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Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank

FDIC Law, Regulations, Related Acts

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2000 - Rules and Regulations


Subpart K—Prompt Corrective Action

§ 303.200  Scope.

(a)  General. (1) This subpart covers applications filed pursuant to section 38 of the FDI Act (12 U.S.C. 1831o), which requires insured depository institutions that are not adequately capitalized to receive approval prior to engaging in certain activities. Section 38 restricts or prohibits certain activities and requires an insured depository institution to submit a capital restoration plan when it becomes undercapitalized. The restrictions and prohibitions become more severe as an institution's capital level declines.

(2)  Definitions of the capital categories referenced in this Prompt Corrective Action subpart may be found in subpart B of part 325 of this chapter, § 325.103(b) for state nonmember banks and § 325.103(c) for insured branches of foreign banks, or subpart H of part 324 of this chapter, § 324.403(b) for state nonmember banks and § 324.403(c) for insured branches of foreign banks, as applicable.

(b)  Institutions covered. Restrictions and prohibitions contained in subpart B of part 325 of this chapter, and subpart H of part 324 of this chapter, as applicable, apply primarily to state nonmember banks and insured branches of foreign banks, as well as to directors and senior executive officers of those institutions. Portions of subpart B of part 325 of this chapter or subpart H of part 324 of this chapter, as applicable, also apply to all insured depository institutions that are deemed to be critically undercapitalized.

[Codified to 12 C.F.R. § 303.200]

[Section 303.200 amended at 78 Fed. Reg. 55340, September 10, 2013, effective date: January 1, 2014. Mandatory compliance date: January 1, 2014 for advanced approaches FDIC supervised institutions; January 1, 2015 for all other FDIC-supervised institutions]

§ 303.201  Filing procedures.

Applications shall be filed with the appropriate FDIC office. The application shall contain the information specified in each respective section of this subpart, and shall be in letter form as prescribed in § 303.3. Additional information may be requested by the FDIC. Such letter shall be signed by the president, senior officer or a duly authorized agent of the insured depository institution and be accompanied by a certified copy of a resolution adopted by the institution's board of directors or trustees authorizing the application.

[Codified to 12 C.F.R. § 303.201]

§ 303.202  Processing.

The FDIC will provide the applicant with a subsequent written notification of the final action taken as soon as the decision is rendered.

[Codified to 12 C.F.R. § 303.202]

§ 303.203  Applications for capital distributions.

(a)  Scope. An insured state nonmember bank and any insured branch of a foreign bank shall submit an application for capital distribution if, after having made a capital distribution, the institution would be undercapitalized, significantly undercapitalized, or critically undercapitalized.

(b)  Content of filing. An application to repurchase, redeem, retire or otherwise acquire shares or ownership interests of the insured depository institution shall describe the proposal, the shares or obligations which are the subject thereof, and the additional shares or obligations of the institution which will be issued in at least an amount equivalent to the distribution. The application also shall explain how the proposal will reduce the institution's financial obligations or otherwise improve its financial condition. If the proposed action also requires an application under section 18(i) of the FDI Act (12 U.S.C. 1828(i)) as implemented by § 303.241 of this part regarding prior consent to retire capital, such application should be filed concurrently with, or made a part of, the application filed pursuant to section 38 of the FDI Act (12 U.S.C. 1831o).

[Codified to 12 C.F.R. § 303.203]

§ 303.204  Applications for acquisitions, branching, and new lines of business.

(a)  Scope. (1) Any insured state nonmember bank and any insured branch of a foreign bank which is undercapitalized or significantly undercapitalized, and any insured depository institution which is critically undercapitalized, shall submit an application to engage in acquisitions, branching or new lines of business.

(2)  A new line of business will include any new activity exercised which, although it may be permissible, has not been exercised by the institution.

(b)  Content of filing. Applications shall describe the proposal, state the date the institution's capital restoration plan was accepted by its primary federal regulator, describe the institution's status in implementing the plan, and explain how the proposed action is consistent with and will further the achievement of the plan or otherwise further the purposes of section 38 of the FDI Act. If the FDIC is not the applicant's primary federal regulator, the application also should state whether approval has been requested from the applicant's primary federal regulator, the date of such request and the disposition of the request, if any. If the proposed action also requires applications pursuant to section 18 (c) or (d) of the FDI Act (mergers and branches) (12 U.S.C. 1828 (c) or (d)), such applications should be filed concurrently with, or made a part of, the application filed pursuant to section 38 of the FDI Act (12 U.S.C. 1831o).

[Codified to 12 C.F.R. § 303.204]

§ 303.205  Applications for bonuses and increased compensation for senior executive officers.

(a)  Scope. Any insured state nonmember bank or insured branch of a foreign bank that is significantly or critically undercapitalized, or any insured state nonmember bank or any insured branch of a foreign bank that is undercapitalized and which has failed to submit or implement in any material respect an acceptable capital restoration plan, shall submit an application to pay a bonus or increase compensation for any senior executive officer.

(b)  Content of filing. Applications shall list each proposed bonus or increase in compensation, and for the latter shall identify compensation for each of the twelve calendar months preceding the calendar month in which the institution became undercapitalized. Applications also shall state the date the institution's capital restoration plan was accepted by the FDIC, and describe any progress made in implementing the plan.

[Codified to 12 C.F.R. § 303.205]

§ 303.206  Application for payment of principal or interest on subordinated debt.

(a)  Scope. Any critically undercapitalized insured depository institution shall submit an application to pay principal or interest on subordinated debt.

(b)  Content of filing. Applications shall describe the proposed payment and provide an explanation of action taken under section 38(h)(3)(A)(ii) of the FDI Act (action other than receivership or conservatorship). The application also shall explain how such payments would further the purposes of section 38 of the FDI Act (12 U.S.C. 1831o). Existing

approvals pursuant to requests filed under section 18(i)(1) of the FDI Act (12 U.S.C. 1828(i)(1)) (capital stock reductions or retirements) shall not be deemed to be the permission needed pursuant to section 38.

[Codified to 12 C.F.R. § 303.206]

§ 303.207  Restricted activities for critically undercapitalized institutions.

(a)  Scope. Any critically undercapitalized insured depository institution shall submit an application to engage in certain restricted activities.

(b)  Content of filing. Applications to engage in any of the following activities, as set forth in sections 38(i)(2)(A) through (G) of the FDI Act, shall describe the proposed activity and explain how the activity would further the purposes of section 38 of the FDI Act (12 U.S.C. 1831o):

(1)  Enter into any material transaction other than in the usual course of business including any action with respect to which the institution is required to provide notice to the appropriate federal banking agency. Materiality will be determined on a case-by-case basis;

(2)  Extend credit for any highly leveraged transaction. A highly leveraged transaction means an extension of credit to or investment in a business by an insured depository institution where the financing transaction involves a buyout, acquisition, or recapitalization of an existing business and one of the following criteria is met:

(i)  The transaction results in a liabilities-to-assets leverage ratio higher than 75 percent; or

(ii)  The transaction at least doubles the subject company's liabilities and results in a liabilities-to-assets leverage ratio higher than 50 percent; or

(iii)  The transaction is designated a highly leverage transaction by a syndication agent or a federal bank regulator.

(iv)  Loans and exposures to any obligor in which the total financing package, including all obligations held by all participants is $20 million or more, or such lower level as the FDIC may establish by order on a case-by-case basis, will be excluded from this definition.

(3)  Amend the institution's charter or bylaws, except to the extent necessary to carry out any other requirement of any law, regulation, or order;

(4)  Make any material change in accounting methods;

(5)  Engage in any covered transaction (as defined in section 23A(b) of the Federal Reserve Act (12 U.S.C. 371c(b));

(6)  Pay excessive compensation or bonuses. Part 364 of this chapter provides guidance for determining excessive compensation; or

(7)  Pay interest on new or renewed liabilities at a rate that would increase the institution's weighted average cost of funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institution's normal market area. Section 337.6 of this chapter (Brokered deposits) provides guidance for defining the relevant terms of this provision; however this provision does not supersede the general prohibitions contained in § 337.6.

[Codified to 12 C.F.R. § 303.207]

[Section 303.207 amended at 78 Fed. Reg. 55340, September 10, 2013, effective date: January 1, 2014. Mandatory compliance date: January 1, 2014 for advanced approaches FDIC supervised institutions; January 1, 2015 for all other FDIC-supervised institutions]

§§ 303.208--303.219  [Reserved]


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