[Federal Register Volume 62, Number 196 (Thursday, October 9, 1997)]
[Notices]
[Pages 52884-52886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26231]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Liability of Commonly Controlled Depository Institutions

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Proposed statement of policy.

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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: 
[email protected]). 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

[[Page 52885]]

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 contents of an application for 
requesting a conditional waiver of liability will be located in 
proposed Sec. 303.245 of the FDIC's Rules, 12 CFR 303.245. Commenters 
are invited to review the proposed Statement of Policy in conjunction 
with proposed Sec. 303.245 published elsewhere in today's Federal 
Register.
    For the above reasons, the FDIC proposes the following Statement of 
Policy:

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 acquire 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) Procedures to request a conditional waiver of liability are 
contained in Sec. 303.245 of the FDIC's Rules and Regulations, 12 CFR 
303.245.
    (4) In cases where an insured depository institution is sold to an 
acquire 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 acquire 
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 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 23rd day of September, 1997.


[[Page 52886]]


Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 97-26231 Filed 10-8-97; 8:45 am]
BILLING CODE 6714-01-P