52880 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

quality of services offered by the

existing competitors in the market.

The FDIC will also consider the extent

to which the proposed merger would

likely create a stronger, more efficient

institution able to compete more

vigorously in the relevant geographic

market.

4. Consideration of the Public Interest

The FDIC will deny any proposed

merger whose overall effect would be

likely to reduce existing competition

substantially by limiting the service and

price options available to the public in

the relevant geographic market(s),

unless the anticompetitive effects of the

proposed merger are clearly outweighed

in the public interest by the

convenience and needs of the

community to be served. For this

purpose, the applicant must show by

clear and convincing evidence that any

claimed public benefits would be both

substantial and incremental and

generally available to seekers of banking

services in the relevant geographic

market. Moreover, the applicant must

show that the expected benefits cannot

reasonably be achieved through other,

less anticompetitive means.

Where a proposed merger is the only

reasonable alternative to the probable

failure of an insured depository

institution, the FDIC may approve an

otherwise anticompetitive merger. The

FDIC will usually not consider a less

anticompetitive alternative that is

substantially more costly to the FDIC to

be a reasonable alternative unless the

potential costs to the public of

approving the anticompetitive merger

are clearly greater than those likely to be

saved by the FDIC.

Prudential Factors

The FDIC does not wish to create

larger weak institutions or to debilitate

existing institutions whose overall

condition, including capital,

management, and earnings, is generally

satisfactory. Consequently, apart from

competitive considerations, the FDIC

normally will not approve a proposed

merger where the resulting institution

would fail to meet existing capital

standards, continue with weak or

unsatisfactory management, or whose

earnings prospects, both in terms of

quantity and quality, are weak, suspect,

or doubtful. In assessing capital

adequacy and earnings prospects,

particular attention will be paid to the

adequacy of the allowance for loan and

lease losses. In evaluating management,

the FDIC will rely to a great extent on

the supervisory histories of the

institutions involved and of the

executive officers and directors that are

proposed for the resultant institution. In

addition, the FDIC may review the

adequacy of management’s disclosure to

shareholders of the material aspects of

the merger transaction to ensure that

management has properly fulfilled their

fiduciary duties.

Convenience and Needs Factor

The FDIC will consider the extent to

which the proposed merger is likely to

improve the service to the general

public through such capabilities as

higher lending limits, new or expanded

services, reduced prices, increased

convenience in utilizing the services

and facilities of the resulting institution,

or other means. In assessing the

convenience and needs of the

community served, the FDIC, as

required by the Community

Reinvestment Act, will also note and

consider each institution’s Community

Reinvestment Act performance

evaluation record. An unsatisfactory

record may form the basis for denial or

conditional approval of an application.

IV. Related Considerations

1. Interstate bank mergers. Where a

proposed transaction is an interstate

merger between insured banks, the FDIC

will consider the additional factors

provided for in section 44 of the Federal

Deposit Insurance Act, 12 U.S.C. 1831u.

2. Interim merger transactions. An

interim institution is a state- or

federally-chartered institution that does

not operate independently, but exists,

normally for a very short period of time,

solely as a vehicle to accomplish a

merger transaction. In cases where the

establishment of a new or interim

institution is contemplated in

connection with a proposed merger

transaction, the applicant should

contact the FDIC to discuss any relevant

deposit insurance requirements. In

general, a merger transaction (other than

a purchase and assumption) involving

an insured depository institution and a

federal interim depository institution

will not require an application for

deposit insurance, even if the federal

interim depository institution will be

the surviving institution.

3. Optional conversion transactions.

Section 5(d)(3) of the Federal Deposit

Insurance Act, 12 U.S.C. 1815(d)(3),

provides for ‘‘optional conversions’’

(commonly known as Oakar

transactions) which, in general, are

mergers that involve a member of the

Bank Insurance Fund and a member of

the Savings Association Insurance

Fund. These transactions are subject to

specific rules regarding deposit

insurance coverage and premiums.

Applicants may find additional

guidance in § 327.31 of the FDIC rules

and regulations (12 CFR 327.31).

4. Branch closings. Where banking

offices are to be closed in connection

with the proposed merger transaction,

the FDIC will review the merging

institutions’ conformance to any

applicable requirements of section 42 of

the FDI Act concerning notice of branch

closings as reflected in the Interagency

Policy Statement Concerning Branch

Closing Notices and Policies.

5. Legal fees and other expenses. The

commitment to pay or payment of

unreasonable or excessive fees and other

expenses incident to an application

reflects adversely upon the management

of the applicant institution. The FDIC

will closely review expenses for

professional or other services rendered

by present or prospective board

members, major shareholders, or other

insiders for any indication of selfdealing to the detriment of the

institution. 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 the FDIC approve an application

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.

By order of the Board of Directors.

Dated at Washington, D.C., this 23rd day of

September, 1997.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 97–26233 Filed 10–8–97; 8:45 am]

BILLING CODE 6714–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

Applications To Establish a Domestic

Branch (Includes Remote Service

Facilities); Rescission of Statement of

Policy

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Proposed rescission of 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

(CDRI), the FDIC proposes to rescind its

Statement of Policy ‘‘Applications to

Establish a Domestic Branch (Includes

Remote Service Facilities)’’ (Statement

of Policy).

The Statement of Policy provides

information and guidance to state

nonmember banks planning to establish
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52881

a domestic branch. However, the

information and guidance contained in

the Statement of Policy is out of date.

The FDIC proposes to rescind the

Statement of Policy because the

proposed revisions to its applications

regulation, published elsewhere in

today’s Federal Register update

requirements and sufficiently address

all required application procedures.

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, DC 20429.

Comments may be hand-delivered to the

guard station 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 in the FDIC Public

Information Center, Room 100, 801 17th

Street, NW., Washington, DC 20429,

between 9:00 a.m. and 4:30 p.m. on

business days.

FOR FURTHER INFORMATION CONTACT:

Jesse G. Snyder, Assistant Director,

(202) 898–6915, Division of

Supervision; Susan van den Toorn,

Counsel, (202) 898–8707, Legal

Division, FDIC, 550 17th Street, NW.,

Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The FDIC

is conducting a systematic review of its

regulations and written policies. Section

303(a) of the CDRI (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.

The FDIC developed the Statement of

Policy to provide general supervisory

information and guidance to state

nonmember banks relative to the

application process and the evaluation

of statutory factors in establishing

domestic branches. The FDIC last

amended the Statement of Policy

September 8, 1980. 2 FDIC Law,

Regulations, Related Acts (FDIC) 5105.

In the time since the Statement of

Policy was last amended, the

application process for establishing

domestic branches has changed

significantly. As a result, the

supervisory information and guidance

contained in the Policy Statement,

which although general in nature, are

now out-of-date.

As part of the FDIC’s comprehensive

review of its applications process, the

FDIC is proposing to amend part 303

elsewhere in today’s Federal Register.

The proposed revisions to part 303

sufficiently address all required

application procedures. Commenters are

invited to review subpart C of part 303

in conjunction with the proposal to

rescind the Statement of Policy.

For the above reasons, the FDIC

proposes to rescind the following

Statement of Policy:

Applications To Establish a Domestic

Branch (Includes Remote Service

Facilities)

A. Introduction

Section 18(d) of the Federal Deposit

Insurance Act (12 U.S.C. 1828(d);

hereafter the (Act) requires the prior

written consent of the Corporation

before any State nonmember insured

bank may establish and operate any new

domestic branch, as defined in section

3(o) of the Act (12 U.S.C. 1813(o)). In

analyzing branch applications, the

Corporation must evaluate each

application in relation to the six

statutory factors prescribed in section 6

of the Act (12 U.S.C. 1816) as well as the

requirements of the National Historic

Preservation Act, the National

Environmental Policy Act of 1969, and

the Community Reinvestment Act. The

six statutory factors under section 6 of

the Act are: the financial history and

condition of the bank, the adequacy of

its capital structure, its future earnings

prospects, the general character of its

management, the convenience and

needs of the community to be served by

the bank, and whether its corporate

powers are consistent with the purposes

of the Act.

Generally, the Corporation believes

that active competition between banks

and other financial institutions, when

conducted within applicable law and in

a safe and sound manner, is in the

public interest. Accordingly,

applications to establish branches by

well managed and adequately

capitalized banks with a record of

responsive service to their communities

will generally be approved.

Federal appellate court decisions have

determined that the term ‘‘branch’’

includes remote service facilities. In

March 1979, the Corporation adopted

regulations which reflect these

decisions and recognize remote service

facilities as branches if they are owned

or leased by the applicant. An

abbreviated application form has been

designed and procedures implemented

which lessen the administrative burden

for both the banks and the FDIC. Banks

which enter a sharing arrangement, not

involving leasing or ownership of the

facility, do not have to obtain FDIC

approval; shared facilities or shared

systems of terminals are not regarded as

branches for the sharing bank.

B. Procedures

Application forms to establish

branches, including remote service

facilities, and instructions for their

completion may be obtained from the

regional office of the FDIC region in

which the main office of the applicant

is located. Upon receipt of an

application which is found complete,

the regional director will notify the

bank, in writing, that the application

has been accepted for filing and the date

thereof. The procedures governing the

administrative processing of branch and

remote service facility applications are

contained in part 303 of the

Corporation’s rules and regulations (12

CFR part 303), particularly §§ 303.2,

303.10, 303.11, 303.12, and 303.14.

Section 303.14 sets forth, among other

things, the procedures controlling

establishment of a public file,

publication requirements, and

consideration of comments and protests

received in connection with an

application.

The Corporation will normally not

render a decision on any application for

a branch or remote service facility

which is subject to state approval until

the state authority has approved or

expressed its intent to approve the

proposal; however, applicants are urged

to submit their applications to the

Corporation at the same time an

application is forwarded to the state

authority in order to promote

concurrent and more timely processing

of the proposal.

Notification of the granting or denial

of an application will be provided

together with a statement supporting the

decision. Under § 303.10(e), within 15

days of receipt of notice that its

application has been denied, an

applicant may petition the Board of

Directors for reconsideration of the

application. Opinions will be published

when the Corporation determines that

the decision represents a new or change

in policy or presents issues of general

importance to the public or the banking

industry.

Under § 303.14(i) of the Corporation’s

rules and regulations, where the Board

of Directors, based upon available

information at the time, plans to deny

an application and no hearing has been

held under § 303.14(e), the Director of

the Division of Bank Supervision may
52882 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

be instructed to notify the applicant in

writing of the tentative denial. The

applicant has 15 days from receipt of

the notice to file a written request to

amend the application or to submit

information in rebuttal of the

deficiencies noted. Upon filing of such

a request, the applicant has 30 days to

amend its application or to provide

rebuttal information.

An application to establish a remote

service facility is required to be filed

only for the applicant’s initial facility

and the procedures for traditional

branch applications are followed. In

order to establish any subsequent

remote service facility, the applicant

need only notify the regional director of

its intention and comply with the

appropriate publication requirements.

Unless otherwise notified by the

regional director, the remote service

facility may be established 30 days after

the last publication date. If the regional

director determines that the notification

warrants further consideration, he shall

advise the applicant within the 30-day

period that additional information is

needed and that the remote service

facility may not be established until the

Corporation issues a formal order.

C. Statutory Factors—Application To

Establish a Domestic Branch Other

Than Remote Service Facility

1. Financial History and Condition

In connection with applications for

branches the emphasis will be placed on

the financial history and condition of

the existing bank rather than the

proposed branch. The establishment of

branches, particularly where these

involve the development of new

markets, normally encompasses risks or

a degree of management attention which

banks that are experiencing financial

difficulties are not generally prepared to

undertake. Banks with excessive

volumes of subquality assets, significant

liquidity problems, or other problems

threatening the soundness of the

institution would fall in this category.

Under this factor, as well as under the

general character of management factor,

the current asset condition of the bank

and its compliance with applicable laws

and regulations are primary areas of

consideration. Other primary areas of

consideration here are investment in

fixed assets, including leases, and

insider transactions, all of which also

impact importantly on the evaluation of

the general character of management

factor. Lease transactions shall be

reported in accordance with Financial

Accounting Standards Board Statement

13 as required by the Instructions for the

Preparation of Consolidated Report of

Income and Condition.

(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 bases for consideration.

Except where state law obviates the

need, lease agreements should contain a

bankruptcy termination clause

acceptable to the Corporation. An

example of such clause may be obtained

from the regional office.

It is recommended that applicants not

purchase any fixed assets or enter into

any noncancelable construction

contracts, lease agreements, or other

binding arrangements related to the

proposed branch unless and until the

Corporation approves the application.

The Corporation expects applicants to

follow closely the representations made

in the application regarding fixed asset

arrangements. If any substantive

changes become necessary in fixed asset

arrangements, including increases of

10% or more in the cost of any major

category of fixed assets (such as land,

building, or furniture fixtures and

equipment), after submission of the

application, applicant must promptly

advise the regional director of these

changes. Major changes could result in

reconsideration.

(b) Insider Transactions—-Any

financial arrangement or transaction

involving the applicant, its directors,

officers, 5% shareholders, or their

associates and interests (hereafter

referred to as ‘‘insiders’’) should

ordinarily be avoided. If there are

arrangements or transactions of that

type, the applicant must demonstrate

clearly that any proposed transactions

with insiders are made on substantially

the same terms as those prevailing at the

time for comparable transactions with

non-insiders and do not involve more

than normal risk or present other

unfavorable features to the applicant

bank. In addition, full disclosure of any

arrangements with an insider must be

made to all directors and shareholders

and, in the event any new capital

offering is to be made, included in any

new capital offering material distributed

in connection with the application.

Whenever any transaction between

the applicant and an insider involves

the purchase of real property or a

construction contract, the purchase

price must be supported by an

independent appraisal or in the case of

a construction contract by competitive

bids. Further, with respect to any lease

arrangement between the applicant and

an insider, the applicant must submit

reliable evidence showing that the lease

arrangement is as beneficial to the

applicant as the purchase of the

property and direct ownership.

Normally, this type of lease arrangement

will also be required to include terms

protecting the bank against

unreasonable escalation of payments

under the lease and granting the bank

the option to purchase the property

during the life of the lease on

appropriate terms.

2. Adequacy of Capital Structure

The establishment of branches

generally involves an expansion of

deposits and/or an increase in expenses

not immediately offset by additional

income. This normally results in some

dissipation of relative capital strength.

Capital, earnings, and retention of

earnings should be sufficient to support

the current level of operations as well as

the proposed expansion. In the case of

capital deficiencies not considered

overly extreme, the bank should set

forth a plan which will improve capital

to an extent which will more than offset

any deterioration expected as a result of

the branch proposed.

Generally, the applicant bank’s

adjusted capital and reserves, including

written commitments for additional

capital funds, should be adequate

relative to its adjusted gross assets. In

the case of a commercial bank, regional

directors may approve an application to

establish a branch where the applicant’s

adjusted capital and reserves, including

written commitments for additional

capital funds, is not less than 7.5% of

its adjusted gross assets. For mutual or

guaranty savings banks, regional

directors may grant approval where the

adjusted capital and reserves ratio is not

less than 6%. Such factors as the quality

of assets, earnings capacity, volume of

risk assets, liquidity, capability of

management, and other factors affecting

the relative strength of a bank will exert

either positive or negative influences on

the level of capital protection needed. In

all instances where the adjusted capital

and reserves ratio of the applicant is less

than the applicable level set forth above,

the determination of the adequacy of

that ratio will be made in the

Washington Office.

3. Future Earnings Prospects

This factor will be measured in terms

of the ability of overall bank earnings to

absorb the anticipated expenses

resulting from the proposal. In all cases,

anticipated future earnings for the bank

as a whole should be adequate, after

expenses, to absorb normal losses, pay

reasonable dividends, and provide some

meaningful contribution to capital. In
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52883

the case of newly organized banks

which are seeking branches, the

proposed branch should not unduly

delay the original forecast for achieving

profitability.

4. General Character of Management

To be acceptable under this factor a

management must have demonstrated,

or be expected to demonstrate, an ability

to operate the bank in a manner which

is free of excessive criticism or concern

as to the overall soundness and viability

of the institution. The management

must also display, or be willing to

acquire, the degree of depth necessary to

permit the establishment of additional

offices. The appraisal of management

ability and depth will take into

consideration the size and activities of

the existing bank, the expected scope of

activity of the proposed branch, and the

extent of impact the branch is expected

to have on the bank’s overall operation.

In summary, the Corporation views the

quality of a bank’s management as

critical to its overall success and will

seriously question the expansion of the

bank via the branch route if the quality

of management is not considered

adequate prior to the proposed

expansion.

The Board of Directors of the

Corporation has adopted a Statement of

Policy regarding legal fees and other

expenses incident to applications for

deposit insurance, consent to establish

branches or relocate main or branch

offices, and mergers. In brief, this policy

states that, since prudent management

will not commit a bank seeking a new

branch to excessive expenses, the

payment of unreasonable or excessive

fees incident to applications is

considered by the Corporation to reflect

adversely upon management of the

applicant bank, irrespective of whether

payments have been ratified or

otherwise approved by formal action by

the incorporators or shareholders. The

Corporation will not question fees for

legal services or other organizational

expenses solely because of an amount

but will consider the reasonableness of

fees in relation to the services

performed. Applicants are required to

furnish the amounts of fees for such

services which have been incurred and

estimates of additional fees to be

incurred in connection with the

proposed transaction. All fees for legal,

organizational or similar services should

be disclosed whether directly or

indirectly related to the application

pending before the Corporation. If legal

or other organizational fees appear to be

excessive in relation to fees for

comparable services, or if the volume of

services performed exceeds that usually

incurred with respect to comparable

applications, supportive documentation

will be required. In the case of legal

fees, such documentation may consist of

materials such as itemized time sheets

showing the time actually expended by

counsel on the applications concerned,

the hourly rate charged, and the specific

circumstances, including unusual

complexities, the necessity for agency or

court appearances, and the like

necessitating the time expended. In

reviewing legal fees for reasonableness,

the following factors will ordinarily

serve as guides: (a) The time and labor required, the

novelty and difficulty of the questions

involved, and the skill requisite to

perform the services obtained; (b) The fee customarily charged in the

locality for similar legal services; (c) The time limitations imposed by

the client or by the circumstances; and (d) The experience and ability of the

lawyer or lawyers performing the

services.

Even though a fee may be wholly or

partially absorbed by another entity

such as a holding company, that fee or

organizational expense will nonetheless

be reviewed by the Corporation under

the terms of this policy statement in

view of the fact that the commitment for

the fee or organizational expense is a

commitment of management of the

proposed or existing institution.

Expenses for legal or other services

rendered by organizers, present or

prospective board members or major

shareholders will receive special

scrutiny in this regard for any evidence

of self-dealing to the detriment of the

bank and its other shareholders. As a

matter of practice, the FDIC requires full

disclosure to all directors and

shareholders of any fee in excess of

$5,000 paid to insiders or their interests.

In no case, states the policy, will an

FDIC application be approved when the

payment of a fee, in whole or in part,

is contingent upon any act or

forebearance by the Corporation or by

any other federal or state agency or

official.

The applicant bank should at all times

maintain sufficient surety bond

coverage on its active officers and

employees to conform with generally

accepted banking practices and should

at all times maintain an excess

employee dishonesty bond in the

amount of $1 million or more if the

primary blanket bond coverage is less

than $1 million.

5. Convenience and Needs of the

Community To Be Served

It should be noted that the provisions

of the Community Reinvestment Act are

especially relevant in evaluating this

statutory factor. Guidelines on the

Community Reinvestment Act may be

obtained from the appropriate regional

office.

The essential considerations in

evaluating this factor are the legitimate

deposit and credit needs of the

community to be served and the nature

and extent of the banking opportunity

available to the applicant in that

location and the willingness and ability

of the applicant to serve those needs.

In keeping with the Corporation’s

policy of promoting competition among

financial institutions, this factor will

generally be considered favorably when

there is a reasonable assurance of

successful operation of the branch (as

measured by future earning prospects).

However, competitive considerations

will also include an assessment of

whether the applicant is already a

dominant bank in a particular market

and has applied for the purpose of

saturating that market as well as

whether the potential viability of a

newly organized bank within a market

would be threatened significantly by a

proposed branch.

The applicant bank must clearly

define the community it intends to serve

and provide the type of information on

that community discussed below. It is

emphasized, however, that the degree of

detail that must be provided may vary

depending on the size, type of service

and location of the facility proposed.

For example, the same amount of detail

would not be required for an extension

of an existing facility, or for the

establishment of a limited service

facility in the same community as an

existing office of the bank, as would be

required for the establishment of a full

service branch in a different

community.

(a) Economic Data—The economic

condition and growth potential of the

area in which the branch proposes to

operate, both presently and in the near

term, are important in evaluating the

business potential available to the

branch, the amount of that business it

can reasonably expect to secure, and the

probable success of the operation.

Indicators of the available business

would include, but not be limited to, a

description of the principal industrial,

trade, or agricultural activity as well as

the annual value of the primary

products in the geographic area. In

addition, trends in employment,

residential and commercial

construction, sales, company payrolls,

and businesses established are also

important indicators.

(b) Demographic Data—Population

figures within the community or trade

area as well as the surrounding areas are
52884 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

important determinants in considering

convenience and needs. These

population figures should include not

only the present population but also

data on population trends for the future.

Population characteristics such as

income, age distribution, educational

level, occupation, and stability should

be considered.

(c) Competition—Some consideration

will be given to the adequacy or

inadequacy of existing bank facilities in

the community and in nearby

communities. The growth rate and size

of banks and other financial institutions

in the community or trade area may

provide meaningful indications of the

economic condition of the area and the

potential business for a branch. Other

financial institutions such as savings

and loan associations, credit unions,

finance companies, mortgage companies

and insurance companies may be

considered competing institutions to the

extent their services parallel those of the

branch.

(d) Other Supporting Data—The

extent of new or proposed residential,

commercial and industrial development

and construction is a significant

secondary consideration in resolving the

convenience and needs factor. Evidence

of plans for development of shopping

centers, apartment complexes and other

residential subdivisions, factories, or

other major facilities near the proposed

site of the branch are also relevant.

6. Consistency of Corporate Powers

This factor will rarely be applicable to

branch proposals, except in those

instances where a bank may

contemplate some additional corporate

power, not normally exercised by banks,

in connection with its application.

D. Statutory Factors—Application or

Notification To Establish Remote

Service Facility

In view of the nature of the remote

service facility, including that it offers

limited service and is generally an

unmanned electronic unit, the six

statutory factors will not be applied to

the same degree and extent as in the

case of a traditional branch. For

instance, with respect to the earnings

factor, detailed projections of deposits,

income and expenses are not necessary.

A determination that operating expenses

of the facility will not burden the bank’s

future earnings will generally suffice.

Similarly, detailed or extensive

economic information and demographic

data are not required when considering

the convenience and needs factor.

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. 97–26232 Filed 10–8–97; 8:45 am]

BILLING CODE 6714–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

Liability of Commonly Controlled

Depository Institutions

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Proposed statement of policy.

SUMMARY: The FDIC is revising the

Statement of Policy on Liability of

Commonly Controlled Depository

Institutions (Statement of Policy) which

sets forth the procedures and guidelines

the FDIC uses in assessing or waiving

liability against commonly controlled

depository institutions under section

5(e) of the Federal Deposit Insurance

Act. The revised Statement of Policy

removes the application procedures for

requesting a conditional waiver of the

cross-guaranty liability and incorporates

those same procedures into a proposed

section of the FDIC’s applications

regulation published for comment

elsewhere in today’s 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 a.m.

and 5 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:

Jesse Snyder, Assistant Director of

Operations, Division of Supervision

(202) 898–6915, or Grovetta N.

Gardineer, Counsel, Legal Division,

(202) 736–0665, Federal Deposit

Insurance Corporation, 550 17th Street,

NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: Effective

April 1, 1997, the Board of Directors of

the FDIC revised the Statement of Policy

Regarding Liability of Commonly

Controlled Depository Institutions, 62

FR 15480. Such liability is a

consequence of section 5(e) of the

Federal Deposit Insurance Act (Act), 12

U.S.C. 1815(e), which was added by the

passage of section 206(a)(7) of the

Financial Institutions Reform, Recovery,

and Enforcement Act of 1989. Section

5(e) created liability for commonly

controlled insured depository

institutions for losses incurred or

anticipated by the FDIC in connection

with (i) the default of a commonly

controlled insured depository

institution; or (ii) any assistance

provided by the FDIC to any commonly

controlled insured depository

institution in danger of default. The

purpose of section 5(e) is to ensure that

the assets of healthy depository

institution subsidiaries within the same

holding company structure, or of a

healthy institution which controls a

failing institution, will be available to

the FDIC to help offset the cost of

resolving the failed subsidiary. While

the FDIC seeks to recover its losses

associated with failing institutions, it

also seeks to encourage the acquisition

of troubled institutions by those capable

of rehabilitating them and to avoid

instances in which the assessment of

liability against an otherwise healthy

institution will cause its failure, thus

exposing the FDIC and the insurance

funds to greater loss.

The revised Statement of Policy

contained information regarding the

content of requests for conditional

waiver of cross guaranty liability. The

revised Statement of Policy also

indicated that any changes in part 303

of the FDIC’s rules may necessitate

further revisions to the policy statement.

The decision has been made by the

FDIC that all information regarding

applications be addressed in revised

part 303 of the FDIC Rules and

Regulations (Rules). Accordingly, the

application procedures for requesting a

conditional waiver of cross guaranty

liability are being moved to part 303.

The appropriate section of part 303 that

discusses conditional waiver

applications will be referenced in the

revised Statement of Policy.

The Statement of Policy provides for

the issuance of a Notice of Assessment

of Liability, Findings of Fact and

Conclusions of Law, an Order to Pay

and a Notice of Hearing, a good faith

estimate of the FDIC’s loss, and the

determination of the method and

schedule of repayment. The liability

under the statute attaches at the time of

default of a commonly controlled

depository institution. The FDIC, in its

discretion, may assess liability for the

losses incurred by the default or for any

assistance provided by the FDIC to a

commonly controlled institution in

danger of default. Generally, liability