FEDERAL DEPOSIT INSURANCE CORPORATION
In Re: Volkswagen Bank USA (Proposed) Salt Lake City, Salt Lake County,
Utah
Application for Federal Deposit Insurance
(Bank Insurance Fund)
ORDER
The undersigned, acting on behalf of the Board of Directors pursuant to delegated
authority, has fully considered all available facts and information relevant to the
factors of Section 6 of the Federal Deposit Insurance Act relating to the application for
Federal deposit insurance for Volkswagen Bank USA (the Bank), a proposed new industrial
loan company to be located at Suite 500, US West Dex Center, 5295 South Commerce Drive,
Salt Lake City, Salt Lake County, Utah, and has concluded that the application should be
approved.
Accordingly, it is hereby ORDERED, for the reasons set forth in the
attached Statement, that the application submitted by the Bank for Federal deposit
insurance be, and the same hereby is, approved subject to the following conditions:
(1) That beginning paid-in capital funds of not less than $65,000,000 be provided;
(2) That a tangible capital to total assets ratio of not less than 8 percent be maintained
for the first three years after deposit insurance is effective;
(3) That any changes in proposed management or proposed ownership (10 percent or more of
stock) of the Bank, including new acquisitions of or subscriptions to 10 percent or more
of the Bank's stock, will render this commitment null and void unless such proposal is
approved by the Division of Supervision's San Francisco Regional Director prior to the
opening of the Bank;
(4) That Federal deposit insurance shall not become effective unless and until the
applicant has been established as an industrial loan company, that it has authority to
conduct a banking business, and that its establishment and operation as a bank have been
fully approved by the Utah Commissioner of Financial Institutions;
(5) That, until the conditional commitment herein ORDERED becomes
effective, the FDIC shall have the right to alter, suspend or withdraw the said commitment
should any interim development be deemed to warrant such action;
(6) That, if deposit insurance has not become effective within twelve months from the date
of this ORDER, or unless, in the meantime, a request for an extension of
time has been approved by the FDIC, the consent granted shall expire at the end of the
twelve-month period;
(7) That prior to receiving deposit insurance, the Applicant's ultimate parent, Volkswagen
AKTIENGESELLSCHAFT, establish a designated agent in the United States for service of
process and enter into a written agreement with the FDIC whereby Volkswagen
AKTIENGESELLSCHAFT agrees to be subject to United States Court Jurisdiction on domestic
banking issues;
(8) That the Bank shall operate within the parameters of the business plan submitted to
the FDIC. Furthermore, during the first three years of operations, the Bank shall notify
the Regional Director and the State Banking Commissioner of any proposed major deviation
or material change from the submitted plan 60 days before consummating the change;
(9) That the Bank shall not engage in any transactions with non-U.S. financial affiliates
without the prior written approval of the Regional Director of the FDIC. At the Regional
Director's discretion, such approval may be specific to individual transactions, or such
approval may be applied to a series of transactions-or types of transactions, subject to
appropriate limitations. Such approval does not exempt the Bank from the applicable
limitations of Sections 22(g), 22(h), 23A, and 23B of the Federal Reserve Act, as made
applicable to insured state nonmember banks by section 180) of the FDI Act, or other
applicable Federal or State restrictions or limitations; and
(10) That prior and subsequent to entering into any transaction with a non-U.S. financial
affiliate, the Applicant will obtain and maintain current financial information on that
affiliate and make this information available for examiner review at the Applicant's main
office in the United States. At a minimum, such financial information shall include an
annual income statement and balance sheet, no more than 18, months old, expressed in U.S.
Dollars and in English, and audited by a reputable accounting firm.
Dated at Washington, D.C. this 11th day of December 2001.
FEDERAL DEPOSIT INSURANCE CORPORATION
BY: John M. Lane Associate
Director Division of Supervision
FEDERAL DEPOSIT INSURANCE CORPORATION
In Re: Volkswagen Bank USA (Proposed) Salt Lake City, Salt Lake County, Utah
Application for Federal Deposit Insurance
(Bank Insurance Fund)
STATEMENT
Pursuant to the provisions of Section 5 of the Federal Deposit Insurance Act (12 U.S.C.
1815), an application for Federal deposit insurance, with membership in the Bank Insurance
Fund, has been filed for Volkswagen Bank USA (the Bank), a proposed new industrial loan
company to be located at Suite 500, US West Dex Center, 5295 South Commerce Drive, Salt
Lake City, Salt Lake County, Utah.
The Bank's ultimate parent is Volkswagen AKTIENGESELLSCHAFT (VW AG), the maker of
Volkswagen automobiles, among others. VW AG operates worldwide, and the company's stock is
publicly traded in Germany and elsewhere, including the U.S. via depositary receipts. VW
AG owns banking institutions in Germany and Poland.
VW Credit, Inc. (the Applicant's immediate parent) contains all domestic financing
operations of VW AG. Established in 1981, the company supports the sales and marketing
efforts of VW AG by offering leasing, retail, and wholesale financing products. Volkswagen
Bank USA will provide a nationwide platform, functioning under Utah statutes, by which the
Bank will provide financing for the purchase and lease of new and used Volkswagen, Audi,
and other make autos sold by the dealer network. As the company becomes more established,
it will offer other retail loan products and deposit programs, both wholesale and retail.
As an integral part of a large organization, the Bank will rely on its parent organization
for financial and other support. In addition to formal written agreements and operating
policies, the Bank will ensure that all inter-company transactions are conducted at arms
length. Loan purchases will be priced at the lower of book or market value, and no low
quality credits will be included.
The proposed ownership structure has the potential to present supervisory concerns similar
to those posed by chain banking organizations. In chain banks, the proposed structure
could lead to a concentration of banking resources susceptible to common risks without
centralized supervision and regulation over the organization. In these types of
organizations, there is a concern that low-quality assets and other funds may be shifted
between banks to avoid detection by regulators and auditors. Our concerns also include
risks that result because part of the "chain" is in another country and not
subject to U.S. supervision. This type of structure may make it difficult to obtain
information necessary to monitor the foreign affiliates. The parent company, VW AG, is not
subject to the Bank Holding Company Act. Moreover, the parent company is not considered a
foreign banking organization1 for purposes of the International Banking Act
(IBA) and may not be subject to comprehensive consolidated supervision. The concept of
effective comprehensive consolidated supervision has been embraced by the FDIC through its
involvement in international bank, supervisory bodies, such as the Basel Committee on
Banking Supervision.
Our concerns about the proposed structure are significantly mitigated in this case by the
parent's status as a publicly traded company. Moreover, the foreign bank affiliates are
located in countries which appear to have adequate supervisory regimes, as they relate to
the foreign bank affiliates of the applicant. The FDIC will be able to monitor the parent
company's consolidated financial condition and its impact on the domestic bank by
reviewing publicly available financial information. The Corporation, by imposing certain
non-standard conditions, provides further safeguards. The Corporation is imposing a
condition that there will be no transactions with non-U.S. financial affiliates without
prior written approval by the Regional Director of the FDIC. Such approval does not exempt
the Applicant from the applicable limitations of Sections 22(g), 22(h), 23A, and 23B of
the Federal Reserve Act. Moreover, prior to entering into any transaction with a non-U.S.
financial affiliate, Volkswagen Bank USA will obtain and maintain current financial
information on that affiliate and make this information available for examiner review at
Volkswagen Bank USA, including an annual income statement and balance sheet, expressed in
U.S. Dollars and in English, audited by a reputable accounting firm. The applicants have
indicated that there are no intentions at this time to engage in transactions with foreign
bank affiliates.
In addition, due to VW AG's status as a non-U.S. corporation, the FDIC is imposing a
condition whereby VW AG maintains an agreement with the FDIC to stipulate to U.S.
jurisdiction for banking law issues and identify its designated agent for service of
process in such cases. This will place VW AG on the same footing as a U.S.-domiciled
ultimate parent of an industrial loan company, for such purposes.
For purposes of this proposal, the investment in fixed assets is reasonable, capital is
adequate, future earnings prospects are favorable, and management is considered
satisfactory. The Bank provides an alternative banking source to its targeted market with
no adverse effect on the competitive environment. Corporate powers to be exercised are
consistent with the purpose of the-Federal Deposit Insurance Act. No undue risk to the
Bank Insurance Fund is apparent.
Accordingly, based upon a careful evaluation of all available facts and information, the
Associate Director of the Division of Supervision, pursuant to delegated authority, has
concluded that approval of the application is warranted.
ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION
_____________________________
1A foreign barking organization is a foreign bank, as defined by §I(b)(7) of the
International Banking Act (12 U.S.C. 3101(7)), that operates a branch, agency, or
commercial lending company subsidiary in the U.S. or that controls a bank in the U.S. and
any company of which the foreign bank is a subsidiary (Federal Reserve Board Regulation
K). A foreign bank means any company organized under the laws of a foreign country, a
territory of the U.S., Puerto Rico, Guam, American Samoa, or the Virgin Islands, which
engages in the business of banking, or any subsidiary or affiliate, organized under such
law, of any such company. For the purposes of this Act, the term foreign bank includes,
without limitation, foreign commercial banks, foreign merchant banks and other foreign
institutions that engage in banking activities in the countries where such foreign
institutions are organized or operating (International Banking Act).