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November 3, 2000
Donna Tanoue, Chairman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, D.C. 20429
RE: OTS Regulatory Initiatives for Mutually-Chartered Institutions
Dear Chairman Tanoue:
One of the hallmarks of the federal banking regulatory system is the cooperation the banking agencies demonstrate on common issues and concerns. One issue that the FDIC shares with the OTS is the supervision of mutually-chartered savings banks. The OTS, after talking with mutual institutions nationwide, decided to revisit some of its regulations and procedures as they applied to mutuals to provide greater flexibility in certain areas. While the process is not complete, and is still under development in the area of developing more relevant examiner guidance, the OTS has proposed a number of changes to its mutual-to-stock conversion requirements and mutual holding company regulations. Many of these proposed reflect the experience gained since both the FDIC and the OTS visited mutual charter issues in 1994 and 1995.
The Mutuality Advisory Council of the ABA, comprised primarily of FDIC-regulated savings banks, supports many of the OTS initiatives and encourages the FDIC to take the opportunity of the OTS review of its mutual regulations to consider updating some of FDIC's requirements both regulatory and in examiner guidance. A copy of our comment letter to the OTS is attached. In particular, ABA urges the FDIC to consider adjustments in the following areas:
1. Mutual Holding Company Flexibility. The OTS Proposal opens the door to greater creativity and flexibility for acquisitions by mutuals and mutual holding companies ("MHCs"). ABA supports this willingness to consider more types of transactions and methods for accomplishing those transactions. This is an area where the two agencies could work together to facilitate prudent expansion activities by mutuals and MHCs. There are basic questions that are just being explored such as the method by which two MHCs may merge – does it matter if one MHC has issued stock and the other has not? Can a MHC revert to a mutual savings bank and when would that be appropriate? What is the FDIC's approach to the merger of a MHC and a mutual? Many of these issues require action by the chartering authority, but the FDIC has the opportunity to participate. A positive dialogue on the concerns of the insurer in these types of transactions would facilitate the greater creative use of the mutual and MHC charters.
2. MHC Requirements. Relatedly, ABA encourages FDIC to take a more flexible approach to requiring depositor/incorporator votes in the formation of a MHC, particularly when the MHC issues no stock. As the OTS notes, the rights of depositors have not changed nor have any of the almost perfunctory votes held to create MHCs without stock failed. The formality of the voting requirement, including the need for a positive vote of a majority of independent incorporators and the efforts surrounding qualifying incorporators as independent, can raise a question of form over substance to a level that far outweighs any benefits gained. ABA encourages the FDIC to consider revising its requirements in this area. Further, ABA encourages the FDIC to exercise greater flexibility on the issue of dividend waivers. Mandating dividends and other approaches including recognition of dilution serve to artificially accelerate the need to pursue a second-stage conversion into a full stock entity. The choice to become a completely stock company needs to be made without undue pressures. Greater availability of dividend waiver authority allows the MHC to be a vehicle for the future for the mutual savings bank to meet its competitive challenges while providing a greater array of products and services in the mutual format. This flexibility provides mutuals with the choice to remain mutual rather than use the MHC format as a short-term stop on the way to a stock charter.
Representatives of ABA's Mutuality Advisory Council are available to discuss these and other issues relating the mutual savings banks at your convenience either in Washington, D.C. or the New England FDIC Regional Office. Your willingness to begin a dialogue on these issues is greatly appreciated and we look forward to hearing from you or your staff in the near future.
Sincerely,
C. Dawn Causey
Questions? Please contact Dawn Causey for more information.
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