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4000 - Advisory Opinions
Applicability of § 23A of the Federal Reserve Act to a
transaction involving an insured nonmember bank, an unaffiliated
purchaser of the bank's affiliated savings bank, and the holding
company owning both the bank and savings bank
FDIC--96--2
January 22, 1996
Gerald J. Gervino, Senior Attorney
You have asked about the applicability of Section 23A of the
Federal Reserve Act, 12 U.S.C.
§ 371c ("Section 23A") to a transaction involving an
insured nonmember bank ("Bank"), an unaffiliated purchaser
("Purchaser") of the stock of the Bank's affiliated savings bank
("Savings Bank"), and the holding company owning both the Bank
and the Savings Bank.
The holding company intends to sell all of its Savings Bank stock to
an unaffiliated party at the same time that the Bank purchases
substantially all of the Savings Bank's assets for cash. You feel that
because the transactions are simultaneous, the prohibitions of Section
23A would not apply.
We disagree. The simultaneous transactions, which you have
described, result in the Bank transferring cash to the Purchaser or its
newly acquired Savings Bank subsidiary, in related transactions, where
the affiliated holding company is receiving consideration from the
Purchaser and the Bank is purchasing affiliate assets for cash. The
cash payment by the Bank, if not directly transferred to the holding
company, is clearly benefiting the holding company, since it is
determining the consideration (sale price) received by the holding
company for the Savings Bank stock. For Section 23A purposes, it would
be considered a purchase of affiliate assets by the Bank, whether in an
integrated transaction or if done on a delayed basis. Section
23A(a)(2).
The transaction would then be a covered transaction. Section
23A(b)(7)(C). Absent an applicable exemption, the lending limits of
Section 23A(a)(1), the prohibition upon the purchase of low quality
assets in Section 23A(a)(3), and the prohibition upon unsafe and
unsound transactions in Section 23A(a)(4), would apply to the
transaction which you have outlined.
The above opinion would not be altered by the fact that the
transactions were executed simultaneously or a moment after the holding
company sale of the stock to the Purchaser.
Section 23A(a)(2) would trace the cash and the benefit of the
transaction from the Bank to the holding company and apply the statute
as a covered transaction. The exemptions contained in Section 23A(d)
would not apply because Section 23A(a)(2) would treat this transaction
as if it were between the Bank and its holding company.
We have discussed this question with the staff of the Board of
Governors of the Federal Reserve System. If you have any further
questions, please write or call me at (202) 898--3723. My Fax number is
(202) 898--3715.
{{12-31-96 p.4970.01}}
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