[Federal Register Volume 62, Number 62 (Tuesday, April 1, 1997)]
[Notices]
[Pages 15480-15482]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8254]


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FEDERAL DEPOSIT INSURANCE CORPORATION

Statement of Policy Regarding Liability of Commonly Controlled 
Depository Institutions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Policy statement.

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SUMMARY: The FDIC is revising the statement of policy which sets forth 
the procedures and guidelines the FDIC uses in assessing liability 
against commonly controlled depository institutions under section 5(e) 
of the Federal Deposit Insurance Act. The revised policy statement 
provides guidance based on the FDIC's experience in administering the 
provisions of section 5(e) of the Act and clarifies the authority 
granted to the FDIC to issue assessments of liability or grant 
conditional waivers of liability, the manner in which the FDIC will 
assess the amount of loss incurred by the FDIC, and the manner in which 
each liable institution's share of that loss will be determined. The 
revised policy statement also addresses the potential liability of 
depository institutions acquired by unaffiliated parties prior to any 
occurrence establishing liability under section 5(e) of the Act.

EFFECTIVE DATE: April 1, 1997.

FOR FURTHER INFORMATION CONTACT: Cheryl Steffen, Special Situations and 
Application Section, Division of Supervision, (202) 898-8768; Michael 
J. Fanaroff, Division of Resolution and Receiverships, (202) 898-7122; 
or Grovetta N. Gardineer, Counsel, Legal Division, (202) 736-0665, 
Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: On May 22, 1990, the Board of Directors of 
the FDIC adopted a Statement of Policy Regarding Liability of Commonly 
Controlled Depository Institutions. 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 FDIC has brought a number of actions since the enactment of 
section 5(e). While the original statement of policy provided guidance 
to the industry regarding the application of the statute at the time it 
was published, the FDIC had not initiated any actions under the 
statute. The revised policy statement attempts to provide guidance to 
the industry based on actual practice with administering the statute. 
The proposed policy statement contains information regarding the 
content of requests for conditional waiver. Depending on decisions 
affecting part 303 of the FDIC Rules and Regulations (Rules), this 
information may also be addressed in the revised part 303 of the FDIC's 
Rules regarding applications. Any changes in part 303 of the FDIC's 
Rules may also necessitate further revisions to the policy statement.
    The policy statement provides for the issuance of a Notice of 
Assessment of

[[Page 15481]]

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 will be assessed against an 
institution except in instances of the acquisition of a distressed 
institution by an unaffiliated entity prior to the default of a 
commonly controlled institution. A conditional waiver of the liability 
will be considered when, as determined within the sole discretion of 
the Board of Directors of the FDIC, the exemption is in the best 
interests of either of the insurance funds administered by the FDIC or 
where a waiver facilitates an alternative that is in the best interests 
of the FDIC. Institutions that believe that an assessment of liability 
would be inappropriate are required to submit supporting documentation.
    The text of the revised policy statement follows:

Federal Deposit Insurance Corporation Statement of Policy Regarding 
Liability of Commonly Controlled Depository Institutions

Introduction

    Section 5(e) of the Federal Deposit Insurance Act, as added by 
section 206(a)(7) of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, creates liability for commonly controlled 
insured depository institutions for losses incurred or anticipated by 
the Federal Deposit Insurance Corporation (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. In addition to 
certain statutory exceptions and exclusions contained in sections 
5(e)(6), (7) and (8), the Act also permits the FDIC, in its discretion, 
to exempt any insured depository institution from this liability if it 
determines that such exemption is in the ``best interests of the Bank 
Insurance Fund or the Savings Association Insurance Fund''.
    The liability of an insured depository institution attaches at the 
time of default of a commonly controlled institution. It is completely 
within the discretion of the FDIC whether or not to issue a notice of 
assessment to the liable institution for the estimated amount of the 
loss incurred by the FDIC.

Guidelines for Conditional Waiver of Liability

    The FDIC may, in its discretion, choose not to assess liability 
based upon analysis of a particular situation, and it may entertain 
requests for waivers from affiliated or unaffiliated parties of an 
institution in default or in danger of default. The determination of 
whether an exemption is in the best interests of either insurance fund 
rests solely with the Board of Directors of the FDIC (Board). Should 
the Board make such a determination, a waiver will be issued setting 
forth terms and conditions that must be met in order to receive an 
exemption from liability (conditional waiver of liability). The 
following guidelines apply to conditional waivers of liability under 
the provisions of this section:
    (1) A conditional waiver of liability will be considered in those 
cases where the waiver facilitates an alternative that would be in the 
best interests of the FDIC; for example, the conditional waiver may be 
granted when requisite additional capital and managerial resources are 
being provided which substantially lessen exposure to the affected 
insurance fund. When conditional waivers are granted to an otherwise 
unaffiliated acquirer of a failing or failed institution they will be 
granted for a fixed period, generally not to exceed a period of time 
reasonably required for existing problems to be identified and 
resolved.
    (2) If one or more institutions in a commonly controlled 
relationship is otherwise solvent, well-managed and viable, it may be 
in the best interest of the FDIC to waive or reduce claims against such 
entities. In determining whether a conditional waiver is appropriate, 
consideration will be given to actions of a holding company which 
contribute to or diminish the FDIC's losses, as well as proposals to 
strengthen other weakened institutions, if any.
    (3) Requests for waivers should be filed with the appropriate 
Regional Director (Supervision).
    (4) In the event an application for a conditional waiver of 
liability is made, the applicant should provide the FDIC information 
indicating the basis for requesting a waiver; the existence of any 
significant events (e.g., change of control, capital injection, etc.) 
that may have an impact upon the applicant or a potentially liable 
institution(s); current and, if applicable, pro forma financial 
information regarding the applicant and potentially liable 
institution(s); and the benefits resulting from the waiver and any 
related events. Additional information may be requested.
    (5) In the event a conditional waiver of liability is issued, 
failure to comply with the terms specified therein may result in the 
termination of the conditional waiver of liability. The FDIC reserves 
the right to revoke the conditional waiver of liability after giving 
the applicant written notice of said revocation and a reasonable 
opportunity to be heard on the matter.
    (6) In cases where an insured depository institution is sold to an 
acquirer with no financial interest, directly or indirectly, in the 
institution prior to the acquisition, it is the general policy of the 
FDIC to forego the issuance of a notice of assessment to the acquirer 
and its affiliated institutions in the event of a default of an insured 
depository institution formerly affiliated with the acquired 
institution. The FDIC will review all such transactions prior to making 
a final determination to forego the issuance of the notice of 
assessment.

Guidelines for Assessment of Liability

    Whenever the FDIC determines that assessment of liability in 
connection with a commonly controlled insured depository institution(s) 
is appropriate, a Notice of Assessment of Liability, Findings of Fact 
and Conclusions of Law, Order to Pay, and Notice of Hearing (Notice of 
Assessment) will be served upon the liable institution. In assessing 
the amount of the FDIC's loss and the liable institution(s) method of 
payment, the following guidelines shall apply:
    (1) A good faith estimate of the amount of loss the FDIC will incur 
shall be based upon (a) the actual sale or calculation of loss from a 
review by the FDIC of the assets and liabilities of the institution 
prior to default or the granting of assistance; or (b) any other cost 
estimate bases as explained in the Notice of Assessment.
    (2) If there is more than one commonly controlled depository 
institution to be assessed, each such institution is jointly and 
severally liable for all losses; however, the FDIC shall make a good 
faith estimate of the liability of each institution as determined by 
(a) first assessing an initial amount on a pro rata capital basis that 
brings about parity in the capital ratios of the liable institutions 
and (b) then apportioning any residual assessment on a pro-rata size 
basis utilizing the most recent Report of Condition. Any final 
assessment can be based on the estimated liability of each

[[Page 15482]]

institution by the FDIC and/or negotiations with the liable 
institutions.
    (3) In the event that any liable institution is closed prior to 
paying an assessment, the amount assessed or to have been assessed 
against that institution may be assessed against the remaining liable 
institution(s).
    (4) The FDIC, after consulting with the appropriate federal and 
state financial institutions regulatory agencies, shall establish in 
each case a schedule for payment which may include a lump sum 
reimbursement, as well as procedures for receipt of such payment.
    (5) Once liability has attached, the FDIC will consider information 
similar to that provided with a request for a conditional waiver of 
liability in determining the amount of the estimated loss to be 
assessed. Such information may also include suggested payment plans.

    By order of the Board of Directors.

    Dated at Washington, DC., this 25th day of March, 1997.

Federal Deposit Insurance Corporation
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 97-8254 Filed 3-31-97; 8:45 am]
BILLING CODE 6714-01-P