The mutual form of charter, including mutual holding companies, has proven to be a resilient and useful option for organizing a depository institution. Strengthening and promoting that option is of benefit to the industry as a whole, as well as to the institutions choosing that option.

Position Statement

ABA firmly supports the continued availability and vitality of the mutual form of organization for depository institutions.  ABA actively supports the ability of mutually chartered institutions to grow, serve their communities, and actively compete in the financial services marketplace.  Mutuality is one of ABA's fundamental government relations priorities. As approved by the ABA Board of Directors, ABA supports the mutual and mutual holding company options through active participation with the banking agencies to achieve more flexible and tailored rulemaking and supervisory guidance for mutual charters.

Explanation

ABA will continue its vigorous advocacy of the mutual charter before both Congress and the regulatory agencies, as a fundamental charter form to be accorded parity of treatment in all relevant respects. In an effort to promote mutuality as a viable charter alternative, ABA formed a Mutual Institutions Council (MIC) to address issues of particular interest to mutually-chartered financial institutions and to provide a forum for the discussion and development of legislative and regulatory recommendations and actions. The MIC is the voice of mutuality in the ABA policy and product development process. To accomplish this mission, the MIC:

• Advises ABA on issues affecting mutually-chartered institutions and makes appropriate policy recommendations for formal action.
• Advocates positions on issues unique to mutuals as part of the overall ABA policy process.
• Interacts with organizations, government agencies and others on the issues of concern to mutual institutions.
• Provides educational forums for the exchange of ideas, strategies, and approaches to the issues of importance to mutually-charted institutions.
• Advises ABA on the development of products and services designed to address the needs of mutual institutions.

Among the recent activities of ABA in support of mutuals are the following:

Financial Accounting Standards Board (FASB) Business Combinations Project
The MIC has been an active participant with the FASB on the more than 5-year old project to address the accounting treatment of business combinations for non-stock entities. While continuing its support of pooling, the MIC has consistently sought an accounting treatment that will maximize the capital recognition in mergers of mutuals. MIC filed an extensive White Paper with the FASB to facilitate and jumpstart the early deliberations by FASB staff. In addition, MIC members have met with FASB staff to discuss the progress of the project and explore the recognition of capital under the proposed new accounting rule. Based on these discussions and the published project reports, FASB has made tentative decisions that would allow the merged entity's capital to be recognized on the acquiring bank's books as a direct addition to capital. ABA continues to work closely with FASB and banking regulators on this significant change for mutual institutions.

Corporate Governance
Recognizing the difficulties of competing regulatory treatments and the inevitable pressure from accountants and examiners for mutual institutions to implement Sarbanes-Oxley Act procedures, the MIC held a corporate governance forum where mutuals spoke directly with senior federal banking agency and state officials. This informal, small group format allowed mutual CEOs to ask questions and receive real answers to their day-to-day operational concerns, including the challenges raised by professional depositors.  Some professional depositors have migrated stock proxy techniques to the mutual format to elect themselves or their allies to mutual savings bank boards. The goal, once on the board, is to force the sale and/or stock conversion of the mutual. While for the most part unsuccessful, the resulting diversion of bank and board attention can be costly. Recent court cases on the issue have prompted strategic discussions for improving corporate governance practices to address such efforts appropriately (both for compliance and business purposes). In conjunction with an outside law firm, ABA developed a book entitled, Corporate Governance for Mutuals, that highlights options and alternatives in this area.

Most recently, ABA voiced its support for the OTS' proposed rule that would preapprove certain bylaws for optional use by federal savings associations and mutual holding companies and suggested a modification of the proposal to include a de minimis threshold trigger. The optional bylaw would disqualify an individual with an enforcement order against him or her from nominating or sitting on a board of directors. ABA noted that allowing institutions to make a choice to adopt the optional bylaw consistent with the statutes of their home or incorporating state gives savings associations an important tool in their efforts continually to earn and maintain customer and community trust.

Mutual Holding Companies
The MIC continues to explore new and innovative ways to maximize the flexibility of the mutual holding company charter by sharing cutting edge approaches while working to chip away at the hostility of certain banking agencies to dividend waivers. The MIC members have discussed the use of trust preferred securities for targeted transactions, acquisition issues with lines of business such as insurance or trust companies, and other practical and profitable uses of the holding company format.  ABA opposes and closely monitors proposals by minority shareholder/professional depositor groups that would change the corporate governance of OTS-chartered mutual holding companies and grant greater voting and other rights to minority shareholders. Due to the efforts of ABA and others, such a proposal was not included in the Financial Services Regulatory Relief Act of 2006. We will continue to monitor this issue.

Legislation and Regulatory Issues
ABA's support of the mutual charter includes working closely with state bankers associations to defeat state legislation that would harm mutuals, such as legislative proposals in past years in Massachusetts and Connecticut. Partnership with the state bankers associations in all 50 states, coupled with the ABA's state legislative resources, provides mutuals with effective advocacy nationally. The state efforts work "hand-in-glove" with federal efforts to streamline regulations and simplify rulemaking. The MIC continues to advise the ABA on regulatory streamlining issues for inclusion in ABA's comment letters to the federal banking agencies on the proposed rulemaking implementing the Regulatory Publication and Review Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996. Streamlining requirements for both mutual institutions (where specific to mutuals) and community banks will be a constant drumbeat in any ABA comment letters filed. 

The ABA's voice has been heard and will continue to be critical in any efforts to address unfair credit union competition and the NCUA's hostility to charter conversion (from tax exempt mutual to taxpaying mutual). The MIC members are proud of their tax support for community services, including schools, fire and police services, and roads and other improvements. The concerns and expertise of mutual institutions are reflected in filings with the NCUA, including the most recently adopted rule by the NCUA creating further difficulties, delays, and expense for credit unions trying to become mutual savings banks. In fact, ABA has several former credit unions as members and finds it important to help and to provide accurate information to those credit unions wishing to convert. ABA testified in support of the conversion bill sponsored by Congressman Patrcik McHenry (R-NC) that would simplify the credit union to mutual conversion process and limit the NCUA's authority to insert arbitrary and unpredictable requirements. In addition, ABA continues to support converting credit unions to mutual savings banks, including filing an amicus brief in litigation surrounding the conversion of two Texas credit unions. ABA's brief cogently refuted criticism of mutual savings banks and the OTS.

Contact for further information: Bob Davis (202) 663-5588