FDIC ADOPTS INTERIM RULE REQUIRING REVIEW OF MUTUAL-TO-STOCK CONVERSIONS
FOR IMMEDIATE RELEASE
The FDIC Board of Directors today adopted an interim rule that
will enable the agency to formally review and, if necessary,
prevent unfair or unsafe conversions of FDIC-supervised savings
banks from mutual to stock form of ownership.
The rulemaking, which will become effective when it is
published in the Federal Register, was taken under expedited
procedures that include a waiver of the customary delayed effective
date. This is intended to permit the FDIC to quickly begin
reviewing pending and future conversions.
The decision is the latest by the FDIC to address transactions
where officers, directors and other "insiders" at converting
savings banks may be unjustly enriched at the expense of the
institution's depositors, other customers and the FDIC's insurance
fund. Among the concerns are that, in some cases, insiders may set
the stock offering price well below the true value of the
institution, or they may obtain more than a fair share of the stock
subscription. Excessive compensation packages also are a concern.
Under the interim rule, an FDIC-supervised state-chartered
savings bank must provide the appropriate FDIC regional office with
advance notice of its plans to convert from mutual to stock form,
as well as copies of all application and disclosure materials. The
FDIC then has 60 days from the receipt of a complete notice to
review the conversion plan before it can be consummated, although
the agency can extend the review period for another 60 days. A
proposed conversion could not be consummated if the FDIC objects
within the allotted time. If the FDIC notifies the savings bank
that it has no objection to the transaction or if the FDIC does not
respond within the allotted time, the conversion may be completed.
This interim rule departs from the FDIC's past practice of
suggesting to other federal or state regulators that modifications
be made in a conversion plan.
FDIC Chairman Andrew C. Hove, Jr., said: "The FDIC joins with
members of Congress and fellow regulators in having serious
concerns about the potential for insider abuse and unsound banking
practices when a mutual institution converts to stock form of
ownership. While not all conversions present a problem, we believe
the public interest is best served if the FDIC quickly begins to
review individual cases and, where necessary, prevents abusive
transactions from taking place."
Today's action follows a decision by the FDIC's Board on
January 24 to seek public comment on the adequacy of existing
federal and state conversion laws and regulations, as well as on
alleged abuses that may have occurred in conversions. That
proposal also includes draft guidelines in areas such as: (1) the
correct pricing of the stock; (2) the fair apportioning of the
stock; and (3) adequate and timely disclosure of all relevant
information that interested parties need to make an informed
investment decision. Written responses to this January request are
due by March 18.
The agency will accept comments on today's interim rule for 30
days after it is published in the Federal Register. Based on the
FDIC's experience reviewing transactions and the public comments
received on both the interim rule and the January proposal, the
FDIC will decide within the next few months on a final approach
toward the broad issues of regulating and supervising conversion