Understanding the Grandfather Exception [Banks & Banking]: Key Insights
Definition & Meaning
The grandfather exception is a legal provision that allows a newly merged financial institution to retain the status of an established institution if the merger agreement was signed on or before July 11, 2006. This means that the new entity can benefit from certain regulatory advantages typically afforded to established institutions, rather than being treated as a new institution subject to different rules and assessments.
Legal Use & context
This term is primarily used in the context of banking and financial regulations. It is relevant in assessing how mergers and acquisitions are treated under federal law, particularly regarding deposit insurance assessments by the Federal Deposit Insurance Corporation (FDIC). Understanding the grandfather exception can be crucial for financial institutions navigating mergers, as it can impact their regulatory obligations and financial assessments.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A new bank, Bank A, merges with an established bank, Bank B, and the merger agreement was signed on July 1, 2006. As a result, Bank A is considered an established institution under the grandfather exception.
Example 2: A new financial institution, Credit Union C, merges with an older credit union, Credit Union D, with the merger agreement dated June 15, 2006. Credit Union C can operate as an established entity due to the grandfather exception.
Relevant laws & statutes
The grandfather exception is defined under 12 CFR 327.8, which is part of the regulations set forth by the FDIC concerning assessments for deposit insurance. This regulation outlines how mergers involving new and established institutions are treated for assessment purposes.