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4000 - Advisory Opinions


Eligibility of Federal Reserve Member Commercial Bank to Become an FDIC-Insured Federal Savings Bank

FDIC-86-6

March 20, 1986

Robert E. Feldman, Attorney

According to your memorandum of March 13, 1986, to DBS director Robert V. Shumway, ***, has approached the Atlanta Regional Office about the possibility of becoming an FDIC-insured federal savings bank. You have inquired whether the bank, a Virginia-chartered Federal Reserve member commercial bank, is eligible to make such a conversion. Section 5(o) of the Home Owners' Loan Act of 1933, as added by section 112 of the Garn-St Germain Depository Institutions Act of 1982, provides a unique mechanism for a financial institution to become an FDIC-insured federal savings bank. 12 U.S.C. § 1464(o). Under section 5(o), an FDIC-insured federal savings bank can only come into existence through the conversion of a state-chartered savings bank insured by the FDIC. As a result, the answer to your inquiry depends on whether Virginia charters savings banks that are empowered to become members of the FDIC. Only if *** may first convert to a state-chartered savings bank is it eligible to become an FDIC-insured federal savings bank.

Virginia law distinguishes between the banking business and the savings institution business in that the Virginia Banking Act provides for the incorporation and regulation of banks, Va. Code § 6.1-3 to -125, while the Virginia Savings Institution Act provides for the incorporation and regulation of savings institutions. Id. § 6.1-194.1 to -195. Under the Virginia Savings Institutions Act, only savings and loan associations may be incorporated as savings institutions. Id. § 6.1-194.9. Such association may use the words "savings bank'' as part of its corporate name, id. § 6.1-194.10, but it is nevertheless a savings and loan association. A Virginia savings institution is empowered to become a member of the FSLIC only, id. § 6.1-194.3, and not of the FDIC. Further the Virginia Corporation Commission may appoint only the FSLIC as receiver of an insolvent savings institution. Id. § 6.1-194.83. We therefore conclude that Virginia does not authorize the existence of savings banks empowered to apply to the FDIC for insurance. This conclusion, in turn, dictates that no Virginia savings institution is eligible to become an FDIC-insured federal savings bank under section 5(o) of the Home Owners' Loan Act.


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