FDIC Board Sends Staff A Policy 'Reminder': June Memo Asserts Authority on "Matters of ... Significance"

By Adler, Joe | American Banker, July 5, 2007 | Go to article overview

FDIC Board Sends Staff A Policy 'Reminder': June Memo Asserts Authority on "Matters of ... Significance"


Adler, Joe, American Banker


WASHINGTON -- The Federal Deposit Insurance Corp. issued a private memo to its staff members to rein in their authority to make decisions without consulting the agency's board first.

The board approved the memo, a copy of which was obtained by American Banker, in a resolution at a closed-door board meeting June 19 and sent it to the agency's top executives two days later. The memo seems aimed at giving the board a stronger hand in controlling matters that could be controversial or would establish a precedent.

"It is ... important that staff understand their obligation to consider the board's retention of authority over matters of such corporate significance as described in the resolution, even as to matters where authority may exist under an existing delegation," FDIC Chairman Sheila Bair wrote in a cover letter to department heads.

At issue is the board's delegation of authority, in which staff members routinely approve applications and other measures without consulting the board. An FDIC spokesman downplayed the memo, saying it is "just a reminder" of procedures staff members already follow, but observers said it was likely an attempt to ensure the staff was not making a decision that could come back to haunt the agency.

"They don't want something to kind of sneak under the radar and find out about it later," said John Douglas, a former FDIC general counsel and now a partner in the Atlanta office of Paul, Hastings, Janofsky & Walker LLP.

In the memo, which Ms. Bair called a "major matters" resolution, the board reserves the right to consider all issues that would affect FDIC policy. "The board hereby reserves to itself consideration of matters which would establish or change existing corporation policy, could attract unusual attention or publicity, or would involve an issue of first impression," the memo said.

David Barr, an FDIC spokesman, said that he was not aware of an incident that precipitated the board's action, and that the staff already knows to defer to the board on major issues.

"Nobody has given me anything that says there is a cause and effect," Mr. Barr said. "Staff was already doing that. For them, this resolution is pretty much going to be business as usual."

But the FDIC is increasingly in the policy spotlight - and staff members have used delegated authority to make some controversial calls. The most notable one was in 2004, when Target Corp.'s application to own an industrial loan company in Utah was approved at the staff level. The application, like the vast majority of deposit insurance applications for a bank charter, was never considered by the board, and the decision was not widely publicized at the time.

It may have stayed that way had Wal-Mart Stores Inc., a Target competitor, not applied a year later to own an ILC in Utah. That application (which was withdrawn four months ago) became the center of a controversy over whether commercial firms should be able to own a bank.

Supporters of Wal-Mart's bid argued that the FDIC had no reason to deny the Bentonville, Ark., retailer's application, noting that it was similar to Target's. However, rather than treating the Target decision as a precedent, the FDIC discussed the Wal-Mart matter at the board level, and in January it extended a ban for one year on applications by commercial firms to purchase an ILC.

The board also said it no longer would consider ILC applications under delegated authority - even those from financial firms. Since January it has said all ILC applications must be approved at the board level.

Many industry observers said the FDIC was acting appropriately in seeking to ensure the board vetted all major issues before a decision was made. …

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