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Interpretations - Corporate Decision #96-39

Published in Interpretations and Actions August 1996


July 25, 1996

I. Introduction

On April 15, 1996, an application was filed with the Office of the Comptroller of the Currency for approval to merge Washington Federal Savings Bank (the Federal Savings Bank) into First National Bank of Maryland (the National Bank), retaining the charter and title of the latter, under 12 U.S.C. 215c, 1467a(s) and 1828(c)(2) and consistent with section 1815(d)(3) (the Oakar Amendment). The Federal Savings Bank has its home office in Herndon, Virginia, and branches in Virginia, the District of Columbia and Maryland. The National Bank has its main office in Baltimore, Maryland, and branches in Maryland, Virginia, and the District of Columbia. The Application also requests OCC approval for the National Bank to operate, following the merger, branches of the Federal Savings Bank in Virginia, the District of Columbia and Maryland.

As of March 31, 1996, the National Bank had approximately $8.35 billion in assets and $6.1 billion in deposits and operated 147 branches in Maryland and 44 free-standing ATM machines.<NOTE: The National Bank opened one branch in Virginia and another in the District of Columbia on July 22, 1996. These branches were approved by the OCC under the authority of applicable Federal and state law governing interstate de novo branching by a Maryland bank into Virginia and the District of Columbia. See Decision of the Office of the Comptroller of the Currency on the Applications of the First National Bank of Maryland, Baltimore, Maryland, to Establish De Novo Branches in Reston, Virginia and Washington, D.C. (July 18, 1996). > As of the same date, the Federal Savings Bank had approximately $795 million in assets and $442.4 million in deposits and operated a home office and two branches in Virginia, nine branches in the District of Columbia and five branches in Maryland. Following consummation of the transaction, the National Bank has sought permission to operate as branches the two branches of the Federal Savings Bank in Virginia,<NOTE: The National Bank has represented that it will not operate the current home office of the Federal Savings Bank following consummation of the merger. all of the Federal Savings Bank's branches in the District of Columbia <NOTE: It is anticipated that one of the District of Columbia branches, located at 1901 L St., N.W., will be closed about six months after the merger.> and the Federal Savings Bank's Edgewater branch in Maryland.

The National Bank is a BIF member, with under 4% of its deposit base insured by the SAIF as a result of several Oakar transactions, and is a wholly-owned subsidiary of First Maryland Bancorp (the Bank Holding Company) which, in turn, is a direct subsidiary of Allied Irish Banks, p.l.c., Dublin, Ireland. The Federal Savings Bank is SAIF-insured and was, until July 16, 1996, a wholly-owned subsidiary of 1st Washington Bancorp (the Thrift Holding Company). On that date, it became a wholly-owned subsidiary of the Bank Holding Company as a result of a merger between a nonbank subsidiary of the Bank Holding Company and the Thrift Holding Company. (NOTE: The combination of the holding companies was approved by the Federal Reserve Board (the Board) on May 23, 1996. See Letter by Jennifer J. Johnson, Deputy Secretary of the Board, to Gregory K. Thoreson, Vice President and General Counsel, First Maryland Bancorp (May 23, 1996) (the Board approval letter).) As a result of the proposed merger between the two depository institutions, the existing operations of the Federal Savings Bank and the National Bank will be combined into the National Bank which will, as a result, acquire additional branches in Maryland, the District of Columbia and Virginia. During the thirty-day public comment period, no protests of the application were received by the OCC. (NOTE: In addition, state banking regulators of the three jurisdictions involved — Maryland, Virginia, and the District of Columbia were contacted directly by representatives of both the National Bank and of the OCC and none raised any objection to the proposed transaction.)

II. Summary

For the reasons discussed below, the OCC concludes that the proposed transaction is permissible under applicable Federal and State law. Specifically, the OCC concludes that:

  1. Under the authority of 12 U.S.C. 215c, a national bank located in several states may acquire through merger a Federal savings bank with its home office and branches in those states;
  2. The merger is consistent with the provision of the Oakar Amendment, 12 U.S.C. 1815(d)(3)(F), that applies 12 U.S.C. 1842(d), a provision of the Bank Holding Company Act (BHCA), to interstate mergers in which a BIF-insured institution owned by a bank holding company acquires a SAIF-insured institution;
  3. The national bank resulting from that transaction may retain and operate the offices of the target Federal savings bank consistent with 12 U.S.C. 36(c), relevant case law and OCC precedents; and
  4. The proposed transaction may be approved by the OCC consistent with the Bank Merger Act and the OCC's responsibilities under the Community Reinvestment Act. In addition, as required by 12 U.S.C. 215c, the transaction is consistent with all applicable laws pertaining to merger transactions involving national banks.

III. Analysis

  1. Merger authority under section 215c

Title 12 U.S.C. 215c provides:

(a) Subject to section 1815(d)(3) [the Oakar Amendment] and 1828(c) [the Bank Merger Act] and all other applicable laws, any national bank may acquire or be acquired by any insured depository institution.

* * * * *

(d) For purposes of this section, the term 'acquire' means to acquire, directly or indirectly, ownership or control through a merger or consolidation or an acquisition of assets or assumption of liabilities, provided that following such merger, consolidation, or acquisition, an acquiring insured depository institution may not own the shares of the acquired insured depository institution.

These provisions were added as Section 502(b) of the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub. L. No. 102-242, 105 Stat. 2393 (enacted December 19, 1991) (FDICIA). At the same time, in section 501(a) of the FDICIA, parallel provisions addressing the authority of Federal savings associations to combine with any insured depository institution were added to the Home Owners' Loan Act (HOLA) and codified at 12 U.S.C. 1467a(s)(1), (3)

Consequently, under the plain language of section 215c and the HOLA, if a transaction comports with the Oakar Amendment, the Bank Merger Act and other applicable laws, then the sections authorize a merger between a national bank and a Federal savings association.<NOTE: The courts have long counseled that the meaning of a statute must, in the first instance, be determined based on the language that is used. See, e.g., Caminetti v. United States. 242 U.S. 470, 485 (1917). Parties who argue against the plain meaning of a statute face the "daunting standard" of showing "clear evidence that reading the statute literally would thwart the obvious purposes of the statute." Mansell v. Mansell, 490 U.S. 581, 592 (1989). In authorizing mergers between national banks and Federal savings associations, the language of section 215c could not be plainer -- if the merger is consistent with the Bank Merger Act, the Oakar Amendment, and other applicable law, then a national bank and a Federal savings association may merge.>

Moreover, the legislative history of this section 215c is, likewise, unambiguous. Rep. Oakar, the sponsor of the amendment, on several occasions characterized its impact in the broadest possible way. For instance, she stated:

Finally, title V of H.R. 3768 contains the provisions of an amendment I offered at full committee. Simply stated, this title will permit any bank insurance fund [BIF] institution to combine its operations with any savings association insurance fund [SAIF] institution, and vice versa. I offered this legislation in order to encourage the injection of private sector funds into the banking and thrift systems. Title V of the bill will permit a bank to combine with a thrift — or vice versa — which permits them to combine their strengths and avoid the potential problem of being placed in conservatorship where the taxpayer's money must be used.

137 Cong. Rec. H 10,762-763 (daily ed. November 21, 1991) (Statement of Rep. Oakar). See also 137 Cong. Rec. H 8936 (November 1, 1991) (Statement of Rep. Oakar); House Banking Committee Mark-up (July 23, 1991) (Statement of Reps. Oakar and LaFalce). <NOTE: As the sponsor of the amendment, courts have long recognized that Rep. Oakar's views may provide a "weighty gloss" on the meaning of legislation. See, e.g., Galvin v. U.L. Press, 347 522, 527 (1954).>

The House report on the legislation contains similar sweeping language. It states:

[T]he Committee voted to allow any BIF or SAIF-insured depository institutions to combine with each other. This amendment was adopted because the Committee is concerned about the growing cost of thrift and bank resolutions and the increased cost to the taxpayers of these resolutions.

H.R. Rep. No. 330, 102d Cong, 1st Sess., 113 (1991); H.R. Rep. 157, 102d Cong. 1st Sess. 139 (July 23, 1991). See also 137 Cong. Rec. H 9105-9106 (Nov. 4, 1991) (House section-by-section analysis). <NOTE: Likewise, courts have recognized that "Committee Reports represent the most persuasive indicia of congressional intent" and are "powerful evidence of legislative purpose." See 2A Sutherland, Statutes and Statutory Construction, 48.06 (5th ed. 1992 & Supp. 1995).> We emphasize, however, that despite the broad language of sections 215c and 1467a(s)(1), combinations authorized by those sections are not without limits imposed by other statutes. Thus, for instance, transactions such as the one proposed between a BIF-insured national bank and a SAIF-insured Federal savings association (known as "Oakar transactions") are subject to the interstate limits imposed by the Oakar Amendment. See 12 U.S.C. 1815(d)(3)(F). As will be more fully discussed subsequently, these transactions may not occur if they involve the acquisition of a SAIF member by a BIF-member bank which is a subsidiary of a bank holding company under circumstances where that holding company, pursuant to 12 U.S.C. 1842(d) and applicable state law, could not acquire the SAIF member if it were a state bank.

Consequently, we conclude that if the transaction comports with the Oakar Amendment, including its interstate limitations, as codified at 12 U.S.C. 1815(d)(3), the Bank Merger Act, as codified at 12 U.S.C. 1828(c), and other applicable law, <NOTE: The permissibility of the proposed transaction under these statutes is analyzed in III.B. and C. of this Decision Statement.> the National Bank and the Federal Savings Bank may merge under the authority of sections 215c and 1467a(s) of the HOLA and in accordance with the procedural requirements set forth in 12 C.F.R. 5.33(c)(2).

B. The interstate merger and branch retention is consistent with the Oakar Amendment and the McFadden Act

The next question is whether the transaction can be undertaken on an interstate basis as proposed with retention of branches by the National Bank in Virginia and the District of Columbia as well as Maryland. This raises two issues: (1) is the transaction consistent with the interstate provision of the Oakar Amendment; and (2) is the transaction consistent with the McFadden Act as codified

1. The interstate provision of the Oakar Amendment

As stated, section 215c requires that a merger between a national bank and a Federal savings association be consistent with the Oakar Amendment. Codified at 12 U.S.C. 1815(d)(3), the Oakar Amendment, as relevant to this situation, permits a BIF-insured depository institution to acquire a SAIF-insured depository institution with the deposits of the resulting institution being proportionally insured by the BIF and the SAIF. These transactions may be approved by the regulator of the acquiring institution if they are in accordance with the Bank Merger Act and subject to interstate limitations. <NOTE: The Oakar Amendment also provides, with respect to capital, that the "responsible agency shall disapprove any application for any transaction under this paragraph unless such agency determines that the acquiring, assuming, or resulting depository institution will meet all applicable capital requirements upon consummation of the transaction." See 12 U.S.C. 1815(d)(3)(E)(iv). The OCC has determined that the National Bank meets all applicable capital requirements. In fact, both before and after the merger, the National Bank at least meets all of the tests to be considered a well-capitalized institution. See 12 C.F.R. 6.4(b)(1).>

The interstate limitations specifically imposed by Congress in adopting the Oakar Amendment

A Bank Insurance Fund member which is a subsidiary of a bank holding company may not be the acquiring, assuming, or resulting depository institution . . . unless the transaction would comply with the requirements of section 1842(d) of this title if, at the time of such transaction, the Savings Association Insurance Fund member involved in such transaction was a State bank that the bank holding company was applying to acquire.

12 U.S.C. 1815(d)(3)(F). Thus, an interstate transaction could not be undertaken unless the transaction complies with section 1842(d) as specifically incorporated into section 1815(d)(3)(F). Section 1842(d) governs interstate acquisitions of banks by bank holding companies. Thus, to determine whether the proposed transaction is consistent with this provision, we must assume that the Federal Savings Bank is a state bank, with a main office and branches in Virginia and branches in the District of Columbia and Maryland, being acquired by the Bank Holding Company. The question that arises is whether this acquisition would be permissible under section 1842(d) as

(A) Acquisition of Banks.--The Board may approve an application under this section by a bank holding company that is adequately capitalized and adequately managed to acquire control of . . . a bank located in a State other than the home state of such bank holding company, without regard to whether such transaction is prohibited under the law of any State.

12 U.S.C. 1842(d)(1). It is clear that the "home state" of the Bank Holding Company is Maryland for purposes of this provision.<NOTE: For purposes of section 1842(d)(1), the "home state" of a bank holding company is the state in which the total deposits of all of its banking subsidiaries were the largest on the later of July 1, 1966 or the date on which the company became a bank holding company. 12 U.S.C. 1841(o)(4)(C). Because the operations of the Bank Holding Company's principal bank subsidiary, the National Bank, have been located in Maryland since the formation of the Bank Holding Company in 1973, Maryland is considered to be the "home state" of the Bank Holding Company. Moreover, Allied Irish, the foreign bank that owns the Bank Holding Company, has elected Maryland as its "home state" under 12 U.S.C. 3103.>