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4000 - Advisory Opinions
Conversion Transactions: Deposit Transfer to SAIF-Member
Depository Institution by Oakar Thrift Following its Acquisition or
BIF-Member Savings Bank
FDIC--93--8
January 29, 1993
Valerie J. Best, Counsel
This letter confirms our telephone conversation of January 12, 1993
and responds to your correspondence of January 12, 14, and 29, 1993.
The information contained in your letter of January 29, 1993 is
essentially correct.
You described a situation wherein a federal savings bank that is a
member of the Savings Association Insurance Fund ("SAIF") has
acquired a state savings bank that is a member of the Bank Insurance
Fund ("BIF"), pursuant to 12 U.S.C. 1815(d)(3). The SAIF-member
depository institution (referred to herein as an "Oakar" thrift)
subsequently transfers some of its deposits to another SAIF-member
depository institution. You ask us to clarify the status of deposit
accounts following the subsequent transfer. That is, whether such a
transfer would be regarded as a conversion transaction, whether it
would be subject to the "insubstantial portion" test that limits
the amount of deposits that may be transferred from one insurance fund
to the other, whether entrance and exit fees would be required, and
whether the transfer would have any effect on the Oakar thrift's
payments to the BIF.
By way of background, the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") imposed a five-year
moratorium on "conversion transactions," with limited exceptions
for (1) conversions that affect an insubstantial portion of the total
deposits of each participating institution, and (2) certain conversions
involving institutions in default or in danger of default. A provision
commonly referred to as the "Oakar Amendment," provided an
additional exception to the moratorium. The Oakar Amendment permitted a
bank holding company to merge a thrift under its control into its
subsidiary bank, notwithstanding the conversion transaction moratorium,
provided certain statutory conditions were met and certain approvals
obtained.
The original Oakar Amendment did not authorize the merger or
consolidation of a BIF-member bank into a SAIF-member thrift. The FDIC
Improvement Act of 1991 ("FDICIA") amended the Oakar Amendment to
allow a bank or thrift that otherwise meets certain statutory
conditions and obtains certain approvals, to merge or consolidate with,
or assume the deposit liabilities of, any other insured depository,
institution, notwithstanding the moratorium on conversion transactions.
As a result of this change, transactions such as the one described in
your letter where a BIF-member bank is merged into a SAIF-member
thrift, have been permitted since December 19, 1991, the conversion
transaction moratorium notwithstanding. 1
With regard to the transaction you describe, if the aggregate of all
deposits being transferred to SAIF-member depository institutions by
the SAIF-member Oakar thrift will
{{6-28-93 p.4725}}not reduce the Oakar thrift's total
deposit base below the amount of its "adjusted attributable deposit
amount" ("AADA"), it is the opinion of the Legal Division
staff that the transfer of deposits would be a transfer of SAIF-insured
deposits and, therefore, would not be regarded as a "conversion
transaction" as defined in 12 U.S.C. 1815(d)(2)(B). As a
consequence, the "insubstantial portion" test would not apply,
conversion fees would not be required, and the transfer would not
result in any reduction or adjustment of the Oakar thrift's AADA.
However, it is also the opinion of staff that if any deposit transfer
by a SAIF-member Oakar thrift to another SAIF-member reduces the Oakar
thrift's total deposit base below the amount of its AADA, such a
transfer may be regarded as a conversion transaction and, as such
subject to FDIC approval, the "insubstantial portion" test, and
entrance and exit fees. 2
Absent the Oakar provision, any merger or consolidation of a
BIF-member with a SAIF-member, or the assumption of deposit liabilities
of a SAIF-member by a BIF-member, or vice versa, and the transfer of
assets in consideration of such a deposit assumption, would be
considered a conversion transaction. Any depository institution
desiring to consummate a transaction pursuant to the Oakar provision
must obtain prior written approval from the appropriate federal
regulator (and the Board of Governors of the Federal Reserve System if
the acquiring, assuming, or resulting depository institution is a
BIF-member which is a subsidiary of a bank holding company.) Certain
conditions must be met and procedures followed before any application
for a proposed transaction under the Oakar provision may be approved.
For these reasons, it is my view that the application and order must
show that the transaction is being effectuated through the Oakar
provision. Absent such documentation, the transaction will be regarded
as a conversion transaction.
In this instance, the Office of Thrift Supervision order you
submitted recites that the "transaction will be consummated in
accordance with Section 5(d)(3) of the FDIA, as amended by the Federal
Deposit Insurance Corporation Improvement Act of 1991." The order
also recites that the acquiring institution will pay premiums to the
BIF on the deposits acquired from the BIF-member bank. In my opinion,
this is sufficient to demonstrate that the transaction has been
effectuated through the Oakar provision. Accordingly, the transaction
will be treated as such for assessment purposes.
Please call me at (202) 898-3812 if you have any
questions.
1Section 5(d)(3) of the Federal Deposit Insurance Act, as
amended by section 501 of FDICIA, is not applied retroactively. 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. FDIC Advisory Opinion 92--19, dated April 6, 1992. Go Back to Text
2In this regard, it should be noted that the five-year
moratorium on conversion transactions established by FIRREA has not
been modified in any way by FDICIA. 12 U.S.C. 1815(d)(2). Go Back to Text
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