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4000 - Advisory Opinions
FDIC Approval of Delayed (Second-Tier) Conversion Transactions
FDIC-90-45
August 24, 1990
Douglas H. Jones, Senior Deputy General Counsel
This is in response to your letter of August 9, 1990, requesting
our interpretation of section 5(d)(2)(C)(ii) of the Federal Deposit
Insurance Act (FDIA), (as added by section 206(a)(7) of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)).
In your letter you describe a transaction wherein a newly established
savings association organized by a bank holding company would assume
the deposit liabilities of a failed thrift, and then transfer the
acquired deposits to affiliated banks. You ask if section
5(d)(2)(C)(ii) authorizes the FDIC to approve the "delayed" or
second-tier conversion transactions.
I understand the facts to be as follows. *** proposes a two-step
transaction whereby a de novo federally chartered savings association
would acquire a savings association from the Resolution Trust
Corporation (RTC) and, within six months from the date of closing of
the RTC transaction, sell (by means of purchase and assumption
transactions or merger) all of the branches it acquires to affiliated
banks. It is contemplated that at the end of the six-month period, the
de novo federally chartered association will be merged with an
affiliated bank or, in the alternative, liquidated after the sale to
affiliates of all of its operations. The savings association to be
acquired from the RTC is a centralized, multi-state association. An
immediate transfer to, or in the alternative, the direct acquisition of
the branches by, the banks, cannot be accomplished due to state law
prohibitions and operational difficulties caused by the fact that the
savings association is a multi-state operation. Prior to *** submission
of its bid to RTC, the bank and the specific savings association branch
to be acquired by that bank will have been identified or matched
(thrift branches will be transferred to banks located in each
respective state). The bid to the RTC will disclose that *** will file,
as soon as feasible following the initial acquisition of the savings
association from the RTC, appropriate applications to consummate the
spin-off of the acquired branches in each state. The specific details
of the subsequent transfers will be disclosed in such applications.
As you are aware, section 5(d)(2)(A) of the FDIA, provides that no
insured depository institution may participate in a conversion
transaction without the prior approval of the FDIC. Generally speaking,
a conversion transaction includes any transaction by which deposits are
transferred from the Savings Association Insurance Fund (SAIF) to the
Bank Insurance Fund (BIF), or vice versa. The FDIC may not approve
conversion transactions until August 10, 1994, with certain limited
exceptions. One of these exceptions appears at section 5(d)(2)(C)(ii)
of the FDIA. This section authorizes the FDIC to approve a conversion
transaction if the conversion occurs "in connection with" the
acquisition of a SAIF member in default or in danger of default.
It is my opinion that, under the specific circumstances described
above, the FDIC is authorized to approve the conversion transactions
pursuant to section 5(d)(2)(C)(ii), provided the FDIC and RTC determine
that the estimated financial benefits to SAIF or RTC equal or exceed
the estimated loss of assessment income to SAIF over the remaining
balance of the moratorium on conversion transactions. This conclusion
is based upon the following factors: there is documented proof of the
bidder's present intention to transfer the assets acquired from RTC;
the bidder's intention is disclosed in general terms in the bid
submitted to RTC; the parties to the subsequent transactions have been
specifically identified prior to the submission of the bid to the RTC;
the subsequent transactions have been specifically disclosed in
applications to be filed in conjunction with the initial transaction
with federal or state regulatory agencies; contemporaneous transfer is
not possible due to unusual operational difficulties and legal
restrictions; the conversion transactions will be accomplished in a
reasonably short and determinable time; and the
{{10-15-90 p.4478}}participating institutions are
affiliated. When considered together, the above listed factors suggest
that it can reasonably be said that the second-tier transactions occur
in connection with the acquisition of a SAIF member in default.
Moreover, such an interpretation achieves a proper balance between the
stated purpose of the moratorium 1
and FIRREA's fundamental objective of resolving failed savings
associations in an expeditious manner.
Accordingly, the transactions you propose are permissible conversion
transactions authorized by section 5(d)(2)(C)(ii) of the FDIA. This
opinion should not be interpreted as a prior approval of the proposed
conversion transactions. Approval of the proposed conversion
transactions by the FDIC may only be granted upon actual application to
the FDIC. However, the benefits test outlined in section 5(d)(2)(C)(ii)
of the FDIA may be calculated by the FDIC and RTC as if the conversion
transactions occurred contemporaneously with the acquisition of assets
from RTC by the de novo federally chartered savings association.
Consistent with Part 312 of the FDIC rules and regulations, the exit
and entrance fees should be calculated as of the date the deposits are
transferred from the SAIF member to the BIF member. This opinion is
based upon the facts presented and any change in those facts could
warrant a different conclusion.
1"This moratorium is necessary to insure that those
institutions that have benefitted from having a savings and loan
charter pay their fair share of the bailout and to provide for a stable
and increased premium income to reduce the amount of taxpayer funds
ultimately needed to resolve the crisis." H.R. Rep. No. 54, 101st
Cong., 1st Sess., pt.1, at 411--12 (1989). Go Back to Text
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