NON-DEPOSITORY TRUST
COMPANIES:
WHAT IS THE OCC AND
FDIC CURRENT THINKING
ON FEDERAL DEPOSIT
INSURANCE
REQUIREMENTS?
Timothy R. McTaggart  May 5, 2015  11:00 am – 12:00 pm
We will be starting momentarily…
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CLE credit available in CA, NY, PA, VA
(pending), NJ (credit available through
reciprocity).
Contact Brian Dolan at
[email protected] for CLE form
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Timothy R. McTaggart
202.220.1210
[email protected]
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• Partner in the Washington office of Pepper
Hamilton
• Focuses his practice on bank and financial
services regulatory matters. He also
assists financial services clients on
transactional and enforcement issues.
• Prior to Pepper, served as the Delaware
State Bank Commissioner (1994-1999)
and as counsel to the U.S. Senate
Banking Committee (1991-1994).
OCC Requires Federal Chartered Limited Purpose
Trust Only Charters to Obtain FDIC Insurance
• OCC concern about conservatorship/receivership.
• OTS Requirement of a Single Non-Trust Deposit by a
Parent Company in Federally Chartered Limited
Purpose Trust Only Charters.
− OCC adopted OTS requirement of insurance.
− FDIC insurance for single non-trust deposit from a parent entity.
• OCC made this change for new Federal Chartered Limited
Purpose Trust only Charters without advanced/concurrent
coordination with the FDIC.
• Today, conversations at the highest levels of the OCC and
FDIC are taking place to determine what to do next.
• What Does the FDIC Want?
− Ordinarily, under Section 5 of the Federal Deposit Insurance Act
provides that an applicant for deposit insurance must be
“engaged in the business of receiving deposits other than trust
funds.”
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OCC Requires Federal Chartered Limited Purpose
Trust Only Charters to Obtain FDIC Insurance
• FDIC insurance requirements; FDIC policy.
− In considering applications for deposit insurance for a
proposed depository institution, the FDIC must evaluate
each application in relation to the factors prescribed in
section 6 of the Federal Deposit Insurance Act (12 U.S.C.
1816).
− Those factors are:
• The financial history and condition of the depository
institution;
• The adequacy of its capital structure;
• Its future earnings prospects;
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OCC Requires Federal Chartered Limited Purpose
Trust Only Charters to Obtain FDIC Insurance
• The general character and fitness of its management;
• The risk presented by such depository institution to the
deposit insurance fund;
• The convenience and needs of the community to be
served by the depository institution; and
• Whether its corporate powers are consistent with the
purposes of the Act.
The FDIC applies the seven statutory factors in accordance
with the “Statement of Policy on Application for Deposit
Insurance,” 63 Fed. Reg. 44756 (August 20, 1998), which
discusses each of the factors at great length.
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FDIC Insurance
• Reconcile FDIC insurance requirement of non-trust
deposits with BHC Act Trust Company exemption
requiring nearly all trust deposits.
− A key component at the trust company exemption under
the BHC Act is the requirement that “all or substantially all
of the deposits of such institution are in trust funds and
are received on a bona fide fiduciary capacity.” FDIC
precedent has permitted a trust company, functioning
solely as a trust company (and holding substantially no
deposits except trust funds), to hold such limited non-trust
deposits in order to meet the requirements of the Federal
Deposit Insurance Act while also qualifying for the trust
company exemption under the BHC Act.
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FDIC Insurance
• General Counsel opinion no. 12.
− In 2000, the position of the FDIC was memorialized in an
General Counsel opinion that indicated a single non-trust
deposit from a parent or affiliate in the amount of
$500,000 was sufficient to meet the requirements of the
Federal Deposit Insurance Act. FDIC General Counsel’s
Opinion No. 12, Engaged in the Business of Receiving
Deposits Other Than Trust Funds (March 17, 2000).
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FDIC Insurance
• Another perspective, for existing federal chartered nondeposit trust companies, if OCC does not require FDIC
insurance (i.e., “Grandfathers” existing charters), then
perhaps no tension between FDIC insurance and BHC
Act.
• If the trust company has no FDIC insurance, then it
is unnecessary to rely on trust company exemption
in the BHC Act.
− If a trust company is not FDIC-insured, it falls outside the
definition of “bank” in the first instance and eliminates the
need to rely on the trust company exemption in the BHC
Act. Melanie L. Fein, Federal Bank Holding Company
Law, § 2.03[6][a], 2-17 (3rd ed. 2014).
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Dodd Frank Act
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•
Recent Developments. Did you know that the Dodd Frank Act
included a trust company exemption under the S&LHC Act parallel
to the BHC Act trust exemption?
•
The Dodd-Frank Act added a corollary exemption in the context of
savings and loan holding companies which allow for companies
using the thrift charter to deregister as savings and loan
companies in reliance on the BHC Act trust company exemption.
•
The Federal Reserve Board has in recent years issued a series of
orders permitting holding companies of trust companies using a
thrift charter to deregister as savings and loan holding companies
in reliance on this exemption.
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These orders reflect a general rule that the requirement that “all or
substantially all of the deposits of such institution are in trust funds
and are received in a bona fide fiduciary capacity” is met so long
as at least 99% of the trust company’s deposits are held in a trust
or fiduciary capacity (excluding from the calculation the amount
required to maintain deposit insurance from the FDIC).
Dodd Frank Act
•
Deregistrations.
•
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See Federal Reserve Approval of Prudential Companies to Deregister as a Savings and
Loan Company (Dec. 31, 2013); Federal Reserve Approval of Ameriprise Financial, Inc. to
Deregister as a Savings and Loan Company (Jan. 30, 2013); Federal Reserve Approval of
Devlin Trust to Deregister as a Savings and Loan Company (Oct. 31, 2012); Federal
Reserve Approval of Curragh Capital Partners II L.P. to Deregister as a Savings and Loan
Company (Oct. 31, 2012); Federal Reserve Approval of Capital Group Companies, Inc. to
Deregister as a Savings and Loan Company (Oct. 31, 2012); Federal Reserve Approval of
The Jones Financial Companies L.L.L.P. to Deregister as a Savings and Loan Company
(Oct. 31, 2012); Federal Reserve Approval of Prudential Companies to Deregister as a
Savings and Loan Company (Oct. 31, 2012); Federal Reserve Approval of Davidson
Companies to Deregister as a Savings and Loan Company (Oct. 31, 2012); Federal
Reserve Approval of TCV Financial Corp. to Deregister as a Savings and Loan Company
(Oct. 31, 2012); Federal Reserve Approval of National Advisors Holdings, Inc. to
Deregister as a Savings and Loan Company (Oct. 31, 2012); Federal Reserve Approval of
Fidelity Companies to Deregister as a Savings and Loan Company (Oct. 31, 2012);
Federal Reserve Approval of Massachusetts Mutual Life Insurance Company to Deregister
as a Savings and Loan Company (Oct. 31, 2012); Federal Reserve Approval of
Independence Holding Corporation to Deregister as a Savings and Loan Company (Oct.
31, 2012); Federal Reserve Approval of Everence Companies to Deregister as a Savings
and Loan Company (Oct. 31, 2012); and Federal Reserve Approval of Northwest Mutual
Life Insurance Company to Deregister as a Savings and Loan Company (Sept. 26, 2012).
See also Federal Reserve Interpretive Ruling for North American Trust Company (Feb 28,
1997) and Federal Reserve Interpretive Ruling for CAN Financial Corporation (May 15,
1996).
Dodd Frank Act
• Fed Order. Confirms OCC insurance requirement.
− “The Board considers the “all or substantially all”
requirement of section 2(c)(2)(D) to be met where 99
percent of all deposits are maintained in a trust or
fiduciary capacity, not taking into account the $500,000 in
nontrust deposits the savings association must hold in
order to receive federal deposit insurance.”6
− Footnote #6 “12 CFR 303.14(a). To be chartered as a
federal savings association under section 5 of HOLA, the
Office of Thrift Supervision required that the savings
association be FDIC insured. 12 CFR 552.2-1(b)(3)(i). The
OCC has retained the deposit insurance requirement 12
CFR 152.1(b)(3)(i).
− Federal Reserve Approval of Prudential Companies to
Deregister as a Savings and Loan Company (Dec. 31,
2013) (underlining added).
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What’s Next?
• What are we left with? New federal limited purpose
trust charters (FDIC insurance required).
• Existing OCC limited purpose trust charters without
insurance (will they continue to be grandfathered
without FDIC insurance?)
• Existing OCC limited purpose trust companies with
FDIC insurance and relying on BHC Act trust company
exemption.
• Existing former OTS limited purpose trust charters
(have FDIC insurance).
• Existing former OTS limited purpose trust charters with
parent companies now deregistered as S&LHC and
relying on S&LHC trust company exemption (still have
FDIC insurance).
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What’s Next?
• Grandfathered OCC non-insured federally chartered
limited purpose trust only charters.
• Will OCC require deposit insurance?
• What about state non-depository limited purpose trust
entities that wish to convert to federal charter?
− FDIC is concerned about Capital requirements.
− Why isn’t single non-trust deposit (from parent enterprise)
satisfactory?
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•
What about merger situations involving merger by grandfathered
un-insured limited purpose trust charter with a federally insured
limited purpose trust charter
•
FDIC insurance remains: presumption.
•
May require FDIC/Bank Merger Act review/filing.
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CLE credit available in CA, NY, PA, VA
(pending), NJ (credit available through
reciprocity).
Contact Brian Dolan at
[email protected] for CLE form
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Timothy R. McTaggart
202-220-1210
[email protected]
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