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|FDIC ADOPTS FINAL RULE IMPOSING REQUIREMENTS ON MUTUAL-TO-STOCK CONVERSIONS|
FOR IMMEDIATE RELEASE
The FDIC Board of Directors today adopted a final rule to
address concerns about "insider" abuse and other troublesome
aspects of conversions by FDIC-supervised mutual savings banks to
stock form of ownership.
The new rule, which is the culmination of numerous steps the FDIC has taken this year to address conversion issues, combines elements of an interim rule adopted in February and a proposed rule issued for public comment in June. As with the interim rule, the FDIC will require advance notice of an institution's conversion plans and will have the authority to block a transaction if there are safety and soundness concerns, breaches of fiduciary duty or other violations of law. The final rule also adds new consumer protections in areas such as how the market value is set for the initial stock offering, how depositors must vote to approve a proposed conversion, and how windfall profits to the bank's management will be prevented.
Chairman Ricki R. Tigert said today: "The FDIC continues to believe that it is the decision of a bank's management and its depositors whether to remain in the mutual form of ownership. If a bank does choose to convert to stock form, the FDIC must make sure that the institution's value is fairly priced and fairly distributed, that insider abuse is prevented, and that the resulting institution is safe and sound. We believe the rule adopted today will help the FDIC meet those objectives."
Additionally, the FDIC has withdrawn the proposed policy statement issued in February 1994 and a separate request for comment -- called the "white paper" -- issued in May 1994 on certain fundamentals of the conversion process.
The final rule applies to the approximately 600 state-chartered mutual savings banks supervised by the FDIC. Federally chartered mutual savings banks and savings associations, of which there are about 1,600, are supervised by the Office of Thrift Supervision (OTS).
Chairman Tigert noted that the FDIC's conversion rule is consistent with an OTS rule expected to be issued soon. "The FDIC and the OTS are working closely to ensure, to the extent possible given somewhat different legal authority, that future conversions of mutual thrift institutions are governed by very similar and very high standards of safety and fairness," she said.
The FDIC rule will require a state-chartered mutual savings bank that proposes to convert to stock form of ownership to:
The final regulation does not prohibit conversions through a merger with an existing institution or an acquisition by a holding company. However, because of the history of abuses associated with these so-called "merger/conversions," the FDIC will closely scrutinize such transactions and those proposing such transactions will have to meet a strict burden of proof.
The existing interim rule will remain in place until today's action becomes effective on January 1, 1995.
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