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4000 - Advisory Opinions FDIC's Authority to Repudiate Security Interests After a Depository Institution Has Failed FDIC--94--10 March 2, 1994 Christeena G. Naser, Attorney I have been asked to respond to your letter of October 15, 1993 to Assistant General Counsel Alan Kaplan concerning FDIC's authority to repudiate security interests after a depository institution has failed. We apologize for the delay in responding to your letter. You have inquired, in particular, whether FDIC's repudiation rights differ when the security interest is entered into at a time that the institution is subject to formal or informal enforcement action by FDIC. Based on conversations between our staff and your legal counsel, we further understand that your belief is that any such difference in FDIC's ability to repudiate a security interest resulted from enactment of the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"). At the outset, please note that staff opinions are not legally binding on the FDIC or its Board of Directors. Based on our review of the legislative history and discussions with FDIC staff, enactment of FIRREA does not appear to have made any change with respect to FDIC's repudiation rights that would differentiate between an institution subject to an enforcement action and one which was not. 12 U.S.C. § 1821(e) sets forth the FDIC's rights as conservator or receiver to repudiate contracts with special provisions in subsection (11) for security interests. It is also relevant to this inquiry that FIRREA extended the requirements of 12 U.S.C. § 1823(e) to assets held by FDIC in its receivership capacity as well as in its corporate capacity. As a related issue, it would of course be incumbent upon [COMPANY] to ascertain that any security arrangement it entered into with a depository institution subject to an enforcement action not violate the terms of that action, whether formal or informal. In addition, both 12 U.S.C. § 1821(e)(11) and FDIC's Statement of Policy Regarding the Treatment of Security Interests After Appointment of the FDIC as Conservator or Receiver contain an exception for security interests taken in contemplation of an institution's insolvency or with an intent to hinder, delay, or defraud the institution or its creditors.1 I trust that the above information is responsive to your inquiry. However, if you have further questions, please do not hesitate to telephone me at (202) 898-3587. 1We assume any security arrangement involving *** would be undertaken in the ordinary course of business, that it would be a bona fide, arm's-length secured transaction, that the secured parties are not insiders or affiliates of the bank, that the grant of the security interest would be for adequate consideration, that the agreement evidencing the grant of a security interest in the collateral would be in writing, approved by the institution's board of directors or loan committee (which approval would be reflected in the minutes of the board or loan committee), and would be continuously from the time of its execution an official record of the institution. Go back to Text
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