Garn-St Germain Depository Institutions Act of 1982 (Pub.L. No. 97-320,96Stat. 1469(1982) (codified in various sections of 12 USC)
Designed primarily to enable the deposit insurance agencies to adequately respond to the potential collapse of the thrift industry, has had long term effects on banking powers, products, competition, and state authority to regulate banking activities.
Section by Section summary:
Title I, entitled the Depository Insurance Flexibility Act( see 12 USC§226 note(1982) broadened the FDIC, FSLIC, and NCUA’s powers to include making loans to, deposits in, purchasing assets, securities, or assuming liabilities of open or closed insured institutions. Authorized extraordinary acquisitions, preempting any state or federal law, with state regulator objections subject to override by a unanimous vote of the board of the appropriate federal agency. In extraordinary acquisitions, priority was to be given to similar in state, similar out of state, different in state, different out of state acquiring institutions. (codified at 12 USC§§ 1823(c), 1729(c)-(f), 1823(f)(4)(i),1730a(m)(1)(A)(i), 1823(f)(2)(A), 1730a(m)(1)(A)(i),1823(f)92)(B), and1730a(m)(1)(B), 1823(f)(6)(b), and1730a(m)(3)(B)).
Title II, the Net Worth Certificate Act(see 12 USC §1811 note(1982), authorized capital assistance to depository institutions with earnings and capital losses primarily as a result of mortgage lending activities. Authorized issuance of net worth certificates to the FDIC and FSLC for promissory notes, which could be treated as net worth for all statutory and regulatory purposes. 12USC § 1729f (5)(E)).
Title III, the Thrift Institutions Restructuring Act (12 USC §1461 note(1982),gave new investment powers to federal thrifts to improve their ability to generate earnings to sustain growth of capital needed for future operations. Authorized thrifts to gather deposits from a greater range of customers, and to make nonresidential and commercial loans. The money market deposit account, intended to compete with money market mutual funds, was authorized. Federal thrifts were given more chartering options and the ability to issue stock. State laws restricting the enforcement of due on sale clauses were preempted on loans secured by real property. (Codified at 12 USC §§ 1464(b)(1), 1464(c)(1)(B), 1464(c)(1)(R), 3503(c)(1), 1464(a),(b), 1725(j),1464(b)(2),and 1701j-3).
Title IV expanded laws affecting national and member banks, by expanding national bank’s lending limits, made extensive revision of Section 23 A of the Federal Reserve Act regarding transactions between affiliates( Banking Affiliates Act of 1982), revised powers of national banks to make real estate loans, authorized banker’s banks, and amended insider loan, and management interlocks provisions. (codified as amended in various sections of 12 USC, and 12 USC §§ 84(a),371c,371,92, 24(seventh), 27, 1818 (b),1841(c), and 3208).
Title V amended the Federal Credit Union Act, providing greater operating flexibility to federal credit unions and the NCUA.
Title VI revised restrictions on insurance activities of bank holding companies and their nonblank subsidiaries, but also provided exemptions from those restrictions (codified at 12 USC § 1843 (c)(8).
Title VII enacted miscellaneous provisions, including making industrial banks eligible for FDIC insurance, limited grandfather rights for foreign banking organizations, clarified that NOW accounts may be offered to state and local governments, removed certain restrictions of the issuance of preferred Stock and subordinated debt by Fannie Mae, provided for the phase in of reserve requirements for certain banks, and rewrote the Bank Service Corporation Act. (codified at 12 USC §§ 1813(a), 3106(c), 1832 (a) (2), 1785(f) (2), 1718, 1719, 461(b)(8)(D), and 1862).
Title VIII, the Alternative Mortgage Transaction Parity Act ( codified at 12 USC § 3801-3805), by authorizing all housing creditors to engage in alternate mortgage transactions, was intended to establish parity between federal and state chartered housing creditors, by expressly preempting more restrictive state laws, by affirming the right of any housing creditor to offer loans secured by interest in real property.
Why It Is Still Relevant:
- Source of FDIC’s virtually complete authority to resolve failing insured institutions whether state or federally chartered
- Expanded thrift deposit taking and loan authority beyond original purposes
- Authorized money market accounts across institution types and state lines
- Preempted state laws that prevented enforcement of “due on sale” clauses in loans secured by real property
- Expanded national and member bank lending limits
- Authorized banker’s banks
- Expanded limits on insider loans and management interlocks
- Limited and expanded authority for insurance activities of banks
- Authorized industrial banks to obtain FDIC insurance
- Expanded authority of Fannie Mae to issue equity and debt
- Preempted state laws restricting rights of state and federal housing creditors to offer loans secured by security interest in real property