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4000 - Advisory Opinions
Reciprocal Agreement Calling for the Temporary Use
of Another Bank's Facilities
FDIC-82-5
February 16, 1982
Pamela E. F. LeCren, Attorney
Please be advised that your November 6, 1981 letter to Regional
Counsel Robert Green requesting FDIC's comments on a reciprocal
agreement entered into by *** and *** authorizing the use of each
other's banking facilities on a temporary basis in the event of
disaster was forwarded to the Washington, D.C. office for reply. The
agreement raises several issues one of which is whether or not the
banks would be engaged in interstate branching should each use the
other's facilities in accordance with the
agreement. 1
After carefully reviewing the recent case law on the issue of what
constitutes a branch and FDIC's past precedent in construing that case
law, we are compelled to indicate that in our opinion, the sharing of a
brick and mortar facility, albeit temporarily would constitute the
operation of a branch even though an argument to the contrary could be
made to the effect that the purpose of conducting business under such
an arrangement is not to attract new customers nor does it constitute a
competitive advantage.
Inasmuch as we have determined that an insured nonmember bank would
be operating a branch should it function pursuant to such an agreement,
section 18(d)(1) of the FDI Act (12 U.S.C. 1828(d)) would require
FDIC's prior written consent before any business could be conducted
pursuant to the agreement. 2
Part 303 of FDIC's regulations (12 CFR 303.11(a)(2)) delegates the
authority to grant or deny an application to operate temporary banking
facilities during emergencies to the Director of the Division of Bank
Supervision or, where confirmed in writing, to the regional director of
the region where the applicant bank is located. The director's
authority is limited to approving temporary facilities that would
function for no more than one month. Although the FDIC would be in a
position to
{{4-28-89 p.4099}}expeditiously approve an application
under its existing regulations, 3
the issue of whether such an operation is permissible or not is
ultimately one of state law. 4
In all likelihood the FDIC would solicit the views of the state to
determine whether or not the state would (1) consider such a temporary
operation to be a branch, and (2) would permit the operation of the
branch at the location in question. If the state would not permit the
temporary operation at that site, the FDIC would in all probability
withhold its approval.
1 The agreement provides as follows:
Should the physical structure of either our *** Branch in
*** or your *** Branch in *** suffer damage in the event of a disaster,
such that either of our institutions is unable to conduct its usual
banking business, our institutions mutually agree to allow the other to
use its physical structure as identified above, including lobby space,
teller window(s), vault space, and other use as is consistent with the
usual and reasonable branch banking business of the institution
sustaining the disaster.
It is understood between the parties hereto that the
sharing of their structures as a temporary branch site for the other
institution would be an inconvenience, and for this reason the
institution subject to the disaster shall use all reasonable diligence
in moving its branch banking operation from the other institution's
structure to a new temporary or permanent location. Further, should
either of our institutions suffer from a disaster so that it is unable
to use its branch site identified above, our institutions mutually
agree that they shall not share the other's branch site for a period
exceeding 15 working days.
It is further mutually agreed herein that the institution
suffering from a disaster, shall pay to the other institution the
reasonable costs for any space occupied or services used of the other
institution during the temporary relocation.
This agreement will continue to be in force and effect
perpetually, unless it is revoked in writing by either party with
thirty (30) days notice to the other. Go Back to Text
2 Section 18(d)(1) of the FDI Act requires that an insured
nonmember bank obtain the prior written consent of the FDIC for the
establishment or relocation of a branch. Go Back to Text
3 This is not to say that a shared brick and mortar facility
would not give rise to supervisory concerns that would have to be
addressed in the underlying agreement. The particular agreement which
gave rise to your question is notably vague on such fundamental
questions as what constitutes an emergency and how the shared operation
is to be administered. Go Back to Text
4 Even if we were to be of the opinion that the shared facility
did not constitute the operation of a branch under the facts presented,
if the state was of the opposite opinion the bank could not lawfully
operate under the terms of the agreement. Additionally, if the FDIC
were to accept and approve an application to operate a temporary
facility in accordance with the agreement but State law would prohibit
the operation of a branch at that location, FDIC's approval would be
moot. Go Back to Text
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