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4000 - Advisory Opinions
Section 5(d)(3) of the FDI Act, as Amended by Section 501 of
FDICIA, is Not Retroactive
FDIC-92-19
April 6, 1992
Valerie J. Best, Counsel
Regional Director Nicholas J. Ketcha, Jr. has asked me to respond
to your letter dated January 23, 1992. I am also responding to your
letter dated January 31, 1992, which you forwarded to my attention. You
contend that section 5(d)(3) of the Federal Deposit Insurance Act
("FDIA"), as amended by section 501 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), should
be applied retroactively. We disagree. Section 501 of FDICIA does not
relieve institutions that participated in conversion transactions
consummated prior to December 19, 1991 (the date of enactment of
FDICIA) of their obligation to pay exit and entrance fees.
Description of the Conversion Transactions
In your letters you describe the following transactions:
(a) [Savings bank "A"], acquired two branch offices of
[S&L "X"] from the Resolution Trust Corporation ("RTC")
as receiver, pursuant to a purchase and assumption agreement. The
acquisition was authorized by the FDIC through an Order dated August 9,
1991. The acquisition was consummated on August 9, 1991.
(b) [Savings bank "B"] acquired three branch offices
of [S&L "Y"] from the RTC as receiver, pursuant to a purchase
and assumption agreement. The acquisition was authorized by the FDIC
through an Order dated August 30, 1991. The acquisition was consummated
on August 30, 1991.
(c) [Savings bank "C"] acquired [S&L "Z"],
from the RTC as receiver, pursuant to a purchase and assumption
agreement. Contemporaneous therewith, [Savings bank "C"]
transferred, respectively, one and two branch offices of [S&L
"Z"] to [Savings bank "B"] and [Savings bank
"A"]. The acquisitions by [Savings banks "A," "B"]
and ["C"] were authorized by the FDIC through Orders dated
September 20, 1991. The acquisitions were consummated on September 20,
1991.
[Savings banks "A," "B"] and ["C"] are
members of the Bank Insurance Fund ("BIF"). [S&Ls "X,"
"Y"] and ["Z"] were members of the Savings Association
Insurance Fund ("SAIF"). All of the above-described acquisitions
were approved as conversion transactions by the FDIC pursuant to
section 5(d)(2)(C)(ii) of the FDIA. Consistent with the requirements of
section 5(d)(2)(E) of the FDIA, the FDIC Orders approving the
conversion transactions required [Savings banks "A," "B"]
and ["C"] to pay exit and entrance fees. You are writing on
behalf of [Savings banks "A"] and ["B"].
The Conversion Transactions were Consummated Prior to the Enactment
of FDICIA
You write that [Savings banks "A"] and ["B"]
"desire not to consummate a conversion transaction" and that they
"seek application of section 5(d)(3) of the FDIA, as amended"
with respect to the above-described transactions. You ask us to concur
that your clients "are not required to consummate the insurance
conversion with respect to the Transactions."
We cannot accede to your request because the above-described
conversion transactions have, in fact, already been consummated. Based
upon the statutory definition of "conversion transaction," it is
clear that the conversion transactions occurred--and [Savings banks
"A," "B"] and ["C"] incurred a legal obligation to
pay exit and entrance
{{6-30-92 p.4620}}fees--the moment that they assumed the
deposit liabilities of the failed SAIF-member thrifts.
The term "conversion transaction" is defined, in relevant
part, to mean:
(iii) the assumption of any liability by--
(I) any Bank Insurance Fund member to pay any deposits of a
Savings Association Insurance Fund member;
. . . .
(iv) the transfer of assets of--
. . . .
(II) any Savings Association Insurance Fund member to any
Bank Insurance Fund Member in consideration of the assumption of
liabilities for any portion of the deposits of such Savings Association
Insurance Fund member.
12 U.S.C. 1815(d)(2)(B).
The date that the deposit liabilities were assumed is not in
dispute. We know of no mechanism by which the deposits can be returned
to the RTC as receiver, at this point in time, and the acquisitions
nullified.
A Participating Party may not "Deem" a
Transaction to have been Approved Pursuant to Section 5(d)(3) of the
FDIA
In your letter dated January 31st, I understand you to take the
alternative position that your clients may elect to pay insurance
assessments to the SAIF on the assumed deposits rather than pay the
exit and entrance fees, without the FDIC's approval. You argue that the
requirements of section 5(d)(3) of the FDIA can be deemed to have been
satisfied, suggesting that Orders from the FDIC approving the
acquisitions pursuant to section 5(d)(3) are unnecessary. This argument
disregards the fact that institutions may participate in section
5(d)(3) transactions only with the "prior written
approval" of the responsible agency under 18(c)(2) of the FDIA.
12 U.S.C.A. 1815(d)(3)(A)(i) (West Supp. 1992). In the absence of a
written Order from the FDIC authorizing a section 5(d)(3) transaction,
the parties may not acquire deposits pursuant to section 5(d)(3).
Amendments made by Section 501 of FDICIA are not Retroactive
Finally, you argue that section 501 of FDICIA should be applied
retroactively. You contend that the text of section 501(b) of FDICIA
supports your argument. 1
Section 501(b) of FDICIA does not serve to make the section 501
amendments retroactive. Rather, it prevents institutions that
participated in transactions prior to FDICIA from rolling-back their
AADA in light of the new requirements of FDICIA. Prior to FDICIA, the
AADA was calculated by imputing an annual rate of growth based on
actual growth or a seven percent "deemed" growth rate, whichever
was greater. FDICIA eliminated the minimum seven percent growth rate
requirement. Section 501(b) was added to FDICIA to prevent institutions
from deducting from their AADA any increases attributable to the
minimum seven percent growth rate.
Section 501(b) of FDICIA also prevents the midstream disruption of
the calculation of the AADA by institutions that participated in
section 5(d)(3) transactions prior to FDICIA. It would have been
cumbersome to apply a minimum seven percent growth rate up until the
date of enactment of FDICIA and, thereafter, an actual growth rate.
Section 501(b) allows the FDIC and banks that participated in section
5(d)(3) transactions prior to
{{6-30-92 p.4621}}FDICIA to make a smooth transition from
the pre-FDICIA requirements to the post-FDICIA requirements pertaining
to the AADA.
You also argue that section 501 of FDICIA is remedial in nature. We
do not agree. Remedial statutes provide a "remedy, or improve or
facilitate remedies already existing for enforcement of rights and
redress of injuries." 2
Section 5(d)(3) as originally enacted by the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") was
intended to give bank holding companies an incentive to invest in
failing thrifts. 3
Section 5(d)(3), as amended by FDICIA, does not provide a method
whereby a wrong may be redressed and relief
obtained. 4
It simply expands the universe of institutions that may participate in
a section 5(d)(3) transaction. Section 501 of FDICIA allows savings
associations, as well as banks without a holding company, to acquire
deposits pursuant to section 5(d)(3), for the first time. The FDIC has
been collecting exit and entrance fees for the benefit of SAIF and BIF
since the enactment of FIRREA. The interests of SAIF and BIF could be
harmed if section 501 was given retroactive effect.
You state that if the FDIC is of the view that section 5(d)(3)
should not be applied retroactively to all conversion transactions
consummated since the enactment of FIRREA, then the FDIC should apply
section 5(d)(3) to those transactions where (1) no fees had been paid
as of the enactment of FDICIA, and (2) the assuming institution has
notified the FDIC of its election not to consummate the conversion
transaction prior to making any such payments. Institutions that did
not meet these criteria would be required to pay exit and entrance
fees. Such disparate treatment underscores the inequity of applying the
section 501 amendments retroactively--there is nothing in section 501
of FDICIA that supports special treatment for the class of institutions
you describe.
Institutions Must Pay the Fees Mandated by Law
[Savings banks "A," "B"] and ["C"] must comply
with the law that was in effect at the time the deposit liabilities
were assumed. The above-described acquisitions were allowed only
because they were approved by the FDIC as permissible conversion
transactions; absent the FDIC's approval, the acquisitions would have
been illegal. The unequivocal mandate of the FDIA is that permissible
conversion transactions are subject to exit and entrance fees.
Consistent with the requirements of the FDIA, the FDIC Orders approving
the acquisitions required [Savings banks "A," "B"] and
["C"] to pay exit and entrance fees. Section 5(d)(3) of the
FDIA, as amended by section 501 of FDICIA, is not retroactive.
Consequently, the FDIC does not have the authority to treat the
transactions as if they had been consummated pursuant to section
5(d)(3) of the FDIA, as amended.
Based on the foregoing, the FDIC cannot grant your request that the
above-described acquisitions be approved pursuant to section 5(d)(3) of
the FDIA, as amended by FDICIA, nor can the FDIC delete from the Orders
the requirement that exit and entrance fees be paid. Accordingly, your
clients are required to pay exit and entrance fees. They are required
to complete and return the Certified Statement of Entrance and Exit
Fees previously sent to them by the FDIC, if they have not already done
so. They are also required to remit payment to the FDIC pursuant to the
invoice mailed to them by the FDIC.
Please advise us promptly of your clients' intentions in this
matter.
{{6-30-92 p.4622}}
1Section 501(b) of FDICIA provides:
(b) EFFECTIVE DATE.--The amendment made by
subsection (a) to section 5(d)(3)(C) of the Federal Deposit Insurance
Act shall apply with respect to semiannual periods beginning after the
date of the enactment of this Act.
Section 5(d)(3)(C) of the FDIA, referred to in the above quoted
provision, sets out the methodology for calculating the "adjusted
attributable deposit amount" (the "AADA"). The AADA is based
on the deposits attributable to the former SAIF-member depository
institution and is used to determine the amount of assessments payable
to SAIF. Go Back to Text
2Black's Law Dictionary 1293 (6th ed. 1990). Go Back to Text
3135 Cong. Rec. H4998-99 (daily ed. August 3, 1989) (statement
of Rep. Oakar). Go Back to Text
4After the expiration of the five-year moratorium on conversion
transactions imposed by FIRREA, an institution that acquired deposits
pursuant to section 5(d)(3) may treat the transaction as a conversion
transaction pursuant to section 5(d)(2), provided that (1) the FDIC
approves the conversion, and (2) the institution pays exit and entrance
fees. 12 U.S.C.A. 1815(d)(3)(I) (West Supp. 1992). In other words, an
institution may switch the insurance fund coverage of its AADA after
the moratorium expires. Go Back to Text
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