The FRB, the FDIC, the OCC and the Conference of State Bank Supervisors (collectively, the “Agencies”) issued an interagency statement entitled “Restrictions on Conversions of Troubled Banks”, (the “Interagency Statement”) on the implementation of Section 612 of the Dodd-Frank Act. According to the Agencies, the Interagency Statement should be read in conjunction with the FFIEC’s 2009 Statement on Regulatory Conversions. Section 612 prohibits the conversion of state-chartered banks and savings associations to national banks or federal savings associations, and vice versa, where the applicable banking institution is subject to a cease and desist order or memorandum of understanding concerning a significant regulatory matter. The Agencies have interpreted this provision to apply to all formal enforcement actions, (i.e., orders, agreements, directives or other documents). Section 612 does provide a limited exception to the general prohibition, although the Agencies expect that exceptions will rarely be granted.
Under Section 612, the conversion restriction does not apply where the following conditions all are met: (1) the Agency that would become the supervising agency (the “Prospective Agency”) provides the current supervising agency (the “Current Agency”) with written notification of the proposed conversion and the Prospective Agency’s plan to address the significant regulatory matter that is the subject of the enforcement action; (2) the Current Agency does not object to the proposed conversion or proposed plan; (3) the Prospective Agency agrees to implement the plan; and (4) where a final enforcement action is issued by a state attorney general, the proposed conversion is conditioned upon compliance with the terms of the final enforcement action. To facilitate any prospective conversion, the Agencies recommend that institutions contact the current and prospective state and federal chartering and banking authorities to discuss the proposed conversion prior to filing an application.
The Interagency Statement also discusses Section 612’s notification and information sharing requirements, most of which concern information sharing requirements between and among Agencies. For example, under Section 612(e)(2), the Current Agency is to notify the Prospective Agency of all investigations that may result in a formal enforcement action, and to provide access to all investigations and supervisory information. Of note to institutions, however, is the requirement to provide a copy of the conversion application to both the Current Agency and the Prospective Agency at the time that the application is filed with the chartering authority.