FDIC Issues Procedures for Deposit Insurance Applications from Applicants that are Not Traditional Community Banks
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DEPOSIT INSURANCE APPLICATIONS
Procedures Manual Supplement
Applications from Non-Bank and Non-Community Bank Applicants
FDIC | Division of Risk Management Supervision | December 2019
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Table of Contents
TABLE OF CONTENTS
Topic
Page
Section I: Introduction
1
A. Definitions: Non-Bank and Non-Community Bank
1
B. Objectives in Identifying Non-Banks and Non-Community Banks
2
C. Draft Deposit Insurance Proposals
3
Section II: Application Processing
3
A. Application Review
3
B. Field Investigations
4
C. Statutory Factors
4
Financial History and Condition
5
Capital Adequacy
5
Future Earnings Prospects
6
General Character and Fitness of Management
7
Risk to the Deposit Insurance Fund
8
Convenience and Needs of Community to Be Served
8
Consistency of Corporate Powers
9
D. Approval Conditions
10
E. Written Agreements
11
Appendix 1: Types of Non-Banks and Non-Community Banks
13
Appendix 2: Review Considerations
17
Appendix 3: Prudential Conditions
19
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 1
Section I: Introduction
This Supplement expands upon certain topics covered in the FDIC’s Deposit Insurance
Applications Procedures Manual (DI Applications Manual). Specifically, it addresses issues that
case managers must consider when processing federal deposit insurance (FDI) applications from
non-bank and other non-community bank applicants whose business plans present
non-traditional elements. Staff should use this Supplement in conjunction with the DI
Applications Manual and the overview portion of the Applications Procedures Manual,1 which is
generally applicable to all filing types
t
case managers must consider when processing federal deposit insurance (FDI) applications from
non-bank and other non-community bank applicants whose business plans present
non-traditional elements. Staff should use this Supplement in conjunction with the DI
Applications Manual and the overview portion of the Applications Procedures Manual,1 which is
generally applicable to all filing types.
This Supplement is also intended to increase transparency to the industry and other interested
parties, clarify expectations for potential non-bank/non-community bank applicants, and promote
efficiency in the FDI application process. Users of this Supplement should review all applicable
statutes, rules, regulations, and policies for formal application requirements, including those
issued by the chartering authority, the primary federal regulator (PFR), and the FDIC if it is not
the PFR. Refer to the FDIC’s website for resources specific to FDI applications.
The FDIC welcomes FDI applications from all types of proposed insured depository institutions
(IDIs), and each application will be evaluated in the same manner. In all cases, the FDIC must
consider the statutory factors enumerated in Section 6 of the Federal Deposit Insurance Act (FDI
Act).2
A. Definitions: Non-Bank and Non-Community Bank
Most commonly, the FDIC receives applications to insure traditional community banks.3 In
general, traditional community banks focus on providing banking services, including loans and
core deposits, typically relied on by individuals and businesses in their local communities.4 The
FDIC also receives applications to insure proposed institutions that are not traditional community
banks and that may present added complexities or less frequently encountered elements with
regard to the business model, affiliate or third-party relationships, ownership or capital structure,
funding sources, balance sheet composition, revenue sources, or other strategic or operational
aspects
FDIC also receives applications to insure proposed institutions that are not traditional community
banks and that may present added complexities or less frequently encountered elements with
regard to the business model, affiliate or third-party relationships, ownership or capital structure,
funding sources, balance sheet composition, revenue sources, or other strategic or operational
aspects.
For purposes of this Supplement, proposed institutions that are not traditional community banks
are categorized according to the following general definitions:
1 Refer to Sections 1.1 through 1.11 of the Applications Procedures Manual.
2 The statutory factors are the institution’s financial history and condition; the adequacy of its capital structure; its
future earnings prospects; the general character and fitness of its management; the risk presented by the institution to
the Deposit Insurance Fund; the convenience and needs of the community to be served by the institution; and
whether the institution’s corporate powers are consistent with the purposes of the FDI Act.
3 References to “banks” or “institutions” in this Supplement include savings associations, unless otherwise noted.
4 Minority depository institutions (as defined in the FDIC Policy Statement Regarding Minority Depository
Institutions) and other institutions that are focused on serving a particular customer demographic based on race,
heritage, or other similar customer attributes often operate as traditional community banks. Therefore, such
institutions should be considered traditional community banks unless one or more characteristics of a
non-community bank are identified.
ment Regarding Minority Depository
Institutions) and other institutions that are focused on serving a particular customer demographic based on race,
heritage, or other similar customer attributes often operate as traditional community banks. Therefore, such
institutions should be considered traditional community banks unless one or more characteristics of a
non-community bank are identified.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 2
• Non-Bank: an IDI that is a “bank” for purposes of the FDI Act, but is not a “bank” for
purposes of the Bank Holding Company Act (BHCA).5 These include industrial banks and
industrial loan companies (ILCs), trust and credit card banks organized under the
Competitive Equality Banking Act (CEBA), and potentially other institutions (including, for
example, municipal deposit banks). Non-banks may be owned by parent companies that are
not subject to the BHCA; therefore, the parent companies are not regulated or supervised by
the Federal Reserve Board (FRB).
• Non-Community Bank: an IDI that may, in contrast to a traditional community bank, (1)
focus on products, services, activities, market segments, funding, or delivery channels other
than local lending and deposit taking; (2) pursue a broad geographic footprint (such as
operating nationwide from a limited number of offices); (3) pursue a monoline, limited, or
specialty business model;6 or (4) operate within an organizational structure that involves
significant affiliate or other third-party relationships (other than common relationships such
as those providing audit, human resources, or core information technology processing
services). A non-community bank may or may not operate under a non-bank charter.
Refer to Appendix 1 for additional details regarding the various types of proposed IDIs that may
be considered non-banks or non-community banks depending on their characteristics.
B
hips (other than common relationships such
as those providing audit, human resources, or core information technology processing
services). A non-community bank may or may not operate under a non-bank charter.
Refer to Appendix 1 for additional details regarding the various types of proposed IDIs that may
be considered non-banks or non-community banks depending on their characteristics.
B. Objectives in Identifying Non-Banks and Non-Community Banks
Early in the FDI application process, the case manager should identify whether the applicant is a
proposed non-bank or non-community bank. Due to their nature and complexity, such proposals
may necessitate more in-depth application review and investigation processes, and require action
at the Washington Office (WO) level, consistent with the FDIC’s delegations of authority.7
Further, the case manager should determine whether the application involves a de novo
institution with no existing operations, or a new institution that would be created from the
conversion of all or part of an existing operating non-insured entity. If the institution is
established through the full or partial conversion of an operating entity, the FDIC’s evaluation of
the statutory factors will consider the historical and current activities, operations, performance,
condition, stability, and risk profile of the entity. If applicable, these items will also be
considered with respect to the entity’s parent company and any other significant affiliates.
The FDIC generally imposes non-standard conditions specific to the unique nature of these
institutions in approving an application for a proposed non-bank or non-community bank. The
non-standard conditions may, among other items, require the execution of written agreements.
Refer to Section II of this Supplement for further details regarding approval conditions and
written agreements
tes.
The FDIC generally imposes non-standard conditions specific to the unique nature of these
institutions in approving an application for a proposed non-bank or non-community bank. The
non-standard conditions may, among other items, require the execution of written agreements.
Refer to Section II of this Supplement for further details regarding approval conditions and
written agreements.
5 Existing insured non-banks include institutions that are controlled by parent organizations engaged in a variety of
commercial activities, including manufacturing and retail activities.
6 Specialty (sometimes referred to as “niche”) proposals are less-diversified and usually considered
“non-community” in nature given the anticipated concentrated business focus or emphasis on specialized activities.
7 The FDIC’s delegations of authority for FDI applications and other filings are included in a Matrix on the FDIC’s
public website and in Board Resolution 071098, dated December 3, 2002.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 3
As necessary, the case manager should promptly seek analytical or technical support from
specialists within the Division of Risk Management Supervision (RMS), the Division of
Depositor and Consumer Protection (DCP), and the Legal Division (Legal). Other FDIC
divisions or offices may also be consulted as circumstances warrant.8 The use of specialists may
be particularly helpful in assisting with the review of business or asset valuations, legal opinions,
servicing contracts, employment agreements, stock benefit plans, Community Reinvestment Act
(CRA) plans, information technology (IT) strategies, Bank Secrecy Act (BSA)/anti-money
laundering (AML) programs, accounting matters, or other relevant items.
C
warrant.8 The use of specialists may
be particularly helpful in assisting with the review of business or asset valuations, legal opinions,
servicing contracts, employment agreements, stock benefit plans, Community Reinvestment Act
(CRA) plans, information technology (IT) strategies, Bank Secrecy Act (BSA)/anti-money
laundering (AML) programs, accounting matters, or other relevant items.
C. Draft Deposit Insurance Proposals
During pre-filing discussions, the case manager should inform the organizers of a non-bank or
non-community bank of the FDIC’s process for reviewing draft deposit insurance proposals.
This voluntary process, which is expected to be particularly beneficial for business models that
present novel, unusual, or complex aspects, allows prospective organizers the option to request
FDIC review of a draft deposit insurance proposal prior to filing an official application. The
draft review process is meant to identify any obstacles or potential challenges that may require
further supporting detail or considerations before the organizers file a formal application.
Section II: Application Processing
A. Application Review
The application materials for a proposed non-bank or non-community bank, including the
business plan, may require more detailed descriptive information, support, and analysis (when
compared to a proposed community bank) given the contemplated strategies and the potential for
significant parent or affiliate transactions/influences. In cases involving an operating
non-insured entity, the FDIC will review and assess current and historical information regarding
the entity and, if applicable, the parent company and any other significant affiliates.
In reviewing a non-bank or non-community bank proposal, the case manager should:
• Develop an understanding of any unusual complexities, the types and degree of risks
presented, and any mitigating information
-insured entity, the FDIC will review and assess current and historical information regarding
the entity and, if applicable, the parent company and any other significant affiliates.
In reviewing a non-bank or non-community bank proposal, the case manager should:
• Develop an understanding of any unusual complexities, the types and degree of risks
presented, and any mitigating information.
• Ensure that sufficient information has been provided to evaluate each of the statutory factors
(as well as the considerations required by the National Historic Preservation Act and the
National Environmental Protection Act) and to commence the field investigation.9
• Confirm that sufficient information has been provided regarding the structure, corporate
governance, operations, condition, and performance of the parent organization as a whole.
This would include organizational charts depicting all legal entities and affiliations,
8 For example, the Division of Insurance and Research or the Division of Resolutions and Receiverships may be
contacted to obtain research or historical data, or to provide input on specific elements of a proposal.
9 The FDIC will issue a letter to the applicant within 30 to 45 days of application receipt to communicate whether
the application is substantially complete and accepted for processing, or whether additional information is necessary.
The letter for a non-bank or non-community bank proposal may take up to 45 days to issue depending on the matters
presented. Unless otherwise limited by the delegations of authority, the Regional Office may deem an FDI
application substantially complete.
communicate whether
the application is substantially complete and accepted for processing, or whether additional information is necessary.
The letter for a non-bank or non-community bank proposal may take up to 45 days to issue depending on the matters
presented. Unless otherwise limited by the delegations of authority, the Regional Office may deem an FDI
application substantially complete.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 4
descriptive and financial information regarding each entity within the control framework, and
sufficient documentation regarding service providers and third party vendors.10
• Verify that, as appropriate, the business plan includes alternative scenarios that provide
meaningful stress tests of earnings and capital projections.
• Ascertain whether the application provides adequate support (including a feasibility study, if
requested) to demonstrate that the proposed institution has a reasonable chance of success
considering the economic environment, competitive landscape, and other relevant internal
and external aspects.11
Refer to Appendix 2 for a detailed list of questions that the case manager should consider during
the application review process. Due to the unique characteristics and the various items that may
require more in-depth review, the overall processing time for an FDI application from a proposed
non-bank or non-community bank is expected to exceed the FDIC’s 120-day processing goal.
B
ts.11
Refer to Appendix 2 for a detailed list of questions that the case manager should consider during
the application review process. Due to the unique characteristics and the various items that may
require more in-depth review, the overall processing time for an FDI application from a proposed
non-bank or non-community bank is expected to exceed the FDIC’s 120-day processing goal.
B. Field Investigations
The field investigation for a non-bank or non-community bank should be specifically tailored to
the unique aspects of the proposal.12 Field investigations for proposed non-banks and
non-community banks that have existing operations will be similar to an examination, and as
appropriate, will include sampling of existing loan or investment files, review of credit scoring
and underwriting models, a comprehensive evaluation of the existing IT framework and
infrastructure, transaction testing, review of parent or affiliate operations, and targeted reviews of
specialized business lines or functions.
C. Statutory Factors
Based on the review of the application and the results of the field investigation, the case manager
must determine whether each statutory factor is found to be favorable; favorable, subject to
conditions; or unfavorable. These determinations will be documented in a Summary of
Investigation (SOI), which will also convey a recommended action on the application.13 The
case manager should refer to the Statement of Policy on Applications for Deposit Insurance
(SOP-ADI) for detailed information with regard to each statutory factor. In addition, the
following items should be considered when assessing the statutory factors for FDI applications
from proposed non-banks or non-community banks.
10 The documentation should be sufficient to allow the FDIC to assess conformance with Section 23A and Section
23B of the Federal Reserve Act, Regulation W, and Section 106 of the BHCA (anti-tying provisions)
d be considered when assessing the statutory factors for FDI applications
from proposed non-banks or non-community banks.
10 The documentation should be sufficient to allow the FDIC to assess conformance with Section 23A and Section
23B of the Federal Reserve Act, Regulation W, and Section 106 of the BHCA (anti-tying provisions).
11 Narrowly focused or novel proposals should include clearly defined strategic alternatives for redirecting efforts,
which may include self-liquidation, if the business plan proves unsuccessful.
12 Field investigations are generally conducted for all FDI applications except those involving an interim institution,
a federal savings association proposing to convert into more than one insured institution, a state-chartered bank
proposing to continue its insured status upon withdrawal from the Federal Reserve System, or an application subject
to expedited processing. Waivers of the field investigation for any other type of FDI application should be rare.
Field investigations are to be completed within 60 days of the application being deemed substantially complete.
13 Refer to Section 1.2 of the Applications Procedures Manual for instruction on completing the SOI.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 5
Financial History and Condition
If the proposed non-bank or non-community bank is an operating non-insured entity, the FDIC
will consider the entity’s operational activities and performance record when evaluating the
financial history and condition statutory factor. Generally, the financial and other background
information on the entity should cover at least three years unless the operating history is shorter
nd Condition
If the proposed non-bank or non-community bank is an operating non-insured entity, the FDIC
will consider the entity’s operational activities and performance record when evaluating the
financial history and condition statutory factor. Generally, the financial and other background
information on the entity should cover at least three years unless the operating history is shorter.
The information usually will include audited financial statements and provide details regarding
any deferred tax assets or liabilities, intangible assets, contingent liabilities, and any recent or
pending legal or regulatory actions.14 The case manager should request such information if it is
not provided within the application and develop appropriate follow-up questions if the
information discloses potential issues or concerns from a safety and soundness or consumer
protection perspective. Refer to the Capital Adequacy section below for discussion regarding
valuations on operating non-insured entities.
The review of financial and other background information on the parent organization (including
any significant affiliates) is also an important consideration when assessing the ability of the
proponents to provide financial support to the proposed institution. The parent organization is
required as a matter of law to serve as a source of financial strength to any subsidiary IDI.15 As
such, the case manager should consider whether any identified issues regarding the parent’s
financial condition, performance, compliance/regulatory history, or other pertinent matters could
raise concerns with regard to the ability to find favorably on this statutory requirement, other
statutory factors such as risk to the Deposit Insurance Fund (DIF), or the parent’s ability to enter
into (and whenever necessary, perform under) any required written agreements
regarding the parent’s
financial condition, performance, compliance/regulatory history, or other pertinent matters could
raise concerns with regard to the ability to find favorably on this statutory requirement, other
statutory factors such as risk to the Deposit Insurance Fund (DIF), or the parent’s ability to enter
into (and whenever necessary, perform under) any required written agreements.
Capital Adequacy
Proposed non-banks and non-community banks must provide initial capital commensurate with
the risk inherent in the type of business to be conducted and the planned business growth.
Consistent with the SOP-ADI, the case manager is to determine whether initial capital (for any
proposed institution) is sufficient to provide a tier 1 capital-to-assets leverage (T1C) ratio of at
least 8 percent throughout the first three years of operation, and reflect an adequate allowance for
loan and lease losses (ALLL).16 Institutions with higher risk profiles may be required to
maintain a T1C ratio greater than 8 percent. As appropriate, and depending on the institution’s
14 Unless waived in writing by the FDIC, the operating entity shall have a full scope audit conducted by an
independent public accountant prior to submitting an application and shall submit a copy of the auditor’s report as
part of the application.
15 Refer to Section 38A of the FDI Act.
16 In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, Topic
326, Financial Instruments—Credit Losses (ASU No. 2016-13), which revises the accounting for credit losses under
U.S. generally accepted accounting principles (U.S. GAAP). ASU No. 2016-13 introduces the current expected
credit losses (CECL) methodology to replace the incurred loss methodology
e 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13, Topic
326, Financial Instruments—Credit Losses (ASU No. 2016-13), which revises the accounting for credit losses under
U.S. generally accepted accounting principles (U.S. GAAP). ASU No. 2016-13 introduces the current expected
credit losses (CECL) methodology to replace the incurred loss methodology. Under the CECL methodology,
allowances for credit losses (ACL) cover a broader range of financial assets than allowances for loan and lease
losses under the incurred loss methodology. The effective date of ASU No. 2016-13 is either fiscal years beginning
after December 15, 2019, or fiscal years beginning after December 31, 2022. While the term ALLL is used in this
Supplement, proposed institutions may prepare their financial projections using either ACL or an ALLL depending
on their anticipated CECL adoption date. All institutions must adopt CECL beginning in 2023.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 6
risk profile, the FDIC may establish additional capital requirements based on common equity,
tier 1 risk-based, and/or total risk-based capital.17
For certain proposed non-banks and non-community banks, the aforementioned (traditional)
capital ratios may not fully reflect the proposed institution’s inherent risks given balance sheet
concentrations, significant off-balance sheet activities, or other risks not accounted for in
traditional capital measures. In such cases, the case manager should request that the applicant
provide an analysis or methodology supporting how the appropriateness of the proposed capital
levels was determined, and how the applicant would monitor capital adequacy once insured. The
analysis/methodology should consider all significant on- and off-balance sheet risks, any
concentration exposure, and any other significant risk elements
s, the case manager should request that the applicant
provide an analysis or methodology supporting how the appropriateness of the proposed capital
levels was determined, and how the applicant would monitor capital adequacy once insured. The
analysis/methodology should consider all significant on- and off-balance sheet risks, any
concentration exposure, and any other significant risk elements.
The case manager should verify that each non-bank or non-community bank proposal presents a
transparent equity structure with no features that could adversely impact the institution or future
capital raising efforts. Further, the case manager should confirm that each class of stock will be
sold at the same price and with the same voting rights, that all capital for the de novo period (first
three years) will be raised through stock sales prior to commencing operations (i.e., there will be
no follow-on or pay-as-you grow capital raises), and that any cash dividends reflected in the pro
forma financial statements will be paid only from cumulative net operating income and only if
overall capital and the ALLL are adequate.
The parent company (or companies) and/or control parties of a non-bank or non-community
bank may be required to enter written agreements that include specific capital provisions to
mitigate structural or operational risks not posed by traditional community banks. Refer to the
section on Written Agreements for additional details.
If the proposed institution is an operating non-insured entity, a significant portion of the initial
capitalization may be based on the value of that entity. Consequently, the case manager should
request that the applicant provide at least two independent appraisals of the company’s fair
market value. The appraisals should be no more than six months old and should be based on
recognized valuation methods in accordance with U.S. GAAP
g non-insured entity, a significant portion of the initial
capitalization may be based on the value of that entity. Consequently, the case manager should
request that the applicant provide at least two independent appraisals of the company’s fair
market value. The appraisals should be no more than six months old and should be based on
recognized valuation methods in accordance with U.S. GAAP. If the application involves the
transfer of assets (but not the full business) to a proposed institution, the case manager should
confirm that the value of the assets (e.g., real estate, fixed assets, loans, and/or leases) is
supported by an independent appraisal or market valuation. Any material discrepancies or
differences in value between the book and market value of equity or assets should be
communicated to, and appropriately reconciled and resolved by, the applicant.
17 In September 2019, the FDIC approved a Final Rule that allows qualifying institutions to use an optional
community bank leverage ratio (CBLR) framework for calculating and reporting regulatory capital ratios.
Qualifying institutions include those with 1) less than $10 billion in average total consolidated assets (ATCA), 2)
off-balance sheet exposures of 25 percent or less of ATCA, and 3) trading assets plus trading liabilities of 5 percent
or less of ATCA, provided the institution does not apply the advanced approaches capital framework. Proposed
institutions that seek to use the CBLR framework should discuss the matter with FDIC staff during the pre-filing
process.
rage total consolidated assets (ATCA), 2)
off-balance sheet exposures of 25 percent or less of ATCA, and 3) trading assets plus trading liabilities of 5 percent
or less of ATCA, provided the institution does not apply the advanced approaches capital framework. Proposed
institutions that seek to use the CBLR framework should discuss the matter with FDIC staff during the pre-filing
process.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 7
Future Earnings Prospects
All FDI applications should demonstrate that the institution has a reasonable chance to achieve
and sustain adequate profitability within a reasonable time period (normally three years).
The case manager should consider whether future earnings prospects are highly reliant on
relationships with the parent company or any affiliates, and whether the applicant has developed
adequate plans to address any potential interruptions in such relationships. The case manager
should also assess whether any income sources may be non-recurring, cyclical in nature, or
vulnerable to economic cycles or other pressures due to a lack of diversification. Examples
include concentrated businesses that could be vulnerable to recession or competition, such as
credit card banks, subprime lenders, payment systems specialists, and taxi medallion lenders.
Sensitivity analysis of the financial projections may be particularly useful in the review of
non-bank/non-community proposals as they allow the case manager to assess effects of
competitive forces; adverse changes in interest rates; changes in the asset/liability mix; or higher
than expected operating expenses, marketing costs, and/or growth rates.
General Character and Fitness of Management
As with any proposed institution, the director and officer candidates must be fit to serve in their
respective roles
osals as they allow the case manager to assess effects of
competitive forces; adverse changes in interest rates; changes in the asset/liability mix; or higher
than expected operating expenses, marketing costs, and/or growth rates.
General Character and Fitness of Management
As with any proposed institution, the director and officer candidates must be fit to serve in their
respective roles. The case manager should assess whether each senior executive officer has
experience commensurate with their assigned duties and the proposed business model. While
certain individuals may not have banking experience, each proposed individual should have a
relevant business background or prior experience in a comparable position in a regulated
operating environment.
In addition to identifying a proposed full-time chief executive officer (CEO) and certain other
traditional key executive officers (such as a chief financial officer, chief lending officer, chief
operating officer, et al.), applicants pursuing non-bank or non-community bank business models
often establish additional customized management positions (e.g., officers that may oversee
specific risk management, operational, or technological functions relative to the business model
and the anticipated products and services, markets, and activities).18
As noted in the FDIC’s publication, Applying for Deposit Insurance, A Handbook for Organizers
of De Novo Institutions (DI Handbook), the FDIC typically requires the majority of the board of
directors to consist of independent directors. An independent director is generally defined as a
director that is (a) not a principal, member, officer, or employee of the institution, and (b) not a
principal, member, director, officer, or employee of any affiliate or principal shareholder
rganizers
of De Novo Institutions (DI Handbook), the FDIC typically requires the majority of the board of
directors to consist of independent directors. An independent director is generally defined as a
director that is (a) not a principal, member, officer, or employee of the institution, and (b) not a
principal, member, director, officer, or employee of any affiliate or principal shareholder.
For any application that contemplates individuals serving in dual roles at the proposed institution
and the parent company (or other affiliates), the case manager should confirm that the
application specifically indicates which individuals would perform in dual capacities and the
percentages of time that would be devoted to responsibilities inside and outside the institution.
These relationships should be governed by written agreements, and appropriate policies and
18 The CEO must be identified in the application; other senior officers may be identified at the time of filing the
application or shortly thereafter (prior to the FDIC commencing the field investigation).
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
Page 8
procedures. The case manager should assess whether each proposed director and officer will be
sufficiently independent, and will be able to devote appropriate time and attention to fulfill their
anticipated duties given the broader business activities of the parent organization and the
potential conflicts of interest in serving in dual roles.
The review of this statutory factor must also consider whether the risk management framework is
adequate given the non-bank or non-community bank business model
endent, and will be able to devote appropriate time and attention to fulfill their
anticipated duties given the broader business activities of the parent organization and the
potential conflicts of interest in serving in dual roles.
The review of this statutory factor must also consider whether the risk management framework is
adequate given the non-bank or non-community bank business model. This includes
considering, among other items, the adequacy of the following: the overall corporate governance
and staffing structure; BSA/AML, compliance, CRA, and IT programs; operating policies
(including the established risk tolerance limits); affiliate relationships; vendor/third-party
management; compensation arrangements; fidelity insurance; and audit coverage.
Risk to the Deposit Insurance Fund
The FDIC interprets risk to the DIF broadly. In evaluating this factor, the case manager should
consider any available information regarding the proposed non-bank or non-community bank,
including its business plan and financial projections. Any items that raise significant concerns
regarding the institution’s anticipated risk profile will unfavorably impact the finding for this
factor. Business plans that rely on high-risk lending, a special purpose market, significant
funding from sources other than core deposits, or that otherwise diverge from conventional
banking services typically require detailed supporting documentation and more in-depth analysis
to determine the risk inherent in the proposed institution’s activities, as well as any mitigating
information or circumstances.
Risk to the DIF increases as the degree of dependence on the parent company or affiliates
expands, particularly with respect to the primary business functions of the proposed institution
pically require detailed supporting documentation and more in-depth analysis
to determine the risk inherent in the proposed institution’s activities, as well as any mitigating
information or circumstances.
Risk to the DIF increases as the degree of dependence on the parent company or affiliates
expands, particularly with respect to the primary business functions of the proposed institution.
Further, parent company and affiliate relationships may present additional risks beyond those
considered in the financial history and condition factor, particularly in situations where the
proposed institution does not present a viable business model on a standalone basis. The
proposed non-bank or non-community bank is expected to possess a sufficiently independent
board and management team, and have a sustainable financial structure. The case manager
should consider the following items in assessing the overall impact of the parent organization:
• The organization’s business purpose for establishing the proposed institution.
• The history of regulatory and consumer compliance, including the status of any significant
pending or outstanding enforcement actions, investigations, administrative matters, or
contingent liabilities.
• The supervisory record of any existing entities regulated by the federal banking agencies.
• The duration/seasoning of the organization’s business, and the extent to which new or
innovative processes are being implemented or utilized.
• The accessibility of information, including the books and records of any affiliated domestic
or foreign entities.
• Any mechanisms, plans, or processes that mitigate risks presented by the organization.
Concerns identified with respect to any of the other statutory factors may also be incorporated
into the assessment of the risk to the DIF factor. Further, the case manager may consider any
element of the proposal that poses risk but is not specifically associated with another factor. For
entities.
• Any mechanisms, plans, or processes that mitigate risks presented by the organization.
Concerns identified with respect to any of the other statutory factors may also be incorporated
into the assessment of the risk to the DIF factor. Further, the case manager may consider any
element of the proposal that poses risk but is not specifically associated with another factor. For
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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example, issues or concerns regarding liquidity, the composition or stability of the deposit base,
or funding characteristics may be addressed within the assessment of the risk to the DIF factor.
Convenience and Needs of the Community to Be Served
All proposed non-banks and non-community banks, regardless of their specific business model,
must meet CRA requirements and serve the financial needs of their community. Applications
may propose that the institution be evaluated based on one of several methods that consider the
institution’s asset size19 or business model. The recognized methods derived from asset size
include small bank, intermediate small bank, or large bank. The business model methods include
a wholesale or limited purpose designation or the option to be evaluated based on a CRA
strategic plan.20 In order for the FDIC to assess this factor, the case manager should confirm that
the applicant has clearly defined the community the institution intends to serve, provided
sufficient information on that community,21 and described the institution’s anticipated services in
relation to the needs of the community to be served.
The case manager will rely on input from DCP in evaluating this factor
order for the FDIC to assess this factor, the case manager should confirm that
the applicant has clearly defined the community the institution intends to serve, provided
sufficient information on that community,21 and described the institution’s anticipated services in
relation to the needs of the community to be served.
The case manager will rely on input from DCP in evaluating this factor. DCP will review the
application, the proposed institution’s CRA plan, and other relevant information (including the
proposed primary trade area and pertinent economic, demographic, and competitive data) to
evaluate this factor and determine if the proposed business strategy, assessment area(s), products
and services, policies, and other related elements of the proposal fulfill the institution’s
obligations and requirements as provided through the CRA and relevant regulations. The
proposed institution’s CRA documentation, including any applicable public file information,
must be prepared in accordance with the requirements of the PFR.
Consistency of Corporate Powers
The FDIC will evaluate whether the proposed institution’s corporate powers are consistent with
the purposes of the FDI Act. Pursuant to Section 24 of the FDI Act, no insured state bank may
engage as principal in any type of activity that is not permissible for a national bank,22 unless the
FDIC has determined that the activity would pose no significant risk to the DIF and the state
bank is, and continues to be, in compliance with applicable capital standards prescribed by its
PFR. Section 28 of the FDI Act provides similar requirements for state-chartered savings
associations.
19 The Federal Financial Institutions Examination Council (FFIEC) releases adjusted asset thresholds annually. This
information is available at www.ffiec.gov
be, in compliance with applicable capital standards prescribed by its
PFR. Section 28 of the FDI Act provides similar requirements for state-chartered savings
associations.
19 The Federal Financial Institutions Examination Council (FFIEC) releases adjusted asset thresholds annually. This
information is available at www.ffiec.gov.
20 An institution may be designated as wholesale/limited purpose following submission of a written request to, and
approval from, its PFR. The regulations permit any institution to develop and submit a strategic plan (Plan) for
addressing its responsibilities with respect to CRA. A Plan enables the institution to tailor its CRA goals and
objectives to address the needs of its community consistent with its business strategy, operational focus, and
capacity and constraints. The required contents of the Plan and the FDIC’s evaluation criteria are set forth in Part
345.27 of the FDIC Rules and Regulations.
21 The primary considerations with regard to this factor are the deposit and credit needs of the community to be
served, the nature and extent of the opportunity available to the applicant in the proposed location, and the
willingness and ability of the applicant to serve those financial needs.
22 Corporate powers of national banks are set forth in Section 24 of Title 12 of the U.S. Code, and the powers of
federal savings associations are set forth in Section 1464 of Title 12 of the U.S. Code.
ity to be
served, the nature and extent of the opportunity available to the applicant in the proposed location, and the
willingness and ability of the applicant to serve those financial needs.
22 Corporate powers of national banks are set forth in Section 24 of Title 12 of the U.S. Code, and the powers of
federal savings associations are set forth in Section 1464 of Title 12 of the U.S. Code.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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Part 362 of the FDIC Rules and Regulations further discusses the activities of insured state banks
and savings associations.23 In addition, proposed institutions intending to exercise trust powers
must obtain approval from the chartering authority and prior consent from the FDIC under Part
303 of the FDIC Rules and Regulations (as part of the FDI application).24
In order to favorably resolve this factor, it must be determined that the proposed non-bank or
non-community bank does not plan to engage as principal in any impermissible activity without
the FDIC’s prior approval under Section 24 or Section 28 of the FDI Act. The case manager
should review the relevant portions of the application and the business plan, including the
articles of incorporation, bylaws, and other applicable organizational documents, to determine
the extent of the proposed institution’s anticipated corporate powers and activities.
If questions or potential concerns exist regarding the permissibility of the proposed activities, the
case manager should inform Regional Office (RO) management and discuss the matter with
Legal. As necessary, the FDIC may request that the applicant provide a formal legal opinion.
D. Approval Conditions
The FDIC imposes certain conditions on all institutions that are granted deposit insurance. Refer
to Appendix 2 of the DI Handbook for a list of conditions frequently included in FDI Orders
se manager should inform Regional Office (RO) management and discuss the matter with
Legal. As necessary, the FDIC may request that the applicant provide a formal legal opinion.
D. Approval Conditions
The FDIC imposes certain conditions on all institutions that are granted deposit insurance. Refer
to Appendix 2 of the DI Handbook for a list of conditions frequently included in FDI Orders. In
addition to standard conditions, the FDIC may impose non-standard conditions on a case-by-case
basis. Non-standard conditions are used when the FDIC determines that additional controls are
appropriate or necessary to mitigate risks unique to the proposal. The FDIC may also impose
non-standard conditions to ensure that actions or activities in process at the time of approval are
completed before deposit insurance becomes effective. Unlike standard conditions, which may
be imposed unilaterally without seeking the applicant’s written agreement, non-standard
conditions must be agreed to in writing by the applicant.25
When evaluating a non-bank or non-community bank proposal, the case manager should
consider whether any non-standard conditions are appropriate. The non-standard conditions may
address any relevant aspects including, but not limited to, corporate relationships, notification of
business plan changes, operational or office expansion, capital levels, management authority and
independence, directors or officer selection or approval, employment agreements and stock
options plans, CRA plans, and other applicable matters. Most non-standard conditions do not
exceed the three-year de novo period. However, certain conditions may be imposed for any
length of time deemed necessary to mitigate risk. Any contemplated non-standard conditions,
including those involving written agreements, should be discussed with RO management and RO
Legal, and as applicable, the WO and other division representatives
licable matters. Most non-standard conditions do not
exceed the three-year de novo period. However, certain conditions may be imposed for any
length of time deemed necessary to mitigate risk. Any contemplated non-standard conditions,
including those involving written agreements, should be discussed with RO management and RO
Legal, and as applicable, the WO and other division representatives.
Historically, the FDIC has imposed a set of prudential conditions in conjunction with approving
certain non-bank or non-community bank proposals. These proposals include FDI applications
23 As part of the certifications made in the Application Form, applicants certify that the proposed institution will not
engage in any impermissible activities after FDI has been granted absent FDIC approval.
24 In the context of an FDI application, the FDIC considers whether to consent to the exercise of trust powers as part
of its evaluation of the statutory factors enumerated in Section 6 of the FDI Act.
25 If non-standard conditions are warranted and not agreed to by the applicant, the application must be forwarded to
the WO for final disposition by the FDIC Board of Directors.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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for an IDI that would be owned by a commercial or financial company (often applicable to non-
banks), would be significantly involved in transactions or relationships with the parent company
or any affiliates, or would present other unique characteristics warranting prudential conditions
beyond those routinely imposed in approving community bank proposals. Refer to Appendix 3
of this Supplement for a current list of possible prudential conditions.
E. Written Agreements
The FDIC may impose non-standard conditions that require the institution and/or other
applicable parties (such as certain affiliates or investors) to enter into a written agreement
prudential conditions
beyond those routinely imposed in approving community bank proposals. Refer to Appendix 3
of this Supplement for a current list of possible prudential conditions.
E. Written Agreements
The FDIC may impose non-standard conditions that require the institution and/or other
applicable parties (such as certain affiliates or investors) to enter into a written agreement.
Written agreements provide a supplemental tool that may address specific risks or supervisory
matters with regard to a proposed institution, and have been used in conjunction with approving
FDI applications and certain other types of filings.26 Written agreements may include parent
company agreements, Capital and Liquidity Maintenance Agreements (CALMAs), operating
agreements, and passivity agreements.
Generally, parent company agreements and CALMAs have been used in cases in which the
organizational structure includes parent companies not subject to FRB supervision (i.e., parents
of non-bank banks). The agreements are intended to address the risks that may be present due to
the lack of bank or savings and loan holding company supervision by the FRB, the potentially
wide scope of parent company or affiliate operations (which may include commercial activities),
the inter-dependence on affiliated entities for key business functions or processes, and dual roles
within the organization. Parent company agreements and CALMAs generally include provisions
under which the FDIC may pursue formal enforcement action under Section 8 of the FDI Act if a
party fails to comply with provisions of an agreement. These agreements are generally executed
by the FDIC, the institution, and the parent company (or companies).27
Parent company agreements may address a variety of circumstances regarding supervision,
corporate governance, and the control exercised over the IDI, and will include consent to
examination by the FDIC
on 8 of the FDI Act if a
party fails to comply with provisions of an agreement. These agreements are generally executed
by the FDIC, the institution, and the parent company (or companies).27
Parent company agreements may address a variety of circumstances regarding supervision,
corporate governance, and the control exercised over the IDI, and will include consent to
examination by the FDIC. Among other items, a parent company agreement may help ensure
that the institution’s board and executive officers are independent of the parent company and any
affiliates, that the institution operates under a separate and distinct business plan, and that the
institution maintains separate books and records that adhere to U.S. GAAP.
CALMAs formally establish definitive commitments under which the parent company is
required to provide any necessary capital or liquidity support to the proposed institution.
CALMAs will normally require that all capital contributions be in the form of cash unless other
assets are approved. Liquidity provisions in CALMAs may require financial support to meet any
ongoing liquidity obligations, as well as the establishment of a line of credit by the parent
company that can be drawn upon at the option of the institution. CALMAs are often executed in
conjunction with parent company agreements and have been used in cases involving non-bank
banks and foreign ownership or control.
26 Written agreements are assumed to be perpetual. The FDIC, at its discretion, may consider requests to modify or
terminate a written agreement if material changes in circumstances occur, such as the sale of the institution or the
sale of an investor’s interest in the institution.
27 The RMS Director will typically execute written agreements on behalf of the FDIC.
26 Written agreements are assumed to be perpetual. The FDIC, at its discretion, may consider requests to modify or
terminate a written agreement if material changes in circumstances occur, such as the sale of the institution or the
sale of an investor’s interest in the institution.
27 The RMS Director will typically execute written agreements on behalf of the FDIC.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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Operating agreements have been used in limited cases to address certain risks or concerns
regarding a proposed business model, primarily with respect to a proposed niche institution. The
intent of an operating agreement is to ensure that the institution’s risk profile, growth, activities,
and business relationships (including any relationships with affiliates) remain within the
parameters established in an otherwise acceptable business plan. Operating agreements are
generally executed by the institution and the FDIC.
Passivity agreements have been entered into with investors seeking to rebut the presumption of
control under Section 303.82 (Subpart E) of the FDIC Rules and Regulations. Generally, such
investors seek to control, directly or indirectly, the power to vote at least 10 percent, but less than
25 percent, of the institution’s outstanding shares. In cases involving parent companies not
supervised by the FRB, the FDIC will evaluate the extent of control at the parent company level.
Passivity agreements may address matters such as business transactions and relationships
between the investor and the insured institution, as well as the investor’s use of the control
position to influence the institution’s management or policies. Passivity agreements are
generally executed by the FDIC and the subject investor
will evaluate the extent of control at the parent company level.
Passivity agreements may address matters such as business transactions and relationships
between the investor and the insured institution, as well as the investor’s use of the control
position to influence the institution’s management or policies. Passivity agreements are
generally executed by the FDIC and the subject investor.
The case manager should consider whether the organizational structure, parental or affiliate
relationships, nature or complexity of the business model, or circumstances involving certain
investors warrant the use of one or more written agreements. If a written agreement is
contemplated, the case manager should discuss the matter with RO management and RO Legal,
and as appropriate, consult with the WO. Notwithstanding the historical use of certain types of
agreements, the FDIC may deem any type of agreement as appropriate depending on the risk
attributes of the non-bank or non-community bank. Nevertheless, agreements are not a substitute
for comprehensive investigation of the parent organization, and should not be used as a means to
favorably resolve statutory factors or circumstances that are otherwise unfavorable. The
authority to enforce any written agreement is vested in the PFR.
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Appendix 1: Types of Non-Banks and Non-Community Banks28
Non-Bank: an IDI that is a “bank” for purposes of the FDI Act, but is not a “bank” for purposes of the
BHCA. Existing insured non-banks include institutions that are controlled by parent organizations
engaged in a variety of commercial activities, including manufacturing and retail activities. Non-banks
may be owned by parent companies that are not subject to the BHCA; therefore, the parent companies are
not regulated or supervised by the FRB
e FDI Act, but is not a “bank” for purposes of the
BHCA. Existing insured non-banks include institutions that are controlled by parent organizations
engaged in a variety of commercial activities, including manufacturing and retail activities. Non-banks
may be owned by parent companies that are not subject to the BHCA; therefore, the parent companies are
not regulated or supervised by the FRB.
Types of Non-Banks
Key Features
ILCs
•
ILCs operate under state charters with the FDIC as PFR. There are a
limited number of states that charter ILCs.29
•
ILCs typically conduct business nationwide with offices in multiple
states. Product and service offerings often have a niche element (see
niche item below) and may involve affiliate relationships.
•
Demand deposits may not be accepted if the ILC has greater than $100
million in total assets (subject to applicable state law).
Trust Banks30
•
May operate under a national or state charter.
•
Trust banks have operations that are primarily limited to those of a
fiduciary nature with the bank acting as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver, or
in other related fiduciary or trust capacities.
•
A trust bank is not considered a bank for purposes of the BHCA if it
meets the conditions set forth in Section 2(c)(2)(D) of the BHCA.
•
Trust banks do not make commercial loans or accept demand deposits.
Credit Card Banks
•
May operate under a national or state charter.
•
Credit card banks have operations that are primarily limited to the
issuance of credit cards, the generation of credit card receivables, and
other related products, services, or activities.
•
A credit card bank is not considered a bank for purposes of the BHCA
if it meets the conditions set forth in Section 2(c)(2)(F) of the BHCA.
•
Credit card banks do not make commercial loans or accept demand
deposits, and are subject to other deposit taking limitations
issuance of credit cards, the generation of credit card receivables, and
other related products, services, or activities.
•
A credit card bank is not considered a bank for purposes of the BHCA
if it meets the conditions set forth in Section 2(c)(2)(F) of the BHCA.
•
Credit card banks do not make commercial loans or accept demand
deposits, and are subject to other deposit taking limitations.
Municipal Deposit Banks
•
Operate under a state charter.
•
Municipal deposit banks are wholly owned by thrifts or savings banks,
and their banking activities are limited.
•
Commercial or consumer loans are not offered.
•
Funding is typically restricted to acceptance of deposits from thrift or
savings banks, deposits arising out of the corporate business of their
owners, and municipal deposits.
Non-Community Bank: an IDI that may, in contrast to a traditional community bank, (1) focus on
products, services, activities, market segments, funding, or delivery channels other than local lending and
deposit taking; (2) pursue a broad geographic footprint (such as operating nationwide from a limited
number of offices); (3) pursue a monoline, limited, or specialty business model; or (4) operate within an
organizational structure that involves significant affiliate or other third-party relationships (other than
28 Refer to the FDIC’s delegations of authority, which are included in a Matrix on the FDIC’s public website and in
Board Resolution 071098, dated December 3, 2002, for information regarding the authority to act on specific types
of FDI applications.
29 The case manager should consult with Legal on any questions regarding the chartering of an ILC.
30 Trust banks and credit card banks are organized under the CEBA.
s delegations of authority, which are included in a Matrix on the FDIC’s public website and in
Board Resolution 071098, dated December 3, 2002, for information regarding the authority to act on specific types
of FDI applications.
29 The case manager should consult with Legal on any questions regarding the chartering of an ILC.
30 Trust banks and credit card banks are organized under the CEBA.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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common relationships such as those providing audit, human resources, or core information technology
processing services). Specialty (sometimes referred to as “niche”) proposals, which cover a broad range
of business models, are usually considered “non-community” in nature given the anticipated concentrated
business focus or emphasis on specialized activities. A non-community bank may or may not operate
under a non-bank charter.
Types of Non-
Community Banks
Key Features
Specialty (or Niche)
Institutions
•
Specialty (or niche) proposals generally involve institutions that present
a concentrated business focus, significant specialized activities, or other
unique characteristics. Such institutions may reflect a lack of
diversification in assets or funding; a large proportion of income
derived from limited or non-traditional products, services, or activities;
or an emphasis on non-traditional delivery channels or customized
products or services aimed at a relatively narrow demographic group.31
•
The following elements have historically been considered specialized in
nature given the potential impact on the proposed institution’s overall
risk profile:
o Lending - subprime, credit card, auto financing, and lending
based on enterprise value.
o Funding - stored value, brokered or internet deposits, wholesale
funding, loan originations and sales, and securitizations
ographic group.31
•
The following elements have historically been considered specialized in
nature given the potential impact on the proposed institution’s overall
risk profile:
o Lending - subprime, credit card, auto financing, and lending
based on enterprise value.
o Funding - stored value, brokered or internet deposits, wholesale
funding, loan originations and sales, and securitizations.
o Services/Activities - wealth management and trust operations,
payment system or transaction processing, cash management or
sweep services, and significant reliance on fee income.
o Customer Base - limited or narrow customer markets, including
proposals intended to derive the customer base from affiliate
relationships or directly support the sales of affiliates.
o Delivery Channels - internet only, production offices, and
money desk operations with no teller windows.
o Geographic Footprint - a broad geographic footprint (e.g.,
operating nationwide with a limited number of offices).
o Other - proposals that emphasize the use and capabilities of
emerging technologies, growth through acquisitions, and other
proposals with unique attributes.
•
Specialty institutions include those seeking a wholesale or limited
purpose designation under the CRA, and may include institutions
whose activities involve material off-balance sheet activities or are
significantly dependent on affiliate or third-party relationships.
•
Proposed community development banks and bankers’ banks will also
normally be considered specialty institutions.
Publicly Owned Institutions
•
Public ownership refers to institutions to be owned or controlled by
domestic governmental entities (e.g., a state, county, or municipality)
al off-balance sheet activities or are
significantly dependent on affiliate or third-party relationships.
•
Proposed community development banks and bankers’ banks will also
normally be considered specialty institutions.
Publicly Owned Institutions
•
Public ownership refers to institutions to be owned or controlled by
domestic governmental entities (e.g., a state, county, or municipality).
•
Establishment of such institutions is rare because they present concerns
regarding the institution’s ability to operate independently of the
political process; a potential lack of continuity in the institution’s
31 Given the potential lack of diversification within their business models, the financial condition of these
institutions could be disproportionately affected by a single or localized event, such as changes in economic or
market conditions; loss of a key customer, business, or funding relationship; changing customer needs or
preferences; or other relevant circumstances.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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Types of Non-
Community Banks
Key Features
policies, management, and oversight, which could result from changes
in the governmental entity’s leadership; and the institution’s ability to
raise capital.
•
Institutions that are to be owned or controlled by Native American
tribes or bands may not present the same concerns as other publicly
owned institutions given provisions of federal law that allow Native
American-owned institutions to function as both governmental and
economic for-profit entities.32
Foreign Owned Institutions
•
Foreign ownership refers to institutions to be owned (25 percent or
more of voting shares) or controlled by a foreign non-banking entity, a
foreign bank, or a person who is not a citizen of the U.S
owned institutions given provisions of federal law that allow Native
American-owned institutions to function as both governmental and
economic for-profit entities.32
Foreign Owned Institutions
•
Foreign ownership refers to institutions to be owned (25 percent or
more of voting shares) or controlled by a foreign non-banking entity, a
foreign bank, or a person who is not a citizen of the U.S.
Agreements and conditions
•
It is FDIC policy to require controlling groups, persons, or entities to
execute an agreement to consent to the jurisdiction of the U.S. courts
and the appropriate federal banking agency (as defined in Section 3(q)
of the FDI Act), and an agreement to appoint an agent in the U.S. for
service of process for domestic banking law matters.
•
These requirements will be included in the non-standard conditions and
must be agreed to in writing. The foreign owner or controlling party
will also be required to ensure that the FDIC receives updated
information as circumstances warrant.
•
Model agreements, which will be provided by Legal, are to be signed
before forwarding the case documents to the WO for final action.33
Part 347 (FDI Applications for a U.S. Depository Institution Subsidiary of
a Foreign Bank )
•
Section 347.204 of the FDIC Rules and Regulations contains specific
requirements for FDI applications for a U.S. depository institution
subsidiary of a foreign bank that has been determined to be subject to
comprehensive consolidated supervision (CCS) by the appropriate
federal banking agency.
•
The foreign bank is required to provide certain binding written
commitments including, but not limited to, making available
information about the foreign bank and its affiliates outside the U.S.
and allowing for the examination of any U.S. office of the foreign bank.
The FDIC will not process an FDI application without the written
commitments
) by the appropriate
federal banking agency.
•
The foreign bank is required to provide certain binding written
commitments including, but not limited to, making available
information about the foreign bank and its affiliates outside the U.S.
and allowing for the examination of any U.S. office of the foreign bank.
The FDIC will not process an FDI application without the written
commitments.
Institutions in a Parallel
Banking Organization
•
A Parallel Banking Organization (PBO) is created when at least one
U.S. depository institution and one foreign bank are controlled outside
of a traditional holding company structure either directly or indirectly
32 A proposed institution would not be considered a non-community bank solely due to Native American ownership;
rather, the categorization would depend on whether the business plan presented any unique or specialized elements.
33 The RO, in consultation with Legal, should confirm that the agreements are properly executed. If an agreement is
signed outside the U.S., the foreign person or official authorized to execute the agreement on behalf of the foreign
entity (signor) must have appeared in person at a U.S. Embassy or Consulate, signed the agreement in the presence
of the consular official, and obtained the consular official’s authentication of execution. If the agreement is signed
in the U.S., the signor must be properly notarized under state law.
., the foreign person or official authorized to execute the agreement on behalf of the foreign
entity (signor) must have appeared in person at a U.S. Embassy or Consulate, signed the agreement in the presence
of the consular official, and obtained the consular official’s authentication of execution. If the agreement is signed
in the U.S., the signor must be properly notarized under state law.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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Types of Non-
Community Banks
Key Features
by the same person or entity, or group of persons or entities, without
any CCS of the organization.34
•
The lack of a single regulator to comprehensively supervise the
domestic and foreign banks on a consolidated basis poses unique risks.
•
While PBOs often involve foreign ownership, PBOs are not exclusive
to foreign ownership.
•
Refer to FIL 35-2002, Joint Agency Statement on Parallel-Owned
Banking Organizations for additional information.
Institutions formed to
Acquire a Failed Bank
•
As described in the SOP-ADI, the FDIC may apply modified
application processes for proposed institutions formed for the purpose
of acquiring assets and assuming liabilities of an insured institution in
default. In such cases, the FDIC will consider abbreviated information
submissions and applications, and may issue conditional FDI approval.
•
Investors that are interested in acquiring the deposits of failing
institutions must have conditional approval for a charter from the
applicable authority and meet the FDIC’s bid criteria. In certain cases,
it may also be necessary to obtain conditional approval from the FRB to
establish a holding company.
•
While the statutory factors per Section 6 of the FDI Act must be met,
the primary considerations under the modified process include an
acceptable business plan, readily available capital, and a satisfactory
management team
le authority and meet the FDIC’s bid criteria. In certain cases,
it may also be necessary to obtain conditional approval from the FRB to
establish a holding company.
•
While the statutory factors per Section 6 of the FDI Act must be met,
the primary considerations under the modified process include an
acceptable business plan, readily available capital, and a satisfactory
management team. It may also be necessary to take into account the
Statement of Policy on Qualifications for Failed Bank Acquisitions.
Other Types of Operating
Non-Insured Entities
Seeking FDI
•
Other types of operating non-insured entities (not described elsewhere
in this appendix) that have applied for FDI include companies focused
on mortgage lending, loan servicing, financing, and payment services.
•
Credit unions that are in the process of converting to a community bank
business model are not considered non-community banks.
34 A PBO does not include structures in which one depository institution is a subsidiary of the other, or the
organization is controlled by a company subject to the BHCA.
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Appendix 2: Review Considerations for Non-Bank or Non-Community Bank Proposals[1]
Overall
1. Is the proposed institution a non-bank?
2. Does the application involve a de novo institution or an operating non-insured entity?
3. What non-community bank elements (including any specialty or niche characteristics) are present
in the application/business plan?
4. Are there any proposed activities, financial or operational matters that are unique, complex, or
present unusual risks?
5. Are there any unique issues or elements of the proposal relative to accounting, BSA/AML, trust,
capital markets, consumer compliance, CRA, or IT that present prospective concerns?
6
ny specialty or niche characteristics) are present
in the application/business plan?
4. Are there any proposed activities, financial or operational matters that are unique, complex, or
present unusual risks?
5. Are there any unique issues or elements of the proposal relative to accounting, BSA/AML, trust,
capital markets, consumer compliance, CRA, or IT that present prospective concerns?
6. Is sufficient mitigating information or compensating controls provided for any areas where
significant risks or concerns exist?
7. Are there any aspects of the proposal that would establish or change existing FDIC policy, could
attract unusual attention or publicity, or would involve an issue of first impression?
8. Have any companion applications been filed with the FDIC or other banking agencies? If so, what
is the status of those applications?
Parent/Organizational Structure and Impact
1. Does the application indicate that there will be any transactions or relationships with the parent
company, other affiliates, or insiders? If so, what is the extent of the relationships, will they be
arms-length and on terms comparable to those with non-affiliate or non-insider
transactions/relationships, and will they comply with relevant regulations?
2. Does the organizational or ownership structure of the proposed institution or the parent company
reflect any unique elements (e.g., equity structure, corporate governance aspects, conflicts of
interest, etc.) that present elevated risks/concerns?
3. Have the organizers expressed a willingness to enter into any written agreements or formal
commitments with regard to the proposed institution?
4. If the parent organization or the proposed institution is an existing, operating entity/company, are
there any issues or concerns regarding its history, performance, condition, business prospects, or
the ability to serve as a source of strength and support?
5
anizers expressed a willingness to enter into any written agreements or formal
commitments with regard to the proposed institution?
4. If the parent organization or the proposed institution is an existing, operating entity/company, are
there any issues or concerns regarding its history, performance, condition, business prospects, or
the ability to serve as a source of strength and support?
5. Has appropriate due diligence been performed on any proposed vendors or other third-party
relationships/servicers that are integral to implementing the business plan?
Business Plan and Proposed Activities/Operations
1. Are any proposed products, services, or activities non-community bank in nature?
2. If so, what are the related risks, and is the risk management framework sufficient to identify,
measure, monitor, and control the risks?
3. Does the business plan reflect well supported and realistic financial projections (including
underlying assumptions)? Are the projections consistent with the unique risks and the nature of
the non-bank or non-community bank proposal?
4. If appropriate, have the financial statements and projections been appropriately stress tested?
5. Do the financial statements reflect any significant one-time or non-recurring events that present
additional risk?
6. Does the business plan reflect clearly defined strategic alternatives for redirecting efforts (which
may include self-liquidation) if the business plan proves unsuccessful?
7. Are there any unique aspects or features of the proposed equity structure that would inhibit (or
preclude) the sale of additional stock?
[1] This list is not all-encompassing. Items may vary depending on the business model of the proposed institution.
s (which
may include self-liquidation) if the business plan proves unsuccessful?
7. Are there any unique aspects or features of the proposed equity structure that would inhibit (or
preclude) the sale of additional stock?
[1] This list is not all-encompassing. Items may vary depending on the business model of the proposed institution.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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8. Are there any projected asset, funding, or revenue source concentrations that would necessitate
additional capital beyond what has been committed and projected?
9. Are any noncash capital contributions contemplated? If so, is the value fully supported with
independent appraisals or other appropriate valuation methods and does it comply with governing
regulations?
10. If the proposed institution is an operating non-insured entity, are there any deferred tax assets or
liabilities, intangible assets, contingent liabilities, or recent or pending legal or regulatory actions
that may have a significant impact and warrant further review?
11. Are any other significant issues or concerns noted in any areas of the application other than those
captured in the items above (e.g., with regard to funding plans, historical preservation or the
environment pursuant to the National Historic Preservation Act or the National Environmental
Protection Act, any anticipated corporate powers or activities that are inconsistent with the
purposes of the FDI Act, etc.)?
Board/Management
1. Do the board and management composition, and the corporate governance structure address the
unique elements and complexities of the proposal?
2. Are there any concerns regarding the independence of the proposed directors or officers?
3
onmental
Protection Act, any anticipated corporate powers or activities that are inconsistent with the
purposes of the FDI Act, etc.)?
Board/Management
1. Do the board and management composition, and the corporate governance structure address the
unique elements and complexities of the proposal?
2. Are there any concerns regarding the independence of the proposed directors or officers?
3. Does the application reflect any individuals performing in a dual capacity? If so, are appropriate
policies, procedures, and agreements in place?
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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Appendix 3: Prudential Conditions
1. Prior to the effective date of deposit insurance, the institution will have appointed and will
thereafter maintain a board of directors that is acceptable to the FDIC. The majority of the board
must consist of independent directors, and each director must possess the knowledge, experience,
and capability to carry out the responsibilities of the position in a safe, sound, and independent
manner. An independent director is a director that is (a) not a principal, member, officer, or
employee of the institution, and (b) not a principal, member, director, officer, or employee of any
affiliate or principal shareholder.
2. Prior to the effective date of deposit insurance, the institution will have appointed and will
thereafter retain a team of senior executive officers that is acceptable to the FDIC. Each senior
executive officer, as defined in 12 C.F.R. 303.101, must possess the knowledge, experience, and
capability to carry out the responsibilities of the position in a safe and sound manner,
independently of the activities of [applicant’s top tier parent] and its affiliated entities.
3. Absent the prior written non-objection of the appropriate FDIC Regional Director, each senior
executive officer, as defined in 12 C.F.R
ined in 12 C.F.R. 303.101, must possess the knowledge, experience, and
capability to carry out the responsibilities of the position in a safe and sound manner,
independently of the activities of [applicant’s top tier parent] and its affiliated entities.
3. Absent the prior written non-objection of the appropriate FDIC Regional Director, each senior
executive officer, as defined in 12 C.F.R. 303.101, must have his or her permanent place of work
physically located at the institution’s main office located in [city, state], such that the individuals
will be capable of providing ongoing and direct oversight of the institution’s activities.
4. The institution will develop and continue to maintain a current written business plan, adopted at
least annually by the institution’s board of directors. The business plan must be appropriate to the
nature and complexity of the institution’s activities, and must be separate from the business plans
of [applicant’s top tier parent] and its affiliated entities. Further, the institution’s board of
directors will ensure that the senior executive officers are delegated reasonable authority to
implement the institution’s business plan independently of [applicant’s top tier parent] and its
affiliated entities, and that the institution’s management, staff, and other resources are adequate to
carry out the business plan in a safe and sound manner, independent of the activities of
[applicant’s top tier parent] and its affiliated entities.
5. The institution will conduct business pursuant to operating policies that are appropriate to its
business plan, independent from those of [applicant’s top tier parent] and its affiliated entities, and
approved by the institution’s board of directors. The board of directors will also adopt risk
management practices and internal control programs reasonably designed to ensure compliance
with such policies
ution will conduct business pursuant to operating policies that are appropriate to its
business plan, independent from those of [applicant’s top tier parent] and its affiliated entities, and
approved by the institution’s board of directors. The board of directors will also adopt risk
management practices and internal control programs reasonably designed to ensure compliance
with such policies. Further, the board of directors will ensure that the senior executive officers are
delegated reasonable authority to implement the policies independently of [applicant’s top tier
parent] and its affiliated entities. At a minimum, the operating policies and procedures will
include the institution’s [lending, investment, liquidity, asset-liability management, trust, risk
management and internal controls, information technology] activities.
6. The institution will adhere to U.S. GAAP and maintain separate accounting and other business
records (including customer account records and data) from [applicant’s top tier parent] and its
affiliated entities. The institution’s records and data will be maintained under the control and
direction of authorized officials of the institution and available for review by the FDIC at the
institution’s main office. Further, the institution’s records and data will be sufficiently detailed
and maintained in a manner that provides the institution’s board of directors and senior executive
officers with the objective and transparent information necessary to administer the institution’s
affairs.
authorized officials of the institution and available for review by the FDIC at the
institution’s main office. Further, the institution’s records and data will be sufficiently detailed
and maintained in a manner that provides the institution’s board of directors and senior executive
officers with the objective and transparent information necessary to administer the institution’s
affairs.
December 2019 FDIC Deposit Insurance Applications Procedures Manual Supplement
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7. If management, staff, or other personnel or resources are employed by both the institution and
[applicant’s top tier parent] or any of its affiliated entities, the institution’s board of directors will
ensure that such arrangements are governed by policies and written contracts that provide the
institution’s board of directors and senior executive officers with the authority and control
necessary to administer the institution’s affairs. Further, the written contracts shall explicitly
provide the institution with direct supervisory authority over such personnel, regardless of
whether the effect of the relationship on the institution is direct or indirect, or financial or non-
financial.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.