The federal banking agencies, in conjunction with the Conference of State Bank Supervisors, have issued guidance to explain the procedures that the agencies will follow to implement Section 612 of the Dodd-Frank Act, which places restrictions on certain bank charter conversions. As explained in the Interagency Statement on Section 612 of the Dodd-Frank Act Restrictions on Conversions of Troubled Banks, released on November 26, Section 612 of the Dodd-Frank Act generally prohibits charter conversions by a national bank, state bank, or federal or state savings association while the institution is subject to a cease and desist order (or other formal enforcement order) issued by, or a memorandum of understanding entered into with, its current federal banking agency or state bank supervisor with respect to a significant supervisory matter (collectively referred to as a “significant enforcement action”). The agencies interpret Section 612 to cover all formal enforcement actions—orders, agreements, directives, or other documents—that are enforceable under Section 8 of the Federal Deposit Insurance Act (or the equivalent in the case of actions by a state bank supervisor). For state banks and state savings associations that wish to convert to a national bank, the charter conversion is also prohibited if the state bank or state savings association is subject to a final enforcement action by a state attorney general. The statute contains an exception to the prohibition that permits approval of a charter conversion if certain specified conditions are satisfied.

Nutter Notes: The guidance on Section 612 of the Dodd-Frank Act discusses notice and information-sharing requirements between an institution’s current and post-conversion federal banking regulators. Section 612 provides that, at the time an insured depository institution files a conversion application with the prospective chartering authority, the institution must also send a copy of the conversion application to both its current federal banking agency and its prospective federal banking agency. In cases when a proposed conversion would be subject to the prohibition in Section 612, the prospective federal banking agency will determine whether to consider an exception and inform the institution, the current federal banking agency and, if applicable, the state bank supervisor. The prospective federal banking agency may request additional information from the current federal banking agency and, if applicable, state bank supervisor. Once the prospective federal banking agency determines that a conversion is acceptable, it will develop a proposed plan to address the significant supervisory matter in a manner that is consistent with the safe and sound operation of the institution and submit it to the current federal banking agency and, if applicable, state bank supervisor. The current federal banking agency or state bank supervisor that issued the enforcement action will have 30 days after receipt of the plan to object to the conversion or the plan. If the current federal banking agency or state bank supervisor objects, the conversion remains prohibited. If the current federal banking agency or state bank supervisor does not object, the conversion is not prohibited, provided the other requirements in Section 612 are satisfied.