The Company presently operates as a bona fide subsidiary pursuant to the requirement established by section 337.4. If brokerage and underwriting activities were transferred to another entity and the Company was involved only in equity securities trading for its own account, the bona fide subsidiary requirement would no longer apply. In such a situation, the FDIC would want the Company to continue to operate separately from the Bank, although not necessarily to the extent required of a bona fide subsidiary. Consequently, this approval is being conditioned on the Company, should it no longer be required to operate as a bona fide subsidiary pursuant to section 337.4, operating as a separate, adequately-capitalized entity and maintaining separate accounting and corporate records from those of the Bank. The FDIC believes that requiring the Company to operate as a separate entity best serves to delineate banking activities from equity securities trading activities and that such a condition will best protect both the Bank and the deposit insurance fund from unnecessary risk.
Equity investments contain a great deal of variability of possible returns.
While extensions of credit from the Bank to the Company are already subject to section 23A by virtue of the securities underwriting and brokerage operations conducted pursuant to section 337.4, it is desirable to make all transactions between the Bank and the Company on terms which will safeguard the Bank's interests. Therefore, as a condition of this approval, sections 23A and 23B will be made applicable to transactions between the Bank and the Company to the same extent as though the Company were an affiliate for purposes of sections 23A and 23B. Management indicated that it is currently their policy that no director, executive officer, or principal shareholder of the Bank, or any related interest of such a person, have any involvement in Company transactions. Due to the potential for abuse with regard to transactions with Bank insiders, a prohibition on any transaction involving an insider, or a related interest of an insider, appears to be prudent. In connection with this application, the FDIC has also taken into consideration the favorable financial and managerial resources and future earnings prospects of the Bank and the Company. Finally, the Board shall retain the right to alter, suspend, or withdraw its approval if circumstances change significantly.