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4000 - Advisory Opinions
Transactions in Which an Insured Depository Institution Grants a
Security Interest in Assets of the Institution to a Third Party
FDIC-89-48
December 15, 1989
John L. Douglas, General Counsel
This is in reference to your recent inquiry regarding the
application of the "written agreement" and related requirements
contained in the Federal Deposit Insurance Act ("FDIA") as
amended by the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 to certain secured transactions.
In particular, you have raised a question concerning transactions
("Secured Transactions") in which an insured depository
institution (the "Institution") grants a security interest in
assets of the Institution (the "Collateral") to a third party
(including a trustee for the benefit of others, the "Secured
Party") to secure an obligation (the "Secured Obligation") of
the Institution. The Collateral might be acquired (including by way of
the origination thereof) by the Institution other than in connection
with the Secured Transaction, and might be acquired by the Institution
months or years prior to the grant of a security interest therein to
the Secured Party. Further, the Collateral might be pledged to the
Secured Party after the incurrence of the Secured Obligation pursuant
to a "collateral maintenance" provision contained in
documentation for the Secured Transaction (which provision would
require the Institution to maintain the market value of the Collateral
pledged to the Secured Party at a specified level).
You have indicated that a concern has been expressed that a lapse of
time between the Institution's acquisition of the Collateral and
the grant of a security interest therein to the
{{2-28-90 p.4424}}Secured Party could in itself enable
the Federal Deposit Insurance Corporation ("FDIC"), in its
corporate, conservatorship or receivership capacities, to avoid the
Secured Party's security interest in the Collateral under Section 13(e)
or Section 11(d) of the FDIA, or could enable a "bridge bank" to
avoid the Secured Party's security interest in the Collateral under
Section 11(N)(4)(I) of the FDIA.
Section 13(e) of the FDIA provides that:
"[n]o agreement which tends to diminish or defeat the
interest of the [Federal Deposit Insurance] Corporation in any asset
acquired by it under this section or section 11, either as security for
a loan or by purchase or as receiver of any insured depository
institution, shall be valid against the Corporation unless such
agreement--
(1) is in writing
(2) was executed by the depository institution and any person
claiming an adverse interest thereunder, including the obligator,
contemporaneously with the acquisition of the asset by the
depository institution,
(3) was approved by the board of directors of the depository
institution or its loan committee, which approval shall be reflected in
the minutes of said board or committee, and
(4) has been, continuously, from the time of its execution, an
official record of the depository
institution. 1
(Emphasis added.)
Section 11(d)(9)(A) of the FDIA provides in pertinent part that
". . . any agreement which does not meet the requirements set forth
in section 13(e) shall not form the basis of, or substantially
comprise, a claim against the receiver or the [Federal Deposit
Insurance] Corporation."
You have indicated that the expressed concerns are based on the
possibility that the FDIC or a "bridge bank" might view the
agreement evidencing the Secured Obligation as "diminishing or
defeating" the right, title and interest of the FDIC or the
"bridge bank" in the Collateral (an asset of the Institution),
and might seek to avoid the security interest in the Collateral if the
Institution had not acquired the Collateral contemporaneously with the
grant of a security interest therein to the Secured Party.
You have indicated that you do not believe that Section 13(e),
11(d)(9) or 11(n)(4)(I) of the FDIA should be so interpreted, based on
several arguments. We understand your principal argument to be that the
consideration received by the Institution as the quid pro quo
for the incurrence of the Secured Obligation (including a
"collateral maintenance" requirement) and the grant of the
security interest in the Collateral should be viewed as the
"asset" for purpose of section 13(e)(11)(d)(9) and 11(n)(4)(I).
Under this argument, the grant of a security interest in Collateral is
not an agreement whereby the Institution diminishes or defeats its
interest in the Collateral, but is instead an agreement that changes
its interest in the Collateral in connection with the acquisition of
another asset, i.e., the consideration for the Secured
Obligation. Or stated another way the combination of the original asset
as pledged and the consideration for the grant of the security interest
should be viewed as a whole and there is accordingly no diminishment in
the "overall asset." To interpret the provision any other way
would place all security interests other than purchase money security
interests at risk.
It is not the practice of the FDIC to provide binding determinations
except through regulations or orders. We do not provide binding
determinations of what a receiver or conservator for a specific
financial institutions may or may not do in a particular case based on
hypothetical circumstances, nor do we provide binding determinations as
to how the FDIC in its corporate capacity or a "bridge bank" may
act with respect to assets acquired from a specific financial
institution in a particular case based on hypothetical circumstances. I
can, however, give you my opinion as to what decision a court would
render if faced with certain issues.
{{2-28-90 p.4425}}
Subject to the assumptions set forth below, it is my opinion that a
court would hold that the FDIC, in its corporate, conservatorship or
receivership capacities, could not, pursuant to section 13(e) or
section 11(d)(9) of the FDIA, and a "bridge bank" could not,
pursuant to Section 11(n)(4)(I) of the FDIA, avoid a security interest
in Collateral solely because the grant of the security
interest in the Collateral by the Institution did not occur
contemporaneously with the Institution's acquisition of the Collateral.
I do not believe it was intended that security interests other than
purchase money security interest be placed at any additional risk.
For purposes of the foregoing opinion, I have assumed the following:
1. The Secured Transaction was a bona fide, arm's length
transaction that contemplated the grant of a security interest in the
Collateral (including pursuant to a "collateral maintenance"
provision);
2. The Secured Party is not an insider or affiliate of the
Institution;
3. The grant of the security interest in the Collateral and the
incurrence of the Secured Obligation (including a "collateral
maintenance" requirement) were for adequate consideration and were
not avoidable under other provisions of law, such as the law of
fraudulent conveyances; and
4. The agreement evidencing the grant of a security interest in the
Collateral and the incurrence of the Secured Obligation (including a
"collateral maintenance" requirement) is in writing, is executed
by the Institution contemporaneously with the incurrence of the Secured
Obligation and the receipt of the consideration for such obligation, is
approved by the Institution's board of directors or loan committee
(which approval shall be reflected in the minutes of the board of
directors or loan committee), and is, continuously from the time of its
execution, an official record of the Institution.
You have indicated there are similar concerns regarding the
Resolution Trust Corporation (RTC) and sections 13(e), 11(d)(9) and
11(n)(4)(I) of the FDIA 2
As General Counsel of the FDIC, which serves as the exclusive manager
of the RTC, I can state that it is my opinion that the RTC has no
greater rights in this regard than the FDIC and that the above analysis
applies equally to the RTC.
The foregoing opinion only addresses the avoidability of a security
interest in Collateral pursuant to section 13(e), 11(d)(9) and
11(n)(4)(I) of the FDIA, and does not address the avoidability of a
security interest in Collateral under any other provisions of law or
regulation.
1Section 11(n)(4)(I) of the FDIA is identical to Section 13(e)
of the FDIA, except that it refers to an asset of an "insured
bank" acquired by a "bridge bank." Go Back to Text
2Section 21A(b)(4) of the Federal Home Loan Bank Act provides
in pertinent part that: "the [Resolution Trust]
Corporation shall have the same powers and rights to carry out its
duties with respect to institutions described in paragraph (3)(A)
[Section 21A(b)(3)(A) of the Federal Home Loan Bank Act] as the
Federal Deposit Insurance Corporation has under section 11, 12, and 13
of the Federal Deposit Insurance Act with respect to insured depository
institutions (as defined in section 3 of the Federal Deposit Insurance
Act)." Go Back to Text
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