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5000 - Statements of Policy
{{8-31-98 p.5327}}
STATEMENT OF POLICY REGARDING LIABILITY OF COMMONLY
CONTROLLED DEPOSITORY INSTITUTIONS
Introduction
Section 5(e) of the Federal Deposit Insurance Act
(12 U.S.C. 1815(e)), as added
by section 206(a)(7) of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, creates liability for commonly controlled
insured depository institutions for losses incurred or reasonably
anticipated by the Federal Deposit Insurance Corporation (FDIC) in
connection with (i) the default of a commonly controlled insured
depository institution; or (ii) any assistance provided by the FDIC to
any commonly controlled insured depository institution in danger of
default. In addition to certain statutory exceptions and exclusions
contained in sections 5(e)(6), (7) and (8), the FDI Act also permits
the FDIC, in its discretion, to exempt any insured depository
institution from this liability if it determines that such exemption is
in the "best interests of the Bank Insurance Fund or the Savings
Association Insurance Fund."
The liability of an insured depository institution attaches at the
time of default of a commonly controlled institution. It is completely
within the discretion of the FDIC whether or not to issue a notice of
assessment to the liable institution for the estimated amount of the
loss incurred or reasonably anticipated to be incurred by the FDIC.
Guidelines for Conditional Waiver of Liability
The FDIC may, in its discretion, choose not to assess liability
based upon analysis of a particular situation, and it may entertain
requests for waivers from affiliated or unaffiliated parties of an
institution in default or in danger of default. The determination of
whether an exemption is in the best interests of either insurance fund
rests solely with the Board of Directors of the FDIC (Board). Should
the Board make such a determination, a waiver will be issued setting
forth terms and conditions that must be met in order to receive an
exemption from liability (conditional waiver of liability). The
following guidelines apply to conditional waivers of liability under
the provisions of this section:
(1) A conditional waiver of liability will be considered in those
cases where the waiver facilitates an alternative that would be in the
best interests of the FDIC. For example, a conditional waiver may be
granted when requisite additional capital and managerial resources are
being provided which substantially lessen the exposure of the affected
insurance fund. When a conditional waiver is granted to an unaffiliated
acquirer of an institution in default or in danger of default it will
be granted for a fixed period, generally not to exceed a period of time
reasonably required for existing problems to be identified and
resolved.
(2) If one or more institutions in a commonly controlled
relationship is otherwise solvent, well-managed and viable, it may be
in the best interest of the FDIC to waive or reduce claims against such
entities. In determining whether a conditional waiver is appropriate,
consideration will be given to actions of a holding company which may
contribute to or diminish the FDIC's losses, as well as proposals to
strengthen other weakened institutions, if any.
(3) Procedures to request a conditional waiver of liability are
contained in § 303.245 of the FDIC's Rules and Regulations,
12 CFR 303.245.
(4) In cases where an insured depository institution is sold to
an acquirer with no financial interest, directly or indirectly, in the
institution prior to the acquisition, it is the general policy of the
FDIC to forego the issuance of a notice of assessment to the acquirer
and its affiliated institutions in the event of a default of an insured
depository institution formerly affiliated with the acquired
institution. The FDIC will review all such transactions prior to making
a final determination to forego the issuance of the notice of
assessment.
Guidelines for Assessment of Liability
Whenever the FDIC determines that assessment of liability in
connection with a commonly controlled insured depository institution(s)
is appropriate, a Notice of Assessment
{{8-31-98 p.5328}}of Liability, Findings of Fact and
Conclusions of Law, Order to Pay, and Notice of Hearing (Notice of
Assessment) will be served upon the liable institution. In assessing
the amount of the FDIC's loss and the liable institution(s') method
of payment, the following guidelines shall apply:
(1) A good faith estimate of the amount of loss the FDIC shall
incur shall be based upon (a) the actual sale or calculation of loss
from a review by the FDIC of the assets and liabilities of the
institution prior to default or the granting of assistance; or (b) any
other cost estimate bases as explained in the Notice of Assessment.
(2) If there is more than one commonly controlled depository
institution to be assessed, each such institution is jointly and
severally liable for all losses; however, the FDIC shall make a good
faith estimate of the liability of each institution as determined by
(a) first assessing an initial amount on a pro rata capital basis that
brings about parity in the capital ratios of the liable institutions,
and (b) then apportioning any residual assessment on a pro-rata size
basis utilizing the most recent Report of Condition. Any final
assessment can be based on the estimated liability of each institution
by the FDIC and/or negotiations with the liable institutions.
(3) In the event that any liable institution is closed prior to
paying an assessment, the amount assessed or to have been assessed
against that institution may be assessed against the remaining liable
institution(s).
(4) The FDIC, after consulting with the appropriate Federal and
State financial institutions regulatory agencies, shall establish in
each case a schedule for payment which may include a lump sum
reimbursement, as well as procedures for receipt of such payment.
(5) Once liability has attached, the FDIC will consider
information similar to that provided with a request for a conditional
waiver of liability in determining the amount of the estimated loss to
be assessed. Such information may also include suggested payment plans.
By Order of the Board of Directors, July 7, 1998.
[Source:
63
Fed. Reg. 44765, August 20, 1998, effective October 1,
1998]
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