[Federal Register Volume 59, Number 109 (Wednesday, June 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13366]


[[Page Unknown]]

[Federal Register: June 8, 1994]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 362

RIN 3064-AB20

 

Activities and Investments of Insured State Banks

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Response to petitions for rulemaking.

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SUMMARY: On April 29, 1993, the FDIC sought comment on whether to amend 
its regulations governing insurance underwriting by well-capitalized 
insured state banks and their subsidiaries to provide that excepted 
insurance underwriting activities may only take place in the state in 
which the bank is chartered and in the state in which the bank's 
insurance underwriting subsidiary is incorporated. After reviewing the 
comments, the FDIC has determined not to amend the regulation.

FOR FURTHER INFORMATION CONTACT: Curtis L. Vaughn, Examination 
Specialist, (202) 898-6579, Division of Supervision, FDIC, 550 17th 
Street NW., Washington, DC 20429 or Pamela E.F. LeCren, Senior Counsel, 
(202) 898-3730, Legal Division, FDIC, 550 17th Street NW., Washington, 
DC 20429.

SUPPLEMENTARY INFORMATION:

Background

    On December 19, 1991, President George Bush signed into law the 
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) 
(Pub. L. 102-242, 105 Stat. 2236). Section 303 of FDICIA added section 
24 to the Federal Deposit Insurance Corporation Act, ``Activities of 
Insured State Banks'' (FDI Act)(12 U.S.C. 1831a). With certain 
exceptions, section 24 of the FDI Act limits the activities and equity 
investments of state chartered insured banks to the activities and 
equity investments that are permissible for national banks. Well-
capitalized insured state banks and their subsidiaries that were 
lawfully providing insurance as principal in a state on November 21, 
1991 may continue to provide insurance of the same type to residents of 
the state, individuals employed in the state and any other person to 
whom insurance was provided without interruption since such person 
resided, or was employed, in the state. (Section 24(d)(2)(B), 12 U.S.C. 
1831a(d)(2)(B)).1
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    \1\Section 24(d)(2)(B) reads as follows: (2) Insurance 
Underwriting Prohibited.--
    * * *
    (B) Continuation of Existing Activities.--notwithstanding 
subparagraph (A), a well-capitalized insured State bank or any of 
its subsidiaries that was lawfully providing insurance as principal 
in a State on November 21, 1991, may continue to provide, as 
principal, insurance of the same type to residents of the State 
(including companies or partnerships incorporated in, organized 
under the laws of, licensed to do business in, or having an office 
in the State, but only on behalf of their employees resident in or 
property located in the State), individuals employed in the State, 
and any other person to whom the bank or subsidiary has provided 
insurance as principal, without interruption, since such person 
resided in or was employed in such State.
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    On June 16, 1992, the FDIC's Board of Directors adopted a proposed 
regulation implementing the above described insurance underwriting 
provisions of section 24. (12 CFR part 362, ``Activities and 
Investments of Insured State Banks'', 57 FR 30435, July 9, 1992). The 
preamble accompanying the proposed regulation indicated that it was the 
FDIC's intention to construe the reference to ``in a state'' as 
excepting insurance underwriting activities by an insured state bank 
only in the state in which the bank was chartered and as limiting the 
subsidiary of the bank to insurance underwriting activities in the 
state in which the subsidiary was incorporated and doing business as of 
November 21, 1991.
    The final rule adopted by the FDIC's Board of Directors did not 
limit the geographic scope of the insurance underwriting exception to 
the bank's home state and the subsidiary's state of incorporation. (57 
FR 53213, November 9, 1992). At the conclusion of the comment period, 
the FDIC's Board of Directors decided that the proper construction of 
section 24(d)(2)(B) was that the insurance underwriting exception 
should extend to any state in which the bank or its subsidiary was 
underwriting insurance on November 21, 1992. The change of position 
resulted from information brought to the FDIC's attention during the 
comment period. (See discussion at 57 FR 53226, November 9, 1992).
    The FDIC was subsequently petitioned pursuant to section 553(e) of 
the Administrative Procedure Act (5 U.S.C. 553(e)) to repeal that 
portion of part 362 construing the phrase ``in a state'' and to seek 
further comment before adopting any provision concerning insurance 
underwriting by insured state banks. The FDIC granted the petitions and 
solicited public comment on whether that portion of part 362 dealing 
with the geographic scope of the insurance underwriting exception 
should be amended to read as had originally been proposed or should be 
left unchanged (58 FR 25953, April 29, 1993). In doing so, the Board 
indicated that it was of the opinion that the position reflected in 
part 362 as adopted in final was correct but that it was possible that 
further comment on the issue would bring additional information to the 
FDIC's attention that should be weighed by the agency.

Comment Summary

    Thirty-three comments were submitted in response to the request for 
comment. Of the thirty-three comments, twenty-three urged the FDIC not 
to modify the regulation and ten urged the FDIC to amend part 362 so as 
to return the language regarding the insurance underwriting grandfather 
to that which had been originally proposed. The arguments on either 
side can be summarized as follows:2
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    \2\In addition to addressing the geographic scope of the 
insurance underwriting exception, one comment expressed the concern 
that part 362 allows banks that are not well-capitalized to take 
advantage of the insurance underwriting exception, and three 
comments objected to the FDIC's posture, reflected in the preamble 
accompanying part 362 when it was adopted in final, that annuities 
are not insurance. Both of these issues were raised in the section 
553(e) rulemaking petitions which were filed with the FDIC. When the 
petitions were taken up by the FDIC, the Board of Directors declined 
to reopen the rulemaking on part 362 on either issue. It was (and 
still is) the FDIC's posture that part 362 does not permit an other 
than well-capitalized bank to take advantage of the insurance 
underwriting exception. Persons who read the regulation as so 
allowing are misreading the regulation. It was (and likewise still 
is) the agency's position that in applying part 362 and section 24 
of the FDI Act the FDIC should apply the law pertaining to national 
bank powers as construed by the Office of the Comptroller of the 
Currency (OCC). It has been the OCC's opinion that an annuity 
contract is not a contract of insurance. Although recently a court 
came to the opposite conclusion, the OCC has asked the Supreme Court 
to review that decision. (Ludwig v. Variable Annuity Life Ins. Co., 
petition for cert. filed, ______ U.S.L.W. ______ (U.S. April 13, 
1994)(No. 93-1613). Until such time as the issue is finally decided, 
the FDIC will continue to follow the OCC's view on this matter.
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    Leave regulation as is:
    (1) The language of section 24(d)(2)(B) is clear and unambiguous on 
its face and should be construed without resort to any analysis of the 
FDI Act's legislative history. The most important tool in determining 
the meaning of a statute is the text of the statute itself and there is 
no need to go beyond that text if the statute is unambiguous. The use 
of the indefinite article ``a'' in the phrase ``in a state'' has a 
clear meaning which is consistent with part 362 as adopted by the FDIC. 
Congress could have inserted language such as ``state of charter'', 
``state of incorporation'', ``home state'', etc. but it chose not to do 
so. That approach having been rejected by Congress, the FDIC should not 
by regulation impose restrictions that Congress chose not to impose.
    (2) If the FDIC feels compelled to resort to an analysis of the FDI 
Act's legislative history, that history clearly shows that Congress 
specifically rejected the result contemplated by the FDIC in its 
original proposal. The comments pointed to specific language changes 
from an earlier version of the legislation as evidence of the fact that 
Congress specifically chose not to adopt the more limited version of 
the exception which was originally reported out of committee in the 
Senate.
    (3) The FDIC should not place any weight on the unpublished 
conference committee transcript as such exchanges are not reliable 
evidence of legislative intent. Even if the FDIC were to consider that 
transcript in determining its views on the proper construction of the 
section, the exchanges set out in the transcript are ambiguous and 
should not be relied upon to override much clearer statements made to 
the entire legislative body.
    (4) In the opinion of the commenters, those who oppose the existing 
regulation do not understand how the insurance industry operates. In 
order for a bank or a subsidiary of a bank to underwrite insurance in a 
state, the bank and/or subsidiary must be licensed by the state to 
underwrite in that state. No one state can authorize its banks or their 
subsidiaries to underwrite insurance in any other state. Those other 
states, however, may do so. The existing regulation does not, 
therefore, permit a state bank to use its home state as a spring board 
to launch a nationwide underwriting campaign. The regulation limits the 
availability of the exception to those states in which a bank or 
subsidiary was licensed to underwrite (i.e., in which the bank or 
subsidiary was ``lawfully providing insurance as principal'').
    Reinstate original interpretation:
    (1) The FDIC improperly attached substantive importance to the 
technical amendment which substituted the word ``a'' for ``that'' in 
the insurance underwriting exception (the exception originally used the 
phrase ``in that state'').
    (2) There is ample support in the legislative history demonstrating 
the intent of Congress to limit the insurance underwriting exception to 
the state in which the bank is chartered and the state in which the 
subsidiary is incorporated. The FDIC placed too much emphasis on the 
remarks of Senator Roth who was not a conferee and overlooked the 
statements of conferees as reflected in the conference committee 
transcript.
    (3) The FDIC's interpretation of the statute allows state banks to 
underwrite insurance in any state in which the bank sold insurance 
policies on November 21, 1991. The rule thus exposes banks and the 
deposit insurance fund to exactly the risks section 24 sought to 
prevent.

Decision After Review of the Comments

    The FDIC is persuaded by the comments which urge the FDIC not to 
amend part 362. A careful review of the comments leads the FDIC to 
conclude that while the original intent of the legislation that 
ultimately became section 24(d)(2)(B) may have been to restrict the 
exception to a bank's home state and the state of incorporation of the 
bank's subsidiary, subsequent changes to the language of the section 
were made which broadened the scope of the exception.
    The exception as originally reported out of committee on the Senate 
side limited the exception to ``that'' state in which the bank and its 
subsidiary were lawfully providing insurance as principal on July 15, 
1991. The legislation at that point also contained a transition rule 
which permitted an insured state bank and any of its subsidiaries which 
were lawfully engaged in insurance underwriting activities made 
unlawful by the bill to continue to underwrite insurance for one year 
after the enactment date of the legislation. A section-by-section 
analysis of the exception as worded when reported out of committee on 
the Senate side indicated that the exception allowed a bank to continue 
to provide insurance of the same type to residents or an individual 
employed in the state in which the bank is chartered. These things 
taken together demonstrate that the provision as reported out of 
committee probably was intended to limit the insurance grandfather to a 
bank's home state.
    The language as reported out of committee was subsequently amended, 
however, to refer to providing insurance as principal in ``a'' state; 
the grandfather date was changed to November 21, 1991; the transition 
rule was deleted; and the section was given the heading ``Continuation 
of Existing Activities''. It is the agency's belief that these changes 
had a substantive impact on the legislation and were not merely 
technical changes. It is a tenet of statutory construction that the 
best indication of the meaning of a statute is the statute itself and 
that where the language of a statute is plain on its face, the statute 
should be accorded its plain meaning. Norfolk and Western Railway Co. 
v. American Train Dispatchers Ass'n, 499 U.S. 117 (1991).
    It is the agency's opinion that the plain meaning of the phrase 
``in a state'' as used in section 24(d)(2)(B) as ultimately adopted 
means in ``any'' state in which the bank and/or its subsidiary were 
lawfully underwriting insurance on November 21, 1991. The word ``a'' is 
defined in Webster's Dictionary to mean either ``one'' or ``any''. 
According to Black's Law Dictionary (Fourth Ed., 1989), the proper 
meaning of the word ``a'' depends upon the context in which it is used. 
It may mean one where only one is intended or it may mean any one of a 
great number. As there are many states in the United States and any of 
those states may have authorized the lawful provision of insurance as 
principal on November 21, 1991, the context of the word ``a'' in 
section 24(d)(2)(B) appears to be ``any'' and not ``one''. Furthermore, 
there is nothing in the text of the provision itself which suggests 
that the phrase ``in a state'' is limited to encompassing activities in 
the bank's chartering state or the subsidiary's state of incorporation. 
The statute could have used words like ``home state'' or ``chartering 
state'' but it does not. The elimination of the transition rule in 
conjunction with the addition of the heading ``continuation of existing 
activities'' are also evidence that the changes made to the statute 
resulted in a substantive amendment to the scope of the insurance 
underwriting exception.
    As the regulation is, in the FDIC's view, consistent with the plain 
meaning of section 24(d)(2)(B), there is no need to rely upon 
legislative history in construing the statute. However, the FDIC did 
carefully review all of the legislative history brought to the agency's 
attention.3 We find that as there are conflicting statements in 
the legislative history, the history of the section is not necessarily 
very enlightening. To the extent that the history does shed light on 
the issue under consideration, however, the FDIC finds that the history 
is weighted more in favor of the position reflected in the FDIC's 
current regulation which, as we have already indicated, is consistent 
with the plain meaning of the language of the statute.
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    \3\Although the FDIC re-opened the comment period with the 
thought that by doing so additional information pertaining to the 
section's legislative history might be brought to the agency's 
attention, the additional comment period did not produce any 
material not previously on the record.
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    In consideration of the above, the FDIC's Board of Directors has 
voted to decline to amend Sec. 362.5 of the FDIC's regulations.

    By Order of the Board of Directors.

    Dated at Washington, DC this 24th day of May, 1994.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Acting Executive Secretary.
[FR Doc. 94-13366 Filed 6-7-94; 8:45 am]
BILLING CODE 6714-01-P