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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

DIVISION OF BANKING

SUPERVISION AND REGULATION

DIVISION OF CONSUMER AND 

COMMUNITY AFFAIRS

SR 15-11

CA 15-9

October 13, 2015

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE 

BANK AND OFFICERS AND MANAGERS IN CHARGE OF CONSUMER

AFFAIRS SECTIONS

SUBJECT: Examinations of Insured Depository Institutions Prior to Membership or

Merger into a State Member Bank

Applicability: This guidance applies to insured depository institutions that are seeking to 

become state chartered member banks of the Federal Reserve System (state member banks) as 

well as insured depository institutions merging with another institution where a state member

bank would be the surviving entity, including those with $10 billion or less in total consolidated 

assets. 

The Federal Reserve is issuing this letter to provide further explanation on its criteria for

waiving or conducting pre-membership safety-and-soundness and consumer compliance

examinations of insured depository institutions that are either (1) seeking to become state

member banks;

1 or (2) merging with another institution where a state member bank would be the

surviving entity. Further, this letter provides clarification to previously issued guidance as to 

the eligibility criteria for when the Federal Reserve may waive a pre-membership or premerger examination.2

 1 With regard to existing insured depository institutions that are seeking to become state member banks, the Federal

Reserve and the other agencies of the Federal Financial Institutions Examination Council issued on July 1, 2009, a 

Statement on Regulatory Conversions, at http://www.ffiec.gov/press/pr070109.htm. This statement emphasized,

among other things, that the agencies will only consider applications undertaken for legitimate reasons and will not

entertain regulatory conversion applications that undermine the supervisory process. Further, section 612 of the

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) also imposes restrictions

on certain charter conversions. The Federal Reserve will review applications that involve state member bank

conversions for consistency with both the interagency statement on regulatory conversions and any applicable DoddFrank Act restrictions.

2 With the issuance of this SR/CA letter, SR letter 11-2 / CA letter 11-2, “Examination of Insured Depository 

Institutions Prior to Membership or Mergers into State Member Banks,” is superseded.
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Criteria for Waiving a Pre-Membership or Pre-Merger Examination

A safety-and-soundness or consumer compliance examination of a state nonmember

bank, national bank, or savings association seeking to convert its status to a state member will 

not generally be required prior to the conversion if the institution seeking membership meets the

criteria for “eligible bank,” as set forth in the Board’s Regulation H,

3 plus the additional safetyand-soundness and consumer compliance criteria listed below (together referred to as “eligibility 

criteria”).4

 To meet the Regulation H “eligible bank” criteria, an insured depository institution 

must:

1. be well capitalized under Regulation H, subpart D, Prompt Corrective Action; 

2. have a composite CAMELS rating of “1” or “2” (or equivalent composite rating for a 

savings association); 

3. have a Community Reinvestment Act (CRA) rating of “outstanding” or “satisfactory”;

4. have a consumer compliance rating of “1” or “2”; and

5. have no major unresolved supervisory issues outstanding (as determined by the Board or 

appropriate Federal Reserve Bank in its discretion), including adverse supervisory 

findings or ratings by the current primary regulator or Consumer Financial Protection 

Bureau (CFPB).5 

In addition, the insured depository institution seeking membership must meet the following 

additional safety-and-soundness criteria:

6. The management component of CAMELS is rated “1” or “2”;

7. The on-site “close date”6 of the most recent full-scope safety-and-soundness examination 

is less than nine months from the date of the application for membership;

8. There have been no material changes to the bank’s business model since the most recent 

report of examination and no material changes are planned for the next four quarters;7

and

 3 12 CFR 208.2(e).

4 Note that a bank may be subject to a consumer compliance pre-membership or pre-merger examination or CRA 

review even if it meets all waiver eligibility criteria for safety-and-soundness examination. Similarly, a premembership or pre-merger safety-and-soundness examination may be warranted even though the bank meets all of 

the waiver criteria for consumer compliance and/or CRA.

5 In general, if significant trust or fiduciary activities were found to be conducted in a less-than-satisfactory manner, 

an insured depository institution would typically not meet this requirement.

6 The close date of an on-site examination is defined as the last date that the examination team is physically onsite at 

the institution. For examinations for which all or a portion of the work is performed off-site, the close date is 

defined as the earlier of the following dates: (1) the date when the analysis (including loan file review) is completed 

and ready for the examiner-in-charge review: or (2) the date when the preliminary exit meeting is held with 

management which can be conducted either on-site or off-site by conference call.

7 A “material change” would be an event that would materially affect the institution’s balance sheet and income 

statement, such as a sizeable growth, sale, or wind-down of a major business line or assets, or change in senior 

leadership positions, such as the chief executive officer, the chief financial officer, or the chairman of the board. 
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9. The annual growth in total assets, measured as of the most recent quarter end on the

institution’s Consolidated Reports of Condition and Income, is under 25 percent and

planned growth over the next year is less than 25 percent.

In cases where a state nonmember bank, national bank, or savings association is merging 

with a state member bank and the surviving institution is a state member bank, a safety-andsoundness or consumer compliance examination of the state nonmember bank, national bank, or 

savings association will not be required so long as the state member bank meets all of the 

eligibility criteria on an existing and pro-forma basis. For example, the state member bank 

would not meet all of the eligibility criteria if its total assets were to increase by 25 percent or 

more on a pro-forma basis considering both organic growth and assets from the merging 

institution. Other examples of situations that may cause the merging state member bank to not 

meet the eligibility criteria include, but would not be limited to, a change in senior leadership, a 

change in strategy, and a situation where the institution with which it is merging is rated less than 

satisfactory, has major unresolved supervisory issues, or brings new business lines or products to 

the state member bank.

Process for Determining Whether to Waive a Safety-and-Soundness Examination 

In all cases, the Reserve Bank must consult with Board supervisory staff when 

determining whether to waive a safety-and-soundness examination under this policy. Under 

certain circumstances, a pre-merger or pre-membership examination may be waived even when 

an institution fails to meet one or more of the safety-and-soundness related eligibility criteria. 

This can occur if the Reserve Bank, in consultation with Board supervisory staff, determines that 

conducting a safety-and-soundness examination would be unlikely to provide information that 

would assist in evaluating the statutory and regulatory factors that the Federal Reserve is 

required to consider in acting on the membership or merger application. 

Process for Determining Whether to Waive a Consumer Compliance Examination or CRA 

Review

For consumer compliance and CRA, the Reserve Bank should review the most recent 

supervisory information, including consumer compliance examinations, reviews, and risk 

assessments, from the appropriate primary banking regulatory agency and the CFPB, if

applicable, and consult with applications staff and supervisory staff in the Board’s Division of 

Consumer and Community Affairs (DCCA) when determining whether to waive a consumer 

compliance examination under this policy. However, if the institution seeking to convert to a 

state member bank is rated less-than-satisfactory for consumer compliance, a pre-membership or 

pre-merger examination should be conducted. 

In addition, if the review of supervisory information from the appropriate primary 

banking regulatory agency and the CFPB, if applicable, identifies significant weaknesses, a premembership or pre-merger consumer compliance examination may be warranted, with a focus 

on the particular area of concern, even if a bank has a consumer compliance examination rating

of “1” or “2.”8 In such cases, the Reserve Bank should also consult with applications and 

supervisory staff in DCCA. 

8 Supervisory matters not captured in the examination rating could raise significant concerns that may warrant a premembership or pre-merger examination. Examples of such events that could raise serious concerns about consumer 

compliance include (a) a continuous monitoring event; (b) litigation; (c) investigations by other agencies, such as the 
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Because membership in the Federal Reserve System does not confer deposit insurance, 

CRA does not, by its terms, apply to membership applications. Nevertheless, a less-thansatisfactory CRA rating, especially if it reflects a chronic record of weak CRA performance, 

would presumably reflect unfavorably upon the abilities of management of the institution. In 

these situations, it is appropriate for the Reserve Bank to include in the pre-membership 

examination a review of the institution’s CRA performance, as well as management’s plans and 

programs to ensure that the organization meets its CRA obligations going forward.

Documentation Requirement for a Waived Safety-and-Soundness or Consumer Compliance 

Examination 

The Reserve Bank must prepare and maintain documentation supporting its decision not 

to conduct a pre-membership or pre-merger safety-and-soundness or consumer compliance 

examination. Documentation should include a memorandum summarizing how the institution 

meets each of the eligibility criteria or a justification for the waiver for cases where the 

institution does not meet one or more of the eligibility criteria. The supporting memorandum 

should summarize the Reserve Bank’s review of the two most recent full-scope safety-andsoundness and consumer compliance examinations conducted by the appropriate primary 

banking regulatory agency and, when applicable, the CFPB.

Scope and Documentation of the Safety-and-Soundness or Consumer Compliance 

Examination

All pre-membership or pre-merger safety-and-soundness or consumer compliance 

examinations can be risk focused and targeted, as appropriate, to the identified area(s) of weakness. 

Furthermore, the Reserve Bank is not required to issue a report to the institution; however, the 

review should be documented in a memorandum that is maintained together with the application 

documents.

To fulfill the examination requirement for an insured depository institution or savings 

association that is a subsidiary of a bank holding company or savings and loan holding company 

(hereafter referred to as holding company) with consolidated assets equal to or greater than $50 

billion, the supervisory team will generally rely on information gathered through the existing 

continuous monitoring program. The team is also expected to consider findings from recent 

examinations that assessed specific risks, lines of business, or control functions, and from reviews 

such as the Comprehensive Capital Analysis and Review, the mid-cycle supervisory stress test for 

banks and holding companies, the holding company resolution plans, and the insured depository 

institution resolution plan. In the event the results of continuous monitoring and prior examinations 

do not provide the information necessary to assess specific areas of weakness, the supervisory team 

will conduct a targeted examination.

Supervisory Expectations Post-Merger or Charter Conversion 

In all cases, the Reserve Bank remains responsible for adhering to the required

frequency timeframes established by Federal Reserve policies and regulations for both safety-andsoundness and consumer compliance examinations. When the statutory deadline for the

examination of an insured depository institution seeking membership is approaching, or has 

passed, a Reserve Bank should conduct an examination of the institution as soon as is practical 

 

Department of Justice, or the Department of Housing and Urban Development; and (d) other information – such as a 

spike in consumer complaints. 
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after it becomes a state member bank. The Reserve Bank should notify Board supervisory staff 

if the examination mandate will be missed for whatever reason. 

In addition, for institutions with $10 billion or more in total consolidated assets, the 

Reserve Bank should complete the risk assessments and supervisory strategies required for 

safety-and-soundness no later than 30 days after the conversion or merger, regardless of whether 

the institution met the eligibility criteria. In preparing the risk assessment and supervisory 

strategy for a state member bank that was formerly a savings association or that acquired a

savings association, the Reserve Bank should pay particular attention to activities conducted by

any service corporation subsidiary that may not be permissible for a state member bank, where

such activities have not yet been conformed.

9

 

For questions regarding this guidance, please contact:

• Division of Banking Supervision and Regulation:

o Community Banking Organizations: Laura A. Macedo, Senior Supervisory 

Financial Analyst, at (202) 452-5268, and Anthony B. Cain, Manager, at 

(202) 912-4377;

o Regional Banking Organizations: Keith J. Coughlin, Manager, at (202) 452-

2056;

o Large and Foreign Banking Organizations: Kwayne Jennings, Manager, at 

(202) 452-3088, and Celeste M. Molleur, Manager, at (202) 452-2783;

• Division of Consumer and Community Affairs: Carol Evans, Assistant Director, at 

(202) 452-2051, or Melissa Vanouse, Manager, Banking Applications, at (202) 452-

3488.

In addition, institutions may send questions via the Board’s public website.10

Michael S. Gibson

Director

Division of Banking Supervision

and Regulation

Eric S. Belsky

Director

Division of Consumer and

Community Affairs

Supersedes:

• SR letter 11-2 / CA letter 11-2, “Examination of Insured Depository Institutions Prior to 

Membership or Mergers into State Member Banks”

 9 The Board, in acting on a membership application, is required to consider whether the corporate powers to be 

exercised are consistent with the purposes of the Federal Reserve Act (12 U.S.C. 322). In addition, Regulation H

(12 CFR 208.3(d)(2)) requires a state member bank to obtain the Board’s permission prior to changing the scope of

powers it exercises.

10 See http://www.federalreserve.gov/apps/contactus/feedback.aspx.