Vol. 1 No. 9
Goodwin, Procter & Hoar LLP, a firm of over 350 lawyers, has one of the largest financial services practices in the United States. We have created the Financial Services Alert as a service to advise our clients and other financial institutions to news of importance to the industry in a timely manner. Some issues of the Alert, such as this one, will principally summarize significant recent developments in financial services law and regulation. Other issues will provide more indepth analysis about specific areas of financial services law. We hope that you will find the Financial Services Alert to be helpful. We welcome your suggestions for future topics of interest.
Developments of Note
OCC Finalizes, Proposes Assessment Rules
The OCC finalized and proposed separate assessment rules designed to reflect more accurately the actual cost of examinations to the agency. As to the final rules, the OCC finalized an interim rule that removes the specific formula for calculating trust and other examination fees and replaces it with an assessment fee to be published in the OCC's periodic fee schedule. Moreover, the OCC also finalized an interim rule reducing the assessment fee for national banks that are not the lead national banks (based on asset size) in their consolidated organizations, and also expanded the rule to encompass national banks that are not part of a bank holding company structure (such as credit card banks) and federal branches and agencies of foreign banks. On the other hand, a newly proposed rule would impose a 25% assessment surcharge on national banks having a CAMELS rating of 3, 4 or 5, or federal branches or agencies that have a ROCA rating of 3, 4, or 5, to reflect the increased cost that the OCC incurs when examining such institutions. The proposed rule also seeks comment on the appropriate method of calculating the assessment on national banks that themselves own other banks to eliminate the concern of double counting the assets of the bank's subsidiary bank. The final rule became effective October 21, 1997, and comments on the proposed rules are due by November 20, 1997.
FDIC Proposes Rescission and Modification of Policy Statements
The October 21, 1997 Financial Services Alert discussed the FDIC's proposed revision of its application regulations and noted that the FDIC's concurrent rescissions and modifications of related policy statements would be discussed separately. As to these other FDIC actions, the FDIC proposed rescinding its policy statements regarding applications to establish a domestic branch and applications to relocate a main office or branch, concluding that the proposed application regulation revisions render those policy statements obsolete. Even more recently, the FDIC has rescinded its statement of policy on the Community Reinvestment Act, declaring that since the performance-based revisions to the regulations were fully phased in on July 1, 1997, the policy statement (which discussed the prior CRA standards) is obsolete.
As to modifications, the FDIC proposed modifications to its policy statements regarding applications for bank merger transactions, the liability of commonly controlled depository institutions, and deposit insurance. The proposed bank merger policy statement declares that, among other things, although the Bank Merger Act by its terms applies to acquisitions of assets as well as deposit liabilities, transactions that do not involve a transfer of deposit liabilities typically do not require prior FDIC approval, unless the transaction involves the acquisition of substantially all of an institution's assets. The revised policy statement concerning the liability of commonly controlled depository institutions emphasizes that liability will be assessed against an institution in the event of the failure of an affiliate bank except in instances of the acquisition by an unaffiliated entity of a distressed institution prior to the default.
The FDIC made more substantive modifications to its policy statement regarding applications for deposit insurance. First, whereas the current policy statement suggests that sufficient capital should be initially injected into a new depository institution to maintain a 8% leverage capital ratio through its first 3 years of operation, the proposal only would require the initial injection to be sufficient to maintain that ratio for 1 year, so long as an eligible holding company will commit to maintain the institution's Tier 1 leverage ratio at 8% throughout its first 3 years of operation. Second, the proposal would allow new depository institutions establishing a deposit base through the purchase of existing branches to maintain lower capital ratios in light of the perceived lower risk of acquiring an established customer base. Third, while the proposal still provides guidelines as to the ability of insiders to borrow to pay for stock of a new institution, it eliminates the declaration in the current policy statement that borrowings in excess of those guidelines are presumed excessive. Finally, the proposal liberalizes the use of stock benefit plans, expressly permitting them to be made available not only to active management, but also to outside directors and organizers, subject to certain vesting and pricing requirements.
OTS Consolidates, Finalizes Deposit Regulations
The OTS finalized and consolidated its regulations concerning deposit accounts. The rules expressly incorporate by reference FRB Regulations D and DD and eliminate OTS regulations addressing similar areas. Similarly, in the discussion concerning its new regulations, the OTS stated that it would generally follow FRB interpretations of those regulations including, for instance, the recent FRB interpretive ruling permitting institutions to pay any premium on a deposit account that is not dependent upon the balance or duration of the account. The regulations also codify the OTS' position that it has broad preemptive authority to govern the deposit practices of federal savings banks. In addition, the regulations provide that federal savings banks may maintain records on deposit activities in any format consistent with standard business practices, and in its discussion of the regulations the OTS expressly references recently proposed electronic banking regulations, thereby indicating the OTS' intent to allow such records to be maintained electronically. These proposed electronic banking regulations were discussed in the October 21 issue of the Financial Services Alert. The final deposit rules become effective January 1, 1998.
FRB Revises Position on Money Market Fund Shares in a Regulation T Cash Account
The FRB published an opinion letter superseding certain previously issued letters addressing the use of money market fund shares to support transactions in a customer's Regulation T cash account. The cash account regulations generally provide that a broker-dealer may effect a customer's purchase of a security only if either (1) sufficient funds are available in the account on the trade date, or (2) the customer agrees to make full cash payment for the security before selling it and does not contemplate selling it prior to making fully cash payment. The opinion letter concerned a customer who purchased and sold the security on the same day, with sufficient money market fund value (but insufficient cash) in the account on the trade date to cover the purchase. Historically, FRB published staff opinions suggested that under these circumstances the money market fund shares actually must be liquidated for cash on the sale date in order to avoid violation of the cash account rules described above. However, in the opinion letter, the Board staff declares that such a customer may be treated as having sufficient cash funds in the account on the trade date, and thus in compliance with the cash account rules, even without actually liquidating the shares if (1) the account contains sufficient money market fund share value to cover the purchase on trade date; (2) the broker-dealer has the customer's authorization to liquidate the money market fund shares to pay for the securities; and (3) sufficient money market fund shares to cover any deficit incurred on trade date are "pended" to insure settlement.
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The contents of this publication are intended for informational purposes only and should not be construed as legal advice or legal opinion, which can be rendered properly only when related to specific facts. This document may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts. (c)GPH LLP 1997
