Rules, Policies and Procedures for Corporate Activities: Merger, Consolidation, Purchase and Assumption

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 5

[Docket No. 94-06]

RIN 1557-AB27

Rules, Policies and Procedures for Corporate Activities: Merger,

Consolidation, Purchase and Assumption

AGENCY: Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is

adopting final procedures for national banks to follow in merging or

consolidating with Federal savings associations. This action is

necessary because the Federal Deposit Insurance Corporation Improvement

Act of 1991 (FDICIA), which authorized national bank mergers and

consolidations with Federal Savings associations, did not establish

procedures for such transactions. To the extent appropriate, the

procedures imposed here parallel the statutory and regulatory

procedures governing mergers and consolidations between national banks

and state-chartered financial institutions.

EFFECTIVE DATE: This rule is effective on May 2, 1994.

FOR FURTHER INFORMATION CONTACT: Jerome L. Edelstein, Senior Counsel,

Corporate Organization and Resolutions Division, (202) 874-5300; Nancy

Cody, National Bank Examiner/Senior Analyst, Bank Organization and

Structure, (202) 874-5060, 250 E St. SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

Background

Sections 501(a) and 502(b) of title V of the FDICIA, Public Law

102-242, amended the National Bank Act, at 12 U.S.C. 215c, and the

Federal Deposit Insurance Corporation Act (FDI Act), at 12 U.S.C.

1815(d)(3), to authorize national banks, subject to certain

limitations, to acquire or be acquired by Federal savings associations.

Acquisitions, within the meaning of title V, include mergers and

consolidations in addition to purchase and assumption transactions.

Title V clearly authorizes national banks to merge or consolidate with

Federal savings associations if the transaction meets the requirements

set forth in title V.

The authority to merge or consolidate with Federal savings

associations, granted in Title V of FDICIA, supplements long-standing

national bank authority to merge or consolidate with other national

banks or with state chartered financial institutions, including savings

associations. National banks also have had the authority to engage in

purchase and assumption transactions with both Federal and state

chartered depository institutions, including savings associations.

The existing statutes permitting national bank consolidations and

mergers provide procedures for such activities including, under Federal

law at 12 U.S.C. 214(a), 214a, 215, and 215a, specific procedures for

shareholder approval and dissenter's rights for mergers and

consolidations between national banks and with state chartered banking

institutions. The FDICIA did not address such matters for mergers and

consolidations between national banks and Federal savings associations.

Thus, there is significant uncertainty about procedures for national

banks merging or consolidating with Federal savings associations.

Purpose

To address the uncertainty, the OCC, on November 3, 1992, published

an interim rule with request for comment. That rule established

procedures for national banks to merge or consolidate with Federal

savings associations (57 FR 49639). The interim rule, to the extent

appropriate, applied the statutory procedures for mergers and

consolidations between national banks and with state-chartered banking

institutions. The preamble to the interim rule as published at 57 FR

49639-49642 provided a complete explanation. In summary, these

procedures addressed:

--Approval by the board of directors of each institution proposing to

engage in such a merger or consolidation;

--Notice to and approval by the shareholders of such institutions;

--Rights of shareholders who dissent from the proposed transaction and

procedures for valuing their shares; and

--Succession of the resulting institution to all property and rights of

the consolidating or merging institutions.

In addition, the interim rule made various technical changes to 12

CFR Sec. 5.33 governing merger, consolidation, and purchase and

assumption transactions by national banks. These changes make it clear

that the provisions also apply to mergers and consolidations between

national banks and Federal savings associations. These provisions

include:

--The requirement that all participating depository institutions file

relevant proxy material or information with the OCC;

--The application of the OCC's policy on name changes when the

resulting bank selects a new title; and

--The OCC's option to examine any institution proposing to merge into

or be consolidated with a national bank and to charge the applicants a

fee for the examination.

Another change clarifies the authority of national banks to

temporarily retain nonconforming assets acquired in a merger or

consolidation with another depository institution.

The interim rule also provides that the OCC has no approval

authority over a merger or consolidation transaction where the

resulting institution is not a national bank. It requires a national

bank to notify the OCC when it intends to be merged or consolidated

into a depository institution with a different type of charter.

This final rule, adopted by the OCC pursuant to its authority under

the National Bank Act, including 12 U.S.C. 93a and 215c, finalizes the

interim rule. There is one change between the final rule and the

interim rule. The change, which addresses a national bank's retention

of nonconforming assets acquired in a merger or consolidation with

another banking institution, is discussed below.

Comments on the Interim Rule

The OCC received four comment letters on the interim rule--three

filed on behalf of banks and one filed by the Federal Home Loan Bank of

Atlanta (FHLB).

The comment filed by the FHLB concerned Sec. 5.33(b)(8) of the

interim rule, which states that the OCC may permit a national bank to

acquire nonconforming assets through merger (or consolidation) and

retain and carry those assets until they can be divested. The FHLB was

concerned that FHLB stock would have to be divested although the

resulting national bank intended to become an FHLB member. Subject to

OCC approval, a national bank may retain FHLB stock while it takes

actions necessary to become an FHLB member. The interim rule did not

require divestiture of FHLB stock under these circumstances.

Nevertheless, the OCC agrees that there could be confusion

regarding this requirement. Therefore, in this final rule, the OCC has

revised Sec. 5.33(b)(8) to reflect that the OCC may approve a national

bank to hold nonconforming assets for a reasonable time until such

assets can be made to conform.

One bank commenter was concerned that the interim rule

unintentionally required shareholder approval for branch purchases and

sales between national banks and Federal savings associations. The

commenter's concern arises because Sec. 5.33(b)(1) of the interim rule

indicates the term merger refers to a merger, consolidation, or

purchase and assumption, unless the context indicates otherwise. The

provision addressing shareholder approval requirements, 12 CFR 5.33(c),

however, specifically refers to mergers and consolidations, thus in

context, clearly indicating that the general definition of the term

``merger'' is inapplicable and that the shareholder approval provision

does not apply to branch purchases and sales. The OCC believes that

Sec. 5.33 (b)(1) and (c) are sufficiently clear and, therefore, is

adopting these provisions without change.

The two other bank commenters raised issues beyond the scope of

this rulemaking. One bank commenter dealt with the time period for

processing applications for mergers, consolidations, and purchase and

assumption transactions between national banks and various types of

banking institutions in light of certain provisions of the FDICIA. The

interim rule specifically did not address the scope or applicability of

the statutory timeframes; consequently, the OCC does not believe that

it is appropriate to address those issues in this final rule.

The other bank commenter dealt with procedures to affect mergers

and consolidations between national banks and mutual savings

associations. As stated, the purpose of the interim rule was simply to

apply existing statutory and regulatory procedures governing certain

national bank mergers and consolidations to mergers and consolidations

between national banks and Federal savings associations. The OCC will

continue to process applications where mutual savings associations

convert to the stock form of organization and subsequently merge or

consolidate with, or convert into a national bank.

Reasons for Immediate Effective Date

Because statutory law currently authorizes mergers and

consolidations between national banks and Federal savings associations,

and because the procedures in this final rule are already in effect,

the OCC finds that a delay in implementation is unnecessary. Moreover,

the OCC has made only one change from the interim rule. That change,

regarding retention of nonconforming assets, relieves a restriction.

Thus, this final rule is being adopted effective immediately.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act, the

Comptroller of the Currency certifies that this final rule will not

have a significant economic impact on a substantial number of small

entities. This final rule imposes only minimal costs on national banks,

regardless of size.

Executive Order 12866

It has been has determined that this document is not a significant

regulatory action as defined in Executive Order 12866.

List of Subjects in 12 CFR Part 5

Administrative practice and procedure, National banks, Reporting

and recordkeeping requirements, Securities.

Authority and Issuance

Accordingly, the interim rule amending 12 CFR part 5, published at

57 FR 49639-49644 on November 3, 1992, is adopted as a final rule with

the following change:

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

1. The authority citation for part 5 continues to read as follows:

Authority: 12 U.S.C. 1 et seq., 93a.

2. In Sec. 5.33, paragraph (b)(8) is revised to read as follows:

Sec. 5.33 Merger, consolidation, purchase and assumption.

* * * * *

(b) * * *

(8) Nonconforming assets. A national bank seeking to acquire and

retain nonconforming assets in a merger shall identify those assets as

required by the OCC's merger application. OCC, in its discretion, may

permit the bank to retain the assets for a reasonable time to allow it

to dispose of or conform the assets. Retention may be subject to

conditions and an OCC determination of the carrying value of the

retained assets.

* * * * *

Dated: April 25, 1994.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 94-10392 Filed 4-29-94; 8:45 am]

BILLING CODE 4810-33-P