|
[Main Tabs]
[Table of Contents - 5000]
[Index]
[Previous Page]
[Next Page]
[Search]
5000 - Statements of Policy
{{2-28-03 p.5349}}
FDIC Statement of Policy on Applications for Deposit Insurance
Introduction
The Board of Directors of the FDIC is charged by statute with the
responsibility of acting on applications for federal deposit insurance
by all depository institutions 1
including any national bank, district bank, state bank, federal savings
association, state savings association, savings bank, or trust company.
In addition, the Board of Directors also will act on applications for
federal deposit insurance by an industrial bank (or similar depository
institution which the Board of Directors finds to be operating
substantially in the same manner as an industrial bank), or any other
depository institution which is engaged in the business of receiving
deposits, other than trust funds.
An insured depository institution which wishes to continue its
insured status after withdrawing from the Federal Reserve System, or
when converting from a mutual to a stock form of ownership by the
chartering of an interim savings association under the provisions of
section 10(o) of the Home Owners Loan
Act, also must file an application with the FDIC for deposit
insurance.
Procedures
Forms and instructions for applying for deposit insurance may be
obtained from any FDIC regional director.
Completed applications should be filed with the appropriate FDIC
office. Organizers and incorporators (collectively,
"incorporators") of proposed new depository institutions should
file their applications with the FDIC and the appropriate chartering
authority at the same time. Information provided to the chartering
authority that is also needed as part of the deposit insurance
application may be provided to the FDIC by appending a copy of the
information to the FDIC application. Use of the FDIC application form
is optional; however, the material submitted to the FDIC must contain
all information requested in the FDIC application form, unless the FDIC
otherwise indicates. In addition, all incorporators must sign and
submit the signature page of the FDIC's deposit insurance application
form, even if the application itself is not being used. It is strongly
recommended that a representative(s) of the organizing group meet with
the chartering authority and the FDIC prior to filing an application to
reach an understanding of the information requirements of each agency.
This practice typically facilitates processing and eliminates
unnecessary delays. Information requirements may not be as extensive
for applications sponsored by existing holding companies or other well
established banking groups. The FDIC may take final action prior to
final action by other regulatory authorities in cases in which the FDIC
has determined that there is no material disagreement on the action to
be taken.
The procedures governing the administrative processing of an
application for deposit insurance are contained in
part 303, subpart B, of the
FDIC's rules and regulations (12 CFR part 303). Processing of an
application will not commence until the application is deemed
substantially complete. An incomplete application may be returned to
the applicant. The applicant must satisfy all terms of a conditional
approval prior to deposit insurance becoming effective.
These policies apply to all proposed de novo depository
institutions and operating institutions applying for deposit insurance,
with the exception of applications submitted for the sole purpose of
acquiring assets and assuming liabilities of an insured institution in
default. Policies are modified in those situations to reflect the
urgent nature of the
{{2-28-03 p.5350}}transaction. Guidance for those
situations is contained in a separate section of this Policy Statement.
Subpart B of part 303 contains special filing and processing
procedures for a state member bank which seeks to continue its insured
status upon termination of membership in the Federal Reserve System and
for interim institutions chartered to facilitate mergers.
Section 307(c) of the Gramm-Leach-Bliley Act (GLBA) requires the
FDIC to consult with the appropriate State insurance regulator before
making any determination relating to the initial affiliation of, or the
continuing affiliation of, a depository institution with a company
engaged in insurance activities. As a result of this requirement,
applicants that are, or will be, affiliated with a company engaged in
insurance activities that is subject to supervision by a state
insurance regulator must submit the following information as part of
its application: (1) The name of the insurance company; (2) a
description of the insurance activities that the company is engaged in
and has plans to conduct; and (3) a list of each state and the lines of
business in that state which the company holds, or will hold, an
insurance license. Applicants must also indicate the state where the
company holds a resident license or charter, as applicable.
Proposed Depository Institutions
In considering applications for deposit insurance for a proposed
depository institution, the FDIC must evaluate each application in
relation to the factors prescribed in section 6 of the Federal Deposit
Insurance Act (hereafter the Act) (12
U.S.C. 1816). Those factors are:
• The financial history and condition of the depository
institution;
• The adequacy of its capital structure;
• Its future earnings prospects;
• The general character and fitness of its management;
• The risk presented by such depository institution to the
deposit insurance fund;
• The convenience and needs of the community to be served
by the depository institution; and
• Whether its corporate powers are consistent with the
purposes of the Act.
In general, the applicant will receive deposit insurance if all of
these statutory factors plus the considerations required by the
National Historic Preservation
Act and the National
Environmental Policy Act of 1969 are resolved favorably.
Additional guidance regarding the National Historic Preservation Act
and the National Environmental Policy Act may be found in the
respective FDIC Statements of Policy for each of these statutes.
If the proposal contemplates the simultaneous establishment of a
holding company, the application should disclose and discuss the
proposed activities of the parent holding company, as well as those of
the proposed depository institution.
Where the proposed depository institution will be a subsidiary of an
existing bank or thrift holding company, the FDIC will consider the
financial and managerial resources of the parent organization in
assessing the overall proposal and in evaluating the statutory factors
prescribed in section 6 of the Act. In such circumstances, the
application for deposit insurance should contain a copy of any
information submitted to the holding company's primary federal
regulator. Subpart B of part 303 of the FDIC's regulations (12 CFR
303.20--303.25) discusses certain expedited procedures that may be
available to eligible depository institutions or eligible holding
companies (as those terms are defined in the regulation).
The FDIC may conduct examinations and/or investigations to develop
essential information with respect to deposit insurance applications.
The FDIC will determine the need to conduct an investigation and its
scope. Every effort will be made to coordinate any FDIC investigation
with any investigations conducted by other regulators.
The FDIC has formulated guidelines for evaluating deposit insurance
applications which are designed to ease administration, prevent
arbitrary judgment, and assure uniform and fair treatment of all
applicants. A discussion of these guidelines follows.
Statutory Factors
1. Financial History and Condition
Proposed and newly organized depository institutions have no
financial history to serve as a basis for determining qualifications
for deposit insurance. Thus, the primary areas of
{{2-28-03 p.5351}}consideration under this statutory
factor are the ability of proponents to provide financial support to
the new institution, investment in fixed assets, including lease
obligations, and insider transactions. Lease transactions shall be
reported in accordance with Financial Accounting Standards Board
Statement 13 (Accounting for Leases). Applicants are expected to
provide procedures, security devices, and safeguards at least
equivalent to the minimums specified in the Bank Protection Act of 1968
(12 U.S.C. 1881--1884).
(a) Investment in fixed assets and leases--The
applicant's aggregate direct and indirect fixed asset investment,
including lease obligations, must be reasonable in relation to its
projected earning capacity, capital, and other pertinent matters of
consideration. Applicants are cautioned against purchasing any fixed
assets or entering into any noncancelable construction contracts,
leases, or other binding arrangements related to the proposal unless
and until the FDIC approves the application.
(b) Insider transactions--Any financial arrangement or
transaction involving the applicant and an insider(s) should be
documented by the applicant to demonstrate that: (1) the proposed
transaction with insiders is made on substantially the same terms as
those prevailing at the time for comparable transactions with
noninsiders, and does not involve more than normal risk or present
other unfavorable features to the applicant depository institution; and
(2) the proposed transaction must be approved in advance by a majority
of the depository institution's incorporators. In addition, full
disclosure of any arrangements with an insider must be made to all
proposed directors and prospective shareholders. An insider means a
person who is proposed to be a director, officer, or incorporator of an
applicant; a shareholder who directly or indirectly controls 10% or
more of a class of the applicant's outstanding voting stock; or the
associates or interests of any such person.
2. Adequacy of the Capital Structure
Normally, the initial capital of a proposed depository institution
should be sufficient to provide a Tier 1 capital to assets leverage
ratio (as defined in the appropriate capital regulation of the
institution's primary federal regulator) of not less than 8.0%
throughout the first three years of operation. In addition, the
depository institution must maintain an adequate allowance for loan and
lease losses.
The adequacy of the capital structure of a newly organized
depository institution is closely related to its deposit volume, fixed
asset investment and the anticipated future growth in liabilities.
Deposit projections made by the applicant must, therefore, be fully
supported and documented. Projections should be based on established
growth patterns in the specific market, and initial capitalization
should be provided accordingly. Special purpose depository institutions
(such as credit card banks) should provide projections based on the
type of business to be conducted and the potential for growth of that
business. Initial capital should normally be in excess of $2 million
net of any preopening expenses that will be charged to the
institution's capital after it commences business.
(a) Initial offering of stock--All stock of a particular
class in the initial offering should be sold at the same price, and
have the same voting rights. Proposals which allow the insiders to
acquire a separate class of stock with greater voting rights are
generally unacceptable. Insiders should not be offered stock at a price
more favorable than the price for other subscribers. Price disparities
provide insiders with a means to gain control disproportionate to their
investments.
When securities are sold to the public, the disclosure of all
material facts is essential. The FDIC's
Statement of Policy Regarding Use
of Offering Circulars in connection with Public Distribution of Bank
Securities (61 FR 46808, September 5, 1996) provides additional
guidance. A copy of the offering circular prepared by the applicant,
the stock solicitation material and the subscription agreement should
be submitted to the FDIC when they become available.
(b) Wholly owned subsidiary of a holding company--If the
applicant is being established as a wholly owned subsidiary of an
eligible holding company (as defined in part 303, subpart B), the FDIC
will consider the financial resources of the parent organization as a
factor in assessing the adequacy of the proposed initial capital
injection. In such cases, the FDIC may find favorably with respect to
the adequacy of capital factor, when the initial capital injection is
sufficient to provide for a Tier 1 leverage capital ratio of at least
8% at the end of the first year of operation, based on a realistic
business plan, or the initial
{{2-28-03 p.5352}}capital injection meets the $2
million minimum capital standard set forth in this Statement of Policy,
or any minimum standards established by the chartering authority,
whichever is greater. The holding company shall also provide a written
commitment to maintain the proposed institution's Tier 1 leverage
capital ratio at no less than 8% throughout the first three years of
operation.
(c) Operating insured offices--If the proposal involves
the acquisition of an insured operating office or offices, the
applicant may request that the benchmark for evaluating the adequacy of
capital be an amount necessary for the newly chartered institution to
be classified as well capitalized, as defined by its primary federal
regulator. In such cases, the FDIC may find favorably with respect to
the capital factor based on a favorable finding with respect to the
following:
• There is a realistic three-year business plan which
evidences stabilized operations at inception;
• The proposal involves substantially all assets and
deposits attributable to the respective insured operating office(s);
and
• The proponent is either an eligible holding company (as
defined in part 303, subpart
B) or is a banking group that has, as determined by the FDIC,
demonstrated its ability to successfully manage an insured depository
institution. (A qualified banking group should have an established
association of at least three years. A chain banking group which is
recognized as such by the FDIC is one type of banking group that is
contemplated in this paragraph.)
(d) Stock financing by proposed officers, directors, and 10%
shareholders--Financing arrangements by proposed officers,
directors, and 10% shareholders of their investments in stock of the
proposed depository institution will also be carefully reviewed. Such
financing will be considered acceptable only if the party financing the
stock can demonstrate the ability to service the debt without reliance
on dividends or other forms of compensation from the applicant. When
stock financing arrangements of proposed officers, directors, and 10%
shareholders are anticipated, information should be submitted with the
application demonstrating that adequate alternative independent sources
of debt servicing are available. Direct or indirect financing by
proposed officers, directors, and 10% shareholders of more than 75%
of the purchase price of the stock subscribed by any individual, or
more than 50% of the purchase price of the aggregate stock subscribed
by the proposed officers, directors, and 10% shareholders as a group,
will require supporting justification in the application regarding the
reason that the financing arrangements should be considered acceptable.
If the proposed financing arrangements are not considered appropriate,
the FDIC may find unfavorably on the adequacy of the capital structure.
When the proposed depository institution is being established as a
subsidiary of an existing holding company, the funding source being
utilized by the holding company for its capital contribution will be
evaluated in the context of the holding company's consolidated
operations. In such cases, the holding company's proposed leverage
must be in accordance with the guidelines of its primary federal
regulator.
Loans made to purchase the stock of the proposed institution are not
to be refinanced by the newly established institution. Deposits or
other funds of the institution at correspondent banks are not to be
used as compensating balances for loans to insiders. During the first
three years of operation, cash dividends shall be paid only from net
operating income, and shall not be paid until an appropriate allowance
for loan and lease losses has been established and overall capital is
adequate.
3. Future Earnings Prospects
Before approving an application for deposit insurance, the FDIC must
have reasonable assurance that the new institution can be operated
profitably. Therefore, the incorporators will need to demonstrate
through realistic and supportable estimates that, within a reasonable
period (normally three years), the earnings of the applicant will be
sufficient to provide an adequate profit.
The applicant must also maintain its books and records in accordance
with the principles of accrual accounting.
{{2-28-03 p.5353}}
4. General Character and Fitness of the Management
To satisfy this factor, the evidence must support a management
rating which, in an operating institution, would be equivalent to a
rating of 2 or better under the Uniform Financial Institution Rating
System. 2
Since in most instances the management of a proposed depository
institution will not have an operating record, the individual directors
and officers will be evaluated largely on the basis of the following:
• Financial institution and other business
experience;
• Duties and responsibilities in the proposed depository
institution;
• Personal and professional financial
responsibility;
• Reputation for honesty and integrity; and
• Familiarity with the economy, financial needs, and
general character of the community in which the depository institution
will operate.
All proposed depository institutions shall provide at least a five
member board of directors. The identity and qualifications of the
proposed full-time chief executive officer should be made known to the
FDIC as soon as possible, preferably when the application is filed with
the appropriate FDIC office. Prior to the opening of the institution,
proponents must advise the FDIC in writing of any change in the
directorate, senior active management, or a change in the ownership of
stock which would result in a shareholder owning 10% or more of the
total shares of either the depository institution or its holding
company.
(a) Fees and expenses--The commitment to pay or payment
of unreasonable or excessive fees and other expenses incident to an
application will reflect adversely upon the management of the applicant
institution. Fees and other organizational expenses incurred or
committed to should be fully supported.
Expenses for professional or other services rendered by insiders
will receive special review for any indication of self-dealing to the
detriment of the institution and its other shareholders. As a matter of
practice, the FDIC expects full disclosure to all directors and
shareholders of any arrangement with an insider.
In no case will a deposit insurance application be approved where
the payment of a fee, in whole or in part, is contingent upon any act
or forbearance by the FDIC or by any other federal or state agency or
official.
(b) Stock benefit plans--Stock benefit plans, including
stock options, stock warrants, and other similar stock based
compensation plans will be reviewed by the FDIC and must be fully
disclosed to all potential subscribers. Participants in stock benefit
plans may include incorporators, directors, and officers. A description
of any such plans proposed must be included in the application
submitted to the appropriate FDIC office. The structure of stock
benefit plans should encourage the continued involvement of the
participants and serve as an incentive for the successful operation of
the institution. Stock benefit plans should contain no feature that
would encourage speculative or high risk activities or serve as an
obstacle to or otherwise impede the sale of additional stock to the
general public.
Listed below are factors that the FDIC will consider in reviewing
stock benefit plans:
• The duration of rights granted should be limited, and
in no event should the exercise period exceed ten years;
• Rights granted should encourage the recipient to remain
involved in the proposed depository institution. For example, a vesting
period of approximately equal percentages each year over the initial
three years of operation is a type of provision that would be
appropriate to ensure continued involvement. This requirement may be
waived for participants awarded only a nominal number of shares;
• Rights granted should not be transferable by the
participant;
• The exercise price of stock rights shall not be less
than the fair market value of the stock at the time that the rights are
granted;
• Rights under the plan must be exercised or expire
within a reasonable time after termination as an active officer,
employee or director; and
{{2-28-03 p.5354}}
• Stock benefit plans should contain a provision allowing
the institution's primary federal regulator to direct the institution
to require plan participants to exercise or forfeit their stock rights
if the institution's capital falls below the minimum requirements, as
determined by its state or primary federal regulator.
Stock benefit plans provided to directors and officers will be
reviewed as a part of the total compensation package offered to such
individuals.
The FDIC will closely review stock benefit plans established to
compensate incorporators. In reviewing such plans, the FDIC will
consider the individual's time, expertise, financial commitment, and
continuing involvement in the management of the proposed institution.
The FDIC will also consider the amount and basis of any cash payments
which will be made to the incorporator for services rendered or as a
return on funds placed at risk. Plans to compensate incorporators that
provide for more than one option or warrant for each share subscribed
will generally be considered excessive. It is further expected that
incorporators granted options or warrants at or near this level will
actively participate in the management of the depository institution as
an executive officer or director. On a case-by-case basis, the FDIC may
not object to additional options being granted to an incorporator who
will also be a senior executive officer.
The FDIC recognizes that there will be limited instances where
individuals who substantially contribute to the organization of a new
depository institution do not intend to serve as an active officer or
director after the institution opens for business. The FDIC generally
will not object to awarding warrants or options to incorporators who
agree to accept shares of stock in lieu of cash payment for funds
placed at risk or for professional services rendered. In such
instances, the FDIC defines funds placed at risk to include "seed
money" actually paid into the organizational fund and the value of
professional services rendered as the market value of legal, accounting
and other professional services rendered. Generally, warrants or
options for organizers who will not participate in the management of
the institution will be considered excessive if the amount of options
or warrants to be granted exceeds the number of shares of stock
received in repayment for funds placed at risk and/or for professional
services rendered. The granting of options to incorporators who
guarantee loans to finance an institution's organization generally
would not be objectionable, but options granted should be limited so
that the market value of the stock subject to option does not exceed
the amount of the loan guarantees (although guarantees exceeding the
amount drawn or expected to be drawn will not be considered). When
continuing service is not contemplated, the FDIC will not require
vesting or restrictions on transferability, but will review the
duration of the rights, exercise price, and exercise or forfeiture
clauses in the same manner as discussed above.
In evaluating benefit and compensation plans for insiders, the FDIC
will look to the substance of the proposal. Those proposals that are
determined to be substantially stock based plans will be evaluated
based on the foregoing stock benefit plan criteria. Stock appreciation
rights and similar plans that include a cash payment to the recipient
based directly on the market value of the depository institution's
stock are unacceptable.
If the proposal involves the formation of a de novo
holding company and a stock benefit plan is being proposed at the
holding company level, that stock benefit plan will be reviewed by the
FDIC in the same manner as a plan involving stock issued by the
proposed depository institution.
In some instances, the exercise of rights granted by a stock benefit
plan will trigger the requirements of the Change in Bank Control Act of
1978, section 7(j) of the FDI Act (12
U.S.C. 1817(j)). The approval of an Application for Deposit
Insurance which includes a description of stock benefit plans does not
satisfy the prior notice requirements of the Change in Bank Control
Act, if the exercise of rights would trigger the prior notice
requirement.
(c) Background and biographical information--Proposed
directors, officers, and 10% shareholders must file financial and
biographical information in connection with the deposit insurance
application. The FDIC may request a report from the Federal Bureau of
Investigation or other investigatory agencies on these individuals.
Fingerprinting of individuals may be required. Background checks and
fingerprinting may be waived by the
{{2-28-03 p.5355}}FDIC for individuals who are
currently associated with, or have had a recent past association with,
an insured depository institution. When the proposed depository
institution is being established as a wholly owned subsidiary of an
eligible holding company, the FDIC may waive financial information for
those persons who are being proposed as directors or officers of the
applicant. Background checks conducted by other federal financial
institution regulators in connection with charter applications are
generally adequate for the FDIC if the other regulators agree to notify
the FDIC of instances in which further investigation is warranted.
In the event any present or prospective director, officer, employee,
controlling stockholder, or agent of the applicant has been convicted
of any criminal offense involving dishonesty, breach of trust, or money
laundering, or has agreed to enter into a pretrial diversion or similar
program in connection with a prosecution of such offense, the applicant
must obtain the FDIC's written consent under section 19 of the Act
(12 U.S.C. 1829), before any
such person may serve in one or more of those capacities. Guidelines
regarding section 19 applications may be obtained from the appropriate
FDIC office.
Proponents should be aware of the prohibitions against interlocking
management officials which are applicable to depository institutions
and depository institution holding companies and which are contained in
the Depository Institution Management Interlocks Act
(12 U.S.C. 3201).
(d) Fidelity insurance, policies, and audit coverage--An
insured depository institution should maintain sufficient fidelity bond
coverage on its active officers and employees to conform with generally
accepted industry practices. Primary coverage of no less than $1
million is ordinarily expected. Approval of the application may be
conditioned upon acquisition of adequate fidelity coverage prior to
opening for business.
Applicants are expected to develop appropriate written investment,
loan, funds management and liquidity policies. Establishment of an
acceptable audit program is required for proposed depository
institutions. Applicants for deposit insurance coverage are expected to
commit the depository institution to obtain an audit by an independent
public accountant annually for at least the first three years of
operation. The FDIC may
determine, 3
on a case-by-case basis, that a separate audit is unnecessary where the
applicant is owned by a holding company and the proposed depository
institution will undergo an audit performed by an independent public
accountant as part of an audit of the consolidated financial statements
of its parent company.
5. Risk Presented to the Bank Insurance Fund or Savings
Association Insurance Fund
In order to resolve this factor favorably, the FDIC must be assured
that the proposed institution does not present an undue risk to the
Bank Insurance Fund or the Savings Association Insurance Fund. As a
general matter, the FDIC interprets this factor very broadly. In making
its determination, the FDIC will rely on any information available to
it, including, but not limited to the applicant's business plan. The
FDIC expects that an applicant will submit a business plan commensurate
with the capabilities of its management and the financial commitment of
the incorporators. Any significant deviation from the business plan
within the first three years of operation must be reported by the
insured depository institution to the primary federal regulator before
consummation of the change. Submission of an unsound business plan will
unfavorably impact the finding concerning this factor. An applicant's
business plan should demonstrate the following:
• Adequate policies, procedures, and management expertise
to operate the proposed depository institution in a safe and sound
manner;
• Ability to achieve a reasonable market share;
• Reasonable earnings prospects;
• Ability to attract and maintain adequate capital; and
• Responsiveness to community needs.
Operating plans that rely on high risk lending, a special purpose
market, or significant funding from sources other than core deposits,
or that otherwise diverge from conventional
{{2-28-03 p.5356}}bank related financial services will
require specific documentation as to the suitability of the proposed
activities for an insured institution. Similarly, additional
documentation of plans is required where markets to be entered are
intensely competitive or economic conditions are marginal.
6. Convenience and Needs of the Community to be Served
The essential considerations in evaluating this factor are the
deposit and credit needs of the community to be served, the nature and
extent of the opportunity available to the applicant in that location,
and the willingness and ability of the applicant to serve those
financial needs.
The applicant must clearly define the community it intends to serve
and provide information on that community, including economic and
demographic data and a description of the competitive environment. The
applicant should also define the services to be offered in relation to
the needs of the community. The proposed depository institution's
Community Reinvestment Act documentation, including any applicable
public file information, prepared in accordance with the requirements
of the institution's primary federal regulator, is an important part
of the FDIC's evaluation of the convenience and needs of the community
to be served.
7. Consistency of Corporate Powers with the Purposes of the
Act
(a) National banks and Federal savings
associations--Generally the FDIC will presume that a proposed
national bank's or federal savings association's corporate powers are
consistent with the purposes of the Act.
(b) Insured state banks and state savings
associations--Pursuant to section 24 of the Act
(12 U.S.C. 1831a), no insured
state bank may engage as principal in any type of activity that is not
permissible for a national bank, unless the FDIC has determined that
the activity would pose no significant risk to the appropriate deposit
insurance fund and the state bank is, and continues to be, in
compliance with applicable capital standards prescribed by its primary
federal regulator. Similarly, section 28 of the Act
(12 U.S.C. 1831e) provides
that a state chartered savings association may not engage in any type
of activity that is not permissible for a federal savings association,
unless the FDIC has determined that the activity would pose no
significant risk to the affected deposit insurance fund and the savings
association is, and continues to be, in compliance with the capital
standards for the association. Applicants shall agree in the
application not to engage in any prohibited activities after deposit
insurance has been granted.
State nonmember banks may not exercise trust powers without the
prior written approval of the FDIC.
Operating Noninsured Institutions
This section discusses the evaluation of applications for deposit
insurance submitted by operating noninsured institutions. The FDIC's
criteria for evaluating applications submitted by operating
institutions are generally the same as those for proposed depository
institutions.
The FDIC must consider the seven factors found in section 6 of the
Act, which are discussed above.
The condition of an applicant institution will be determined from
all available information and will generally include an on-site
examination as part of the investigation process. Results of the
examination should reflect an institution that is fundamentally sound,
although some modest weaknesses may exist. The nature and severity of
deficiencies found should not be material, and the institution must be
stable and able to withstand business fluctuations.
Capital ratios will be calculated using financial statements
prepared in accordance with the "Instructions-Consolidated Reports
of Condition and Income" or "Thrift Financial Reports" in use
for insured institutions at the time. An applicant's capital adequacy
will be measured in relation to the capital ratios established in the
capital regulations of the institution's primary federal regulator.
Based on an analysis of the type and quality of the institution's
assets, the kind of powers exercised, the institution's funding
sources, or other
{{2-28-03 p.5357}}factors, an initial capital level
higher than the minimum levels prescribed may be required. The analysis
will include consideration of such matters as whether the applicant is
relatively new, 4
has embarked upon a substantive change in powers exercised, or has
experienced erratic growth patterns in recent years.
As part of the application investigation process, the FDIC will
discuss with the applicant its future operating intentions. If any
change in its kind or level of activity is expected following, or as a
result of, the approval by the FDIC of deposit insurance, the applicant
may be requested to submit a plan for maintaining adequate capital in
the future.
Unless waived in writing by the FDIC, an applicant shall have a full
scope audit conducted by an independent public accountant prior to
submitting an application and shall submit a copy of the auditor's
report as part of the application.
Section 24 of the Act (12 U.S.C.
1831a) limits the powers of insured state banks, and section 28
of the Act (12 U.S.C. 1831e)
limits the powers of state chartered savings associations. If the
institution is exercising any powers not authorized under the
applicable statute, the application should contain an agreement and
plan for eliminating the activity as soon as possible, or a separate
application should be submitted seeking the FDIC's consent to continue
the activity.
Deposit Insurance Applications From Proposed Publicly Owned
Depository Institutions
An application for deposit insurance for a proposed depository
institution which would be owned or controlled by a domestic
governmental entity (such as, for example, a state, county or a
municipality) will be reviewed very
closely. 5
The FDIC is of the opinion that due to their public ownership, such
depository institutions present unique supervisory concerns that do not
exist with privately owned depository institutions. For example,
because of their ultimate control by the political process, such
institutions could raise special concerns relating to management
stability, their business purpose, and their ability and willingness to
raise capital (particularly in the form of true equity rather than
governmental transfers). On the other hand, such institutions may be
particularly likely to meet the convenience and needs of their local
community, particularly if the local community is currently un- or
under-served by depository institutions. In view of such considerations
and the policy issues they embody, the FDIC will closely evaluate such
applications to ensure that the required statutory factors are met.
Proposed Depository Institutions Formed for the Sole Purpose of
Acquiring Assets and Assuming Liabilities of an Insured Institution in
Default
Because of the urgent nature of this type of transaction, the
procedures described above for insuring proposed depository
institutions are modified when the institution is being
{{2-28-03 p.5358}}formed for the sole purpose of
acquiring assets and assuming liabilities of an institution in default.
Such institutions are approved based on the statutory factors contained
in section 6 of the Act; however, the procedures for resolving these
factors are modified significantly.
The evaluation of the statutory factor "financial history and
condition" will be based to a great extent on the quality of assets
purchased and the types of liabilities assumed in the transaction.
The minimum capital requirement for these transactions is such that
the acquiring depository institution would be "adequately
capitalized," as defined in the capital regulations of its primary
federal regulator, which should be augmented by an adequate allowance
for loan and lease losses. It is emphasized that this is a minimum
standard, and a higher capital level may be required. The initial
capital requirements may be based on a realistic projection of the
estimated retained deposits. However, the proposed depository
institution will be required to provide a written commitment to achieve
the minimum capital position shortly after consummation if the volume
of deposits is underestimated.
Proponents should contact the appropriate FDIC office as soon as
possible if they are interested in acquiring assets and/or assuming
liabilities of an institution in default. Due to the time constraints
involved with this type of transaction, information submissions and
applications will be abbreviated. Generally, a letter request
accompanied by copies of applications filed with other federal or state
regulatory authorities will be sufficient. Other information will be
requested only as needed by the FDIC.
Relationships With Other Federal Regulators
Nothing in these guidelines is intended to relieve the applicant of
any requirements imposed by a depository institution's primary federal
regulator. Any differences in requirements of the FDIC and the
institution's primary federal regulator will be resolved during the
investigation process.
By order of the Board of Directors, July 7, 1998.
[Source: 63
Fed. Reg. 44756, August 20, 1998, effective October 1, 1998;
amended at
67 Fed.
Reg. 79278, December 27, 2002]
1Certain exceptions to the statutory requirement that deposit
insurance for all depository institutions be acted on by the FDIC are
identified in section 5 of the Act, 12 U.S.C. 1815. For example,
federally-chartered interim institutions are deemed to be insured
depository institutions upon the issuance of the institution's charter
by the appropriate federal agency. Under section 5(a)(2) a
federally-chartered interim institution is a federally-chartered
depository institution that will not open for business. An application
for federal deposit insurance generally is not required for such an
institution even if the federal interim institution is the surviving
charter of a merger with another insured depository institution. See
12 CFR 303.62(b)(2) and the
FDIC's Statement of Policy on Bank
Merger Transactions (section 4.2). Additionally, any depository
institution whose insured status is continued pursuant to section 4 of
the Federal Deposit Insurance Act is not required to apply to continue
its insured status. 12 U.S.C.
1815, 1814. Go Back to Text
2A 2 rating under the Uniform Financial Institution System is
generally indicative of a satisfactory record of performance in light
of the institution's particular circumstances. Go Back to Text
3In a situation in which the FDIC is not to be the primary
federal regulator, these determinations will be made in consultation
with the primary federal regulator. Go Back to Text
4This Statement of Policy provides that the initial capital for
a proposed depository institution should be sufficient to provide a
leverage ratio of Tier I capital to total estimated assets of at least
8% throughout the first three years of operation. This standard shall
also be applied to a recently organized institution applying for
deposit insurance. Go Back to Text
5Banks that are owned by foreign governments and their
subdivisions and banks that are owned or controlled by Native American
tribes or bands are distinguished from conventional governmental units
and will continue to be reviewed in the same manner as in the past.
Banks that are owned by foreign governments and their subdivisions are
entitled to "national treatment." (See International
Banking Act of 1978, 12 U.S.C.
3101 et seq.). National treatment requires that all
foreign depository institutions, whether publicly- or privately-owned,
receive consistent treatment with domestic entities when operating in
the United States. This includes eligibility for deposit insurance
which is often a condition of either a state or federal charter. Native
American tribes or bands that own or control depository institutions
can also be distinguished from a conventional governmental unit that
seeks to open or acquire a depository institution. This is because
under federal law, Native American tribes and bands function as both
governmental and economic, for-profit entities. The Indian
Reorganization Act of 1934 (the IRA) (25 U.S.C. 461 et seq.) authorizes
not only the creation of tribal governments (see section 16 of the IRA,
12 U.S.C. 476), but also provides for the creation of tribal business
corporations pursuant to section 17 of the IRA (25 U.S.C. 477). At the
same time, however, a tribal government organized under section 16 of
the IRA is not precluded from engaging in business activities. See S.
Unique Ltd. v. Gila River Pima-Maricopa Indian
Community, 138 Ariz. 384, 674 P.2d 1376 (Ct. App. 1984). These
legal and policy considerations unique to these two categories of
insurance applicants outweigh any concerns that the FDIC may have
regarding the ownership of such depository institutions by governmental
entities. Go Back to Text
[Main Tabs]
[Table of Contents - 5000]
[Index]
[Previous Page]
[Next Page]
[Search]
|
