Bank A, ***, *** (“A”), filed an appeal with the Assessment Appeals
Committee (“AAC” or “Committee”) of the Federal Deposit Insurance
Corporation (“FDIC”) by letter dated April 27, 2007. A is appealing a March
30, 2007, decision issued by the FDIC’s Division of Finance (“DOF”). In its
decision, DOF denied A’s request that *** Bank B (“B”) be deemed the
successor to the one-time assessment credits of six institutions. A is the
successor in interest to B and is therefore entitled to any assessment
credits to which B may be entitled. According to A, B - in a series of
transactions that occurred in 2000 - assumed enough of the deposit
liabilities and acquired enough of the assets of the six institutions to be
entitled to those institutions’ assessment credits under the provisions of
the de facto rule in the FDIC’s assessment regulations. That rule
requires a “successor” institution to have assumed “substantially all of the
deposit liabilities” and acquired “substantially all of the assets” of
another institution. 12 C.F.R. § 327.31(c), (g). This appeal concerns
application of the de facto rule to the B transactions.
Committee invited A, pursuant to the Guidelines for Appeals of Deposit
Determinations (“AAC Guidelines”),1
to appear and make an oral presentation of its case. A declined. The
Committee met on May 14, 2007. After carefully considering all of the
written submissions and facts of this case, the Committee has determined to
grant A’s appeal and award it the one-time assessment credits at issue.
*** (“Holding Company”) was a bank holding company located in ***, ***.
Holding Company directly or indirectly controlled and owned all of the stock
of seventeen insured depository institutions in ***. Holding Company
consolidated the charters of sixteen of these institutions under two
entities – B, a banking institution, and a trust company (“Trust Company”).
The consolidation was effected in a two-step process during August and
October of 2000.
relevant portion of the August step involved consolidating the banking
operations of three institutions under the charter of an institution that
became B. One of the three - *** Bank C (“C”) - was in existence as of
December 31, 1996, and had paid deposit insurance assessments prior to that
date. The trust operations and charters of the three institutions were
ultimately consolidated as Trust Company.
relevant portion of the October step involved consolidating the banking
operations of five more insured depository institutions into B. The five -
*** (“Bank D”), *** (“Bank E”), *** (“Bank F”), *** (“Bank G”), and ***
(“Bank H”) - were in existence as of December 31, 1996, and had paid deposit
insurance assessments prior to that date. As in the August transactions,
the trust operations and charters of these five institutions were ultimately
consolidated into Trust Company.
Trust Company voluntarily terminated its deposit insurance on March 8,
2001. On July 12, 2002, both B and Trust Company were acquired by A. It is
the assessment credits of the six above-named institutions (“the six
subsidiaries”) that A – as the successor to B - claims.
February 8, 2006, the Federal Deposit Insurance Reform Act of 2005 (“the
Reform Act”) became law. The Reform Act mandated a one-time assessment
credit of approximately $4.7 billion to be allocated to each “eligible
insured depository institution” or its “successor.” 12 U.S.C. §
1817(e)(3)(A). To be eligible for the one-time assessment credit under the
statute, an institution must have been in existence on December 31, 1996,
and have paid a deposit insurance premium prior to that date, or must be a
successor to such an institution. Section 1817(e)(3)(C).
regulation implementing the one-time credit was approved by the FDIC Board
of Directors on October 6, 2006, becoming effective on November 17, 2006.
12 C.F.R. § 327.30-.36. The relevant portion of the rule defines
“successor” institution as the “resulting institution” (i.e., the
“acquiring, assuming, or resulting institution in a merger”) or “an insured
depository institution that acquired part of another insured depository
institution’s 1996 assessment base ratio under paragraph 327.33(c) … under
the de facto rule.” Section 327.31(f), (g). In short, two
regulatory avenues exist for becoming the successor institution to an
institution that was eligible for the one-time assessment credit: via an
actual merger or under the de facto rule. This appeal concerns the
Under the de facto rule, an institution may become a successor to an
institution that was eligible for the one-time assessment credit through
“any transaction in which an insured depository institution assumes
substantially all of the deposit liabilities and acquires substantially all
of the assets of any other insured depository institution at the time of the
transaction.” Section 327.31(c). A successor institution under the de
facto rule takes its proportionate share of the eligible institution’s
1996 assessment base ratio based on the deposit liabilities it assumed in
the transaction. Section 327.33(c). Thus, for purposes of entitlement to
the one-time assessment credit, an institution acquiring under the de
facto rule will be treated the same as the acquiring institution in a
merger, except that, if less than 100 percent of deposit liabilities are
acquired by purchase and assumption, then a portion of the credit and 1996
assessment base ratio will stay behind with the selling institution.
preamble to the rulemaking included guidance regarding application of the
de facto rule: “the FDIC considers an assumption and acquisition of at
least 90 percent of the transferring institution’s deposit liabilities and
assets at the time of transfer as substantially all of that institution’s
assets and deposit liabilities. Any successor institution qualifying under
that threshold would be entitled to a pro rata share, based on the deposit
liabilities assumed, of the transferring institution’s remaining 1996
assessment base ratio at the time of transfer.”
71 Fed. Reg.
61,374, 61,378-79 (Oct. 18, 2006). The FDIC acknowledged that inclusion of
the de facto rule into the regulation departed from the “clear,
bright line that a strictly applied merger definition would provide” but
viewed it as “fairer” than a strict merger approach. 71 Fed. Reg.
FDIC’s rules also provided insured institutions with the opportunity to
request review if they disagreed with the FDIC’s determination of
eligibility (or ineligibility) to the assessment credit, with the FDIC’s
calculation of the credit amount, or if they believed that the Statement of
One-Time Assessment Credit did not fully or accurately reflect their own
1996 assessment base ratios or appropriate adjustments for successors.
Section 327.36(a)(1). Institutions were given 30 days from the effective
date of the rule (that is, until December 18, 2006) to submit a request for
review of the one-time assessment credit. Section 327.36(a)(1). Failure to
file a timely request for review of the one-time assessment credit bars
institutions from subsequently requesting review. Section 327.36(b)(2).
October 18, 2006, the FDIC issued Financial Institution Letter (“FIL”)
93-2006. The FIL transmitted the one-time assessment credit rule and
notified the industry that the FDIC would be providing a preliminary
Statement of One-Time Assessment Credit to all eligible institutions.
According to the FIL, “A successor institution is defined as the acquiring,
assuming, or resulting institution in a merger or consolidation or the
acquiring institution under a de facto rule. The de facto rule recognizes a
transfer of at least 90 percent of an institution's assets and deposit
liabilities as a substantial transfer of the transferring institution's
business.” The FIL further noted that “[b]ecause the amounts shown in the
Statements [of One-Time Assessment Credit] will not reflect credits as a
result of transfers under the de facto rule, an institution claiming credits
under this rule must file a request for review.”
Preliminary Statements of One-Time Assessment Credit were made available to
all open and active insured depository institutions on October 18, 2006, via
FDICconnect, the FDIC’s e-business website. A’s preliminary
statement listed no assessment credits attributable to the six subsidiaries.
December 18, 2006, A filed its timely request for review, signed by its Vice
President X. Included with the request were documents supporting A’s
request, including the Trust Company articles of merger, Holding Company’s
10-K for the year 2000, and A’s preliminary estimated assessment credit
statements from March 31, 2006, and October 16, 2006.
letter dated February 9, 2007, DOF acknowledged receipt of A’s request for
review and sought additional information that would support A’s claim. DOF
suggested that A provide information as specified in FIL 93-2006:
transfer/transaction agreements; closing statements or similar documents
showing assets and deposit liabilities transferred by each institution;
general ledgers showing total assets and total deposits as of the
transaction date; and any other supporting documentation.
February 28, 2007, DOF received from A an undated Bank Merger Act
application describing the relevant transaction, briefing books for four of
the institutions in question showing, among other things, a balance sheet
for each; September 30, 2006 Call Report schedules showing balance sheets
and deposit liabilities for the six subsidiaries at the relevant times; and
the March 20, 2002 articles of merger for Holding Company and A.
DOF denied the
Bank’s request for review by letter dated March 30, 2007. After reviewing
the documentation provided by A, DOF indicated that the submissions did not
demonstrate that B met both of the de facto criteria. Specifically,
DOF noted it was “unable to calculate the percentage of assets acquired and
deposits assumed on the dates of the transactions.”
In its April 27,
2007 appeal to this Committee, A reasserts its claim to the B assessment
credits and attaches nine lettered exhibits. The exhibits include Call
Reports from the relevant time period for the six subsidiaries as well as
for B; the Bank Merger Act application for the consolidation; a purchase and
assumption agreement relating to step one of the consolidation; an October
21, 2004 letter describing part of the transactions; spreadsheets and
balance sheets for the six subsidiaries at the relevant time; Trust Company
balance sheets for the relevant time; the order approving termination of
Trust Company’s deposit insurance; and an affidavit from the vice president
and general counsel of Holding Company at the relevant time. Some of this
material was not previously submitted to DOF.
in its appeal that it “experienced difficulty in establishing with precision
the transfer of assets and liabilities from the Holding Company subsidiaries
to B as of the date of the transaction.” This is because, according to A:
the transaction occurred seven years ago and many records may not exist; one
bank’s accounting system was never converted to Holding Company’s system;
the consolidation was of wholly-owned affiliated institutions, so the detail
usually present for non-affiliated institution consolidations is lacking;
and many relevant records were labeled for storage by Holding Company’s
personnel no longer associated with A, making retrieval difficult.
A asserts that,
based on the documentation submitted, the only supportable explanation of
the consolidation is that B acquired more than 90 percent of the assets and
more than 90 percent of the deposit liabilities of the six subsidiaries.
The Committee must examine the evidence presented by A to resolve the
question of whether B assumed “substantially all” of the deposit liabilities
and acquired “substantially all” of the assets of the six subsidiaries
consolidated in 2000. 12 C.F.R. § 327.31(c). Under the FDIC’s regulations,
an institution that files a request for review of the one-time assessment
credit “shall provide documentation sufficient to support the change sought
by the institution.” 12 C.F.R. § 327.36(c). In appeals to this Committee
generally, the burden of proof as to all matters at issue rests with the
institution. AAC Guidelines, Paragraph H.
begin by noting A’s concern that establishing the precise transfer of assets
and deposit liabilities in the B transaction has been difficult. A has gone
to great effort to locate and submit evidence relevant to this case, some of
it dating back seven years; the Committee has considered all of the evidence
presented by A.
first asserts that the Call Reports of the separately-chartered Holding
Company’s subsidiary banks (Bank A Exhibit B) “demonstrate that the total
assets and liabilities of the subsidiaries roughly approximated those of B”
and “show that B ultimately came to acquire the assets and liabilities of
the Holding Company subsidiaries.” Although the figures concern all but one
of Holding Company’s seventeen subsidiaries, not simply the six relevant to
this appeal, the Call Report documentation does offer some support for A’s
assertion regarding both deposit liabilities and assets. The deposit
liabilities appear to have slightly grown in the relevant time period, and
the assets acquired by B during the relevant time period appear to have
declined less than 10 percent. Although not dispositive, for purposes of
the de facto rule requirements these figures provide some support for
A’s contention that the total assets and liabilities of the subsidiaries
“roughly approximated” those of B.
also cites language in the Bank Merger Act applications (Bank A Exhibit C)
showing that the Holding Company consolidation involved “affiliated
entities” and that “the banking operations only” of the six subsidiaries
were “merged and consolidated into the charter of B.” According to A,
“banking operations” means all bank related assets and liabilities other
than de minimis assets required for the trust company operations. The
application language appears consistent with A’s contentions, as does
language in the Purchase and Assumption Agreement (Bank A Exhibit D) that
calls for the transfer of “all of the banking related assets” and assumption
of “all of the banking related liabilities.” The term “banking related
liabilities” likely includes all deposit liabilities (information obtained
from the Call Reports also supports this conclusion). However,
consideration of “banking related assets” (emphasis added) would
invoke an asset subcategory which the Committee has recently declined to
create in applying the de facto rule. See AAC No. 2007-01
(May 8, 2007) (de facto rule applies to all assets, not just “banking
cites an October 21, 2004 letter regarding C to A (Bank A Exhibit E), which
summarizes the effects of the transaction on C. According to A, C was
affected identically to the other five subsidiaries. This letter
demonstrates that the surviving trust company (*** Trust Company) held no
banking related assets or liabilities when its amended articles of
incorporation became effective in August of 2000. Consequently, all of this
subsidiary’s deposit liabilities (and by extrapolation all of the other five
subsidiaries’ deposit liabilities) likely were assumed by B. The same
cannot be said - based on this letter - of the assets, however, because the
de facto rule applies not just to banking related assets, but to all
of an institution’s assets.
Exhibits F and G contain the spreadsheets and balance sheets for the six
subsidiaries for the month end preceding the consolidation and for the B
“Banking Centers” for the months following the consolidation, as well as
Trust Company’s balance sheets for three periods toward the end of 2000.
The spreadsheets provide some evidence, albeit imprecise, that “the total
assets and liabilities of B … approximate within a 10% variance the total
assets and liabilities of the separately chartered Holding Company
subsidiaries ….” In other words, this evidence (like Exhibit B) tends to
support A’s contention that B acquired substantially all of the assets of
the six subsidiaries.
also offers the April 3, 2001, Order of Approval of Termination of Insurance
(Bank A Exhibit H) verifying receipt by the FDIC of “satisfactory evidence”
that B assumed the deposit liabilities of *** (“Bank I”), the predecessor of
Trust Company. A acknowledges that this document “does not completely
dispose of all proof issues under the de facto rule,” but contends that it
resolves questions regarding assumption of substantially all deposit
liabilities of the six subsidiaries. This Order underscores A’s contention
that Trust Company no longer held any deposits following the consolidation,
and therefore provides additional support for A’s contention that B assumed
substantially all of the six subsidiaries’ deposit liabilities.
Finally, the affidavit of Y (Bank A Exhibit I) offers corroborative evidence
that B assumed substantially all of the deposit liabilities and acquired
substantially all of the assets of the six subsidiaries in these
transactions. Mr. Y was Senior Vice President and Associate General Counsel
of Holding Company from 1993 through 2002. It is his view that the “only
assets or liabilities transferred to Trust Company from the Holding Company
subsidiary banks … did not include any bank deposits” and “consisted of
tangible and intangible personal property … the total value of which was
less than 5% of the total assets of the subsidiary banks.”
Weighing all of the evidence presented, and mindful of the time that has
elapsed since the transactions occurred and the difficulties inherent in the
search for relevant evidence from multiple entities, the Committee finds
that A has met its evidentiary burden and satisfied the requirements of the
de facto rule for purposes of determining its entitlement to B’s
one-time assessment credits.
For the reasons and on the facts set out in this decision, the Committee
finds that A has satisfied the requirements of the FDIC’s de facto
rule and is therefore entitled to the one-time assessment credits of B,
including the credits of the six institutions at issue here.
By direction of the
Assessment Appeals Committee, dated May 29,