Federal Deposit Insurance Corporation FDIC Banking Review 1997 FederalVol. 10, No. 1 FederalFederalCharter FederalFederalCharterCharterA Unified Federal Charter FFederalFederalederalStatistical Sampling as a Management Tool CharterCharterFederalRecent Developments ChartCharterCharterer FDIC Banking Review FDICFDIC BankingBanking ReviewReview 19971997 Vol. 10, No. 1 ChairmanChairman Ricki Helfer Division of Research AA UnifiedUnified FederalFederal CharterCharter forfor BanksBanks andand SavingsSavings Institutions and Statistics, DirectorDirector by FDIC Staff Page 1Page 1 Wm. Roger Watson Deputy Directors This stafstaff study addresses the issues concerning the proposal to establish a single Barry Kolatch Steven A. Seelig federal charter for banks and savings associations. The study discusses the EditorEditor difdifferences in the powers of banking ororganizations and thrift ororganizations. It also Steven A. Seelig reviews the ararguments and evidence for and against a unification of the federal Editorial Committee Jack T. Reidhill charters for depository institutions. Detta Voesar Managing Editor Detta Voesar Statistical Sampling as a Management Tool in Banking Editorial Secretary Cathy Wright by Charles D. Cowan Page 17Page 17 Design and Production Geri Bonebrake The author describes the use of sampling in a financial setting and focuses, as an illustration, on some of the methods used by the FDIC to value assets in The views expressed are liquidation. By using sampling, as opposed to valuing each asset, significant cost thosethoseofofthethe authorsauthors andand dodo notnotnecessarilynecessarily reflectreflect offi-offi­ savings are achieved while ensuring the accuracy and quality of the results. cialcialpositionspositions ofof thethe FederalFederal DepositDepositInsuranceInsurance Corpora-Corpora­ tion. Articles may be rere­- printedprintedoror abstractedabstracted ifif thethe FDIC Banking Review and Recent Developments Affecting Depository Institutions author(s)author(s) areare credited.credited. PleasePleaseprovideprovide thethe FDIC'sFDIC's by Vby Valentine Valentine V.. CraigCraig Page 24Page 24 Division of Research and StatisticsStatisticswithwith aa copycopy ofof anyany This regular feature of the FDIC Banking Review contains information on regula­regula- publications containing rere­- printed material. tory agency actions, state legislation and regulation, and articles and studies perti­perti- Single-copy subscriptions nent to banking and deposit insurance issues. are available to the public freefreeofofcharge.charge. RequestsRequests forfor subscriptions, backback issuesissues oror address changes should be mailedmailedto:to:FDICFDIC BankingBanking Re-Re­ viewview,, Office of Corporate Communications, Federal DepositDepositInsuranceInsurance Corpora-Corpora­ tion,tion,550550 17th17th Street,Street, N.W.,N.W., Washington, DC 20429.20429. A Unified Federal Charter A Unified Federal Charter for Banks and Savings Associations A Staff Study his article addresses the issues tem and the depository institu­ consist of federal savings associa­ concerning the proposal to es­ tions within the system; tions,1 which are regulated by the Of­ Ttablish a single federal charter � strengthen the efficiency and fice of Thrift Supervision (OTS), and for banks and savings associations. It competitiveness of the U.S. bank- national banks, which are regulated is an FDIC staff study and was ing system in financial markets; by the Office of the Comptroller of originally published by the FDIC in � support reliance on market-based the Currency (OCC). Their respec­ October of 1996. Following the intro- incentives to guide depository in­ tive holding companies are savings­ duction, the differences in the powers stitution choices on strategies and and-loan holding companies, which of banking organizations and thrift business activities for meeting are under the jurisdiction of the organizations are summarized, and customer needs; OTS, and bank holding companies, data are presented on the various � reduce the current regulatory bur- which are regulated by the Federal categories of organizations. The next dens and supervisory costs on in- Reserve Board (FRB). section reviews the arguments and sured institutions and/or the cus- Federal savings associations have evidence for and against a unification tomers of those institutions; historically enjoyed four distinct of the federal charters for depository � advantages not accorded national institutions. The final section as­ provide flexibility for insured in- stitutions to respond to changes in sumes the decision is to unify the banks. These advantages were: (1) market conditions, technology, charters and considers the issues that preferential taxation; (2) the most and customer financial needs; would then have to be resolved. It liberal branching rights of all federal should be noted from the start, this � increase depository institutions’ depository institutions; (3) expanded review does not include the possible efficiency and/or effectiveness subsidiary powers; and (4) virtually expansion of powers beyond those in meeting specific, legislated, unlimited holding company activi­ currently exercised by either the public-policy goals; and ties. However, the magnitude of banking or thrift industries. Rather, � increase public access to banking these thrift advantages has dissipated the review is limited to powers that services. over time, and with enactment of the one or the other of the two industries Small Business Job Protection Act on currently possess. Major Differences Between Federal Savings 1 Technically, there are two distinct federal The analysis contained in this thrift charters, a federal savings-and-loan study flowed from seven broad princi­ Associations and association charter and a federal savings ples. Any prospective change needed National Banks bank charter. With the very limited excep­ tion of mutual state-chartered savings banks to: Federally chartered depository in- that convert to a federal savings bank char­ � strengthen the safety and sound­ stitutions insured by the Federal De­ ter, the two have identical powers and are re­ ferred to collectively in this paper as savings ness of the deposit insurance sys- posit Insurance Corporation (FDIC) associations. 1 FDIC Banking Review August 20, 1996, the preferential tax In general, loans secured by nonresi­ be counted as qualifying assets. It treatment for thrifts has been elimi­ dential real estate may not exceed 400 also provided that an institution that nated. percent of capital. Commercial loans qualifies as a domestic building-and­ Balanced against the historical may not exceed 20 percent of assets, loan under the Internal Revenue benefits accruing to federal savings and amounts in excess of 10 percent Code is considered a qualified thrift associations, national banks have en­ must be used for small-business lender. (See footnote four.) joyed the ability to engage in a much loans. Unsecured residential con­ Failure to meet the QTL test has wider range of lending activities. struction loans may not exceed the several consequences. Probably the National banks were subject neither greater of 5 percent of assets or 100 most significant is that a holding to an enforced orientation toward a percent of capital. In combination, company owning a nonqualifying particular area, such as real-estate fi­ consumer loans, commercial paper savings institution is required to reg­ nancing, nor to specific asset-type and corporate debt securities may not ister as a bank holding company. lending constraints. National banks exceed 35 percent of assets. The activities of bank holding com­ may focus on a particular area of lend­ In order to receive many of the panies are significantly more limited ing and investment if they desire, but special benefits of a thrift, an institu­ than are the activities of most they are not forced to. tion must pass the qualified thrift savings-and-loan holding companies. lender (QTL) test, which requires A later section of this report summa­ This section explores the major ar­ rizes the differences in powers of eas where savings associations and na­ that at least 65 percent of an institu­ tion’s portfolio assets be qualified bank and savings-and-loan holding tional banks are treated differently. companies. Other consequences of (For a more detailed comparison of thrift investments, primarily residen­ tial mortgages and related invest­ failure to meet the QTL test are re­ their differences, a table prepared by ments. The Economic Growth and stricted access to Federal Home the OCC and the OTS can be made Regulatory Paper Reduction Act of Loan Bank (FHLB) financing and available upon request from the Divi­ 1996, enacted on September 30, 1996, accelerated repayment of outstand­ sion of Research and Statistics of the somewhat relaxed the QTL test by ing FHLB advances. FDIC). expanding the list of qualified invest­ At the end of 1995, 98 percent of ments to include small-business 1,437 savings associations met the Lending Constraints loans, and by increasing the amount QTL test. (As stated above, the test Federal savings associations2 per­ of consumer-oriented loans that can has since been relaxed.) The greatest form a similar financial intermedia­ tion function to that of commercial Table 1 banks. However, savings-and-loan Savings Institutions associations have a distinct focus from Data as of December 31, 1995 that of banks—the provision of home QTL Test Compliance Distribution mortgage credit. The laws promul­ Savings