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CITIBANK v. FDIC

October 5, 1993

CITIBANK, FEDERAL SAVINGS BANK, 180 Grand Avenue, Oakland, CA 94604-2082, Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 17th Street, N.W., Washington, D.C. 20429, Defendant.



The opinion of the court was delivered by: STANLEY SPORKIN

 Plaintiff Citibank, Federal Savings Bank, located in California ("Citibank-Cal"), brought this action against defendant Federal Deposit Insurance Corporation ("FDIC") alleging that the FDIC wrongfully withheld a portion of Citibank-Cal's share of the "secondary reserve" maintained by the FDIC. In its complaint, Citibank-Cal claims that as a result of a merger executed on October 26, 1990 involving itself, Citibank, Federal Savings Bank, Illinois ("Citibank-Ill") and Citibank, Federal Savings Bank, District of Columbia ("Citibank-D.C."), Citibank-Cal as the surviving entity acquired the rights to the "secondary reserve" held by Citibank-Ill and Citibank-D.C. Plaintiff asserts that the defendant's refusal to acknowledge the transfer to Citibank-Cal the interest in the "secondary reserve" formerly held by Citibank-Ill and Citibank-D.C. violates the Federal Deposit Insurance Act ("FDIA") and the "takings" clause of the Fifth Amendment to the United States constitution.

 Background

 Until 1962, the Federal Savings and Loan Insurance Corporation ("FSLIC") insured deposits in FSLIC member institutions by means of a single insurance fund which was funded by annual premium payments by the member institutions. In 1961, Congress, concerned that the fund might prove inadequate to cover potential losses, directed FSLIC to establish a "secondary reserve" to be funded by pre-payments by insured savings and loan institutions. The "secondary reserve" was intended to be used by FSLIC to the extent that other accounts of FSLIC maintained to cover losses proved insufficient. The contributing institutions retained a property interest in the shares of the "secondary reserve" and received interest on their contributions. FSLIC maintained separate accounts for each thrift institution's share of the secondary reserve and issued an annual statement to each institution detailing both its share and accrued interest. Insured savings and loan institutions made payments to the "secondary reserve" from January 1, 1962 until Congress eliminated the requirement on August 16, 1973.

 In May 1987, FSLIC announced that the secondary reserve had been used to cover FSLIC's 1986 losses. That announcement prompted protests from affected institutions. In response, the Federal Home Loan Bank Board ("FHLBB"), the agency that had oversight responsibility for FSLIC, proposed legislation to reinstate the insured savings and loan institutions' interests in the secondary reserve. In the Competitive Equality in Banking Act of 1987 ("CEBA"), Congress restored the "secondary reserve." CEBA provided more than $ 10 billion to recapitalize the FSLIC, of which approximately $ 800 million was dedicated to restore the "secondary reserve." CEBA also allowed an insured institution to offset its interest in the secondary reserve against future insurance premiums assessed against the institution. When Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") FSLIC's insurance functions were transferred to the FDIC which gained custody and control of the "secondary reserve."

 Facts

 On October 26, 1990, Citibank-Cal, Citibank-Ill, and Citibank-D.C. executed a merger agreement under which Citibank-D.C. and Citibank-Ill merged into Citibank-Cal. The Office of Thrift Supervision approved the application on December 28, 1990 and the merger became effective on December 31, 1990. As of the date of the merger, Citibank-D.C.'s share of the "secondary reserve" was $ 1,182,999.50 and Citibank-Ill's share was $ 2,399,290.90. Although Citibank-Cal had a separate interest in the "secondary reserve," its claim in this case relates to the interests of its two related entities, which total $ 3,582,290.40.

 The insurance premium paid by an FDIC member institution is a percentage of the thrift's total deposits less any "secondary reserve" credit. The FDIC bills member institutions for insurance premiums by sending each institution a semi-annual statement called a preliminary certified statement which shows the insured institution's "secondary reserve" credit. Insured institutions receive a preliminary certified statement in January and July of each year.

 Discussion

 The governing sections of the FDIA in this dispute are sections 7(m)(4) and 7(m)(5). 12 U.S.C. §§ 1817 (m)(4) and 1817 (m)(5). Section 7(m)(5)(A) provides:

 
[If] the status of any savings association as an insured depository institution is terminated pursuant to any provision of Section 8 or the insurance of accounts of any savings association institution is otherwise terminated . . . the Corporation [FDIC] shall pay in cash to such institution its pro rata share of the secondary reserve, in accordance with such terms and conditions as the Corporation may prescribe . . . Such payment or such application need not be made to the extent that the provisions of the exception in paragraph (4) are applicable.

 12 U.S.C. § 1817(m)(5). Thus, FDIC's duty to pay to an insured savings association, in cash, the institution's pro rata share of the "secondary reserve" is triggered by any event which terminates either that institution's status as an insured institution or its insurance of accounts. Section 7(m)(4) of the FDIA, ...


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