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August 14, 2003

S. Alan Rosen, Esq.
Horgan, Rosen, Beckman & Coren
Suite 200
23975 Park Sorrento
Calabasas, California 91302-4001

Dear Mr. Rosen:

This is in response to the request by Valley Independent Bank, El Centro, California ("VIB"), for an exemption from section 23A of the Federal Reserve Act in order that VIB may acquire certain assets from the New York branch of Cooperatieve Central Raiffeisen-Boerenleenbank, B.A., Utrecht, The Netherlands ("Rabobank"), a commercial bank that acquired VIB in December 2002. VIB is a subsidiary of Rabobank, and thus the New York branch of Rabobank is an affiliate of VIB for purposes of section 23A of the Federal Reserve Act.1 VIB has requested an exemption to acquire up to [amount redacted] in agricultural loans from the New York branch.

Section 23A limits the amount of "covered transactions," which include loans and purchases of assets, between a bank (and its subsidiaries) and any single affiliate to 10 percent of the bank's capital stock and surplus, and limits the aggregate of all covered transactions between a bank (and its subsidiaries) and all its affiliates to 20 percent of the bank's capital stock and surplus. VIB's acquisition of the New York branch's loans is covered by section 23A.2 VIB's capital stock and surplus totaled approximately $136.9 million as of June 30, 2003.

Section 23A specifically authorizes the Board to exempt purchases of real or personal property and to exempt "at its discretion [other]. . . transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section."3 The Board has approved exemptions in similar cases for one-time transfers that are part of a corporate reorganization and that are structured to ensure the quality of the transferred assets.4 As in previous cases reviewed by the Board, the proposed transaction in this case is a by-product of a one-time corporate reorganization. Rabobank is restructuring its U.S. agricultural banking business as a result of its acquisition of VIB. According to Rabobank, the proposed acquisition would allow VIB to enhance its earnings and provide the foundation for the new agricultural lending department at the bank.

VIB and Rabobank also have made the following commitments that the Board has accepted in similar exemption requests:

  1. None of the assets of the New York branch that VIB will purchase will be "low-quality" within the meaning of section 23A of the Federal Reserve Act or Regulation W.5
  2. Before acquiring the assets of the New York branch, VIB will review the assets to ensure that the transaction is consistent with safe and sound banking practices.
  3. At the end of each calendar quarter for two years after the date of any transfer, Rabobank will repurchase at the then current book value plus any write-downs taken by VIB, any transferred assets that are "low-quality" assets as of the last day of that quarter.
  4. Before the purchase of the assets, the majority of the directors who serve on VIB=s board of directors and who are not affiliated with Rabobank will review and approve the purchase of assets.

In addition, VIB will exceed all capital guidelines to which it is subject and will meet the requirements for designation as "well capitalized" under the prompt corrective actions standards of the Federal Deposit Insurance Corporation ("FDIC").

In light of these considerations and all the facts you have presented, the transaction appears to be consistent with safe and sound banking practices and on terms that would ensure the quality of the assets transferred. In addition, the Board has contacted the FDIC, which has not objected to the proposal. Accordingly, the transaction appears to be consistent with the purposes of section 23A, and the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel, hereby grants the requested exemption.

This determination is specifically conditioned on compliance by Rabobank and VIB with all the commitments and representations they made in connection with the exemption request. These commitments and representations are deemed to be conditions imposed in writing in connection with granting this request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific circumstances surrounding this transaction and may be revoked in the event of any material change in those circumstances or any failure by Rabobank or its subsidiaries to continue to observe any of their commitments. This action does not represent a determination concerning the permissibility of any other transactions that are subject to section 23A or concerning any other affiliates of VIB.

Sincerely yours,

(Signed) Robert deV. Frierson

Robert deV. Frierson
Deputy Secretary of the Board

cc: Federal Reserve Bank of San Francisco
 Federal Reserve Bank of New York
 Federal Deposit Insurance Corporation


Footnotes

1. 12 U.S.C. 371c(b)(1)(A). Return to text

2. 12 U.S.C. 371c(b)(7)(C). Return to text

3. 12 U.S.C. 371c(b)(7)(C) and 371c(e)(2) (emphasis added). Return to text

4. See Travelers Group Inc., 84 Federal Reserve Bulletin 985, 1013-14 (1998); Letter dated November 14, 1996, from William W. Wiles to John Byam; Letter dated April 19, 1988, from James McAfee to Timothy C. Roach, Esq.; Letter dated August 6, 1987, from William W. Wiles to Timothy McGinnis. Return to text

5. 12 U.S.C. 371c(b)(10) and 12 CFR 223.2(v). Return to text

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