The FRB recently approved a request made by The Northwestern Mutual Life Insurance Company (“Northwestern”) to deregister as a savings and loan holding company (“SLHC”) pursuant to Section 604(i) of the Dodd-Frank Act. This provision amended the Home Owners’ Loan Act to exclude from the definition of SLHC a company that controls a savings association that functions solely in a trust or fiduciary capacity in the manner contemplated by Section 2(c)(2)(D) of the Bank Holding Company Act (the “BHC Act”). Under FRB guidance, an SLHC that controls only one savings association subsidiary that meets this requirement may seek deregistration by submitting an application to the FRB. To qualify as an institution engaged solely in trust or fiduciary activities under Section 2(c)(2)(D) of the BHC Act, (1) all or substantially all of the deposits of the institution must consist of trust funds received in a bona fide fiduciary capacity; (2) no deposits of the institution which are insured by the FDIC may be offered or marketed by or through an affiliate of the institution; (3) the institution may not accept demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others or make commercial loans; and (4) the institution may not obtain payment or payment-related services from any Federal Reserve Bank or exercise discount or borrowing privileges.
The FRB’s approval of Northwestern’s request is notable because it appears to be the first such deregistration request approved pursuant to Section 604(i) of the Dodd-Frank Act and because the commitments provided by Northwestern as described in the FRB approval letter suggest that an institution may disregard the amount of deposits needed to maintain deposit insurance for purposes of determining whether all or substantially all of its deposits consist of trust funds. Prior FRB guidance has suggested that at least 99% of an institution’s deposits must consist of trust funds in order to meet this standard, but FDIC regulations require insured depository institutions to maintain at least $500,000 in non-trust deposits to maintain federal deposit insurance. Unlike state trust companies, which may operate without deposit insurance depending upon state law, the OCC (as did its predecessor with respect to regulating savings associations, the OTS) requires federal savings associations to maintain federal deposit insurance even if they otherwise limit their business to engaging only in trust activities.