[Federal Register Volume 62, Number 62 (Tuesday, April 1, 1997)]
[Notices]
[Pages 15480-15482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8254]
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FEDERAL DEPOSIT INSURANCE CORPORATION
Statement of Policy Regarding Liability of Commonly Controlled
Depository Institutions
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Policy statement.
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SUMMARY: The FDIC is revising the statement of policy which sets forth
the procedures and guidelines the FDIC uses in assessing liability
against commonly controlled depository institutions under section 5(e)
of the Federal Deposit Insurance Act. The revised policy statement
provides guidance based on the FDIC's experience in administering the
provisions of section 5(e) of the Act and clarifies the authority
granted to the FDIC to issue assessments of liability or grant
conditional waivers of liability, the manner in which the FDIC will
assess the amount of loss incurred by the FDIC, and the manner in which
each liable institution's share of that loss will be determined. The
revised policy statement also addresses the potential liability of
depository institutions acquired by unaffiliated parties prior to any
occurrence establishing liability under section 5(e) of the Act.
EFFECTIVE DATE: April 1, 1997.
FOR FURTHER INFORMATION CONTACT: Cheryl Steffen, Special Situations and
Application Section, Division of Supervision, (202) 898-8768; Michael
J. Fanaroff, Division of Resolution and Receiverships, (202) 898-7122;
or Grovetta N. Gardineer, Counsel, Legal Division, (202) 736-0665,
Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
SUPPLEMENTARY INFORMATION: On May 22, 1990, the Board of Directors of
the FDIC adopted a Statement of Policy Regarding Liability of Commonly
Controlled Depository Institutions. Such liability is a consequence of
section 5(e) of the Federal Deposit Insurance Act (Act), 12 U.S.C.
1815(e), which was added by the passage of section 206(a)(7) of the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Section 5(e) created liability for commonly controlled insured
depository institutions for losses incurred or anticipated by the FDIC
in connection with (i) the default of a commonly controlled insured
depository institution; or (ii) any assistance provided by the FDIC to
any commonly controlled insured depository institution in danger of
default. The purpose of section 5(e) is to ensure that the assets of
healthy depository institution subsidiaries within the same holding
company structure, or of a healthy institution which controls a failing
institution, will be available to the FDIC to help offset the cost of
resolving the failed subsidiary. While the FDIC seeks to recover its
losses associated with failing institutions, it also seeks to encourage
the acquisition of troubled institutions by those capable of
rehabilitating them and to avoid instances in which the assessment of
liability against an otherwise healthy institution will cause its
failure, thus exposing the FDIC and the insurance funds to greater
loss.
The FDIC has brought a number of actions since the enactment of
section 5(e). While the original statement of policy provided guidance
to the industry regarding the application of the statute at the time it
was published, the FDIC had not initiated any actions under the
statute. The revised policy statement attempts to provide guidance to
the industry based on actual practice with administering the statute.
The proposed policy statement contains information regarding the
content of requests for conditional waiver. Depending on decisions
affecting part 303 of the FDIC Rules and Regulations (Rules), this
information may also be addressed in the revised part 303 of the FDIC's
Rules regarding applications. Any changes in part 303 of the FDIC's
Rules may also necessitate further revisions to the policy statement.
The policy statement provides for the issuance of a Notice of
Assessment of
[[Page 15481]]
Liability, Findings of Fact and Conclusions of Law, an Order to Pay and
a Notice of Hearing, a good faith estimate of the FDIC's loss, and the
determination of the method and schedule of repayment. The liability
under the statute attaches at the time of default of a commonly
controlled depository institution. The FDIC, in its discretion, may
assess liability for the losses incurred by the default or for any
assistance provided by the FDIC to a commonly controlled institution in
danger of default. Generally, liability will be assessed against an
institution except in instances of the acquisition of a distressed
institution by an unaffiliated entity prior to the default of a
commonly controlled institution. A conditional waiver of the liability
will be considered when, as determined within the sole discretion of
the Board of Directors of the FDIC, the exemption is in the best
interests of either of the insurance funds administered by the FDIC or
where a waiver facilitates an alternative that is in the best interests
of the FDIC. Institutions that believe that an assessment of liability
would be inappropriate are required to submit supporting documentation.
The text of the revised policy statement follows:
Federal Deposit Insurance Corporation Statement of Policy Regarding
Liability of Commonly Controlled Depository Institutions
Introduction
Section 5(e) of the Federal Deposit Insurance Act, as added by
section 206(a)(7) of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, creates liability for commonly controlled
insured depository institutions for losses incurred or anticipated by
the Federal Deposit Insurance Corporation (FDIC) in connection with (i)
the default of a commonly controlled insured depository institution; or
(ii) any assistance provided by the FDIC to any commonly controlled
insured depository institution in danger of default. In addition to
certain statutory exceptions and exclusions contained in sections
5(e)(6), (7) and (8), the Act also permits the FDIC, in its discretion,
to exempt any insured depository institution from this liability if it
determines that such exemption is in the ``best interests of the Bank
Insurance Fund or the Savings Association Insurance Fund''.
The liability of an insured depository institution attaches at the
time of default of a commonly controlled institution. It is completely
within the discretion of the FDIC whether or not to issue a notice of
assessment to the liable institution for the estimated amount of the
loss incurred by the FDIC.
Guidelines for Conditional Waiver of Liability
The FDIC may, in its discretion, choose not to assess liability
based upon analysis of a particular situation, and it may entertain
requests for waivers from affiliated or unaffiliated parties of an
institution in default or in danger of default. The determination of
whether an exemption is in the best interests of either insurance fund
rests solely with the Board of Directors of the FDIC (Board). Should
the Board make such a determination, a waiver will be issued setting
forth terms and conditions that must be met in order to receive an
exemption from liability (conditional waiver of liability). The
following guidelines apply to conditional waivers of liability under
the provisions of this section:
(1) A conditional waiver of liability will be considered in those
cases where the waiver facilitates an alternative that would be in the
best interests of the FDIC; for example, the conditional waiver may be
granted when requisite additional capital and managerial resources are
being provided which substantially lessen exposure to the affected
insurance fund. When conditional waivers are granted to an otherwise
unaffiliated acquirer of a failing or failed institution they will be
granted for a fixed period, generally not to exceed a period of time
reasonably required for existing problems to be identified and
resolved.
(2) If one or more institutions in a commonly controlled
relationship is otherwise solvent, well-managed and viable, it may be
in the best interest of the FDIC to waive or reduce claims against such
entities. In determining whether a conditional waiver is appropriate,
consideration will be given to actions of a holding company which
contribute to or diminish the FDIC's losses, as well as proposals to
strengthen other weakened institutions, if any.
(3) Requests for waivers should be filed with the appropriate
Regional Director (Supervision).
(4) In the event an application for a conditional waiver of
liability is made, the applicant should provide the FDIC information
indicating the basis for requesting a waiver; the existence of any
significant events (e.g., change of control, capital injection, etc.)
that may have an impact upon the applicant or a potentially liable
institution(s); current and, if applicable, pro forma financial
information regarding the applicant and potentially liable
institution(s); and the benefits resulting from the waiver and any
related events. Additional information may be requested.
(5) In the event a conditional waiver of liability is issued,
failure to comply with the terms specified therein may result in the
termination of the conditional waiver of liability. The FDIC reserves
the right to revoke the conditional waiver of liability after giving
the applicant written notice of said revocation and a reasonable
opportunity to be heard on the matter.
(6) In cases where an insured depository institution is sold to an
acquirer with no financial interest, directly or indirectly, in the
institution prior to the acquisition, it is the general policy of the
FDIC to forego the issuance of a notice of assessment to the acquirer
and its affiliated institutions in the event of a default of an insured
depository institution formerly affiliated with the acquired
institution. The FDIC will review all such transactions prior to making
a final determination to forego the issuance of the notice of
assessment.
Guidelines for Assessment of Liability
Whenever the FDIC determines that assessment of liability in
connection with a commonly controlled insured depository institution(s)
is appropriate, a Notice of Assessment of Liability, Findings of Fact
and Conclusions of Law, Order to Pay, and Notice of Hearing (Notice of
Assessment) will be served upon the liable institution. In assessing
the amount of the FDIC's loss and the liable institution(s) method of
payment, the following guidelines shall apply:
(1) A good faith estimate of the amount of loss the FDIC will incur
shall be based upon (a) the actual sale or calculation of loss from a
review by the FDIC of the assets and liabilities of the institution
prior to default or the granting of assistance; or (b) any other cost
estimate bases as explained in the Notice of Assessment.
(2) If there is more than one commonly controlled depository
institution to be assessed, each such institution is jointly and
severally liable for all losses; however, the FDIC shall make a good
faith estimate of the liability of each institution as determined by
(a) first assessing an initial amount on a pro rata capital basis that
brings about parity in the capital ratios of the liable institutions
and (b) then apportioning any residual assessment on a pro-rata size
basis utilizing the most recent Report of Condition. Any final
assessment can be based on the estimated liability of each
[[Page 15482]]
institution by the FDIC and/or negotiations with the liable
institutions.
(3) In the event that any liable institution is closed prior to
paying an assessment, the amount assessed or to have been assessed
against that institution may be assessed against the remaining liable
institution(s).
(4) The FDIC, after consulting with the appropriate federal and
state financial institutions regulatory agencies, shall establish in
each case a schedule for payment which may include a lump sum
reimbursement, as well as procedures for receipt of such payment.
(5) Once liability has attached, the FDIC will consider information
similar to that provided with a request for a conditional waiver of
liability in determining the amount of the estimated loss to be
assessed. Such information may also include suggested payment plans.
By order of the Board of Directors.
Dated at Washington, DC., this 25th day of March, 1997.
Federal Deposit Insurance Corporation
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-8254 Filed 3-31-97; 8:45 am]
BILLING CODE 6714-01-P
