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4000 - Advisory Opinions
Whether an Application Under Section 24 of the FDI Act Would Have
to be Filed in Connection With the Establishment and Maintenance of a
Charitable Foundation by a Bank
October 4, 2000
FDIC--00--7
Douglas H. Jones
Senior Deputy General Counsel
On behalf of General Counsel William F. Kroener III, I want to
thank you for your letter on August 2, 2000 on behalf of (the
"Bank"), City, California, and respond to your request for our
concurrence in your interpretation of
Section 24 of the Federal
Deposit Insurance Act. I understand from your letter that the Bank is a
state, non-member insured bank with approximately $1.4 billion in total
assets.
Facts As Relayed in Your Letter
I understand from your letter that the Bank intends to establish a
charitable foundation (the "Foundation"). The Foundation will be
formed under the Nonprofit Public Benefit Corporation Law of California
and will be organized exclusively for charitable purposes within the
meaning of Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended. The Foundation will be named Bank Charitable Foundation.
The Foundation will take and make contributions, including
contributions from the Bank. The Foundation will maintain separate
books and records and will be deemed for legal purposes as a separate
nonprofit corporation distinct from the Bank and the Bank's
parent
{{4-30-01 p.4984.51}}holding company. As a nonprofit
corporation, the Foundation will not issue securities and there will be
no "owners" or "shareholders" of the Foundation.
The Bank desires to proceed with the Foundation to serve as the
charitable donations mechanism for the Bank. Any donation requests
received by the Bank would be referred to the Foundation. The Bank
anticipates making annual contributions to the Foundation as part of
its budgetary process and management has indicated that the amount of
such contributions are anticipated to be consistent with the Bank's
historical level of contributions. The Bank does not intend to
"guarantee" the Foundation a minimum yearly contribution. Rather,
the Bank will make a decision about the amount of any contribution to
the Foundation during the Bank's usual annual budget preparation
process. The Foundation, through its Board, will determine how its
annual budget will be deployed within the Bank's service areas. Among
the possible advantages of the Foundation to the Bank, as stated in
your letter, are:
* To provide a definite amount for donations by the
Bank;
* To facilitate centralizing and tracking donation
requests;
* To provide a mechanism for gracefully saying
"no" when funds are limited; and
* To obtain § 501(c)(3) status that would
permit deductible gifts from third parties.
As stated in your letter, the Bank, on a volunteer basis, from its
existing officers, employees and directors would select the Board and
management of the Foundation.
Your Request
You have requested the FDIC's concurrence that no application under
Section 24 of the Federal Deposit Insurance Act or the related
regulations is required in connection with the establishment and
maintenance of this Foundation by the Bank.
Conclusion and Legal Analysis
Based on the facts presented, it is our view that this Bank need not
file an application under Section 24 of the Federal Deposit Insurance
Act or the FDIC's implementing regulations.
The requirement to file an application in this instance appears to
depend upon the definition of "activity." The term is defined in
§ 362.2(b) to mean
"the conduct of business by a state chartered depository
institution, including acquiring or retaining an equity investment or
the investment."
On page 66283 of the FDIC's Federal Register notice on the final
rule dated December 1, 1998
(63 FR
66276), the FDIC stated as follows:
It is noted that no comments were received regarding
the proposed suggestion also to modify the "activity" definition
to incorporate a recent interpretation by the agency that determined
that the act of making a political campaign contribution does not
constitute an "activity" for purposes of part 362. The referenced
interpretation uses a three prong analysis to help determine whether
particular conduct should be considered an activity and therefore
subject to review under part 362 if the conduct is not permissible for
a national bank.
First, any conduct that is an integral part of the
business of banking as well as any conduct which is closely related or
incidental to banking should be considered an activity. In applying
this factor, it is important to focus on what banks do that makes them
different from other types of businesses. For example, lending money is
clearly an "activity" for purposes of part 362. The second factor
asks whether the conduct is merely a corporate function as opposed to a
banking function. For example, paying dividends to shareholders is
primarily a general corporate function and not one associated with
banking because of some unique characteristic of banking as a business.
Generally, activities that are not general corporate functions will
involve interaction
{{4-30-01 p.4984.52}}between the bank and its customers
rather than its employees or shareholders. The third factor asks
whether the conduct involves an attempt by the bank to generate a
profit. For example, banks make loans and accept deposits in an effort
to make money. However, contracting with another company to generate
monthly customer statements should not be considered to be an activity
in and of itself as it simply is entered into in support of the
"activity" of taking deposits. If at least two of the factors
yield a conclusion that the conduct is part of the authorized conduct
of business by the bank, the better conclusion is that the conduct is
an activity. Because of the lack of interest received on expanding the
definition to reflect this interpretation, no change is made to the
definition proposed. The FDIC intends to continue to apply the above
analysis when determining whether particular conduct should be
considered an activity.
In applying these criteria to the proposed activity, we agree with
your suggestion that the establishment of the Foundation does not
constitute the conduct of an activity governed by section 24 and part
362. First, the establishment of the Foundation does not meet the first
criterion because the establishment of a foundation is not an integral
part of the business of banking or closely related or incidental to
banking. Second, the establishment of the Foundation does not meet the
second criterion because the conduct is more closely related to a
corporate function than the banking business. Third, the establishment
of a Foundation does not meet the third criterion because the bank has
no profit motive associated with the establishment of the Foundation.
Since the establishment of the Foundation does not meet any of these
criteria, the establishment of the Foundation is clearly not the
conduct of an activity governed by section 24 and part 362. Thus, the
Bank need not file an application or consider whether the establishment
of the Foundation would be permissible for a national bank.
Thank you for making this inquiry. Should you have any additional
questions, please feel free to contact
us.
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