any significant
risk to the insurance funds. These
findings will be announced separately
from this portion of the rulemaking,
however, the FDIC is taking this
opportunity to request comment on the
risks posed by savings bank life
insurance activities. Specific comments
are requested relating to the necessity of
anti-tying provisions between bank
lending activities and sales of insurance,
the need for further disclosure to
consumers and the need for direct
financial reporting to the FDIC.
Comments directed to this issue will be
used in formulating the FDIC’s study.
Director and Officer- Liability Insurance
An insured state bank is not
prohibited from acquiring up to 10
percent of the voting stock of a company
that solely provides or reinsures
directors’, trustees’ and officers' liability
insurance coverage or bankers' blanket
bond group insurance coverage for
insured depository institutions. Any
shares in excess of this limit that were
purchased before December 19,1991
shall be divested as quickly as prudently
possible but in no event later than
December 19,1996. The term “provides"
shall be understood to mean
underwriting or assuming the insurance
risk rather than acting in the capacity of
an agent. If the companion proposal
amending section 333.3 is adopted,
insured state banks that are members of
SAIF that were not permitted to acquire
or retain voting stock in a directors and
officers liability insurance company
unless that company insured the bank’s
officers and directors would no longer
be under those constraints. (See section
24(f)(3)(A) of the FDI Act).
Shares of Depository Institutions
Under section 24, an insured state
bank is not prohibited from acquiring or
retaining the voting shares of a
depository institution if the institution
engages only in activities permissible for
national banks; the institution is subject
to examination and regulation by a state
bank supervisor; 20 or more depository
institutions own voting shares of the
institution but no one institution owns
more than 15 percent of the voting
shares; and the institution's voting
shares are owned only be depository
institutions (other than directors'
qualifying shares or shares held under
or acquired through a plan established
for the benefit of the officers and
employees). See section 24(f)(3)(B) of the
FDI Act). This exception is repeated in
the proposal at § 362.3(b)(6).
Interests in Insurance Subsidiaries
As indicated above, section 24 of the
FDI Act will, after December 19,1992,
limit the activities that may be
conducted by a company in which an
insured state bank has the majority
equity interest, i.e., a subsidiary. The
statute contains an exception, however,
for a well-capitalized insured state bank
whose majority owned subsidiary was
lawfully providing insurance as
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
principal in a state on November 21.
1991. (See section 24(d)(2)(C) of the FDI
Act). An exception is also provided for a
subsidiary of an insured state bank that
was required before June 1,1991 to
provide title insurance as a condition of
the bank’s initial chartering under state
law provided further that control of the
bank has not changed since that date.
In the case of a bank relying upon the
exception contained in section
24(d)(2)(C), the activities of the
subsidiary must be limited to providing,
as principal, insurance of the same type
as provided by the subsidiary on
November 21,1991. Insurance of that
type may be provided to residents of the
state, individuals employed in the state,
and any other person to whom the
subsidiary provided insurance as
principal without interruption since such
person resided in or was employed in
the state. This exception has been
included in the proposal (rather than in
a rulemaking to follow later) as there i3
a need to collect information from
“eligible” banks so that the FDIC can
enforce the limits of the exception. (See
§ 362.4 of the proposal). We are asking
that the proposed information be
collected at this time as it should be
easier for the affected institutions to
collect the information on their
insurance activities, and those of their
subsidiaries, as of November 21,1991
now rather than asking that the
institutions reconstruct those activities
at a later date.
For the purposes of the proposal the
term "principal" shall be understood to
mean underwriting or assuming the risk
of insurance rather than acting in the
capacity of an agent. (See, 137 Cong.
Rec. S17317 daily ed. November 21,
1991) (colloquy between Sen. Graham
and Sen. Gam)). The term "insurance of
the same type" shall be understood to
encompass whatever type of insurance
policies and/or products that the bank
and/or its subsidiary were authorized
by state law to issue as of November 21,
1991 and were in fact providing to the
public. In short the bank and/or its
subsidiary must have been actively
engaged in insurance underwriting on
November 21,1991.
Comment is specifically requested on
how the FDIC should construe the word
"type”. Is it appropriate to distinguish
between, for example, life insurance
products such as whole life and term
life? Are variable rate annuities and
single premium fixed rate annuities
different types of insurance products? If
the FDIC were to distinguish in this
manner, a bank that was lawfully
underwriting whole life insurance
policies on November 21,1991 but was
not on that date underwriting term life
insurance could not begin to offer term
life insurance policies. Should credit life
insurance be considered a different type
of insurance than regular life insurance?
What types of casualty insurance should
be considered to be of the same type?
The statutory and regulatory
exception is limited to banks and/or
subsidiaries that were “lawfully
providing insurance as principal" on
November 21,1991. As already
indicated, the FDIC construes the
language of the statute as requiring that
the bank and/or subsidiary must have
actually underwritten policies and/or
other insurance products that were
outstanding as of November 21,1991.
The exception is further limited to the
types of insurance lawfully provided on
November 21,1991 “in a state." The
FDIC shall construe the phrase "in a
state” as excepting insurance
underwriting activities by an insured
state bank only in the state in which the
bank was chartered as of November 21,
1991 and limiting the subsidiary of the
bank to insurance underwriting
activities only in the state in which the
subsidiary was incorporated and doing
business as of November 21,1991.
The FDIC believes that this reading of
section 24 is consistent with the
provision’s legislative history which,
among other things, clearly indicates
that the exception was intended to lapse
if any changes in an insured state bank’s
underwriting capability within its own
state occurred. (See, 137 Cong. Rec.
S17316 (daily ed. November 21,1991)
(remarks of Sen. Graham)). The
legislative history also indicates that the
provision was intended to close a
loophole in the law that permitted one
state to be used as a base for
nationwide insurance underwriting and
that the language did so by limiting the
activities to the state that authorizes it
but nowhere else. (See, 137 Cong. Rec.
S18819 (daily ed. November 21,1991)
(remarks of Sen. Dodd)). The
construction of the exception adopted
by the proposal somewhat narrowly
circumscribes the exception and is
therefore consistent with the above. It is
also consistent with one of the basic
tenets of statutory construction which
provides that exceptions should be
narrowly construed within the purpose
of the overall provision. In view of the
overall indication that insurance
underwriting activities that are not be
permissible for national banks are
inappropriate for insured state banks, it
is in the FDIC’s view appropriate to
adopt a narrow reading of the exception.
30443
Common or Preferred Stock; Shares of
Investment Companies
As indicated above, it is the FDIC’s
present opinion (on which the FDIC has
sought comment) that section 24(f)(2) of
the FDI Act creates a limited
"grandfather" for investments in listed
stock and registered shares. The
"grandfather" is found in the proposed
regulation at § 362.3(b)(4). Section
362.3(b)(4) provides that to the extent
the FDIC permits, and subject to the
requirements of § 362.3(d), “Notice and
Approval of Intent to Invest in Common
or Preferred Stock or Shares of an
Investment Company; Divestiture of
Excess Investments”, an insured state
bank may (1) retain the listed stock or
registered shares that the bank lawfully
acquired or held prior to December 19,
1991, and (2) continue to acquire listed
stock or registered shares in the future,
provided that the bank is located in a
state that authorized investments in
listed stock or registered shares as of
September 30.1991 and the bank
exercised the authority to make such
investments sometime during the period
from September 30,1990 to November
26,1991.
The exception as formulated in the
proposal is not a blanket authorization
and the amount of the investments that
are permissible thereunder is narrowly
circumscribed. The limits of the
permissible investments that may be
made or retained pursuant to the
exception, as well as the need for the
FDIC’s approval in order for an insured
state bank to take advantage of the
exception, are set out in § 362.3(d) of the
proposal. (See discussion in paragraph
#4 below).
Section 24(f)(5) of the FDI Act
provides that the exception created by
section 24(f)(2) will cease to operate if
the bank converts its charter or
undergoes a change in control. “Change
in control” as used in section 24(f)(5) is
not defined. Section 362.3(b)(4) of the
proposal specifies four types of
transactions, in addition to a charter
conversion, (see definition of charter
conversion discussed above in
paragraph #1) the occurrence of which
will terminate the grandfathered
investment authority. Under the
proposal, any time a bank undergoes a
transaction for which a notice is
required to be filed under section 7(j) of
the FDI Act (12 U.S.C. 1817(j)); any time
the bank undergoes a transaction
subject to section 3 of the Bank Holding
Company Act (12 U.S.C. 1042); any time
control of the bank’s parent company
changes; or any time the bank is merged
into another depository institution, the
OfXAAA
iW frr i
Federal Register / Vol. 57, No. 132 / Thursday, July 0, 1992 / Proposed Rules
exception will cease to apply. Thus, for
example, if 25 percent or more of the
bank's voting stock is acquired by an
individual, the bank will no longer be
able to make investments in listed stock
or registered shares pursuant to the
authority of § 362.3(b)(4). If the bank is
acquired by a bank holding company or
control (as that term is defined in the
proposal) of the bank’s parent company
changes, the bank will lose the ability to
rely upon § 362.3(b)(4). Likewise, if the
bank is merged into another depository
institution, the acquiring institution will
not inherit the exception provided by
S 362.3(b)(4).
Change in control has been in effect
defined to include the above four types
of transactions or events. The
“definition’’ has been broadly fashioned
in light of the general policy embodied
in section 24(c) and section 24(0(1) of
the FDI Act that equity investments
which are not permissible for national
banks are not appropriate investments
for insured state banks. Although
Congress enacted a limited exception
for certain banks. Congress also
indicated that the exception ceases to
apply whenever control of an eligible
bank no longer resides with the same
person or entity that controlled the bank
on December 19,1991. In light of the
broader Congressional action to
generally prohibit equity investments, it
would seem appropriate to broadly
define the universe of events that are
considered to constitute a change in
control.
Comment is requested on the
propriety of including the four types of
transactions or events as transaction or
events that terminate the availability of
the exception. Does the reference to
section 3 of the Bank Holding Company
Act, or any of the other identified
events, cause some transactions to be
considered a change in control that do
not warrant inclusion?
If an insured state bank undergoes a
change in control within the meaning of
the proposal or the bank converts its
charter, and thus is no longer able to
take advantage of the exception, the
bank cannot make any additional
investments in listed stock or registered
shares. Under the proposal, however,
the bank is not required to divest its
existing investments unless the FDIC
determines that retaining the
investments will adversely affect the
bank’s safety and soundness and the
FDIC has issued an order requiring the
bank to divest the stock and/or shares
pursuant to the authority of section
24(f)(7) or section 8 of the FDI Act (See
$ 362.3(d)(3)). The fact that the FDIC has
not taken such action, however, does
not preclude the bank’s appropriate
banking agency (when that agency is an
agency other than the FDIC) from taking
steps to require divestiture of the stock
and/or shares.
3. Divestiture of Prohibited Equity
Investments
Requirement to Divest
. Any equity investment acquired prior
to December 19,1991 that is not of a
type, or in an amount that is permissible
for a national bank, and which does not
fall within one of the exceptions of this
proposed rulemaking, must be divested
as quickly as prudently possible but in
no event later than December 19,1996.
Although the FDIC is required by statute
to see that a bank divests any prohibited
equity investment as quickly as
prudently possible, it is not the
responsibility of the FDIC to determine
exactly how an institution will
accomplish the divestiture. The FDIC is,
however, the final arbiter of when
divestiture can be prudently
accomplished. It is clear that it would
not be prudent to hold equity
investments that are subject to
divestiture arbitrarily until the final
divestiture date without adequate
documentation as to the reasons that
prolonging the divestiture program
would be prudent. The FDIC will review
a bank's plan for divestiture and take
such action as may be appropriate if the
plan does not allow for divestiture as
quickly as can be prudently possible.
Under the proposal, SAIF member
state banks that hold an equity
investment which was subject to
divestiture pursuant to § 333.3 of the
FDIC's regulations and which is also
subject to divestiture under this
proposal are not allotted until 1996 to
complete divestiture. In such a case, the
equity investment must be divested as
quickly as prudently possible but in no
event later than July 4,1994 or any
earlier date established by a divestiture
plan that was filed with and approved
by the FDIC pursuant to $ 333.3. The
FDIC believes that it is inappropriate to
allow such institutions a longer time to
accomplish divestiture as it has been
established that the institutions can
prudently accomplish divestiture in
advance of December 19,1996. It would
also be an inappropriate diversion of the
FDIC's resources to revisit the question
of divestiture of these assets.
Divestiture Plan
The proposal requires any insured
state bank that is required to divest an
equity investment to submit a
divestiture plan with the regional
director for the Division of Supervision
for the region in which the bank's
principal office is located not later than
60 days from the effective date of the
regulation. An insured state bank that is
required to submit a divestiture plan
which shall describe the obligor, type,
amount, book and market values
(estimated or known) of the equity
investments subject to divestiture as of
the bank’s most recent call report date
prior to the filing; set forth the bank’s
plan to comply with the divestiture
period; describe the anticipated gain or
loss, if any, from the divestiture of the
investment(s) and the impact on the
bank's capital; and include a copy of a
resolution by the bank’s board of
directors or board of trustees
authorizing the filing of the divestiture
plan. The regional director may request
additional information as deemed
appropriate.
It is the FDIC’s intent to review each
plan for the purpose of determining
whether or not the insured state bank
that filed the plan can prudently divest
the equity investments in question in a
more expeditious fashion than that
contemplated under the plan filed with
the regional office. The proposal
specifically provides that an insured
state bank that has filed a divestiture
plan may act in accordance with its plan
until such time as the bank is informed
in writing by the appropriate FDIC
official that the plan is unacceptable.
Retention of Equity Investments During
Divestiture Period
Upon review of the divestiture plan
and such additional information as
requested by the regional director, and
at any time during the divestiture period,
the FDIC may impose such conditions
and restrictions on the retention of the
equity investments as the FDIC deems
appropriate including requiring
divestiture in advance of December 19,
1996. It is contemplated that the FDIC
will communicate in writing its
objection or nonobjection to the bank's
divestiture plan. The FDIC’s decision
concerning the adequacy of the
divestiture plan will be based on the
information presented. As subsequent
events may alter the continued validity
of the FDIC's original determination, any
nonobjection on the part of the FDIC
will typically be conditioned upon the
continued validity of any assumptions
upon which the plan is based, the
continued vitality of the bank in
question, and the continuation of facts
and circumstances existing at the time
the nonobjection was communicated.
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
4. Notice and Approval of Intent to
Invest in Listed Common or Preferred
Stock or Shares of Investment Company;
Divestiture of Stock or Shares in Excess
of 100% of Capital
Requirement to File Notice and Receive
FDIC Approval
Section 362.3(d) of the proposal
provides that no insured state bank may
acquire or retain listed stock or
registered shares pursuant to the
exception set out in 8 362.3(b)(4) unless
the bank files a one-time notice with the
FDIC of its intent to take advantage of
the exception and the FDIC determines,
after reviewing the notice, that retaining
the listed stock or registered shares the
bank presently holds, and acquiring
listed stock or registered shares in the
future, will not present a significant risk
to the deposit insurance fund of which
the bank is a member. (The definition of
“significant risk to the fund” is
discussed in paragraph #1 above.) Until
the FDIC has made its determination, a
bank may retain the listed stock or
shares that it lawfully held on December
19,1991 (provided those investments do
not exceed 100 percent of the bank's tier
one capital). The bank may not,
however, make any new investments in
listed stock or registered shares until the
bank receives the FDIC’s approval.
Content of Notice
Section 362.3(d)(2) of the proposal
provides that the one-time notice must
be filed with the FDIC regional director
for the Division of Supervision for the
region in which the bank’s principal
office is located. The notice can be in
the form of a letter or any other form
convenient to the bank but it must
contain the following information:
(1) A description of the listed stock
and/or shares held by the bank as of
December 19,1991 and the book and
market value of the stock or shares;
(2) The highest dollar amount of the
bank’s investments in listed stock and/
or shares during the period from
September 30,1990 to November 26,
1991;
(3) A description of the bank’s funds
management policies including a
discussion of how investments in listed
stock or registered shares relates to the
objectives of those policies;
(4) A description of the bank's
investment policies including a
discussion of the extent to which those
policies limit concentrations in listed
stock or registered shares, set an
aggregate limit on such investments,
and/or deal with the sale of the
investments in light of market
conditions;
(5) A discussion of how the quality of
the bank’s existing investments was
determined and how the bank will judge
the quality of future investments; and
(6) Such other information as
requested by the regional director.
The notice must be accompanied by a
resolution of the bank's board of
directors or trustees authorizing the
filing of the notice. For the purposes of
supplying the information required by
item #2, the notice must set out the
highest dollar amount of the bank's
investment during the period in listed
stock calculated as a percentage of the
bank’s tier one capital as reported in the
bank’s call report for the quarter in
which the high dollar investment
occurred; the highest dollar amount
during the period of the bank's
investment in registered shares
calculated as a percentage of the bank's
tier one capital as reported in the bank's
call report for the quarter in which the
high dollar investment occurred; and the
total combined percentage of the
foregoing.
The FDIC is of the opinion that the
information listed in $ 362.3(d)(2) is the
minimum information necessary in order
for the FDIC to properly evaluate
whether the retention of the bank's
existing investments in listed stocks
and/or registered shares, and the
continued exercise of the bank's
grandfathered investment authority,
may pose a significant risk to the
deposit insurance fund. Comments are
requested on the appropriateness of the
requested information; what burden, if
any, is entailed by the notice as
proposed; and what information in
addition to or in lieu of that which is
proposed should be included in the
notice.
FDIC Determination
Section 362.3(d)(3) of the proposal,
“FDIC Determination", sets out the
standard against which the FDIC will
evaluate notices filed pursuant to
paragraph (d)(1), i.e., whether there is a
significant risk to the fund posed by the
exercise of the grandfathered
investment authority. It also indicates
that the FDIC may condition or restrict
approval a9 necessary or appropriate
and provides that the FDIC may require
the notifying bank to divest some or all
of its investments in listed stock and/or
registered shares. If, upon a review of
the notice, it is determined that the
exercise of the grandfathered
investment authority poses a significant
risk to the fund, the notice will not be
approved. The FDIC may, however,
approve the notice subject to whatever
conditions or restrictions are reasonably
30445
necessary to prevent that risk from
occurring.
The recitation that the FDIC may
impose conditions or restrictions in
connection with an approval is nothing
more than a restatement of the FDIC’s
existing implied authority to take such
action. Insured state banks should note
in this regard that section 24(i) of the
FDI Act specifically provides that
nothing in section 24 shall be construed
as limiting the authority of the FDIC to
impose more stringent conditions. Nor
does section 24 limit the authority of the
FDIC to take cease-and-desist action
against any insured state bank in the
event the exercise of its grandfathered
investment authority is found to
constitute under the circumstances an
unsafe and unsound banking practice.
Divestiture of listed stock and/or
registered shares may be ordered if the
FDIC has reason to believe that
retention of the investments in question
will have an adverse effect on the safety
and soundness of the notifying bank.
Divestiture is not limited to investments
held by the bank at the time it files its
notice. If the FDIC grants approval for
an insured state bank to make
investments pursuant to $ 362.3(b)(4),
and it is determined at any time after
the approval is given that the retention
of listed stock and/or registered shares
acquired pursuant to that approval
poses a safety and soundness risk to the
bank, the FDIC may require the
divestiture of any of the investments.
The FDIC may deny a bank’s
application to fully exercise the
grandfathered investment authority
otherwise available to it under section
24(f)(2) of the FDI Act and 8 362.3(b)(4)
of the proposal but grant approval to
make and retain investments in listed
stock and/or registered shares to a
lesser extent than the highest level of
such investments made by the bank
during the relevant period. If the FDIC
does so, the bank must divest existing
investments in excess of the level the
FDIC approves as quickly as prudently
possible but in no event later than
December 19,1996. A divestiture plan
must be filed with the FDIC no later
than 60 days after the bank receives
notice that approval to retain its existing
investments was not granted. The
divestiture plan must contain the
information specified in 8 362.3(c)(3) of
the proposal.
Insured state banks should note that
they may not lawfully acquire any
additional listed stock or registered
shares until the FDIC has rendered its
determination and granted its approval.
(See section 24(f)(6)). The FDIC
recognizes that section 24 contemplates
30446
Federal Register / VoL 57, No. 132 /. Thursday, July 9. 1992 / Proposed Rules
that notices normally will be reviewed
and a determination will be made within
60 days. It is therefore the FDIC’s
intention to respond to the notices
within 60 days to the extent practicable.
However, the FDIC has concluded
that the 60-day period in paragraph
(f)(6)(B) of section 24 does not allow a
bank to make additional investments if
the FDIC does not respond before
expiration of the 60-day period from the
FDIC’s receipt of the notice. Paragraph
(f)(6) is captioned, “Notice and
Approval' [emphasis added] which
contemplates affirmative approval by
the FDIC***In addition, paragraph (f)(6)
does not expressly indicate the bank
may proceed in the absence of a
determination by the FDIC within the
60-day period,9 nor does it require that
the FDIC "shalT or "must" make a
determination within the 60-day
period.10
Neither the earlier provision found in
HR. Rep. No. 102-330 nor the statute as
enacted expressly specifies a
consequence for any failure by the FDIC
to act within the 60-day period. A wellrecognized rule uniformly applied by the
courts holds that:
A statutory time period is not mandatory
unless it both expressly requires an agency or
public official to act within a particular time
period and specifies a consequence for failure
to comply with the provision.11
* An earlier version of the provision was simply
entitled “Notice of Paragraph (2) Activities”. The
word “approval” was subsequently added to the
title. HR. Rep. No. 102-530. lG2d Cong.. 1st Sess^ at
55 (Nov. 19.1991).
* The language of paragraph (0(6) as enacted
stands in clear contrast with the language found In
H.R. Rep. No. 102-330. The earlier version provided
a bank could engage in any investment activity
pursuant to paragraph (2) only if notice were filed
and “the Corporation has not determined, within 60
days of receiving such notice" (emphasis added]
that the investment could pose a significant risk to
the appropriate insurance fund. Under the earlier
version, one might argue that failure of the FDIC to
act within 60 days satisfied the second of the two
elements of the provision, thus t bank could
proceed with its investments as notice had been
filed and the FDIC had not determined within 60
days of receipt of the notice that there is a risk to
the fund. However, the above language was not
enacted.
>0 Paragraph (f)(6) thus stands in contrast to other
provisions of the PDI Act and other federal statutes,
which (a) clearly provide a set time period In which
the FDIC must act on a notice, and (b) provide that
failure to act cuts off the FDIC's ability to object to
the conduct or activity which Is the subject of the
notice (absent some other independent authority to
do so). (See. for example section 7(j) of the FD1 Act
(12 U.S.C. 1817(j)). section 32 of the FD1 Act (12
U.S.C. 1831 i). and 12 U.S.C. 3204(8)).
11 Fort Worth National Corp. v. Federal Savings
and Loan Insurance CorjK 469 F.2d 47, 58 (5th Cir.
1972). See e.g.. Mayor's Office of Employ v. U.S.
Dept, of Labor. 775 F.2d 196, 201 (7th Cir. 1985); S t
Regis Mohawk Tribe. New York v. Brock, 769 F.2d
37. 41 (2d Cir. 1985); Thomas v. Barry. 729 F.2d 1469.
1470 a. 5 {D.C. Cir. 1964); Marshall v. Local Union
The FDIC Board of Directors has
followed this rule.1*
The FDIC has therefore concluded
that section 24(f)(6) does not require the
FDIC to act within the 60-day period.
Although the FDIC is not required by
law to do so, it is the FDIC's intent to
respond to notices filed pursuant to
S 362.3(d) within 60 days of receipt of
the notice.
Maximum Permissible Investment
Section 362.3(d)(4) of the proposal
"Maximum Permissible Investment",
sets out the maximum investment in
listed stock and/or registered shares
that an insured state bank can make
under $ 362.3(b)(4), i.e., the highest
amount of investment permitted by the
statute that the FDIC can allow should it
approve the bank's notice filed under
S 362.3(d)(1). Under $ 362.3(d)(4) of the
proposal an insured state bank’s
investments in listed stock pursuant to
the exception contained in $ 362.3(b)(4)
may not exceed the highest level of
investment that the bank made during
the period from September 30,1990 to
November 26,1991 expressed as a
percentage of the bank’s tier one capital
as reported for the quarter in which the
high investment occurred. Likewise, an
insured state bank's investment in
registered shares may not exceed the
highest level of investment the bank
made during that period expressed as a
percentage of the bank’s tier one capital
as reported for the quarter in which the
high investment occurred. In no event
may the aggregate of the bank's
investments in listed stock and
registered shares exceed 100 percent of
the bank's tier one capital
The bank’s investment in listed stock
is treated separately from its investment
in registered shares thus, the bank is
allotted two limits, the aggregate of
which cannot exceed 100 percent of the
bank's tier one capital If for example,
the bank's highest investment in listed
stock over the period represented 45
percent of the bank's tier one capital
the maximum permissible investment in
listed stock that the FDIC may allow is
45 percent of tier one capital. If the bank
had not made or maintained any
investments in registered shares during
the period, the FDIC cannot permit
future investments in registered shares.
If the FDIC determines that a
significant risk will be posed to the
No. 1374. InL Ass'n of Mach.. 558 FZd 1354,1357
(9th Cir. 1977); Usery v. Whitin Mach. Works, Inc.,
554 F.2d 498. 501 (1st Cir. 1977); and Maryland
Casualty Co. v. Cardillo, 99 F.2d 432, 434 (D.C Cir.
1938).
11 FDIC Docket No. 86~43k. par. 5111, A-1205
(January 19,1968).
deposit insurance fund if the FDIC
approves (1) the retention of existing
investments in listed stock and/or
registered shares, and (2) the continued
or future investment in such stock and/
or shares to the maximum possible
investment, the FDIC may set a lower
percentage of the bank's tier one capital
as the bank's maximum permissible
investment
Once the FDIC has determined the
bank's permissible maximum
investment, investments in listed stock
and/or registered shares may be made
in the future only if the new investment
when added to outstanding investments,
does not cause the bank to exceed the
permissible maximum percentage of the
bank's tier one capital as reported on
the bank’s call report for the period
immediately preceding the investment
In short the bank is not limited to the
highest dollar amount of the investment
that it made during the period from
September 30,1990 to November 26,
1991. The permissible maximum
percentage is set based upon that
amount however, the percentage, once
determined, is used with reference to the
bank's tier one capital at the time an
investment is made. What is more, if the
investment when made is within the
maximum permissible investment
percentage, the investment will not be
considered to be in violation of the
bank's tier one capital later declines.
The FDIC recognizes in proposing
S 362.3(d)(4) as drafted that there are
many possibilities to choose from in
deciding when to measure capital for
purposes of applying the grandfather
provided for by the statute for listed
stocks and registered shares. Comment is specifically requested on alternative
ways that the regulation might do so and
the pro's and con's of those alternatives.
Additionally, comment is specifically
requested on whether or not the
regulation should measure the
investment as a percentage of total
capital as opposed to tier one capital
Diverstiture of Excess Stock or Shares
Section 24(f)(4) of the FDI Act
provides a transition period during
which an insured state bank is required
to divest any stock and/or shares that it
held as of December 19,1991 in excess
of 100 percent of the bank’s capital.
Section 362.3(d)(5) of the proposal sets
out the diverstiture requirement and, as
provided by the statute, indicates that
the excess must be diversted by at least
Vs in each of the three years beginning
on December 19,1991. The proposal
indicates that the excess is to be
determined by looking to the bank’s tier
one capital as measured on December
Federal Register / VoL 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
19,1991. (Tier one capital as measured
in the bank's December 31,1991 call
report may be used if it is more
convenient to do so.)
Insured state banks are required to
reduce the excess to a level that is no
greater than 100 percent of the bank's
tier one capital by December 19,1994 if
the maximum permissible investment
set by the FDIC in connection with a
notice filed pursuant to § 362.3(d)(1) is
100 percent of tier one capital. Insured
state banks that have such an excess
are presently subject to the diverstiture
requirement and should have already
divested Vs of the excess or be planning
to divest Vs of the excess prior to
December 19,1992. The requrement to
divest at least Vs of the excess each year
is waived if divesting a lesser amount
will reduce the bank’s outstanding
investment to 100 percent of the bank's
current tier one capital. Banks for which
the FDIC has set a maximum
permissible investment that is lower
than 100 percent of tier one capital, must
submit a diverstiture plan with the FDIC
regional office within 60 days of being
so informed. Such excess investment
must be divested as quickly as
prudently possible but in no event later
than December 19,1996.
5. Notification of Exempt Insurance
Activities
Section 362.4 of the proposal directs
any insured state bank that was
lawfully providing insurance as
principal on November 21,1991, or
which has a subsidiary that was
lawfully providing insurance as
principal on that date, to provide certain
information concerning those activities
to the FDIC regional director. The
information is being requested so that
the FDIC will be able to monitor
compliance with § 362.3(b)(7) of the
proposal. The information may be
submitted in letter form.
6. Delegation of Authority
Under the proposal the authority to
review and act on divestiture plans as
well as the authority to approve or deny
notices filed concerning “grandfathered"
equity investments is delegated to the
Director of the Division of Supervision.
The Director may in turn, where
confirmed in writing, delegate that
authority to any associate director of the
Division of Supervision or the
appropriate regional director or deputy
regional director.
Regulatory Flexibility Analysis
The Board of Directors has concluded
after reviewing the proposed regulation
that the regulation, if adopted, will not
impose a significant economic hardship
30447
(b) Control shall mean the power to
vote, directly or indirectly, 25 per
centum or more of any class of the
voting stock of a company, the ability to
control in any manner the election of a
majority of a company’s directors or
trustees, or the ability to exercise a
controlling influence over the
management and policies of a company.
(c) An insured state bank wil be
considered to convert its charter if the
bank undergoes any transaction which
causes the bank to operate under a
different form of charter than that under
which it operated as of December 19,
1991.
(d) Depository institution means any
bank or savings association.
(e) Equity interest in real estate
Administrative practice and
means any form of direct or indirect
procedure, Authority delegations
ownership of any interest in real
(Government agencies), Bank deposit
property, whether in the form of an
insurance, Banks, banking, Insured
equity interest, partnership, joint
depository institution, Investments.
venture or other form, which is
In consideration of the foregoing, the
FDIC hereby proposes to amend chapter accounted for as an investment in real
estate or real estate joint ventures under
III, title 12 of the Code of Federal
Regulatiions by adding a new Part 362 to generally accepted accounting principles
or is otherwise determined to be an
read as follows:
investment in a real estate venture
PART 362— ACTIVITIES AND
under Federal Financial Institutions
INVESTM ENTS OF INSURED S TA TE
Examination Council Call Report
BANKS
Instructions. The term shal include, for
example, real estate acquisition,
Sec.
development or construction
362.1 Purpose and scope.
arrangements which are accounted for
362.2 Definitions.
as direct investments in real estate or as
362.3 Equity investments.
real estate joint ventures in accordance
362.4 Notification of exempt insurance
with generally accepted accounting
activites.
principles, and any other loans secured
362.5 Delegation of authority
Authority: 12 U.S.C. 1816,1818,1819{ tenth), by real estate or advanced for real
estate acquisition, development or
1831a.
investment purposes if the insured state
§ 362.1 Purpose and scope.
bank in substance has virtually the
same risks and potential rewards as an
The purpose of this part is to
implement the provisions of section 24
investor in the borrower’s real estate.
of the Federal Deposit Insurance Act (12 The phrase equity interest in real estate
does not include the following:
U.S.C. 1831a) which sets forth certain
restrictions and prohibitions on the
(1) An interest in real property that is
activities and investments of insured
used or intended to be used by the
state banks. In addition, consistent with insured state bank or its subsidiaries as
the overall purpose of section 24, it is
offices or related facilities for the
the intent of this part to ensure that
conduct of its business or future
activities and investments undertaken
expansion of its business;
by insured state banks do not present a
(2) An interest in real property that is
risk to either of the deposit insurance
acquired in satisfaction of debts
funds, are safe and sound, are consistent previously contracted for in good faith
with the purposes of federal deposit
or acquired in sales under judgments,
insurance, and are otherwise consistent decrees or mortgages held by the
with law.
insured state bank or acquired under
deed in lieu of foreclosure provided that
§ 362*2 Definitions.
the property is not intended to be held
For the purposes of this section, the
for real estate investment purposes and
following definitions shall apply:
is not held longer than the shorter of any
(a)
Company shall mean any
time limit on holding such property set
corporation, partnership, business trust, by applicable state law or regulation or
the time limit on holding such property
association, joint venture, pool,
that is applicable by statute or
syndicate or other similar business
regulation for a national bank; and
organization.
on small institutions. The proposal does
not necessitate the devleopment of
sophisticated recordkeeping or reporting
systems by small institutions nor will
small institutions need to seek out the
expertise of specialized accountants,
lawyers, or managers in order to comply
with the regulation. The Board of
Directors therefore hereby certifies
pursuant to section 605 of the Regulatory
Flexibility Act (5 U.fJ.C. 605) that the
proposal, if adopted, will not have a
significant economic impact on a
substantial number of small entities
within the meaning of the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.).
List of Subjects in 12 CFR Part 362
30448
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
(3)
Interests in real property that are
primarily in the nature of charitable
contributions to community
development corporations provided that
the contribution to any one community
development corporation does not
exceed 2 percent of the bank's tier one
capital and the bank's total contribution
to all such corporations does not exceed
5 percent of the bank's tier one capital.
(f) Equity investment means any
equity security as defined in § 362.2(g);
any partnership interest; any equity
interest in real estate as defined in
§ 362.2(e); and any transaction which in
substance falls into any of these
categories even though it may be
structured as some other form of
business transaction.
(g) Equity security means any stock,
certificate of interest or participation in
any profit-sharing agreement, collateraltrust certificate, preorganization
certificate or subscription, transferable
share, investment contract, or votingtust certificate; any security
immediately convertible at the option of
the holder without payment of
substantial additional consideration into
such a security; any security carrying
any warrant or right to subscribe to or
purchase any .uch security; and any
certificate of interest or participation in,
temporary or interim certificate for, or
receipt for any of the foregoing. The
term equity security does not include
any of the foregoing if it is acquired
through foreclosure or settlement in lieu
of foreclosure.
(h) Equity investment permissible for
a national bank shall be understood to
refer to an equity investment expressly
authorized for national banks under the
National Bank Act (12 U.S.C. 21 et seq.)
or any other statute; regulations issued
by the Office of the Comptroller of the
Currency; or any order or formal
interpretation issued by the Office of the
Comptroller of the Currency.
(i) Insured state bank shall mean any
state bank insured by the Federal
Deposit Insurance Corporation (FDIC)
whether or not a member of the Federal
Reserve System and any insured branch
of a foreign bank that is not a federal
branch.
(j) Lower income means income that
is less than or equal to the median
income for the area in which the
qualified housing project is located as
determined by state or federal statistics.
The “area” in which a housing project is
located shall be understood to refer to
the relevant Metropolitan Statistical
Area (MSA) in which the project is
located if the project is located within
an MSA. If the project is not located in
an MSA, the median income of the
"area” in which the project is located
shall be understood to refer to the
median income of the state or territory
in which the project is located exclusive
of the designated MSA's.
(k) National securities exchange
means a securities exchange that is
registered as a national securities
exchange by the Securities and
Exchange Commission pursuant to
section 6 of the Securities Exchange Act
of 1934 (15 U.S.C. 78f) and the National
Market System, i.e., the top tier of the
National Association of Securities
Dealers Automated Quotation System
(NASDAQ).
(l) Residents of the state shall be
understood to include companies or
partnerships incorporated in, organized
under the laws of, licensed to do
business in, or having an office in the
state.
(m) Significant risk to the deposit
insurance fund shall be understood to
be present whenever it is likely that any
insurance fund administered by the
FDIC may suffer any loss whatever.
(n) Subsidiary menas any company
directly or indirectly controlled by an
insured state bank.
(o) Tier one capital shall have the
same meaning as set forth in part 325 of
this chapter in the case of an insured
state nonmember bank and, in the case
of an insured state member bank, shall
have the same meaning as set forth in
regulations defining the term tier one
capital as adopted by the bank's
appropriate federal banking agency.
(p) Well-capitalized insured state
bank shall mean an insured state bank
which has a ratio of total capital to riskweighted assets of not less than 10.0
percent; a ratio of Tier 1 capital to riskweighted assets of not less than 6.0
percent; a ratio of Tier 1 capital to total
book assets of not less than 5.0 percent;
and which has not been notified by its
appropriate Federal banking agency that
it is in a "troubled condition" as that
term is defined by the appropriate
Federal banking agency in its
regulations implementing section 32 of
the Federal Deposit Insurance Act. For
the purposes of this definition, the terms
“risk-weighted assets,” "total capital,"
and “total book assets" shall have the
respective meaning prescribed in
regulations issued by the appropriate
Federal banking agency. In order to be
considered well-capitalized, an insured
state bank must meet the above
requirements exclusive of the bank’s
investment in any department of the
bank, and any subsidiary of the bank,
that engages in any activity that is not
permissible for a national bank. An
insured state bank that has been
required pursuant to an order, capital
directive, or consent agreement to raise
its capital to a level higher than the
capital levels set out above (exclusive of
any investment in a subsidiary or
department described above) will not be
considered to be “well-capitalized"
unless the higher capital levels are met.
The bank’s “investment" in its
subsidiary will be considered to equal
the amount invested in the subsidiary's
equity securities plus any debt issued by
the subsidiary that is held by the bank.
The bank’s investment in a department
will be considered to equal the total of
any funds transferred to the department
which is represented on the
department’s accounts and records as
an accounts payable, a liability, or
equity of the department except that
transfers of funds to the department in
payment of services rendered by the
department will not be considered an
investment in the department.
§ 362.3 Equity investments.
(a) Prohibited investments. No
insured state bank may directly or
indirectly acquire or retain any equity
investment of a type, or in an amount,
that is not permissible for a national
bank.
(b) Exceptions—(1) Majority owned
subsidiaries. An insured state bank is
not prohibited from acquiring or
retaining a majority interest in a
subsidiary. If the FDIC denied an
application by a Savings Association
Insurance Fund (SAIF) member state
bank for permission to acquire or retain
the majority interest in a subsidiary
pursuant to § 333.3 of this chapter, this
exception does not apply. If the denial
concerned an application for permission
to retain the investment, the SAIF
member state bank must divest its
interest in the subsidiary in accordance
with whatever conditions and
restrictions are set forth in the FDIC’s
order denying the application.
(2)
Qualified housing projects, (i)
Subject to the limitation contained in
paragraph (b)(2)(ii) of this section, an
insured state bank is not prohibited
from investing as a limited partner in a
partnership the sole purpose of which is
direct or indirect investment in the
acquisition, rehabilitation, or new
construction of a qualified housing
project. A qualified housing project shall
be understood to mean residential real
estate intended to primarily benefit
lower income persons throughout the
period of the bank’s investment.
(ii)
Investments described in
paragraph (b)(2)(i) of this section may
only be made if the equity investment,
when aggregated with any existing
equity investment in such a partnership
or partnerships, does not exceed 2
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules________ 30449
percent of the bank’s total assets as
prohibited under this section from
reported on the bank’s most recent
retaining its existing investments
consolidated report of condition.
provided that the FDIC does not order
(3) Savings bank life insurance.
divestiture under paragraph (d)(3) of this
Unless it is otherwise found to pose a
section or section 8 of the Federal
significant risk to the insurance fund of
Deposit Insurance Act (12 U.S.C. 1818).
which the bank is a member, an insured
(5)
Stock of company that provides
state bank located in Massachusetts,
director and official liability insurance.
New York, or Connecticut is not
An insured state bank is not prohibited
prohibited from owning stock in a
from acquiring up to 10 percent of the
savings bank life insurance company
voting stock of a company that solely
provided that the savings bank life
provides or reinsures directors’,
insurance company prominently
trustees', and officers’ liability insurance
discloses to purchasers of life insurance coverage or bankers’ blanket bond
policies, annuities, and other insurance
group insurance coverage for insured
products that the policies, annuities and depository institutions.
other products offered to the public are
(8) Shares of depository institutions.
not insured by the FDIC, are not
An insured state bank is not prohibited
obligations of, and are not guaranteed
from acquiring or retaining the voting
by, any insured state bank. The
shares of a depository institution if the
following or a similar statement will
institution engages only in activities
satisfy this requirement: "This [policy,
permissible for national banks; the
annuity, insurance product] is not a
institution is subject to examination and
federally insured deposit and is not an
regulation by a state bank supervisor; 20
obligation of, nor is it guaranteed by,
or more depository institutions own
any federally insured bank.’’
voting shares of the institution but no
(4) Common or preferred stock; shares one institution owns more than 15
of investment companies, (i) To the
percent of the shares; and the
extent permitted by the FDIC, and
institution’s voting shares (other than
subject to the requirements of paragraph directors’ qualifying shares or shares
(d) of this section, an insured state bank held under or acquired through a plan
that is located in a state which as of
established for the benefit of the officers
September 30,1991 authorized
and employee) are owned only by
investment in:
depository institutions.
(A) (J) Common or preferred stock
(7) Interests in insurance subsidiaries.
listed on a national securities exchange
(i)
A well-capitalized insured state bank
[listed stock); or
(2)
Shares of an investment company is not prohibited from retaining after
December 19,1992 its equity investment
registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-l, et in a majority owned subsidiary that was
lawfully providing insurance as
seq.) (registered shares); and
principal in a state on November 21,
(B) Which during any time in the
period beginning on September 30,1990 1991 provided that the activities of the
and ending on November 28,1991 made subsidiary continue to be limited to
providing, as principal, insurance of the
or maintained an investment in such
same type provided by the subsidiary as
listed stock or registered shares, may
of November 21.1991 to residents of the
retain whatever listed stock or
state, individuals employed in the state,
registered shares that were lawfully
and any other person to whom the
acquired or held prior to December 19,
subsidiary provided insurance as
1991, and continue to acquire listed
principal without interruption since such
stock or registered shares.
person resided in or was employed in
(ii)
The exception provided for by
the state. In the case of resident
paragraph (b)(4)(i) of this section shall
cease to apply to any insured state bank companies or partnerships, the
if the bafik converts its charter, the bank subsidiary’s activities must be limited to
providing insurance to the company’s or
undergoes any transaction for which a
partnership's employees residing in the
notice is required to be filed under
state and/or to providing insurance to
section 7(j) of the Federal Deposit
cover the company’s or partnership’s
Insurance Act (12 U.S.C. 1817(j)), the
bank undergoes any transaction subject property located in the state.
(ii)
An insured state bank is not
to section 3 of the Bank Holding
Company Act (12 U.S.CV1842), control of prohibited from retaining after
December 19,1992 its equity investment
the bank’s parent company changes, or
in a title insurance subsidiary provided
the bank is merged into another
depository institution. In such event the that the bank was required before June
1,1991 to provide title insurance as a
insured state bank may not make any
condition of the bank’s initial chartering
additional investments pursuant to the
under state law and none of the
exception provided for by paragraph
transactions described in paragraph
(b)(4)(i) of this section. The bank is not
(b)(4)(ii) of this section has occurred
since june June 1,1991.
(c)
Divestiture of prohibited equity
investments—(1) Requirement to divest.
Any equity investment acquired prior to
December 19,1991 that is not of a type,
or in an amount, that is permissible for a
national bank, and which does not fall
within one of the exceptions in
paragraph (b) of this section, must be
divested as quickly as prudently
possible but in no event later than
December 19,1996. If a SAIF member
state bank holds an equity investment
that was subject to divestiture pursuant
to $ 333.3 of this chapter, and the equity
investment is subject to divestiture
under paragraph (c)(1) of this section,
the equity investment must be divested
as quickly as prudently possible but in
no event later than July 4,1994 or any
earlier date established by a divestiture
plan that was filed by the bank under,
and approved by the FDIC pursuant to,
S 333.3 of this chapter.
(2) Requirement to file divestiture
plan. Any insured state bank that is
required by paragraph (c)(1) of this
section to divest an equity investment
must submit a divestiture plan with the
regional director for the Division of
Supervision for the region in which the
bank's principal office is located not
later than 60 days from [insert effective
date of final regulation]. An insured
state bank that has submitted a plan
pursuant to this section may proceed to
act in accordance with that plan unless
and until it is informed in writing by the
FDIC that the plan is unacceptable.
(3) Content of divestiture plan. The
divestiture plan shall:
(i) Describe the obligor, type, amount,
book and market values (estimated or
known) of the equity investments
subject to divestiture as of the bank's
most recent consolidated report of
condition prior to the filing;
(ii) Set forth the bank's plan to comply
with paragraph (c)(1) of this section;
(iii) Describe the anticipated gain or
loss (anticipated or realized) if any from
the divestiture of the investment and the
impact thereof on the bank's capital
(including capital ratios before and after
the sale);
(iv) Include a copy of a resolution by
the bank's board of directors or board of
trustees authorizing the filing of the
divestiture plan; and
(v) Such other information as
requested by the regional director.
(4) Retention of equity investments
during divestiture period. Upon review
of the divestiture plan and such
additional information as requested by
the regional director, and at any time
30450
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
investments in listed stock and/or
during the divestiture period, the FDIC
may impose such conditions and
registered shares as well as future
restrictions on the retention of the
investments;
equity investments during the
(vi) A copy of a resolution by the
divestiture period as the FDIC deems
board of directors or board of trustees
appropriate including requiring
authorizing the filing of the notice; and
divestiture in advance of December 19,
(vii) Such additional information as
1996.
deemed appropriate by the regional
(d)
Notice and approval of intent to director.
invest in common or preferred stock or
(3) FDIC determination. Approval of a
shares of an investment company;
notice filed under paragraph (d)(1) of
divestiture of excess investments. (1)
this section will not be granted unless
Notice and required FDIC
the FDIC determines that acquiring and
determination. No insured state bank
retaining the listed stock and/or
may acquire or retain any listed stock or registered shares does not pose a
registered shares pursuant to paragraph significant risk to the insurance fund of
(b)(4) of this section unless the bank
which the bank is a member. Approval
files a 1-time notice with the FDIC
may be made subject to whatever
setting forth the bank's intention to
conditions or restrictions the FDIC
acquire and retain the listed stock or
determines is necessary or appropriate.
registered shares and the FDIC has
The FDIC may require diverstiture of
determined that acquiring or retaining
some or all of the investments in listed
the listed stock or registered shares that stock or registered shares made during
are the subject of the notice will not
the period from September 30.1990 to
pose a significant risk to the deposit
December 19,1991, as well as any
insurance fund of which the bank is a
investments in listed stock or registered
member. The notice must be filed with
shares made subsequent to that period if
the regional director for the Division of
it is determined that retention of the
Supervision for the region in which the
investments in question will have an
bank’s principal office is located.
(2)
Content of notice. The notice shall adverse effect on the safety and
soundness of the bank.
contain:
(4) Maximum permissible investment
(i) ^"description of the obligor, type,
(i)
The maximum permissible investment
amount and book and market values of
the listed stock and/or registered shares in listed stock an insured state bank
may hold pursuant to paragraph (b)(4) of
held as of December 19,1991;
this section may not exceed the highest
(ii) The highest dollar amount of the
level of investment made by the bank in
bank's investments in listed stock and/
or registered shares between September such stock during the period from
30,1990 and November 26,1991, both in September 30,1990 to November 28,
the aggregate and individually in each of 1991 expressed as a percentage of the
bank’s tier one capital as reported by
the two categories, expressed as a
the bank in its consolidated report of
percentage of tier one capital as
condition for the quarter in which the
reported in the consolidated report of
high investment occurred.
condition for the quarter in which the
(ii) The maximum permissible
high dollar amount of investment
investment in registered shares an
occurred;
(iii) A description of the bank’s funds insured state bank may hold pursuant to
paragraph (b)(4) of this section may not
management policies and how the
bank's investments (planned or existing) exceed the highest level of investment
made by the bank in such shares during
in listed stock and/or registered shares
the period from September 30,1990 to
relate to the objectives set out in the
November 26,1991 expressed as a
bank's funds management policies;
percentage of the bank's tier one capital
(iv) A description of the bank’s
as reported by the bank in its
investment policies and a discussion of
consolidated report of condition for the
to what extent those policies:
quarter in which the high investment
(A) Limit concentrations in listed
occurred.
stock and/or registered shares both by
(iii) The aggregate maximum
issue and by industry;
investment in stock and shares an
(B) Set an aggregate limit on
insured state bank may hold pursuant to
investment in listed stock and/or
paragraph (b)(4) of this section may not
registered Shares; and
exceed 100 percent of the bank’s tier one
(C) Deal with the sale of listed stock
capital.
and/or registered shares in light of
(iv) Notwithstanding § 362.3(d)(4) (i),
market conditions;
(v) A discussion of the parameters
(ii) and (iii), the FDIC, in response to a
used to determine the quality of the
notice filed under paragraph (d)(1) of
bank's outstanding and proposed
this section, may set a percentage as the
maximum permissible investment for
any insured state bank that is lower
than that which would otherwise be
applicable.
(v)
Any acquisition of listed stock or
registered shares by an insured state
bank made after December 19,1991
pursuant to approval of a notice filed
under parfgraph (d)(1) of this section
may not, when made, exceed the
maximum permissible investment
percentage (as set out in the FDIC’s
approval of such notice) of the bank's
tier one capital as reported on the
bank’s consolidated report of condition
for the period immediately preceding the
acquisition.
(5)
Divestiture of excess stock and/or
shares, (i) An insured state bank that
held as of December 19,1991
investments in listed stock and/or
registered shares in an aggregate
amount in excess of 100 percent of the
bank's tier one capital as measured on
December 19,1991 is prohibited from
retaining the excess listed stock and/or
registered shares. (Tier one capital as
reprted on the bank's December 31,1991
consolidated report of condition may be
used in lieu of calculating tier one
capital as of December 19,1991.) Such
bank's outstanding investment in listed
stock or registered shares must comply
by no later than December 19,1994 with
the maximum permissible investment
set for the bank by the FDIC in
connection with the notice filed
pursuant to § 362.3(d)(1) if the bank’s
maximum permissible investment is 100
percent of tier one capital. In such event,
the bank shall divest the excess
investment by not less than Va in each of
the three years beginning on December
19,1991, provided however, that the
bank shall be relieved of the obligation
to divest at least % of its excess
investment each year if divesting a
lesser amount will reduce the bank’s
outstanding investment to 100 percent of
its current tier one capital. If the bank's
maximum permissible investment set by
the FDIC is lower than 100 percent of
tier one capital, paragraph (d)(5)(ii) of
this section shall apply.
(ii)
If an insured state bank does not
receive approval in connection with a
notice filed pursuant to paragraph (d)(1)
of this section to retain its outstanding
investment in listed stock and/or
registered shares, the bank must, as
quickly as prudently possible but in no
event later than December 19,1996,
divest the listed stock and/or registered
shares for which approval to retain was
denied. The bank must file a divestiture
plan with the regional director for the
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
Division of Supervision for the region in located not later than 60 days from
which the bank’s principal office is
(insert effective date of final regulation].
located no later than 60 days after the
The notice requirement does not apply in
bank receives notice that approval to
the case of an insured state bank
retain the investment(s) was denied The described in 9 362.3(b)(7)(ii). The notice
shall contain the following information:
divestiture plan shall contain the
information specified in paragraph (c)(3)
(a) The name of the bank/or
of this section.
subsidiary;
(b) The state in which the bank is
§ 362.4 Notification of exempt insurance
chartered;
activities.
(c) If applicable, a recitation of the
authority for the bank or subsidiary to
Any insured state bank that was
conduct insurance underwriting
lawfully providing insurance as
activities;
principal in a state on November 21,
(d) The state in which the subsidiary
1991, and any insured state bank that
is incorporated; and
has a subsidiary that was lawfully
(e) A description of the insurance
providing insurance as principal in a
state on November 21,1991, shall submit policies and other insurance products
that the bank and/or subsidiary
a notice to the regional director for the
provided to the public as of November
Division of Supervision for the region in
21,1991 in the state(s) identified in
which the bank’s principal office is
f n ~ io $ u
30451
paragraphs (b) and (d) of this section.
§ 362JS Delegation of authority.
The authority to review and act upon
divestiture plans submitted pursuant to
9 362.3(c)(2) as well as the authority to
approve or deny notices filed pursuant
to 9 362.3(d) is delegated to the Director,
Division of Supervision, and where
confirmed in writing by the Director, to
an associate director, Division of
Supervision or the appropriate regional
director of deputy regional director.
By Order of the Board of Directors.
Dated at Washington, D.C. this 16th day of
June, 1992.
Federal Deposit Insurance Corporation.
Hoyle L. Robinson,
Executive Secretary.
[FR Doc. 92-15361 Filed 7-6-92; 8:45 am]
BtLLMQ COM S714-0V-M
Federal Register / Vol. 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 333
RIN 3064-AA55
Extension of Corporate Powers
Federal Deposit Insurance
Corporation (FDIC).
a c t io n : Proposed rule.
AGENCY:
SUMMARY: The
FDIC is proposing to
amend its current regulations on
extension of corporate powers to
eliminate language which makes certain
prohibitions concerning equity
investments by savings associations
applicable to state banks that are
members of the Savings Association
Insurance Fund. Such banks would
thereafter be subject to the restrictions
of proposed new regulations on
activities and investments of insured
state banks in lieu of the current
restrictions. The proposed new
regulations are published elsewhere in
today’s Federal Register. The effect of
the proposed amendment would be to
subject Savings Association Insurance
Fund member state banks and Bank
Insurance Fund member state banks to
the same restrictions in so far as their
equity investments are concerned.
DATES: Comments must be received by
August 10,1992.
ADORESSES: Send comments to Hoyle L
Robinson, Executive Secretary,
Attention: Room F-400, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DC 20429. Comments
may be hand delivered to room F-402,
1776 F Street NW., Washington, DC
between 8:30 a.m. and 5 p.m. on
business days. [FAX number (202) 8983838.]
FOR FURTHER INFORMATION CONTACT:
Curtis L Vaughn, Examination
Specialist. (202) 898-6759, Shirley K.
Basse, Review Examiner, (202) 898-6815,
or Cheryl A. Steffen, Review Examiner,
(202) 898-6768, Division of Supervision.
FDIC, 55017th Street NW., Washington,
DC, 20429; Pamela E.F. LeCren, Counsel,
(202) 898-3730, Counsel, or Grovetta N.
Gardineer, (202) 898-3905, Senior
Attorney, Legal Division, FDIC, 550 17th
Street NW., Washington, DC, 20429;
Victor L Saulsbury, (202) 898-3950,
Financial Analyst, or David K. Home,
[202) 898-3981, Financial Economist.
Division of Research and Statistics,
TDIC, 550 17th Street NW., Washington.
DC 20429.
SUPPLEMENTARY INFORMATION: On
December 19,1991, President George
Bush signed into law the Federal
Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) (Pub.
L 102-242,105 Stat. 2236). Section 303 of
FDICIA added section 24 to the Federal
Deposit Insurance Corporation Act.
"Activities of Insured State Banks” (FDI
Act) (12 U.S.C. 1831a). With certain
exceptions, section 24 of the FDI Act
limits the activities and equity
investments of state chartered insured
banks to the activities and equity
investments that are permissible for
national banks. While much of section
24 is not effective until December 19,
1992, the portions of section 24 dealing
with equity investments were effective
upon enactment December 19,1991.
Paragraph (c) of section 24 “Equity
Investments by Insured State Banks".
(12 U.S.C. 1831a(c)). provides that no
insured state bank may directly or
indirectly acquire or retain any equity
investment of a type that is not
permissible for a national bank. As
already indicated, this paragraph
became effective December 19,1991.
Several exceptions to the general
prohibition to making or retaining equity
investments are found in paragraph (c)
itself and in subsequent paragraphs of
section 24. In addition, paragraph (c)
provides a "transition rule" that requires
insured state banks to divest prohibited
equity investments as quickly as can be
prudently done but in no event any later
than December 19.1996. The FDIC is
given the authority to establish
conditions and restrictions governing
the retention of the prohibited
investments during the divestiture
period. Paragraph (c) expressly provides
for an exception for the retention or
acquisition of equity investments in
majority owned subsidiaries and equity
investments in qualified low income
housing.
Section 24(f), “Common and Preferred
Stock Investment”, (12 U.S.C 1831a(f))
which also became effective upon
enactment of FDICIA, provides that no
insured state bank may directly'or
indirectly acquire or retain any equity
investment of a type, or in an amount,
that is not permissible for a national
bank and which is not otherwise
permitted under section 24. Like
paragraph (c), paragraph (f) contains
several exceptions to the general
prohibition.
Paragraph (f)(2) creates a limited
“grandfather” for investments in
30433
common or preferred stock or shares of
investment companies. The exception
allows insured state banks that (a) are
located in a state that as of September
30,1991 permitted the bank to invest in
common or preferred stock listed on a
national securities exchange or shares
of an investment company registered
under the Investment Company Act of
1940 (15 U.S.C. 80a-l et seq.), and (b)
which made or maintained investments
in listed stock or registered shares
during the period from September 30,
1990 to November 26.1991, to acquire or
retain, subject to the FDIC’s approval
listed stock or registered shares to the
same extent to which the bank did so
during the period from September 30,
1990 to November 26,1991 (“relevant
period”) up to an aggregate maximum of
100 percent of the bank’s capital. A bank
must file a written notice with the FDIC
of its intent to take advantage of the
exception (and must receive the FDIC’s
approval) before it can lawfully retain or
acquire listed stock or registered shares
pursuant to the exception provided by
paragraph (f)(2). If a bank made
investments in listed stock or registered
shares during the relevant period that
exceed in the aggregate 100 percent of
the bank’s capital as measured on
December 19,1991, the bank must divest
the excess over the three year period
beginning on December 19,1991 at a rate
of no less than Vs of the excess each
year.
Paragraph (d)(2) provides an
exception for the retention of an equity
interest in a subsidiary that was
engaged in a state in insurance activities
as principal on November 21,1991 so
long as the subsidiary's activities
continue to be confined to offering the
same type of insurance to residents of
the state, individuals employed in the
state and any other person to whom the
subsidiary provided insurance as
principal without interruption since such
person resided in or was employed in
the state.
Paragraph (e) indicates that nothing in
section 24 shall be construed as
prohibiting an insured state bank in
Massachusetts, New York or
Connecticut from owning stock in a
savings bank life insurance company
provided that consumer disclosures are
made.
Section 24(g) grants the FDIC the
authority to make determinations under
section 24 by regulation or order.
Elsewhere in today’s Federal Register
the FDIC is proposing to add a new part
30434
Federal Register / VoL 57, No. 132 / Thursday, July 9, 1992 / Proposed Rules
362 to the FDIC’s regulations that would
implement the equity investment
provisions of section 24.
On April 30,1991 the FDIC amended
the FDIC’s regulations by adding a new
§ 333.3 to part 333, “Extension oif
Corporate Powers" (12 CFR 333.3). That
section, among other things, causes state
banks that are members of the Savings
Association Insurance Fund (“SAIF
member state banks") to be subject to
the conditions and restrictions regarding
equity investments to which state
savings associations are subject
pursuant to $ 303.13 of the FDICs
regulations (12 CFR 303.13). Section
303.13 was adopted by the FDIC on
December 12,1989 (54 FR 5354a
December 29,1989) in order to
implement section 28 of the FDI Act (12
U.S.C. 1831e) which placed certain
prohibitions on the activities and equity
investments of state savings
associations. Section 28 was added to
the FDI Act as part of the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) (Pub.
L 101-73.103 Stat. 183 (1989)).
Among other things, section 28 of the
FDI Act and § 303.13 of the FDIC’s
regulations prohibit state chartered
savings associations from acquiring or
retaining any equity investment of a
type or in an amount that is not
permissible for a federal savings
association. If a state savings
association meets it fully phased-in
capital requirements and the FDIC
determines that there is not a significant
risk to the deposit insurance fund, a
state savings association may acquire or
retain an equity investment in a service
corporation that would not be
permissible for a federal savings
association. Equity investments
acquired prior to August 8,1989 that are
prohibited investments must be divested
as quickly as prudently possible but in
no event later than July 1,1994. The
FDIC may set conditions and
restrictions governing the retention of
the prohibited equity investments during
the divestiture period.
It was the determination of the FDIC’s
Board of Directors when $ 333.3 was
adopted that savings associations which
convert to state chartered banks and
retain their membership in SAIF should
continue to be subject to the safeguards
enacted by FIRREA. The action was
found necessary by the Board of
Directors to protect SAIF from harm. At
the same time, however, the Board of
Directors indicated that it was not its
intent to permanently establish two
classes of state banks that would be
treated differently based upon their
membership in a particular deposit
insurance hind. The FDIC subsequently
undertook a review of the issue of
expanded bank powers with the hopes
of proposing a regulation applicable to
all state banks. Before the FDIC could
publish a proposal, however, Congress
enacted FDICIA along with the
provisions described above concerning
equity investments.
It is the FDIC’s opinion that § 333.3
was not repealed by implication with
the enactment of section 303 of FDICIA.
However, in light of the action by
Congress, the FDICs previously
expressed intent to adopt uniform
treatment for state banks, and the fact
that the equity investment provisions of
section 24 of the FDI Act are currently
effective, the FDIC is proposing to
amend | 333.3 of this part to allow state
banks to be governed by the equity
investment provisions of section 24 of
the FDI Act and any regulations adopted
by the FDIC pursuant thereto.
Regulatory Flexibility Analysts
The Board of Directors has
determined that the proposed
amendment if adopted, will not have a
significant economic impact on a
substantial number of small entities. The
proposed amendment will not
necessitate the development of
sophisticated recordkeeping and
reporting systems by small institutions
nor the expertise of specialized staff
accountants, lawyers or managers that
small institutions are less likely to have
absent hiring additional employees or
obtaining these services from outside
vendors. On the contrary, the proposed
amendment if adopted, will relieve what
may be perceived as a burden on SAIF
member state banks (both large and
small) in that they are currently subject
to a different set of rules regarding their
equity investments than that to which
Bank Insurance Fund member state
banks are subject SAIF member state
banks are presently required to comply
with the most restrictive rule and
therefore must determine which rule is
in fact the more restrictive. This
amendment would relieve that burden
and place SAIF member state banks on
a par with BIF member state banks.
As the proposed amendment will not
have a disparate economic impact on
small institutions, the FDIC is not
required to conduct a Regulatory
Flexibility Act analysis. (See section 605
of the Regulatory Flexibility Act (5
U.S.C 60S)).
List of Subjects in 12 CFR Part 333
Banks, banking.
In consideration of the foregoing, the
FDIC hereby proposes to amend chapter
III, title 12 of the Code of Federal
Regulations by amending part 333 as
follows:
PART 333— EXTENSION OF
COR POR ATE POWERS
1. The authority citation for part 333
continues to read as follows:
Authority: 12 U.S.C. 1816,1618,1819,
1828(m).
$3303 [Amended]
2. Section 333.3(a) is amended by
removing “set forth in $ 303.13(a)
through $ 303.13(f) of this chapter"
where it appears in the first sentence
and adding in lieu thereof “set forth in
$ 303.13(a) through $ 303.13(c), and
$ 303.13(f) of this chapter".
By Order erf the Board of Directors.
Dated at Washington, DC this 10th day of
June, 1992.
Federal Deposit Insurance Corporation.
Hoyle L. Robinson,
Executive Secretary.
[FR Doc. 92-15360 Filed 7-8-92; 8:45 am]
HI |
COOC I 7 H 4 V #
ifiT-IbbGl
Federal Deposit Insurance Corporation Regional Offices
REGIONAL OFFICES - SUPERVISION
ATLANTA REGIONAL OFFICE
Lyle V. Helgerson
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
Marquis One Building, Suite 1200
245 Peachtree Center Avenue, N.E.
Atlanta, GA 30303
(404) 525-0308
Alabama, Florida
Georgia
North Carolina
South Carolina
Virginia
West Virginia
KANSAS CITY REGIONAL OFFICE
James 0. Leese
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
2345 Grand Avenue, Suite 1500
Kansas City, MO 64108
(816) 234-8000
Iowa, Kansas
Minnesota, Missouri
Nebraska, North Dakota
South Dakota
BOSTON REGIONAL OFFICE
Paul H. Wiechman
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
160 Gould Street
Needham, MA 02194
(617) 449-9080
Connecticut, Maine
Massachusetts
New Hampshire
Rhode Island, Vermont
MEMPHIS REGIONAL OFFICE
Bill C. Houston
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
5100 Poplar Ave., Suite 1900
Memphis, TN 38137
(901) 685-1603
Arkansas
Kentucky
Louisiana
Mississippi
Tennessee
CHICAGO REGIONAL OFFICE
Simona L. Frank
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
30 S. Wacker Drive, Suite 3100
Chicago, IL 60606
(312) 207-0210
Illinois
Indiana
Michigan
Ohio
Wisconsin
NEW YORK REGIONAL OFFICE
Nicholas J. Ketcha Jr.
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
452 Fifth Avenue, 21st Floor
New York, NY 10018
(212) 704-1200
Delaware, District of
Columbia, Maryland
New Jersey, New York
Pennsylvania
Puerto Rico
Virgin Islands
DALLAS REGIONAL OFFICE
Kenneth L. Walker
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
1910 Pacific Avenue, Suite 1900
Dallas, TX 75201
(214) 220-3342
Colorado
New Mexico
Oklahoma
Texas
SAN FRANCISCO REGIONAL OFFICE
George J. Masa
Regional Director - Bank Supervision
Federal Deposit Insurance Corporation
25 Ecker Street, Suite 2300
San Francisco, CA 94105
(415) 546-0160
Alaska, Arizona
California, Guam
Hawaii, Idaho, Montana
Nevada, Oregon, Utah
Washington, Wyoming
@FedFRASER