Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52869

FEDERAL DEPOSIT INSURANCE

CORPORATION

Applications for Deposit Insurance

AGENCY: Federal Deposit Insurance

Corporation.

ACTION: Proposed statement of policy.

SUMMARY: As part of the FDIC’s

systematic review of its regulations and

written policies under section 303(a) of

the Riegle Community Development and

Regulatory Improvement Act of 1994,

the FDIC is revising its Statement of

Policy on ‘‘Applications for Deposit

Insurance.’’ These revisions include

changes to FDIC’s policies regarding

initial capitalization when a de novo

bank is organized by certain well

managed and well capitalized holding

companies. Policies regarding stock

benefit plans are amended and regional

directors are given more discretion to

act under delegated authority. Changes

are also made to eliminate outdated

information and to reflect current

polices and practices that have not

previously been incorporated into the

Statement of Policy.

DATES: Comments must be submitted on

or before January 7, 1998.

ADDRESSES: Send written comments to

Robert E. Feldman, Executive Secretary,

Attention: Comments/OES, Federal

Deposit Insurance Corporation, 550 17th

Street NW, Washington, D.C. 20429.

Comments may be hand delivered to the

guard station located at the rear of the

17th Street building (located on F

Street), on business days between 7:00

a.m. and 5:00 p.m. (FAX number (202)

898–3838; Internet address:

comments@FDIC.gov). Comments may

be inspected and photocopied at the

FDIC Public Information Center, Room

100, 801 17th Street NW, Washington,

D.C., between 9:00 a.m. and 4:30 p.m.

on business days.

FOR FURTHER INFORMATION CONTACT: Cary

H. Hiner, Associate Director, Division of

Bank Supervision, (202) 898–6814; Jesse

G. Snyder, Assistant Director, Division

of Supervision, (202) 898–6915; Mark S.

Schmidt, Assistant Director, Division of

Supervision, (202) 898–6915; or Susan

van den Toorn, Counsel, Regulation and

Legislation Section, Legal Division,

(202) 898–8707, FDIC, 550 17th Street,

N.W., Washington, D. C. 20429.

SUPPLEMENTARY INFORMATION: The FDIC

is conducting a systematic review of its

regulations and written policies. Section

303(a) of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRIA) (12

U.S.C. 4803(a)) requires the FDIC to

streamline and modify its regulations

and written policies in order to improve

efficiency, reduce unnecessary costs,

and eliminate unwarranted constraints

on credit availability. Section 303(a)

also requires the FDIC to remove

inconsistencies and outmoded and

duplicative requirements from its

regulations and written policies. Also as

part of the CDRIA review, on December

6, 1995, the FDIC published in the

Federal Register a Notice of opportunity

to comment on specific FDIC

regulations and written policies. See 60

FR 62345. In response to that request,

the FDIC received one comment

regarding the Statement of Policy on

‘‘Applications for Deposit Insurance’’

(Statement of Policy). The commenter

urged the FDIC to re-evaluate its

position with regard to stock benefit

plans established to compensate

organizers and investors who place

funds at risk during the organizational

phase. Specifically, the commenter

stated that the FDIC has objected to

stock options proposed to be awarded to

organizers who have placed funds at

risk and noted that the Office of the

Comptroller of the Currency (OCC) and

the Federal Reserve Board (FRB) do not

object to such plans. The commenter

urged the FDIC to take a position similar

to the OCC and the FRB. The issues

raised by the commenter are addressed

below in the discussion of stock benefit

plans and in the Statement of Policy.

Also as a part of the CDRIA review,

the FDIC has determined that the

Statement of Policy remains an

important communication device with

the banking industry. However, certain

information has become outdated, while

some issues of current importance either

are not addressed or are not adequately

addressed. As a consequence, the basic

organizational structure of the

Statement of Policy has been retained,

while much of the content has been

revised.

Four significant changes to the

Statement of Policy are described below.

In each of these instances, the change

will provide the appropriate FDIC

regional director, Division of

Supervision (DOS), with the authority to

approve deposit insurance applications

which previously would have been

forwarded to the FDIC’s Washington

Office for review and decision.

Wholly Owned Subsidiary of a Holding

Company

The current Statement of Policy

requires an initial capitalization in an

amount that is sufficient to provide an

8 percent Tier 1 leverage capital ratio

throughout the first three years of

operation. The revised Statement of

Policy provides that, in certain

circumstances, the amount of the initial

capital injection for a de novo

institution may be reduced to a

minimum of $2,000,000, or an amount

that is sufficient to provide an 8.0

percent Tier 1 leverage capital ratio at

the end of the first year of operation,

whichever is greater. This option will be

available when the proposed depository

institution is to be formed as a wholly

owned subsidiary of a holding company

which meets the standards established

for an ‘‘eligible holding company,’’ as

set forth in § 303.22 of the FDIC’s

regulations. However, the holding

company would also be required to

provide a written commitment to

maintain the proposed depository

institution’s Tier 1 leverage capital ratio

at no less than 8.0 percent throughout

the first three years of operation. This

revision will allow a well managed

holding company to provide less initial

capital than would have been required

under the former standard. This change

is considered appropriate in recognition

of the ability of the FDIC to reasonably

quantify the financial capacity of the

parent organization, and to allow the

holding company to more efficiently

allocate the resources of the entire

organization. This amendment will

permit the appropriate FDIC regional

director (DOS) to act on proposals that

contain these provisions when the other

factors necessary for delegated authority

have been met.

Operating Insured Offices

In certain instances, the applicant

may request that the benchmark for

evaluating the adequacy of capital be

established such that the resultant

proposed depository institution would

be classified as well capitalized, as

defined by its primary federal regulator.

This provision would become

applicable when the proposal involves

the formation of a depository institution

through the acquisition of an existing

insured operating office (or offices).

Criteria established for this lower initial

capital benchmark would be that the

acquisition involves substantially all of

the assets and liabilities of the operating

insured office, that the applicant

provide reasonable evidence that the de

novo institution’s operations will be

stabilized at inception, and that the

proponent for the applicant be either an

eligible holding company or an

established banking group. The

Statement of Policy uses an identified

chain banking group as an example of

one type of ‘‘established banking

group.’’ However, the term is intended

to cover a group of individuals that have

served as directors or officers of an

operating insured depository institution.
52870 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

For either a chain banking group or a

group of individuals to be considered an

established group, the association must

be in existence for at least three years.

This provision has been added to the

Statement of Policy in recognition that

deposit insurance for a depository

institution being established from

operating offices does not present the

same risks to the insurance funds as

does the chartering of a start-up de novo

institution. This provision also seeks to

remove capital requirement inequities

that may have existed under prior

procedures with respect to certain

corporate reorganization activities. This

amendment will permit the appropriate

FDIC regional director (DOS) to act on

proposals that contain these provisions

when the other factors necessary for

delegated authority have been met.

Stock Financing by Insiders

Guidelines for borrowing

arrangements by insiders have been

revised. The reference to borrowing

arrangements by an individual insider

of more than 75 percent of the purchase

price of the stock subscribed, or more

than 50 percent of the purchase price of

the aggregate stock subscribed by the

insiders as a group, has been retained as

a point of emphasis. However, the

Statement of Policy has been amended

by deleting the statement that borrowing

arrangements in excess of the referenced

percentage limits will ordinarily be

presumed to be excessive. The burden

of providing appropriate supporting

information regarding borrowing

arrangements will remain with the

affected insiders. However, this

amendment will permit the appropriate

FDIC regional director (DOS) to evaluate

all insider borrowing arrangements on

their own merits, without having a set

limit for those that will be considered

excessive or otherwise inappropriate.

This amendment will permit the

appropriate FDIC regional director

(DOS) to act on the proposal when

insider borrowing arrangements are

inconsequential to the total proposal, or

are otherwise not detrimental, when the

other factors necessary for delegated

authority have also been met.

Similarly, borrowings by a holding

company to capitalize a proposed

depository institution will be evaluated

in the context of the holding company’s

consolidated operations, rather than

based on a 50 percent limit of the total

initial capital of the proposed

depository institution. However, the

borrowing arrangement would need to

meet any leverage guidelines

established by the holding company’s

primary federal regulator and be

reasonable. This amendment will permit

the appropriate FDIC regional director

(DOS) to act on a proposal that involves

holding company debt financing of

more than 50 percent, when the other

factors necessary for delegated authority

have been met.

Stock Benefit Plans

It is becoming increasingly common

for organizers of de novo depository

institutions to propose stock benefit

plans. Such plans often include not only

active officers, but also directors and, in

some cases, organizers. Guidance in the

current Statement of Policy on

Applications for Deposit Insurance

states that: ‘‘It is anticipated that options

or bonuses will be tied to specific

performance criteria and will be limited

to active management of the

institution.’’

This proposal provides for

participation of both active officers and

outside directors in stock benefit plans,

although it is anticipated that such

plans will focus primarily on active

officers. It is also recognized that plans

may be established to compensate

organizers who placed funds at risk to

finance the organization or who have

provided professional or other services

during the organizational phase. FDIC

will separately review such plans

designed to compensate organizers for

services rendered.

The proposed directors and officers

are a critical element in evaluating a

proposed depository institution’s

application for deposit insurance, and

the FDIC has found that management

stability is generally an essential

element for the ultimate success of a de

novo depository institution. Therefore

stock benefit plans which are being

adopted in conjunction with the

establishment of a depository institution

should encourage the continued

involvement in the depository

institution by key management officials.

Guidelines are included in the

Statement of Policy to provide standards

to be used in evaluating the

appropriateness of stock benefit plans.

These guidelines are considered

necessary to provide the applicant with

basic guidance as well as to promote

consistency within the FDIC itself.

Some concepts are retained from the

former Statement of Policy, such as a

maximum 10 year limit on options.

FDIC’s current practice, although not

explicitly stated in the current policy

statement, of requiring that the strike

price be established at no less than fair

market value at the time of the grant,

has now been explicitly stated. New

concepts have been added which

emphasize that the plan should

encourage the continued involvement of

the proposed management. It is believed

that a vesting period covering the first

three years of operation would be

appropriate to assure continued

involvement. A three year vesting was

selected based on the FDIC’s experience

that a three year period provides

reasonable assurance that the business

plan will have been fully implemented

and stabilized operations achieved. An

additional concept adopted is a

requirement that a stock benefit plan

provide for an exercise or forfeiture

clause which may be invoked by the

depository institution’s primary federal

regulator in the event the capital falls

below minimum requirements. This is

believed necessary to ensure that the

dilutive effects of outstanding stock

options will not make it unduly difficult

for an institution in need of additional

capital to increase capitalization in a

timely manner. The OCC also has an

established policy of requiring exercise

or forfeiture clauses in certain instances.

Stock benefit plans designed to

compensate incorporators for personal

funds placed at risk during the

organization or for services rendered

during the organization will be viewed

somewhat differently than plans for

active management and directors. Plans

designed to compensate for past services

need not be subject to vesting periods or

restrictions on transferability, but FDIC

will review the duration of the rights,

strike price, and exercise or forfeiture

clauses in the same manner as for plans

designed to reward continuing

management service. In addition, the

FDIC will consider the incorporator’s

time, expertise, and financial

commitment to the proposal and the

amount and basis of any cash payments

made or to be made to the incorporators

for services rendered or funds placed at

risk.

Stock appreciation rights and similar

plans that involve a cash payment based

directly on the market value of the

depository institution’s stock have been

specifically identified as objectionable.

These types of plans can result in an

expense which would reduce the

depository institution’s capital. Such

compensation plans cannot be

quantified in relation to the capital

adequacy factor and could be

detrimental to the overall capital of a

depository institution, particularly in its

formative years.

If the proposed insured depository

institution is to be a subsidiary of a de

novo holding company, and a stock

benefit plan is being proposed at the

holding company level, that stock

benefit plan will be reviewed by the

FDIC in the same manner as a plan
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52871

involving stock issued by the proposed

depository institution.

The comments contained in this

Statement of Policy relate solely to stock

benefit plans which are being proposed

in conjunction with the filing of a

deposit insurance application and the

establishment of an insured depository

institution. The comments and

guidelines are not intended to be

applicable to established operating

insured depository institutions. It is

believed that this proposal would bring

FDIC’s policies into closer alignment

with those of the other state and federal

bank regulatory agencies.

Other Changes

In addition to these four major areas,

other changes are being proposed to

clarify issues that have arisen or to

remove outdated or duplicative

information. Noteworthy changes

include the following:

• In conjunction with the FDIC’s

recent rescission of its Statement of

Policy regarding Applications, Legal

Fees, and Other Expenses (62 FR 15479,

April 1, 1997), concise comments

relative to fees incident to an

application have been incorporated into

the revised Statement of Policy.

• The Statement of Policy is amended

to replace the statement that ‘‘no

dividends are to be paid until all initial

losses have been recaptured* * *’’,

with ‘‘during the first three years of

operation, cash dividends shall be paid

only from net operating profits* * *’’

The Statement of Policy retains the

requirement that no dividends be paid

until an appropriate allowance for loan

and lease losses has been established

and overall capital is adequate. This

amendment reflects the FDIC’s current

practice and provides reasonable

accommodation to possible Subchapter

S Corporation applicants.

• The Statement of Policy has been

amended to authorize the appropriate

FDIC regional director (DOS) to waive

financial information for proposed

officers and directors when the

proposed depository institution is being

formed as a wholly owned subsidiary of

a holding company. This was adopted

in recognition that, when the proposed

depository institution is being formed as

a wholly owned subsidiary of a holding

company, personal financial

information may not be not meaningful.

• Other amendments to the Statement

of Policy relating to proposed

management include deleting the

statement that the chief executive officer

is expected to be a qualified and

experienced lending officer, and

deleting a requirement that a majority of

the proposed directors will reside

within, or have significant business

interests within 100 miles of the

proposed depository institution. It is

expected that a qualified lending officer

will be provided for in the management

structure. However, the chief executive

officer need not be that person. Also,

while the FDIC encourages local

involvement in proposed depository

institutions, a specific residency

requirement is not considered

necessary.

• The Statement of Policy has also

been revised to require that the

applicant commit the depository

institution to obtain an audit by an

independent public accountant

annually for only a three year period,

rather than the first five years. This will

provide consistency with the other

federal regulators regarding audit

coverage requirements for de novo

depository institutions.

This Statement of Policy is applicable

only to applications for deposit

insurance, and it is not intended to

establish policy for other applications or

actions undertaken by established

operating insured depository

institutions.

Public Comment

In addition to seeking public

comments on the above revisions to the

Statement of Policy, the FDIC also

solicits specific comment on the issue of

whether deposit insurance should be

conferred upon certain applicants that

are owned by public entities,

specifically governmental units. The

FDIC is concerned that due to their

public ownership, such depository

institutions present unique supervisory

concerns which do not exist with

privately-owned depository institutions.

Leadership of a governmental unit is

subject to change through elections and

other means. The FDIC has concerns

about the institution’s ability to operate

independently of the political process, a

lack of continuity in the depository

institution’s policies, management and

oversight which could result from

changes in the public entity’s

leadership, and the institution’s ability

to raise capital through non-traditional

sources. Moreover, such institutions

may be formed to engage primarily in

non-profit or charitable activities such

as the promotion of local affordable

housing. This raises the prospect of

deposit insurance coverage being used

for purposes other than those for which

the system was created, namely, to

promote the stability of the nation’s

financial system and to protect

depositors’ funds. See section 1 of the

FDI Act (12 U.S.C. 1811), see also 77

Cong. Rec. 3837, 3840, 3923, 3924, 3925

(1933).

In light of these concerns, the FDIC

will scrutinize an application for

deposit insurance by a publicly-owned

applicant very closely. The agency is

unlikely to resolve satisfactorily all of

the statutory factors which must be

considered under section 6 of the FDI

Act (12 U.S.C. 1816) in evaluating such

an application. The FDIC is considering

whether to add language to that effect to

the Statement of Policy. The FDIC

specifically solicits comment on this

issue and whether language should be

added to the Statement of Policy which

addresses the question. The FDIC also

requests comment on the advisability in

general of conferring deposit insurance

upon applicants which are owned by

governmental units.

Banks that are owned by foreign

governments and their subdivisions and

banks that are owned or controlled by

Native American tribes or bands will

not be subject to the heightened scrutiny

given to other types of publicly-owned

depository institutions. Overarching

legal and policy considerations, unique

to these two categories of insurance

applicants, outweigh any concerns that

the FDIC may have regarding the

ownership of such depository

institutions by governmental entities.

The respective legal and policy

considerations for each category of

depository institution are discussed in

detail below.

With respect to banks that are owned

by foreign governments and their

subdivisions, the governing principle of

the International Banking Act of 1978

(the IBA) (12 U.S.C. 3101 et seq.), the

federal statute that governs the

participation by foreign banks in

domestic markets, is the concept of

‘‘national treatment.’’ This concept

holds that a foreign bank operating in a

particular nation should be accorded

operating privileges which provide such

banks with the opportunity for

competitive equality with their host

country counterparts. S. Rep. No. 95–

1073 at 18 (1978), reprinted in 1978

U.S.C.C.A.N. 1421, 1438.

Congress adhered to the principle of

national treatment in devising the IBA

to help ensure that U.S. depository

institutions operating overseas received

equal treatment with their host country

competitors. The financial systems of

different nations have varying

concentrations of privately-and

publicly-owned enterprises. When

seeking to promote the overseas

operations of U.S. depository

institutions in foreign countries through

the principle of national treatment, the

United States cannot draw a distinction
52872 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

1 In the case of any interim federal depository

institution that is chartered by the appropriate

federal banking agency, the depository institution

shall be an insured depository institution upon the

issuance of the institution’s charter by the agency.

An application for federal deposit insurance

generally is not required even if the federal interim

is the surviving charter of a merger with another

insured depository institution. See 12 CFR

303.62(b)(2) and the FDIC’s Statement of Policy on

Bank Merger Transactions (section 4.2). Any

depository institution whose insured status is

continued pursuant to section 4 of the Federal

Deposit Insurance Act is not required to apply to

continue its insured status. 12 U.S.C. 1814.

between a nation that has a bank owned

by the government and a nation that

does not. National treatment by its very

logic requires that all foreign depository

institutions, whether publicly-or

privately-owned, receive the same,

consistent treatment when operating in

the United States. This includes

eligibility for deposit insurance which is

often a condition of either a state or

federal charter. For these reasons, an

applicant for deposit insurance which is

owned by a foreign government will not

be subjected to heightened scrutiny by

the FDIC simply because it is publicly

owned.

Native American tribes or bands that

own or control depository institutions

can also be distinguished from a

conventional governmental unit that

seeks to open or acquire a depository

institution. This is because under

federal law, Native American tribes and

bands function as both governmental

and economic, for-profit entities. The

Indian Reorganization Act of 1934 (the

IRA) (25 U.S.C. 461 et seq.) authorizes

not only the creation of tribal

governments (see section 16 of the IRA,

12 U.S.C. 476), but also provides for the

creation of tribal business corporations

pursuant to section 17 of the IRA (25

U.S.C. 477). At the same time, however,

a tribal government organized under

section 16 of the IRA is not precluded

from engaging in business activities. See

S. Unique Ltd. v. Gila River PimaMaricopa Indian Community, 138 Ariz.

384, 674 P.2d 1376 (Ct. App. 1984).

Both tribal governments and

corporations are restricted by the IRA

with respect to their ability to sell,

mortgage, or lease Native American trust

or restricted land, but are otherwise free

to engage directly in economic activity.

This situation is in contrast to

conventional governmental units which

seldom engage in direct economic

activity for profit. For this reason, the

FDIC considers Native American tribes

and bands that own or control a

depository institution to be more

analogous to private, for-profit entities

than to governmental units in the

context of their ownership or control.

The FDIC therefore will not subject an

applicant for deposit insurance which is

owned or controlled by an Native

American tribe or band to heightened

scrutiny simply because of that

ownership.

The Board of Directors of the FDIC

hereby proposes the following revised

Statement of Policy on Applications for

Deposit Insurance.

Applications for Deposit Insurance

Introduction

The Board of Directors of the FDIC is

charged by statute with the

responsibility of acting upon

applications for federal deposit

insurance by all depository institutions 1

including any national bank, district

bank, state bank, federal savings

association, state savings association,

savings bank, or trust company. In

addition, the Board of the FDIC will also

act upon applications for federal deposit

insurance by an industrial bank (or

similar depository institution which the

Board of Directors finds to be operating

substantially in the same manner as an

industrial bank), or any other depository

institution which is engaged in the

business of receiving deposits, other

than trust funds.

An insured depository institution

which wishes to continue its insured

status after withdrawing from the

Federal Reserve System, or when

converting from a mutual to a stock

form of ownership by the chartering of

an interim savings association under the

provisions of section 10(o) of the Home

Owners Loan Act, also must file an

application with the FDIC for deposit

insurance.

Procedures

Forms and instructions for applying

for deposit insurance may be obtained

from any regional office of the FDIC

Division of Supervision (DOS).

Completed applications should be filed

with the appropriate regional office as

that term is defined in § 303.2(g) of the

FDIC’s rules and regulations.

Incorporators of proposed new

depository institutions should file their

applications with the FDIC and the

appropriate chartering authority at the

same time. Information provided to the

chartering authority that is also needed

as part of the deposit insurance

application may be provided to the

FDIC by appending a copy of the

information to the FDIC application.

Although use of the FDIC application

form is not required, the material

submitted to the FDIC must contain all

information requested in the FDIC

application form, unless otherwise

indicated by FDIC. All incorporators

must sign the FDIC’s deposit insurance

application certification page (pages 1

and 2 of the application form). It is

strongly recommended that a

representative(s) of the organizing group

meet with the chartering authority and

FDIC prior to filing an application to

reach an understanding of the

information requirements of each

agency. It is believed this practice

would facilitate processing and

eliminate unnecessary delays.

Information requirements may not be as

extensive for applications sponsored by

existing holding companies or other

well established banking groups. Final

action may be taken by the FDIC prior

to final action by other regulatory

authorities in those cases in which the

FDIC has determined that there is no

material disagreement on the action to

be taken.

The procedures governing the

administrative processing of an

application for deposit insurance are

contained in part 303, subpart B, of the

FDIC’s rules and regulations (12 CFR

part 303). Processing of an application

will not commence until it is

substantially complete. An incomplete

application may be returned to the

applicant. The applicant must satisfy all

terms of a conditional approval prior to

deposit insurance becoming effective.

The policies contained herein are

applicable for all proposed de novo

depository institutions and operating

institutions applying for deposit

insurance, with the exception of

applications submitted for the sole

purpose of acquiring assets and

assuming liabilities of an insured

institution in danger of default. Policies

are modified in those situations to

reflect the urgent nature of the

transaction. Guidance for those

situations is contained in a separate

section of this policy statement.

Subpart B of part 303 contains special

filing and processing procedures for a

state member bank which seeks to

continue its insured status upon

termination of membership in the

Federal Reserve System and for interim

institutions chartered to facilitate

mergers.

Proposed New Depository Institutions

In considering applications for

deposit insurance for a proposed new

depository institution, the FDIC must

evaluate each application in relation to

the factors prescribed in section 6 of the

Federal Deposit Insurance Act (hereafter

the Act) (12 U.S.C. 1816). Those factors

are:
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52873

• The financial history and condition

of the depository institution;

• The adequacy of its capital

structure;

• Its future earnings prospects;

• The general character and fitness of

its management;

• The risk presented by such

depository institution to the deposit

insurance fund;

• The convenience and needs of the

community to be served by the

depository institution; and

• Whether its corporate powers are

consistent with the purposes of the Act.

The applicant will receive deposit

insurance if all of these statutory factors

plus the considerations required by the

National Historic Preservation Act and

the National Environmental Policy Act

of 1969 are resolved favorably.

Additional guidance regarding the

National Historic Preservation Act and

the National Environmental Policy Act

may be found in the respective FDIC

Statements of Policy for each of these

statutes.

If the proposal contemplates the

simultaneous establishment of a holding

company, the application should

discuss and disclose the proposed

activities of the parent holding company

as well as those of the proposed bank.

In those instances where the proposal

involves the ownership of the

depository institution as a subsidiary of

an existing bank or thrift holding

company, the FDIC will consider the

financial and managerial resources of

the parent organization in assessing the

overall proposal and in evaluating the

statutory factors prescribed in section 6

of the Act. In such circumstances, the

application for deposit insurance should

contain a copy of any information

submitted to the holding company’s

primary federal regulator. Subpart B of

part 303 of the FDIC’s regulations

discusses certain expedited procedures

that may be available to eligible

depository institutions or eligible

holding companies (as those terms are

defined in the regulation).

The FDIC may conduct examinations

and/or investigations to develop

essential information with respect to

deposit insurance applications. The

need to conduct an investigation, and its

scope, will be determined by the

appropriate regional director (DOS).

Every effort will be made to coordinate

any FDIC investigation with those

conducted by other regulators.

The FDIC has formulated guidelines

for evaluating deposit insurance

applications which are designed to ease

administration, prevent arbitrary

judgment, and assure uniform and fair

treatment to all applicants. A discussion

of these guidelines follows.

Statutory Factors

1. Financial History and Condition

Proposed and newly organized

depository institutions have no financial

history to serve as a basis for

determining qualifications for deposit

insurance. Thus, the primary areas of

consideration under this statutory factor

are the ability of proponents to provide

financial support to the new institution,

investment in fixed assets, including

leasing arrangements, and insider

transactions. Lease transactions shall be

reported in accordance with Financial

Accounting Standards Board Statement

13 (Accounting for Leases). Applicants

are expected to provide procedures,

security devices, and safeguards at least

equivalent to the minimums specified in

the Bank Protection Act of 1968 (12

U.S.C. 1881–1884).

(a) Investment in Fixed Assets and

Leases—The applicant’s aggregate direct

and indirect fixed asset investment,

including lease obligations, must be

reasonable in relation to its projected

earnings capacity, capital, and other

pertinent matters of consideration.

Applicants are cautioned against the

purchase of any fixed assets or entering

into any noncancelable construction

contracts, lease agreements, or other

binding arrangements related to the

proposal unless and until the FDIC

approves the application.

(b) Insider Transactions—Any

financial arrangement or transaction

involving the applicant and an insider

should be documented by the applicant

to demonstrate that: (1) The proposed

transaction with insiders is made on

substantially the same terms as those

prevailing at the time for comparable

transactions with non-insiders and does

not involve more than normal risk or

present other unfavorable features to the

applicant depository institution; and (2)

the transaction must be approved in

advance by a majority of the depository

institution’s incorporators. In addition,

full disclosure of any arrangements with

an insider must be made to all proposed

directors and prospective shareholders.

An insider means a person who is

proposed to be a director, officer, or

incorporator of an applicant; a

shareholder who directly or indirectly

controls 10 percent or more of a class of

the applicant’s outstanding voting stock;

or the associates or interests of any such

person.

2. Adequacy of the Capital Structure

Normally, the initial start-up capital

of a proposed depository institution

should be sufficient to provide a Tier 1

capital to assets leverage ratio (as

defined in the appropriate capital

regulation of the institution’s primary

federal regulator) of not less than 8.0%

throughout the first three years of

operation. In addition, the depository

institution must maintain an adequate

allowance for loan and lease losses.

The adequacy of the capital structure

of a newly organized depository

institution is closely related to its

deposit volume, fixed asset investment

and the anticipated future growth in

liabilities. Deposit projections made by

the applicant must, therefore, be fully

supported and documented. Projections

should be based on established growth

patterns in the specific market, and

initial capitalization should be provided

accordingly. Special purpose depository

institutions (such as credit card banks)

should provide projections based on the

type of business to be conducted and

the potential for growth of that business.

Initial capital should normally be in

excess of $2,000,000, net of any preopening expenses that will be charged

to the institution’s capital after it

commences business.

(a) Initial offering of stock—All stock

of a particular class in the initial

offering should be sold at the same

price, and have the same voting rights.

Proposals which allow the insiders to

acquire a separate class of stock with

greater voting rights are generally

unacceptable. Insiders should not be

offered stock at a price more favorable

than the price for other subscribers. A

price disparity provides insiders with a

means to gain control disproportionate

to their investment.

When securities are sold to the public,

the disclosure of all material facts is

essential. The FDIC’s Statement of

Policy regarding Offering Circulars

provides additional guidance. A copy of

the offering circular prepared by the

applicant, together with the stock

solicitation material and subscription

agreement, should be submitted to the

FDIC when they become available.

(b) Wholly owned subsidiary of a

holding company—If the applicant is

being established as a wholly owned

subsidiary of an eligible holding

company (as defined in part 303,

subpart B), the FDIC will consider the

financial resources of the parent

organization as a factor in assessing the

adequacy of the proposed initial capital

injection. In such cases, the appropriate

regional director (DOS) may find

favorably with respect to the adequacy

of capital factor, when the initial capital

injection is sufficient to provide for a

Tier 1 leverage capital ratio of at least

8.0% at the end of the first year of
52874 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

2A 2 rating under the Uniform Financial

Institution System is generally indicative of a

satisfactory record of performance in light of the

institution’s particular circumstances.

operation, based on a realistic business

plan, or the initial capital injection

meets the $2,000,000 minimum capital

standard set forth in this Statement of

Policy, or any minimum standards

established by the chartering authority,

whichever is greater. However, the

holding company shall also provide a

written commitment to maintain the

proposed institution’s Tier 1 leverage

capital ratio at no less than 8.0 percent

throughout the first three years of

operation.

(c) Operating insured offices—If the

proposal involves the acquisition of an

insured operating office, or offices, the

applicant may request that the

benchmark for evaluating the adequacy

of capital be an amount necessary for

the resultant newly chartered institution

to be classified as well capitalized, as

defined by its primary federal regulator.

In such cases, the appropriate regional

director (DOS) may find favorably with

respect to the capital factor based on a

favorable finding with respect to the

following:

• There is a realistic three year

business plan which evidences

stabilized operations at inception;

• The proposal involves substantially

all assets and deposits attributable to the

respective insured operating office(s);

and

• The proponent is either an eligible

holding company (as defined in part

303, subpart B) or is a banking group

that the FDIC determines has

demonstrated its ability to successfully

manage an insured depository

institution. (A qualified banking group

should have an established association

of at least three years. A chain banking

group which is recognized as such by

the FDIC is one type of banking group

that is contemplated in this paragraph.)

(d) Stock financing by insiders—

Financing arrangements by insiders of

their investment in stock of the

proposed new depository institution

will also be carefully reviewed.

Financing arrangements by an insider to

purchase stock will be considered

acceptable only if the party financing

the stock can demonstrate the ability to

service the debt without reliance on

dividends or other forms of

compensation from the applicant. When

stock financing arrangements of insiders

are anticipated, information should be

submitted with the application

demonstrating that adequate alternative

independent sources of debt servicing

are available. Direct or indirect

financing arrangements by insiders of

more than 75 percent of the purchase

price of the stock subscribed to by any

one individual, or more than 50 percent

of the purchase price of the aggregate

stock subscribed by the insiders as a

group, will require supporting

comments in the application regarding

the reason that the financing

arrangements should be considered

acceptable. If the insider financing

arrangements are not considered

appropriate, the FDIC may find

unfavorably on the adequacy of the

capital structure.

When the proposed depository

institution is being established as a

subsidiary of an existing holding

company, the funding source being

utilized by the holding company for its

capital contribution will be evaluated in

the context of the holding company’s

consolidated operations.

In such cases, the FDIC will need to

be provided with assurance that the

holding company’s proposed leverage is

within the guidelines of its primary

federal regulator.

No loans for stock purchases are to be

refinanced by the newly established

institution. Deposits or other funds of

the proposed depository institution at

correspondent banks are not to be used

as compensating balances for loans to

insiders. During the first three years of

operations, cash dividends shall be paid

only from net operating profits, and

shall not be paid until an appropriate

allowance for loan and lease losses has

been established and overall capital is

adequate.

3. Future Earnings Prospects

Before approving an application for

deposit insurance, the FDIC must have

reasonable assurance that the new

institution can be operated profitably.

Therefore, the incorporators will need to

demonstrate through realistic and

supportable estimates that, within a

reasonable period (normally three

years), the earnings of the applicant will

be sufficient to provide an adequate

profit.

The applicant must also maintain its

books and records in accordance with

the principles of accrual accounting.

4. General Character and Fitness of the

Management

To satisfy the FDIC’s criteria under

this factor, the evidence must support a

management rating which, in an

operating institution, would be

tantamount to a rating of 2 or better

under the Uniform Financial Institution

Rating System.2 Since in most instances

the management of a proposed

depository institution will not have an

operating record as a functioning unit,

the individual directors and officers will

be evaluated largely on the basis of the

following:

• Financial institution and other

business experience;

• Duties and responsibilities in the

proposed depository institution;

• Personal and professional financial

responsibility;

• Reputation for honesty and

integrity; and

• Familiarity with the economy,

financial needs, and general character of

the community in which the depository

institution will operate.

All proposed depository institutions

shall provide at least a five-member

board of directors. The identity and

qualifications of the proposed full-time

chief executive officer should be made

known to the FDIC as soon as possible,

preferably when the application is filed

with the appropriate FDIC regional

director (DOS). Proponents must advise

the FDIC, in writing, of any change in

the directorate, senior active

management, or a change in the

ownership of stock by any person of

10% or more of the total shares of either

the depository institution or its holding

company prior to opening.

(a) Fees and expenses—The

commitment to or payment of

unreasonable or excessive fees and other

expenses incident to an application will

reflect adversely upon the management

of the applicant institution. Fees and

other organizational expenses incurred

or committed to should be fully

supported.

Expenses for professional or other

services rendered by insiders will

receive special review for any indication

of self-dealing to the detriment of the

bank and its other shareholders. As a

matter of practice, the FDIC expects full

disclosure to all directors and

shareholders of any arrangement with

an insider.

In no case will an FDIC application be

approved where the payment of a fee, in

whole or in part, is contingent upon any

act or forbearance by the FDIC or by any

other federal or state agency or official.

(b) Stock benefit plans—Stock benefit

plans, including stock options, stock

warrants, and similar stock based

compensation plans will be reviewed by

FDIC and must be disclosed to all

potential subscribers. A description of

any such plans proposed should be

included in the application submitted to

the regional director. It is expected that

stock benefit plans will be primarily

focused on active management of the

institution, although some participation

by outside directors is not objectionable.

The structure of stock benefit plans

should encourage the continued
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52875

3 ln a situation in which the FDIC is not to be the

primary federal regulator, these determinations will

be made in consultation with the primary federal

regulator.

involvement of the participants, and

serve as an incentive for the successful

operation of the institution. It is

recognized that plans may be proposed

to compensate organizers for funds

placed at risk during the organization

phase or as remuneration for services

provided.

Stock benefit plans should contain no

feature that would encourage

speculative or high risk activities, serve

as an obstacle or otherwise impede the

sale of additional stock to the general

public, or be structured in such a

manner as to serve as a conduit to

convey control of a depository

institution to the insiders. Listed below

are factors that the FDIC will consider

in reviewing stock benefit plans

proposed for directors and active

officers:

• The duration of rights granted

should be limited, and in no event

should the exercise period exceed ten

years;

• Rights granted should encourage

the recipient to remain involved in the

proposed depository institution. For

example, a vesting of approximately

equal percentages each year over the

initial three years of operations is a type

of provision that would be appropriate

to ensure such continued involvement.

This requirement may be waived for

participants awarded only a nominal

number of shares.

• Rights granted should not be

transferable by the participant;

• The exercise price of stock rights

shall not be at less than the fair market

value of the stock at the time that the

rights are granted;

• Rights under the plan must be

exercised or expire within a reasonable

time after termination as an active

officer, employee or director; and

• Stock benefit plans should contain

a provision allowing the institution’s

primary federal regulator to direct the

institution to require plan participants

to exercise or forfeit their stock rights if

the institution’s capital falls below the

minimum requirements, as determined

by its primary state or federal regulator.

The FDIC will separately review stock

benefit plans established to compensate

incorporators who have placed personal

funds at risk to finance the organization

of the institution or who have provided

professional or other services in

conjunction with the organization. In

reviewing the reasonableness of such

plans, the FDIC will not require vesting

or restrictions on transferability, but

will review the duration of the rights,

strike price and exercise or forfeiture

clauses in the same manner as discussed

above. In addition, the FDIC will

consider:

• The incorporator’s time and

expertise, and financial commitment to

the proposal; and

• The amount and basis of any cash

payments which will be made to the

incorporator for services rendered or as

return on funds placed at risk.

It is recognized that the incorporators

may wish to adopt different types of

compensation plans which are

structured to meet the unique

circumstances of the proposed

depository institution. In evaluating

benefit and compensation plans for

insiders, the FDIC will look to the

substance of the proposal. Those

proposals that are determined to be

substantively stock based plans will be

evaluated based on the foregoing stock

benefit plan criteria. Stock appreciation

rights and other similar plans that

include a cash payment to the recipient

based directly on the market value of

the depository institution’s stock are

unacceptable.

If the proposal involves the formation

of a de novo holding company and a

stock benefit plan is being proposed at

the holding company level, that stock

benefit plan will be reviewed by the

FDIC in the same manner as a plan

involving stock issued by the proposed

depository institution.

(c) Background and biographical

information—Insiders must file

financial and biographical information

in connection with the deposit

insurance application. The FDIC may

request a report from the Federal Bureau

of Investigation or other investigatory

agencies on these individuals.

Fingerprinting of individuals may be

required. Background checks and

fingerprinting may be waived by the

appropriate FDIC regional director

(DOS) for individuals who are currently

associated with, or have had a recent

past association with, an insured

depository institution. When the

proposed depository institution is being

established as a wholly owned

subsidiary of an eligible holding

company, the appropriate FDIC regional

director (DOS) may waive financial

information for those persons who are

being proposed as directors or officers of

the applicant. Background checks

conducted by other federal financial

institution regulators in connection with

charter applications are generally

adequate for the FDIC if the other

regulators agree to notify the FDIC of

instances in which further investigation

is warranted.

In the event any present or

prospective director, officer, employee,

controlling stockholder, or agent of the

applicant has been convicted of any

criminal offense involving dishonesty,

breach of trust, or money laundering, or

has agreed to enter into a pretrial

diversion or similar program in

connection with a prosecution of such

offense, the applicant must obtain the

FDIC’s written consent, under section

19 of the Act (12 U.S.C. 1829), before

any such person may serve in one or

more of those capacities. Guidelines

regarding section 19 applications may

be obtained from the appropriate FDIC

regional office (DOS).

Proponents should be aware of the

prohibitions against interlocking

management officials which are

applicable to depository institutions and

depository institution holding

companies and which are contained in

the Depository Institution Management

Interlocks Act (12 U.S.C. 3201).

(d) Fidelity insurance, policies, and

audit coverage—An insured depository

institution should maintain sufficient

fidelity bond coverage on its active

officers and employees to conform with

generally accepted industry practices.

Primary coverage of no less than $1

million is ordinarily expected. Approval

of the application may be conditioned

upon acquisition of adequate fidelity

coverage prior to opening for business.

Applicants are expected to develop

appropriate written investment, loan,

funds management and liquidity

policies. Establishment of an acceptable

audit program is required for proposed

depository institutions. Applicants for

deposit insurance coverage are expected

to commit the depository institution to

obtain an audit by an independent

public accountant annually for at least

the first three years after deposit

insurance coverage is granted. The FDIC

may determine, 3 on a case-by-case

basis, that a separate audit is

unnecessary where the applicant is

owned by another company and the

proposed depository institution will

undergo an audit performed by an

independent public accountant as part

of an audit of the consolidated financial

statements of its parent company.

5. Risk Presented to the Bank Insurance

Fund or Savings Association Insurance

Fund

This factor is intended to be broadly

interpreted. For example, this factor

may be resolved unfavorably based on

an unsound business plan. The FDIC

expects that an applicant will submit a

business plan commensurate with the

capabilities of its management and the

financial commitment of the
52876 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

4Any significant deviation from the business plan

within the first three years of operation must be

reported by the insured depository institution to the

appropriate federal regulator before consummation

of the change.

5This statement of policy provides that the initial

capital for a new or proposed depository institution

should be sufficient to provide a leverage ratio of

Tier I capital to total estimated assets of at least

8.0% throughout the first three years of operations.

This standard shall also be applied to a recently

organized institution applying for insurance.

incorporators. 4 Applicants must

demonstrate the following:

• Adequate policies, procedures, and

management expertise to operate the

proposed depository institution in a safe

and sound manner;

• Ability to achieve a reasonable

market share;

• Reasonable earnings prospects;

• Ability to attract and maintain

adequate capital; and

• Responsiveness to community

needs.

Operating plans that rely on high risk

lending, a special purpose market, or

significant funding from sources other

than core deposits or that otherwise

diverge from conventional bank-related

financial services will require specific

documentation as to the suitability of

the proposed activities for an insured

institution. Similarly, additional

documentation of plans is required

where markets to be entered are

intensely competitive or economic

conditions are marginal.

6. Convenience and Needs of the

Community To Be Served

The essential considerations in

evaluating this factor are the deposit

and credit needs of the community to be

served, the nature and extent of the

opportunity available to the applicant in

that location, and the willingness and

ability of the applicant to serve those

financial needs.

The applicant must clearly define the

community it intends to serve and

provide information on that community,

including economic and demographic

data and a description of the

competitive environment. The applicant

should also define the services to be

offered in relation to the needs of the

community. The proposed depository

institution’s Community Reinvestment

Act documentation, including any

applicable public file information,

prepared in accordance with the

requirements of the institution’s

primary federal regulator, plays an

integral part in the FDIC’s evaluation of

the convenience and needs of the

community to be served.

7. Consistency of Corporate Powers

Pursuant to section 24 of the Act (12

U.S.C. 1831a), no insured state bank

may engage as principal in any type of

activity that is not permissible for a

national bank unless the FDIC has

determined that the activity would pose

no significant risk to the appropriate

deposit insurance fund and the state

bank is, and continues to be, in

compliance with applicable capital

standards prescribed by its primary

federal banking agency. Similarly, the

Home Owners’ Loan Act (12 U.S.C.

1464) provides that a state savings

association may not engage in any type

of activity that is not permissible for a

federal savings association unless the

FDIC has determined that the activity

would pose no significant risk to the

affected deposit insurance fund and the

savings association is, and continues to

be, in compliance with the capital

standards for the association.

Applicants shall agree in the application

not to exercise prohibited powers,

whether granted by charter or statute,

after deposit insurance has been

granted, unless prior approval has been

obtained from its federal regulator.

State nonmember banks may not

exercise trust powers without the prior

written approval of the FDIC.

Operating Noninsured Institutions

This section discusses the evaluation

of applications for federal deposit

insurance submitted by operating

noninsured institutions. The FDIC’s

criteria for evaluating applications

submitted by operating institutions are

generally the same as those for proposed

depository institutions.

The FDIC must consider the seven

factors found in section 6 of the Act,

which are discussed above.

The condition of an applicant

institution will be determined from all

available information and will generally

include an on-site examination as part

of the investigation process. Results of

the examination should reflect an

institution that is fundamentally sound,

although some modest weaknesses may

exist. The nature and severity of

deficiencies found should not be

material, and the institution must be

stable and able to withstand business

fluctuations.

Capital ratios will be calculated using

financial statements prepared in

accordance with the ‘‘Instructions—

Consolidated Reports of Condition and

Income’’ or ‘‘Thrift Financial Reports’’

in use for FDIC-insured institutions at

the time. An applicant’s capital

adequacy will be measured in relation

to the capital ratios established in the

capital regulations of the institution’s

primary federal regulator. Based on an

analysis of the type and quality of the

institution’s assets, the kind of powers

exercised, the institution’s funding

sources, or other factors, an initial

capital level higher than the minimum

levels prescribed may be required. The

analysis will include consideration of

such matters as whether the applicant is

relatively new,5 has embarked upon a

substantive change in powers exercised,

or has experienced erratic growth

patterns in recent years.

As part of the application

investigation process, the FDIC will

discuss with the applicant its future

operating intentions. If any change in its

kind or level of activity is expected

following, or as a result of, the approval

of its FDIC membership, the applicant

may be requested to submit a plan for

maintaining adequate capital in the

future.

Unless waived in writing by the FDIC,

an applicant shall have a full scope

audit conducted by an independent

public accountant prior to submitting an

application and shall submit a copy of

the auditor’s report as part of the

application.

Section 24 of the Act (12 U.S.C.

1831a) limits the powers of insured state

banks, and the Home Owners’ Loan Act

(12 U.S.C. 1464) limits the powers of

state savings associations. If the

institution is exercising any powers not

authorized under the applicable statute,

the application should contain an

agreement and plan for eliminating the

activity as soon as possible, or a

separate application should be

submitted seeking the FDIC’s consent to

continue the activity.

Proposed Depository Institutions

Formed for the Sole Purpose of

Acquiring Assets and Assuming

Liabilities of an Insured Institution in

Default

Because of the urgent nature of this

type of transaction, the procedures

described above for insuring proposed

depository institutions are modified

when the institution is being formed for

the sole purpose of acquiring assets and

assuming liabilities of an insured

institution in danger of default. Such

institutions are approved based on the

statutory factors contained in section 6

of the Act; however, the procedures for

resolving these factors are modified

significantly.

The financial history and condition of

the institution is determined to a great

extent on the quality of assets purchased

and the types of liabilities assumed in

the transaction.

The minimum capital requirement for

these transactions is such that the

resultant depository institution would
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52877

1 The citations for these statutes are, respectively,

Pub. L. 103–325, 108 Stat. 2160; Pub. L. 103–328,

108 Stat. 2338; and Pub. L. 101–73, 103 Stat. 183.

2 FIRREA sections 201 and 221.

be ‘‘adequately capitalized,’’ as defined

in the capital regulations of its primary

federal regulator, which should be

augmented by an adequate allowance

for loan and lease losses. It is

emphasized that this is a minimum

standard, and a higher capital level may

be required. The initial capital

requirements may be based on a realistic

projection of the estimated retained

deposits. However, the proposed

depository institution will be required

to provide a written commitment to

achieve the minimum capital position

shortly after consummation if the

volume of deposits is underestimated.

Proponents should contact the

appropriate FDIC regional office (DOS)

as soon as possible if they intend to bid

on a failing institution. Due to the time

constraints involved with this type of

transaction, information submissions

and applications will be abbreviated.

Generally, a letter request accompanied

by copies of applications filed with

other federal or state regulatory

authorities will be sufficient. Other

information will be requested only as

needed by the appropriate FDIC official.

Relationships With Other Federal

Regulators

Nothing in these guidelines is

intended to relieve the applicant of any

requirements imposed by a depository

institution’s primary federal regulator.

Any differences in requirements

between the FDIC and the institution’s

primary federal regulator will be

resolved during the investigation

process.

By order of the Board of Directors.

Dated at Washington, DC, this 23rd day of

September, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 97–26234 Filed 10–8–97; 8:45 am]

BILLING CODE 6714–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

Bank Merger Transactions

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Proposed statement of policy.

SUMMARY: The FDIC is proposing to

revise its Statement of Policy on Bank

Merger Transactions by updating it to

reflect legislative and other

developments that have occurred since

the Statement of Policy was last revised

in 1989. The proposed revision also

gives additional guidance by including

new provisions and clarifying some

existing provisions. The proposal is a

part of the FDIC’s systematic review of

its regulations and written policies

under the Riegle Community and

Regulatory Improvement Act of 1994

and is intended to be read in

conjunction with the merger provisions

of the FDIC’s proposed amendments

dealing with applications filed with the

FDIC, which also appears in this issue

of the Federal Register.

DATES: Comments must be received by

January 7, 1998.

ADDRESSES: Send written comments to

Robert E. Feldman, Executive Secretary,

Attention: Comments/OES, Federal

Deposit Insurance Corporation, 550 17th

Street NW, Washington, DC 20429.

Comments may be hand delivered to the

guard station located at the rear of the

17th Street building (located on F

Street), on business days between 7:00

a.m. and 5:00 p.m. (FAX number (202)

898–3838; Internet address:

comments@FDIC.gov). Comments may

be inspected and photocopied at the

FDIC Public Information Center, Room

100, 801 17th Street NW, Washington,

DC, between 9 a.m. and 4:30 p.m. on

business days.

FOR FURTHER INFORMATION CONTACT:

Kevin W. Hodson, Review Examiner,

Division of Supervision, (202) 898–

6919; Martha Coulter, Counsel, Legal

Division, (202) 898–7348, Federal

Deposit Insurance Corporation,

Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Section

303(a) of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRI Act), 12

U.S.C. 4803(a), requires that each of the

federal banking agencies (the FDIC, the

Office of the Comptroller of the

Currency, the Board of Governors of the

Federal Reserve System, and the Office

of Thrift Supervision) conduct a review

of its regulations and written policies,

for two general purposes. These

purposes are: (1) To streamline and

modify the regulations and policies in

order to improve efficiency, reduce

unnecessary costs, and eliminate

unwarranted constraints on credit

availability; and (2) to remove

inconsistencies and outmoded and

duplicative requirements.

As part of this review, the FDIC has

determined that its Statement of Policy

on Bank Merger Transactions (Policy

Statement or Statement) should be

revised. The primary purpose of the

revision is to update the Statement to

reflect statutory changes and other

developments that have taken place

since its last revision in 1989. In

addition, certain clarifications and

refinements are being proposed, as well

as new provisions intended to give

guidance in areas not previously

addressed by the 1989 Statement. The

proposed revisions are discussed more

fully below.

Recent Developments. Among the

proposed revisions to the Statement are

those resulting from statutory changes,

including the CDRI Act, the Riegle-Neal

Interstate Banking and Branching

Efficiency Act of 1994 (Interstate Act),

and the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989

(FIRREA).1 Section 321(b) of the CDRI

Act reduced the post-approval, preconsummation waiting period for

certain merger transactions from 30 days

to 15 days (see 12 U.S.C. 1828(c)(6)).

Section 102 of the Interstate Act,

codified at 12 U.S.C. 1831u, provided

for interstate bank mergers. FIRREA

broadened the coverage of the Bank

Merger Act, 12 U.S.C. 1828(c), to

include savings associations and

eliminate the Federal Savings and Loan

Insurance Corporation (FSLIC).2

Each of these changes caused related

references in the 1989 Statement to

become out-dated or incomplete, a

situation the proposed new Statement

corrects. For example, because the Bank

Merger Act now applies to thrift

institutions as well as banks, the

proposed Statement replaces the term

‘‘bank’’ with ‘‘depository institution.’’ It

also deletes a reference to the FSLIC. In

addition, the proposed Statement

includes references to interstate mergers

and to the CDRI Act’s 15-day postapproval waiting period.

In addition to statutory changes, there

have been other developments that

warrant revision of the 1989 Statement.

For example, the 1989 Statement refers

to the use of ‘‘IPC’’ deposits (deposits of

individuals, partnerships, and

corporations) in FDIC merger analysis.

However, IPC deposit data is no longer

collected by the FDIC. Accordingly, the

proposed revisions indicate that the

FDIC now uses ‘‘total deposits’’ in

evaluating the competitive effects of a

proposed merger.

Another development was the 1995

amendment of the FDIC’s regulations

implementing the Community

Reinvestment Act (CRA) (see 60 FR

22156 (May 4, 1995)). Changes the FDIC

made to its CRA regulations include

elimination of the requirement for CRA

statements and revision of the CRA

performance standards to be applied by

the FDIC. These changes are reflected in

the proposed new Statement.