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4000 - Advisory Opinions
Whether a New York-chartered Bank is Allowed Under Sections
18(d)(1) and 44(d)(2) of the FDI Act to Establish Additional Branches
in California
August 4, 2000
FDIC--00--5
Robert C. Fick
In a letter dated June 7, 2000 you requested that the FDIC confirm
the legal authority that is available to (the "Bank") under the
Federal Deposit Insurance Act ("FDI Act") to establish additional
branches in California.
The Bank is an insured, New York-chartered, nonmember bank, and it
is an indirect, wholly-owned subsidiary of . (the "Parent
Bank"). On November 15, 1997 the Bank acquired the Parent Bank's
two insured branches in California in an interstate merger transaction
under section 44(a)(1) of the FDI Act, 12 U.S.C.
§ 1831u(a)(1). 1
The Bank retained, and currently operates, the former insured branches
as domestic branches of the Bank. The Bank would now like to establish
additional branches in California. The Bank believes that two separate
provisions of the FDI Act, section 18(d)(1), 12 U.S.C.
§ 1828(d)(1) and section
44(d)(2), 12 U.S.C.
§ 1831u(d)(2) permit it to establish additional branches in
California and has requested that the FDIC confirm its conclusions.
The Bank's principal argument is that it should be able to rely on
section 44(d)(2) as authority for establishing additional branches in
California. Section 44(d)(2) provides:
Following the consummation of any interstate merger
transaction, the resulting bank may establish, acquire, or operate
additional branches at any location where any bank involved in the
transaction could have established, acquired, or operated a branch
under applicable Federal or State law if such bank had not been a
party to the merger transaction.
{{4-30-01 p.4984.49}}
The Bank argues that this section authorizes it to establish the
additional branches because the Parent Bank was involved in the 1997
interstate merger transaction and the Parent Bank had the ability to
establish additional (uninsured) branches in California.
I agree that the Bank may rely on Section 44(d)(2) as authority to
establish additional branches in California in this case, but I believe
that it is unnecessary to address the Bank's rationale. In
FDIC Advisory Opinion 96--12
(May 13, 1996) we concluded that for purposes of the merger provisions
of section 44 of the FDI Act the FDIC will consider the insured branch
of a foreign bank as an insured bank, except where the
foreign bank has more than one insured branch in a state that does not
permit the sale of individual branches of a bank. In such states the
FDIC requires the foreign bank to sell all of its insured branches in
that state to the same acquiror. The primary basis for this conclusion
was an attempt to give effect to all of the language and purposes of
the Riegle Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle Neal") 2
. As noted in that opinion, Riegle Neal provides for interstate banking
and branching while being sensitive to states' rights and the need for
competitive equality between foreign banks and domestic banks.
Similar to the circumstances addressed in FDIC Advisory Opinion
96--12, neither the statutory language of Riegle Neal nor its
legislative history clearly explains how Congress intended to treat the
acquisition of insured branches with respect to the additional branch
authority. In the absence of such Congressional guidance we believe
that it is reasonable to simply extend the rationale of FDIC Advisory
Opinion 96--12 to address the additional branch authority issue.
Specifically, for purposes of determining a resulting bank's authority
to establish, acquire, or operate additional branches under section
44(d)(2) after acquiring an insured branch in an interstate merger
transaction, we will treat a state-licensed insured branch as a
"state bank" and a federally-licensed insured branch as a
"national bank". 3
Consequently, the resulting bank in an interstate merger transaction
can establish, acquire, or operate additional branches in the state
where the acquired state-licensed insured branch was located prior to
the interstate merger transaction to the same extent that a state bank
located in that state could have established, acquired, or operated
additional branches under applicable Federal or state law.
While there may be other methods of resolving the ambiguity in
section 44(d)(2) regarding insured branches, I believe that this
interpretation is the best of the identified alternatives. First, this
interpretation is consistent with, and a logical extension of, FDIC
Advisory Opinion 96--12. Second, this interpretation is consistent with
the various purposes of Riegle Neal. In particular, it preserves
states' rights because it provides no greater branching rights with
respect to an insured branch acquisition than what is available with
respect to a regular bank or domestic branch acquisition. This
interpretation also maintains competitive equality between foreign
banks and domestic banks because it provides basically the same
additional branching authority for acquisitions of insured branches of
foreign banks as exists for acquisitions of domestic banks or domestic
branches. Finally, this interpretation fosters interstate banking and
branching which is one of the principal goals of Riegle Neal.
As applied to the Bank's situation, section 44(d)(2) authorizes the
Bank to establish additional branches in California to the same extent
that a state bank located in California could have under Federal or
state law. 4
Of course, section 44(d)(2) does not relieve the Bank of the obligation
to apply to the FDIC for consent under section 18(d)(1) prior to
establishing any additional branches.
The Bank's other argument concerns
section 18(d)(1) of the FDI
Act which requires a bank to obtain the FDIC's consent before
establishing additional branches. The Bank reads section 18(d)(1) in
conjunction with two other provisions in the FDI Act that were
added
{{4-30-01 p.4984.50}}by Riegle Neal as appearing to permit
the Bank to establish additional branches in any state in which it
already has a branch. Because I believe that the Bank may establish
additional branches in California pursuant to section 44(d)(2), it is
unnecessary to consider this alternative argument.
The opinions expressed herein represent the views of the Legal
Division staff and, like all staff opinions, are not binding upon the
FDIC or its Board of Directors. In addition, the opinions expressed
herein are based upon the facts presented in your letter. Any change in
the facts or circumstances may result in different conclusions.
Please let me know if you have any further questions regarding this
issue.
1In that same transaction the Bank also acquired the Parent
Bank's insured branch located in Illinois. Go Back to Text
2Pub. L. No. 103--328, 108 Stat. 2339 (1994). Go Back to Text
3If the state where the insured branch is located does not
permit the acquisition of individual branches, all insured branches of
a foreign bank located in the state would be treated collectively as a
bank. Go Back to Text
4Generally, California law permits banks to establish one or
more intrastate branches in accordance with Cal. Fin. Code § 500 et
seq. Go Back to Text
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