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4000 - Advisory Opinions


Transactions in Which an Insured Depository Institution Grants a Security Interest in Assets of the Institution to a Third Party

FDIC-89-48

December 15, 1989

John L. Douglas, General Counsel

This is in reference to your recent inquiry regarding the application of the "written agreement" and related requirements contained in the Federal Deposit Insurance Act ("FDIA") as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to certain secured transactions.

In particular, you have raised a question concerning transactions ("Secured Transactions") in which an insured depository institution (the "Institution") grants a security interest in assets of the Institution (the "Collateral") to a third party (including a trustee for the benefit of others, the "Secured Party") to secure an obligation (the "Secured Obligation") of the Institution. The Collateral might be acquired (including by way of the origination thereof) by the Institution other than in connection with the Secured Transaction, and might be acquired by the Institution months or years prior to the grant of a security interest therein to the Secured Party. Further, the Collateral might be pledged to the Secured Party after the incurrence of the Secured Obligation pursuant to a "collateral maintenance" provision contained in documentation for the Secured Transaction (which provision would require the Institution to maintain the market value of the Collateral pledged to the Secured Party at a specified level).

You have indicated that a concern has been expressed that a lapse of time between the Institution's acquisition of the Collateral and the grant of a security interest therein to the Secured Party could in itself enable the Federal Deposit Insurance Corporation ("FDIC"), in its corporate, conservatorship or receivership capacities, to avoid the Secured Party's security interest in the Collateral under Section 13(e) or Section 11(d) of the FDIA, or could enable a "bridge bank" to avoid the Secured Party's security interest in the Collateral under Section 11(N)(4)(I) of the FDIA.

Section 13(e) of the FDIA provides that:

"[n]o agreement which tends to diminish or defeat the interest of the [Federal Deposit Insurance] Corporation in any asset acquired by it under this section or section 11, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

(1) is in writing

(2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligator, contemporaneously with the acquisition of the asset by the depository institution,

(3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(4) has been, continuously, from the time of its execution, an official record of the depository institution.1

(Emphasis added.)

Section 11(d)(9)(A) of the FDIA provides in pertinent part that ". . . any agreement which does not meet the requirements set forth in section 13(e) shall not form the basis of, or substantially comprise, a claim against the receiver or the [Federal Deposit Insurance] Corporation."

You have indicated that the expressed concerns are based on the possibility that the FDIC or a "bridge bank" might view the agreement evidencing the Secured Obligation as "diminishing or defeating" the right, title and interest of the FDIC or the "bridge bank" in the Collateral (an asset of the Institution), and might seek to avoid the security interest in the Collateral if the Institution had not acquired the Collateral contemporaneously with the grant of a security interest therein to the Secured Party.

You have indicated that you do not believe that Section 13(e), 11(d)(9) or 11(n)(4)(I) of the FDIA should be so interpreted, based on several arguments. We understand your principal argument to be that the consideration received by the Institution as the quid pro quo for the incurrence of the Secured Obligation (including a "collateral maintenance" requirement) and the grant of the security interest in the Collateral should be viewed as the "asset" for purpose of section 13(e)(11)(d)(9) and 11(n)(4)(I). Under this argument, the grant of a security interest in Collateral is not an agreement whereby the Institution diminishes or defeats its interest in the Collateral, but is instead an agreement that changes its interest in the Collateral in connection with the acquisition of another asset, i.e., the consideration for the Secured Obligation. Or stated another way the combination of the original asset as pledged and the consideration for the grant of the security interest should be viewed as a whole and there is accordingly no diminishment in the "overall asset." To interpret the provision any other way would place all security interests other than purchase money security interests at risk.

It is not the practice of the FDIC to provide binding determinations except through regulations or orders. We do not provide binding determinations of what a receiver or conservator for a specific financial institutions may or may not do in a particular case based on hypothetical circumstances, nor do we provide binding determinations as to how the FDIC in its corporate capacity or a "bridge bank" may act with respect to assets acquired from a specific financial institution in a particular case based on hypothetical circumstances. I can, however, give you my opinion as to what decision a court would render if faced with certain issues.

Subject to the assumptions set forth below, it is my opinion that a court would hold that the FDIC, in its corporate, conservatorship or receivership capacities, could not, pursuant to section 13(e) or section 11(d)(9) of the FDIA, and a "bridge bank" could not, pursuant to Section 11(n)(4)(I) of the FDIA, avoid a security interest in Collateral solely because the grant of the security interest in the Collateral by the Institution did not occur contemporaneously with the Institution's acquisition of the Collateral. I do not believe it was intended that security interests other than purchase money security interest be placed at any additional risk.

For purposes of the foregoing opinion, I have assumed the following:

1.  The Secured Transaction was a bona fide, arm's length transaction that contemplated the grant of a security interest in the Collateral (including pursuant to a "collateral maintenance" provision);

2.  The Secured Party is not an insider or affiliate of the Institution;

3.  The grant of the security interest in the Collateral and the incurrence of the Secured Obligation (including a "collateral maintenance" requirement) were for adequate consideration and were not avoidable under other provisions of law, such as the law of fraudulent conveyances; and

4.  The agreement evidencing the grant of a security interest in the Collateral and the incurrence of the Secured Obligation (including a "collateral maintenance" requirement) is in writing, is executed by the Institution contemporaneously with the incurrence of the Secured Obligation and the receipt of the consideration for such obligation, is approved by the Institution's board of directors or loan committee (which approval shall be reflected in the minutes of the board of directors or loan committee), and is, continuously from the time of its execution, an official record of the Institution.

You have indicated there are similar concerns regarding the Resolution Trust Corporation (RTC) and sections 13(e), 11(d)(9) and 11(n)(4)(I) of the FDIA2 As General Counsel of the FDIC, which serves as the exclusive manager of the RTC, I can state that it is my opinion that the RTC has no greater rights in this regard than the FDIC and that the above analysis applies equally to the RTC.

The foregoing opinion only addresses the avoidability of a security interest in Collateral pursuant to section 13(e), 11(d)(9) and 11(n)(4)(I) of the FDIA, and does not address the avoidability of a security interest in Collateral under any other provisions of law or regulation.

1Section 11(n)(4)(I) of the FDIA is identical to Section 13(e) of the FDIA, except that it refers to an asset of an "insured bank" acquired by a "bridge bank." Go back to Text

2Section 21A(b)(4) of the Federal Home Loan Bank Act provides in pertinent part that: "the [Resolution Trust] Corporation shall have the same powers and rights to carry out its duties with respect to institutions described in paragraph (3)(A) [Section 21A(b)(3)(A) of the Federal Home Loan Bank Act] as the Federal Deposit Insurance Corporation has under section 11, 12, and 13 of the Federal Deposit Insurance Act with respect to insured depository institutions (as defined in section 3 of the Federal Deposit Insurance Act)." Go back to Text


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