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4000 - Advisory Opinions
State Banks May Hold the Stock of a Company Which Operates an EFT
System of Which They Are Members
FDIC--95--30
November 1, 1995
Jeffrey M. Kopchik, Counsel
This is in response to your October 13, 1995 letter to Alan J.
Kaplan concerning XYZ Corporation ("XYZ"). According to your
letter, XYZ is currently organized as a State #1 nonstock corporation.
It has three classes of members: 435 Class A members that are financial
institutions based in State #1 and State #2 that became members prior
to June 23, 1994; five Class B members not based in State #1; and 30
Class C members that are financial institutions based in State #1 that
became members after June 23, 1994.
XYZ operates an electronic funds transfer ("EFT") system that
permits customers of its financial institution members to use a plastic
card with magnetically encoded information to perform banking
transactions through any automated teller machine ("ATM") that is
part of the network. XYZ also operates a point-of-sale ("POS")
program under which cardholders can purchase goods and services from
retailers that have installed network POS devices in their stores.
You state that XYZ has found that its nonstock corporate structure
severely limits its ability to compete in the EFT industry because it
cannot merge with another network or attract new capital for research
and development. Thus, XYZ has formed a nonstock State #3 corporation.
XYZ plans to merge into the State #3 corporation, with the State #3
corporation as the survivor. That corporation will then convert to a
State #3 stock corporation which will be qualified to do business and
have its headquarters in State #1. This resulting corporation would be
referred to as "NEW XYZ." New XYZ would issue voting common
stock, nonvoting common stock and preferred stock. Class A members of
XYZ will receive voting common stock of New XYZ. XYZ's Class B and
Class C members will not receive any New XYZ stock.
Your letter enclosed copies of letters from the Office of the
Comptroller of the Currency and the Office of Thrift Supervision
opining that it is permissible for national banks and federal savings
associations, respectively, to acquire New XYZ stock as described in
your letter. You have asked us to confirm that pursuant to sections 24
and 28 of the Federal Deposit Insurance Act ("FDI Act"),
12 U.S.C. §§ 1831a &
1831e, a state chartered bank
and a state savings association, respectively, may acquire and retain
New XYZ stock.
Section 24(c) of the FDI Act provides that "[a]n insured state
bank may not, directly or indirectly, acquire or retain any equity
investment of a type that is not permissible for a national bank."
This provision is implemented by § 362.3 of the FDIC's regulations.
Section 28(c) of the FDI Act contains the analogous provision which
applies to state savings associations. In view of the OCC's May 2nd and
May 15 letters and the OTS' September 15th letter, I concur with your
view that state banks and savings associations which are currently
members of XYZ may acquire and retain stock in New XYZ since such an
equity investment is permissible for national banks and federal savings
associations.
In reaching this conclusion, I have relied on the facts as presented
in your October 13, 1995 letter to Alan J. Kaplan, as summarized above.
If you have any further questions, please contact me at
202-898-3872.
{{4-30-96 p.4958}}
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