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Federal Deposit Insurance Corporation

Division of Supervision

550 17th Street NW, Washington, DC 20429

Activities of Insured Depository Institutions
December 3, 1998



Final Rule Governing Activities and Investments of Insured Depository
Institutions (Part 362 of FDIC's Rules and Regulations)


The FDIC Board of Directors has voted to revise the agency's regulations governing the
activities and investments of insured state banks and savings associations, and consolidate
those regulations into a single section-Part 362 of the FDIC's rules and regulations. The Board
also approved updating and incorporating into Part 362 portions of the FDIC's regulations
governing the securities activities of subsidiaries and affiliates of insured state nonmember
banks. The final rule, which is attached, takes effect January 1, 1999.


The revised rule provides the framework for which certain state-chartered banks or their
majority-owned subsidiaries may engage in activities that are not permissible for national banks
or their subsidiaries. All contemplated activities must, however, be permitted by the institution's
chartering authority. The rule does not grant new powers to insured state depository institutions.
The FDIC is not advocating that insured state depository institutions should engage in the
activities covered by this regulation. However, if an activity or equity investment is permissible
under state law, the revised regulation will allow the FDIC to move more expeditiously on
requests. If the request is routine, the regulation establishes a notice procedure. If the request
does not fall within the standards to be processed as a notice, the FDIC will work diligently with
the applicant to find an acceptable manner of conducting the activity.
Under the final rule, well-capitalized, state-chartered banks or their subsidiaries may engage in
certain otherwise impermissible activities without seeking specific FDIC consent if the bank
complies with any limits or conditions restricting those activities. Other activities require
depository institutions to submit either a notice or application to the FDIC.


The rule's notice procedure will expedite the processing of requests from banks meeting various
eligibility requirements. Activities to which notice processing has been extended include
securities underwriting and real estate investment activities. An application process is available
to banks not meeting or desiring relief from specific eligibility requirements. Like the present
regulation, the revised rule will also enable banks to use the application process when seeking
to engage in activities for which the notice procedure is currently unavailable.
To further expedite and simplify processing, the information required for most notices and
applications is identical. If an institution qualifies for the notice procedure, consent is granted 30
days after the FDIC receives a completed notice from the applicant unless otherwise notified. If
consent is required through an application, the processing period is normally 60 days.
The regulation is structured using a "menu approach" with various requirements imposed on
certain activities. Those requirements may also be imposed at the FDIC's discretion when
approving applications filed pursuant to this regulation. The requirements reflect conditions that

the FDIC has agreed to allow for well-capitalized insured state banks or their subsidiaries to
engage in activities impermissible for national banks and their subsidiaries. The standards
address three broad areas:

Eligibility requirements, including requirements for the depository institution and for the


Investment and transaction restrictions, incorporating standards similar to those
prescribed by section 23A and 23B.


Capital standards, requiring insured depository institutions to be well-capitalized after
deducting their equity investments in a subsidiary from regulatory capital.



Separately, the Board is seeking comment on a proposal to amend subpart B of the final
regulation. The attached proposed amendment expands the scope of subpart B to include
safety and soundness standards for subsidiaries of insured state nonmember banks engaging in
securities underwriting activities that are permissible for a subsidiary of a national bank, but
impermissible for a national bank. These activities are currently subject to section 337.4 of the
FDIC's regulations, which would be removed and reserved under the proposal. The proposal
would amend subpart B to apply the same standards and restrictions on all insured state
nonmember bank subsidiaries engaging in securities underwriting activities that are
impermissible under section 16 of the Banking Act of 1933, commonly known as the GlassSteagall Act.
Under this proposal, the scope of subpart B would also be expanded to require insured state
nonmember banks to submit notices to the FDIC of their intent to engage in any other activities
that, while permissible for a subsidiary of a national bank, are impermissible for a national bank.
The FDIC would use information submitted in the notices to determine whether a particular
activity could adversely affect the safety and soundness of an insured state nonmember bank.
Comments on the proposal to amend subpart B are due by February 1, 1998.


For further information, please contact Curtis Vaughn (202-898-6759), Examination Specialist in
the Division of Supervision; or Jamey Basham (202-898-7265), Counsel in the Legal Division.
Nicholas J. Ketcha Jr.

Attachment: Federal Register Dec. 1, pages 66275-66346.
Distribution: FDIC-Supervised Banks (Commercial and Savings)
NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's
Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (800-2766003 or (703) 562-2200).