Activities Of Insured State Depository Institutions
FIL-97-97 September 23, 1997
CHIEF EXECUTIVE OFFICER
FDIC Seeks Comment on Proposed Rule Governing Activities and Investments of Insured State Depository
The FDIC Board of Directors is seeking comment on the attached
proposal to consolidate regulations governing activities and
investments of insured state banks, savings associations and
subsidiaries of state nonmember banks into a single section--Part
362 of the FDIC's rules and regulations. The new Part 362 would
provide a comprehensive view of the FDIC's safety and soundness
concerns relating to activities and investments of insured state
depository institutions. The Board has withdrawn its proposed
amendments to Part 362 published in the Federal Register on
August 23, 1996, covering real estate and life insurance
investment activities. These issues are covered in the new
Comments on the proposal are due by December 11, 1997.
The proposal contains major revisions to the regulations that
would delete obsolete provisions, clarify language, and promote
consistency within the regulations. The proposal does not grant
new powers to insured state depository institutions. The
regulation provides a framework under which the FDIC makes its
determination on risks to the insurance funds as required by
The proposal would:
establish a notice procedure to expedite processing of requests
from banks that meet eligibility criteria;
add a new regulatory exception allowing a majority-owned
subsidiary of an insured state depository institution to acquire
and retain stock listed on a national securities exchange without
prior notice; and
create safety and soundness standards for insured state
nonmember banks that are engaging in real estate investment
activities through a subsidiary when those activities are not
permissible for a national bank, but are permissible for a
subsidiary of a national bank. The proposal covers four major
areas of activities that are not permissible for a national bank:
real estate investment activities, insurance underwriting,
securities underwriting and distribution, and investment in the
equity securities of other companies.
To expedite and simplify processing, the information required for
notices and applications would be identical under the proposal.
If a depository institution qualifies for the notice procedure,
consent would be granted 30 days after the FDIC receives a
completed notice from the applicant, unless otherwise notified.
If consent is requested through an application, the processing
period would normally be 60 days.
Under the proposal, the regulation's standards would allow
certain activities to be conducted after giving the FDIC notice.
If the standards are not appropriate for a particular activity,
the notice process may be converted into an application to be
considered by the FDIC Board of Directors. The notice standards
cover three broad areas:
Capital standards, which require that an insured depository
institution be well-capitalized after deducting its investment in
the subsidiary from capital.
Investment and transaction limits that are similar, but not
identical, to the section 23A and 23B standards.
Core eligibility standards, which include eligibility standards
for the depository institution and for the subsidiary. The
subsidiary eligibility standards reflect many of the same
separations contained in the 'bona fide' subsidiary definition
currently in Part 362 and section 337.4.
The eligibility standards are designed specifically for the
bank/subsidiary relationship. They provide for: separation
between the insured depository institution and the subsidiary to
lessen the possibility of piercing the corporate veil; deduction
of the bank's investment in the subsidiary to segregate the
capital supporting the bank from the capital supporting the
subsidiary; and limitations on the bank's investment in the
subsidiary and on transactions with the subsidiary that ensure
transactions are "arms-length."
For further information, please contact Curtis L. Vaughn
(202-898-6759) or John Jilovec (202-898-8958), Examination
Specialists in the Division of Supervision; or Linda Stamp
(202-898-7310), Counsel in the Legal Division.
Distribution: FDIC-Supervised Banks (Commercial and Savings);
Insured Savings Associations; Insured State Member Banks
NOTE: Paper copies of FDIC financial institution letters may be
obtained through the FDIC's Public Information Center, 801 17th
Street, N.W., Room 100, Washington, D.C. 20434 ((703) 562-2200 or
800-276-6003). Electronic versions of FILS and Press Releases
are available on the FDIC web site at:
News, Events & FOIA